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Pitfalls of the Patient Protection and Affordable Care Act for Montanans

“If you think health care is expensive now, wait until you see what it costs when it’s free.”    

  – P.J. O’Rourke

By Glenn Oppel, MPI Policy Director

The Patient Protection and Affordable Care Act (PPACA) was signed by President Barack Obama on March 23, 2010. If and when it is completely implemented, the ACA stands to radically change the landscape of the health care market and drive federal and state governments deeper into debt in the middle of the Great Recession.

Fundamental Threat to Liberty

The ACA will rewrite the relationship between the people and their government. It amounts to a violation of individual liberty by compelling individuals to consume a product while financially penalizing them if they fail to comply. If the ACA survives constitutional scrutiny it will open the door for the federal government to exercise increasing control over the economic decisions of Americans.

Unpopular

A June 2012 New York Times/CBS News Poll of 976 adults showed that 68 percent of them hope that the U.S. Supreme Court overturns the law. As for Montanans, a December 2010 poll of 600 Montana voters commissioned by the Montana Chamber of Commerce found that 60 percent opposed the federal health care reform. Interestingly, the same survey found that the top “financial or pocketbook concern” of Montanans was overwhelmingly “health care costs.” Obviously, Montanans do not see the ACA as a solution to the number one concern affecting their finances.

False Promises of Universal Coverage

Individual Mandate: Although the centerpiece of the ACA, how young and healthy individuals respond to the mandate presents a major problem that will undermine the intended purpose. Many young and healthy individuals will opt to pay the penalty rather than obtain coverage for the simple fact that the penalty is less of a financial burden. This is exactly what happened in Massachusetts after passage of that state’s health care reform, which, ostensibly, the ACA is patterned after. Health insurance plans rely on participation from the young and healthy in order to achieve actuarial soundness and, therefore, affordability and profitability.

Employer Mandate: Although the employer mandate has the same purpose as the individual mandate – universal health insurance coverage – it also will have unintended consequences that will defeat its purpose. Employers will be inclined to drop health insurance benefits for their employees because it is less expensive to pay the ACA’s penalty of about $2,000 per worker. The penalty costs are modest compared to providing health care for an employee. Furthermore, the ACA amounts to a federally mandated increase in the cost of hiring new employees. When the nation’s unemployment is hovering over 8 percent and Montana’s over 6 percent, the timing of the ACA’s negative impact on job creation could not be worse.

Exchanges: The purpose of the exchanges in the ACA is to allow individuals and workers in small companies to create larger risk pools to achieve economies of scale enjoyed by larger companies. The exchanges are predicated on the theory that market share will enable the bargaining down of prices and therefore reduce premiums. It is not as though the exchanges will operate free from heavy federal and state regulation, so it is hardly fair to label the exchanges a competitive environment when insurance plans in the exchanges must comply with the ACA. The Massachusetts health care reform set up an “exchange” scheme called the “Connector.” It was predicted to reduce premiums by 25 to 40 percent, but premiums still went up 11 percent.

Insurance Market Overregulation

The ACA’s insurance regulations will increase premiums, reduce choice, and drive consumers to government-run insurance. When it comes to the litany of insurance regulations, the ACA violates the principle that “there is no such thing as a free lunch.” Currently, health insurers do have some latitude to hold down costs by structuring plans so that consumers shoulder some costs. The ACA bans many of these practices that hold down costs predicated on consumer responsibility, including:

 ban on denying coverage and underwriting based on health status except for older patients and smokers;

 ban on rescissions (revoking coverage);

 ban on lifetime limits;

 limits on deductibles;

 maintain medical loss-ration (insurers must maintain a ratio of benefits paid to premiums collected of 85 percent for large groups and 80 percent for small groups and individuals);

 allow parents to keep their children on until age 27; and

 agency power (wide latitude given to the U.S. Secretary of Health and Human Services to promulgate rules to administer the new market and to singlehandedly create public policy when unanticipated situations arise).

Massive Expansion of the Welfare State

Massive expansion of Medicaid: The ACA mandates that the states expand Medicaid to cover all with incomes below 133 percent of the federal poverty level, with generous matching grants from the federal government. Between 2014 and 2019, federal spending on Medicaid is projected to increase $443.5 billion while state outlays will increase $21.1 billion. Imposing an eligibility threshold of 133 percent of FPL in Montana will dramatically increase enrollment and cost in our Medicaid program. Depending on participation rate assumptions, by 2019 Montana will see Medicaid additional enrollment increases in the range of 57,000 to 79,000, with an additional cost burden for the state budget ranging from $100 million to $155 million.

Subsidies for individuals not eligible for Medicaid: Individuals with incomes too high to qualify for Medicaid but below 400 percent of poverty or $88,000 will be eligible for subsidies to assist purchase of private insurance. The subsidy will be in the form of a refundable tax credit that will increase federal costs about $457 billion between 2014 and 2020.

