Politics

Conflict over health benefit deductibles

For more than ten years employers have been pushing (today forcing) workers into high deductible health plans. Employers were told that one cause of high health care costs was a lack of concern on the part of patients; no skin in the game so to speak. After all, if you satisfied a modest deductible, why even think about future costs?

What high deductibles do, of course, is shift costs to the users of health care while lowering premiums for the majority of the insured population. There is a certain logic in that … until the deductible becomes a serious financial burden which is the situation now in many cases.

In 2015 this logic caught the attention of Congress and it passed the Medicare Access and CHIP Reauthorization Act. On or after January 1, 2020 Medigap plans that pay for the Part B deductible are not available to a newly eligible Medicare beneficiary. This includes Plan C and F. As you may suspect, C and F are typically the most expensive plans premium wise.

So, it seems clear to the people who foot most of the bills for health care that patients will care more about what they spend if they use more of their own money.

In 2019 that seems no longer true. The two major proposals from Sen Sanders and Rep. Pramila Jayapal for a universal health plan eliminate not only deductibles, but also cost sharing co-payments. It’s like no amount of money spent on health care should be part of one’s living expenses.

Why won’t removing any concern for costs encourage more use of services? Why won’t the vast majority of Americans pay more via taxes because of such a strategy?

Under this new philosophy about paying for health care, how will spending be managed? Keep in mind there are two components to these costs, the price of each service provided plus the number (and type) of services provided.

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2 replies »

  1. The answer to your question is already part of Medicare – income based premium surcharges. Expect to see an expansion in the Clinton and Obama changes to broaden the base regarding Medicare Part A taxes (FICA-MED) – Clinton removed the wage base cap in 1993 and Obama added a Medicare surtax as part of Health Reform in 2010.

    Also expect to see even greater taxes and surcharges on Social Security benefits – a la the 1983 offset for those receiving government pensions and the income tax on Social Security benefits themselves. Some future Congress may include an offset for private pensions or income received from tax-preferences savings programs like 401(k)’s and IRAs.

    Don’t forget, Social Security taxes (FICA and FICA-Med) are made with after-tax dollars (after federal and state and local income taxes have been collected). So, when Congress started to take taxes on Social Security in 1983, the rationale that people were receiving Social Security benefits tax free was a myth. In the future, expect to see new income-tax surcharges on Social Security benefits.

    Bottom line, directly through adjustments in benefits or indirectly through increased taxes, both Social Security and Medicare will look more and more like welfare programs.

    Giving the funded status of the already-promised Social Security and Medicare, this is almost unavoidable:

    See: Chris Conover: https://www.forbes.com/sites/theapothecary/2019/01/31/two-inescapable-reasons-americas-entitlements-crisis-is-way-worse-than-advertised/#d69fc175d062

    and

    Chris Conover: https://www.forbes.com/sites/chrisconover/2012/12/03/aarp-lobbies-for-100000-plus-medicare-subsidy-for-seniors/#5cda85aa6bdd

    and

    Eugene Steuerle, et al. https://www.urban.org/research/publication/how-do-lifetime-social-security-benefits-and-taxes-differ-earnings

    Note that Mr. Steuerle confirms that this analysis should not be considered to be a “moneys worth” comparison of taxes and benefits. In fact, “Our benefit is what we contribute to our parents’ generation; that doesn’t create an entitlement to what we get from our children, particularly when we have fewer of them to cover the pay-as-you-go costs.” In other words, with the “pay as you go” (for the most part) funding structure of Social Security and Medicare, OUR BENEFIT IS NO MORE THAN THE SUPPORT WE PROVIDED TO THE GENERATIONS OF AMERICANS WHO PRECEDE OUR OWN (THE BENEFIT TO US IS LIMITED TO THE INCOME AND WEALTH TRANSFER WE MADE TO PRECEDING GENERATIONS). THE BENEFITS WE MAY SOMEDAY RECEIVE ARE IN NO WAY A FUNCTION OF WHAT WE OURSELVES CONTRIBUTED. THERE IS NO CONTRACTUAL COMMITMENT. .

    Today, the Social Security benefit is a function of the wages we earned and paid taxes on, however, the larger component in determining the benefit you will actually receive is the “progressive” benefit formula with bend points. Interestingly, nothing stops Congress from changing that formula at any time, or capping the benefit at a lower level – there is no contractual commitment.

    Similarly, Medicare benefits have no relationship in any way to the taxes paid. Take an individual who was born in 1955, who graduated from college in 1977, and worked part time in 1978 through 1987 (40 quarters of coverage at the minimum level). Assuming he never paid in another dollar (spent the rest of his life on welfare, was the dependent of someone, worked as a preacher who was not subject to social security and Medicare, etc.), he still earned non-contributory Medicare Part A hospital coverage starting in 2020, and continuing for the rest of his life, after paying only $204.16 in FICA-Med taxes during the 40 quarters starting January 1, 1978 through December 31, 1987! Yet, again, nothing stops Congress from prospectively changing Medicare Part A to incorporate a premium for those beneficiaries who have higher incomes. That is, the income based surcharges for Medicare Part B and Part D have no relationship to the Medicare Part A taxes you paid (FICA-MED), either!

    That is, Americans really do misunderstand that they did not earn, nor pay for, the benefits they themselves will receive, but that whatever we receive, it is from the “grace”, the willingness of generations to come and their ability and desire to support us in our old age (and of course Congress’ willingness to tax current taxpayers to fund those “promises”). It is also why such programs must be mandatory, because there is no “money’s worth” calculation here – no way to justify to today’s taxpayers that they will receive the benefits they “earned” (except, of course, by lying to them or allowing them to believe the myth that today’s beneficiaries are receiving what they earned, paid for, etc.!

    Bottom line, you better be nice to your own children and everyone else’s children if you plan to be or end up dependent on Social Security and Medicare benefits in your old age.

    Liked by 1 person

  2. I like the PJ O’Rourke quote “if you think healthcare is expensive now – just wait until it’s free.”

    My understanding is that HMOs have (or had – not too many around now, I think) small co-pays ($5 or so) to keep people from overutilizing their services. It’s hard to believe that this small amount would keep someone from obtaining necessary care, but there are people who will drive well out of their way to avoid paying a modest toll – so maybe it is correct.

    Like

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