The New Health Reform Law:What Does It Mean?

Will It Work?Leonard Rodberg, PhD

Urban Studies Dept., Queens College/CUNY and

NY Metro Chapter, Physicians for a National Health Program

www.pnhpnymetro.org

Presented atWeill Cornell Medical Center

Why Health Care Was On the Agenda: Escalating Cost

$3,515

$3,354

$2,713

$1,619

$1,543

$9,773

$8,824

$4,247

$3,997*

$3,281*

$2,973*

$2,661*

$2,412*

$2,137*

$1,787*

$9,860*

$9,325*

$8,508*

$8,167*

$7,289*

$6,657*

$5,866*

$5,269*

$4,819*

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999 Worker Contribution

Employer Contribution

Worker and Employer Contributions to Family Coverage

* Estimate is statistically different from estimate for the previous year shown (p<.05).

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010.

$5,791

$6,438*

$7,061*

$8,003*

$9,068*

$9,950*

$10,880*

$11,480*

$12,106*

$12,680*

$13,375*

$13,770*

Why Health Care Was On the Agenda: Escalating Cost

Number and Rate of Uninsured 1987-2009

Source: U.S. Census Bureau, Current Population Survey, 1988-2010 Annual Social and Economic Supplements

But the New Reform Plan Seeks to Address this Problem Instead:

The Rising Number of Uninsured(Though the Rate is Steady)

The New Health Reform Plan*

• Provides insurance coverage for some

• …but it does almost nothing about cost!

* The formal name for the legislation is the Patient Protection and Affordable Care Act (PPACA). The Obama Administration refers to it as the Affordable Care Act (ACA).

International Comparison: Universal Coverage at Less Cost -- They Must Be Doing Something Right!

0

1000

2000

3000

4000

5000

6000

7000

8000

1980

1985

1990

1995

2000

2005

U.S.NorwaySwitzerlandCanadaNetherlandsFranceGermanySwedenU.K.ItalyNew ZealandAustralia

Average spending on healthper capita ($US PPP)

0

2

4

6

8

10

12

14

16

1980

1985

1990

1995

2000

2005

U.S.FranceSwitzerlandGermanyCanadaNetherlandsNew ZealandSwedenNorwayItalyU.K.Australia

Total expenditures on healthas percent of GDP

Source: OECD Health Data 2009.

0

10

20

30

40

50

60

70

80

90

100

Perc

en

t

Population Covered by Public System

The Outlier Nation: Our Public System Covers Fewer…

Source: F. Colombo and N. Tapay, Private Health Insurance in OECD Countries, OECD 2004Unite

d States

0

5

10

15

20

25

30

35

40

Pe

rce

nt

Private Health Insurance Percent of Total Cost

While Private Insurance Dominates

Source: F. Colombo and N. Tapay, Private Health Insurance in OECD Countries, OECD 2004Unite

d States

Most People Get Their Coverage from the Private Sector

Medicare

Medicaid

Military

Uninsured

Individual Private

Insurance

Employer-based Private

Insurance

Source: Income, Poverty, and Health Insurance Coverage in the United States: 2009, Census Bureau, 2010

(169.7 million)

(43.4 million)

(47.7 million)

(50.7 million)

(27.2 million)

(12.4 million)

But Employer-sponsored Insurance is Declining…

Source: U.S. Census Bureau, Current Population Survey, 1988-2010 Annual Social and Economic Supplements

State and Local Govt (existing Medicaid, other)

13%Other private funds (charity, etc.)7%

Federal tax subsidy9%

Private Insurance25% Federal Government

(existing Medicare, Medicaid, other)

34%

Out-of-pocket12%

…And Most of the Money Comes from the Public Sector

Out of pocket 12%

Other private funds (charity, etc.) 7%

State and Local Government(existing Medicaid, other) 13%

Federal Government(existing Medicare, Medicaid, other) 34%

Source: Health Affairs, Feb. 2008; data for 2006

Private Insurance 34%

(Federal tax subsidy)

State and Local Govt (existing Medicaid, other)

12%

Other private funds (charity, etc.)7%

Federal tax subsidy9%

Private Insurance19%

Federal Government (Medicare, Medicaid,

subsidies)41%

Out-of-pocket12%

Even More Money Will Come from the Public Sector after Reform

Federal Government( Medicare, Medicaid, other) 40%

State and Local Government(Medicaid, other) 12%

Other private funds (charity, etc.) 7%

Out of pocket 12%

Private Insurance 29%

Source: CBO and Lewin projections

(Federal tax subsidy)

The President’s Fateful Choice

• In creating a reform plan, the President could have chosen to

-- build on the public sector, especially Medicare, or -- expand the private sector.