Subsidies for small businesses: Businesses that have 25 or fewer employees with average wages less than $50,000 are currently eligible for tax credits. To be eligible, the business must provide insurance to all full-time workers and pay at least 50 percent of the costs of coverage. Once exchanges are operational, businesses with 10 or fewer employees with average wages below $25,000 will be eligible for a tax credit of up to 50% of the employer’s contribution toward a worker’s insurance. According to a July 2011 member survey by the National Federation of Independent Business, by overwhelming margins small employers believe that the ACA will not reduce health care inflation, will not reduce the administrative burden, and will add to the federal deficit. The survey also found that small employers believe that low-wage employees with large premium cost-share will have a powerful incentive to leave an employer’s health plan for the newly established and heavily subsidized exchanges. If employees begin to leave for an exchange, 26 percent of small employers that currently offer insurance say that they are very likely to explore dropping their health insurance plans while another 31 percent say they are somewhat likely to do so.

Undermining Consumer-Directed Health Plans

The ACA places considerable new restrictions on HSAs and FSAs. For example, the ACA increases tax penalties for HSA withdrawal and narrows the definition of “qualified medical expense” (QME) so that common expenses such as over-the-counter medications are not a QME. Of course, as mentioned, the fact that the ACA is likely to squeeze high-deductible, catastrophic plans out of the new market could be the demise of HSAs since federal law requires HSAs to be couple with such plans. As for FSAs, the ACA cut the maximum tax-exempt contribution to these accounts in half from $5,000 to $2,500 starting last year. The new definition of QME also will be applied to FSAs.

Mind Boggling Cost in the Deficit Age

The ACA is projected to cost the federal government $2.7 trillion over 10 years of full implementation, which, after accounting for aforementioned penalty revenue and new tax revenue (see below), will add $823 billion to the national debt. It is hard to predict how the State of Montana will fund the additional $100 million to $155 million in Medicaid expenditures through 2019. It may be true that Montana is currently projecting a $600 million surplus for the 2015 Biennium, but the structural deficits in the state budget due to unfunded liabilities in various public employee and teacher pension systems dwarfs the surplus. The additional costs associated with the ACA’s Medicaid mandate gobbles up resources that Montana could use to address its structural deficits.

New and Increased Taxes During the Great Recession

If there is one way to impede economic progress and deepen a recession, it is to raise taxes. The ACA imposes over $629 billion in new or increased taxes in its first 10 years of operation. When you couple the ACA’s new and increasing taxes with the possibility that the Bush Administration tax cuts could expire at the end of 2012, America could plunge even deeper into recession. These taxes include:

 taxes on “Cadillac” insurance plans;

 payroll tax hikes;

 taxes on investment income;

 higher threshold to itemized deductions for medical expenses;

 tax on prescription drugs;

 tax on medical devices;

 additional taxes on insurers; and

 taxes on tanning beds.

Taxpayers likely are leery of the fact that the Internal Revenue Service will add 11,800 additional agents, auditors, and examiners for enforcement of the ACA.

 

Consumer-Directed Healthcare Reform

As the U.S. Supreme Court nears its decision on the constitutionality of federal health care reform, the Montana Policy Institute endeavors to emphasize the need for true reform centered on the patient consumer. We believe that patients and their doctors are best equipped to make decisions about what care is best, not bureaucrats in Washington, DC, or our state capital of Helena. The root problem lies in the fact that there is a vast wedge between patients and their healthcare providers caused by heavy government intervention and the unintended consequences of a third-party payer system. The following consumer-directed options will help individuals and families make – and own – their decisions.

Individual ownership of insurance policies. Equalize tax treatment by extending to individuals the tax deduction that allows employers to own insurance. Also make those plans portable when workers leave or change jobs.

Leverage health savings accounts. Coupled with affordable high-deductible plans, HSAs empower individuals to monitor their health care costs while establishing incentives for individuals to use only those services that are necessary. HSAs are growing in popularity but will be undermined by federal healthcare reform.

Allow interstate purchase of healthcare insurance. Allowing consumer to shop for plans beyond their state borders will enhance competitiveness in the health insurance market. Because of fewer state regulations, plans in other states are more affordable. Because it will empower consumer choice through competition, interstate purchase will drive down prices and, possibly, force states to deregulate.

Reduce mandated benefits. Other than consumer overutilization caused by insulation from actual cost, there is nothing that contributes more to the inflation of healthcare costs than state benefit mandates. States should reduce or eliminate mandated benefits to empower consumers to work directly with health insurers to tailor plans to their needs. Consumers won’t be able to do this unless health insurers have flexibility to fulfill the needs of individuals. In a freer health care market, there is no reason to assume that insurers will treat the insured any differently than, say, the grocery store treats its customers by providing many products at prices consumers are willing to pay.

Block grant federal Medicaid funding to give states flexibility to create voucher programs for low-income individuals to purchase their own insurance. An income-based sliding scale voucher program is an effective reform option that states such as Florida have enacted to give low-income individuals more control, fight costly fraud and abuse, and save on considerable administrative costs of running a large bureaucracy.

Eliminate unnecessary scope of practice laws and allow non-physician healthcare professionals to practice to the extent of their education and training. Enhancing the provider pool increases competition without compromising access to quality care. It empowers patients to decide how best to get the care they need.

Reform tort liability laws. Defensive medicine needlessly drives up medical costs and creates an adversarial relationship between doctors and patients.

 

Reviewing the Bidding on Health Care “Reform”

BY MPI PRESIDENT

Carl Graham

As ideas turn into proposals with Senator Max Baucus’s “Chairman’s Mark,” now is a good time to review the bidding on how well current congressional health care reform plans address their stated goals of increasing access and decreasing costs.  We’ve all been inundated with data lately, so let’s just step back and take a common sense look at the main proposals:

Single-payer system: Turns out most Americans don’t want nationalized health care with the government deciding who gets treated, for what, and at what price; at least not now.  So to kick the can down the road we have…

The Public Option: Government becomes an insurance company to “keep it fair,” but nobody could really explain how they would provide cheaper insurance without killing the private sector.  And what’s the point if the government insurance isn’t cheaper?  So we next had…

Co-ops:  Except that there already are co-ops and there’s nothing stopping more from being created tomorrow.  But wait, this one is better because it will start with billions of taxpayer dollars, receive billions more in taxpayer subsidies, and be run by government appointees.  Or was that the Public Option?  Whoa, just what’s the difference between these two?  Turns out pretty much nothing, which leads us to…

Exchanges: Gee, if only there were some magical technology that would link people with insurers and allow them to compare rates, evaluate terms, and buy policies with just the click of a few buttons.  We could call it the “internet.”  But insurance is very complicated and people make mistakes. So let’s protect them by having government decide which insurance companies can be included and by dictating what they must cover, what they can charge, and what products (like health savings accounts, for example) they can make available.   But wait, if companies have to offer pretty much the same thing at the same price, isn’t that like the Public Option or Co-op, which means there’s not much difference between that and government-run plans?  Hmm, how about if we try…

Mandates: If only everybody had to buy insurance then we’d all share the costs, from each according to his ability and to each according to his needs.  Big insurance and health industry companies love mandates because they effectively lock out competition and lock in profits, which explains why Senator Baucus has received nearly $3 million in campaign contributions from them, according to OpenSecrets.org.  But do mandates hold down prices? Massachusetts reached a 97% coverage rate through mandates of various types and has subsequently seen their health care costs rise as much as 42% faster than the national average.1 They’re expected to rise another 10% in 2010, compared to 5%-7% nationally.2 Hmm, so much for mandates controlling costs.

And mandates kill jobs.  If employers are forced to either insure or pay a fine on their low wage employees, how much incentive do they have to retain those employees or hire more?  Low wage earners are the people most easily replaced through outsourcing and mechanization, and the ones who will be most hurt by mandates.

And finally, since the government decides what coverage satisfies the mandate, they effectively control the market, as we saw with exchanges.  Say goodbye to your Health Savings Account, limited coverage, or any other option that lets you control your premium and deductible.  Say hello to paying for mandatory coverage on every ailment, drug, treatment, provider, and everything else with a good Washington lobby and a congressman’s ear.

All of these options kill jobs, explode the deficit, and inevitably lead to a government-run system as private players are squeezed out of the marketplace.  And government programs typically don’t reduce costs or improve services, especially once they achieve a monopoly.

Rather than overhaul one-sixth of the economy with a risky and inevitably wasteful government takeover, let’s do some simple things that promise measurable results and broad bipartisan support.  We can increase competition by allowing people to buy insurance across state lines.  We can reform tort laws to reduce wasteful defensive medicine.  We can provide tax credits and vouchers to individuals rather than companies to provide a safety net and give them a personal stake in controlling costs.  We can reward healthy lifestyles.  These are just a few ideas that address the real problems of cost and access without making a naked power grab.  Why not give some of them a try before committing ourselves and our children to massive debt and complete government control over our health and well being?

 

1 Cathy Schoen, Jennifer L. Nicholson, and Sheila D. Rustgi, “Paying the Price: How Health Insurance Premiums Are Eating Up Middle-Class Incomes,” The Commonwealth Fund, August 2009, p. 8, http://www.commonwealthfund.org/~/media/Files/11Publications/ Data%20Brief/2009/Aug/1313_Schoen_paying_the_price_db_v3_resorted_tables.pdf,  in Cannon, Michael F, “All the President’s Mandates: Compulsory Health Insurance Is a Government Takeover,” CATO Institute, September 23, 2009.

2 Robert Weisman, “Health Costs to Rise Again,” Boston Globe, September 16, 2009, http://www.boston.com/business/healthcare/articles/2009/09/16/heath_insurers_plan_10_rise_in_rates/.

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FOR IMMEDIATE RELEASE

746 Words

Contact MPI President Carl Graham at 406.219.0508, or email info@montanapolicy.org.

The Montana Policy is an, independent, nonprofit, nonpartisan policy research center based in Bozeman.  It provides analysis and information to encourage individual freedom, personal responsibility, and market oriented policy solutions in Montana.

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Bozeman,MT59715

406-219-0508

 

www.montanapolicy.org