• He chose to build his program on private insurance:-- leave the basic structure unchanged -- attempt to achieve the goals of health reform

by changing the behavior of private insurance companies through regulation.

The Problems Facing the Program Private insurance is

-- too expensive for many people -- complex and deficient in many ways -- profitable for the insurers when they can avoid sick people and limit what they have to pay for.

The reform program tries to solve these problems through

-- subsidies for individuals and employers -- trying to tame the insurance companies

through regulation

The Great DealmakerThe Obama Administration made a series of deals to pass PPACA:• The insurance industry: Assured that everyone would

be required to buy their product -- and there would be no public option

• The drug industry: No negotiation on prices• The AMA: No cut in physician fees• Hospitals: No cut in reimbursements, only slower

growth in payments• Employers: Continued control of health benefits• Nervous members of the public: “You can keep what

you have”

Overall Consequences of PPACA• Continued reliance on private insurance• Employment-based insurance unchanged • Market competition will determine what health care

costs (insurance premiums, co-pays, deductibles) and how it works (payment and denial practices)

• Nothing but experimental pilot programs to try and reduce system costs, so there will be no likely reduction in costs or waste

Result: The program will make very little difference in the lives of most people.

Why? Because there’s no change in the way we will be paying for health care.

PPACA will be implemented over ten years.Beginning now:

• Insurance companies required to cover dependent children up to age 26

• No lifetime limits on coverage

• Begin closing the Medicare drug benefit “donut hole”, finally closed in 2020

• Government review of insurance premiums

• Experimental programs in Medicare to reduce costs (e.g. primary care medical home, accountable care organizations)

• Citizens and legal immigrants required to be insured. Penalties up to 2.5% of income.

• Insurers required to take everyone.• State-based insurance “exchanges” for

individuals and small employers • Subsidies up to 400% Federal poverty level so

premium (only) is less than 9.5% of income • “Hardship waiver” if premium greater than 8%

of income Can remain uninsured.• Medicaid for all below 133% poverty level

Starting in 2014:The Insurance Mandate

Still later:

• In 2017, allow state experimentation with alternative insurance arrangements

• In 2018, start taxing “Cadillac” insurance plans worth $10,200 individual/$27,500 family

What Happened to the Public Plan? The Original “robust” Plan

• Open enrollment• Medicare-like, backed by the Federal Government• 119 million members (Lewin)

The Congressional Plan• Restricted enrollment (only the uninsured)• Self-sustaining, follow same rules as private insurers• Perhaps 6 million members

The 800-pound gorilla turned into a mouse – and then it was gone!

Millions Will Remain Uninsured (and Millions More Poorly Insured)

Millions

Note: The uninsured include about 5 million undocumented immigrants. Source: Congressional Budget Office.

51 51 51 52 53 53 5451

2323232328

35

50 50

0

20

40

60

80

2012 2013 2014 2015 2016 2017 2018 2019

Current law

PPACA

…and Costs Will Keep On Rising

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PPACA (CMS Actuary)

Current projection

PPACA (Commonwealth Fund)

National Health Expenditures (trillions)

Notes: * Modified current projection estimates national health spending when corrected to reflect underutilization of services by previously uninsured. Source: D. M. Cutler, K. Davis, and K. Stremikis, Why Health Reform Will Bend the Cost Curve, Center for American Progress and The Commonwealth Fund, December 2009. Estimated Financial Effects of PPACA as Amended, Richard Foster, CMS Actuary, April 2010

$4.67$4.5

6.4% annual growth

6.6% annual growth

6.0% annual growth

$4.7

National Health Expenditures as Percent of GDP 17.8 17.9 18.0 18.2 18.8 19.3 19.8 20.2 20.5 21.0

Annual Costs in 2016 at the 2nd “Silver” Level

in Exchangewithout Subsidy

Average Average Total

Premium Cost-Sharing Cost

Individual: $ 5,200 $ 1,900 $7,100

Family: $ 14,100 $ 5,000 $19,100

Actuarial Value of Policy = 70%

(“Bronze” level: 60%) Source: Congressional Budget Office, Nov. 30, 2009

Insurance Costs in the Exchangewith Subsidy

Income (%FPL)

Income for family of 3 (Middle of range)

Annual

Premium

Premium as % of income

Total Potential Costs (% of Income)

150 $22,000 $1,099 4.0% 18.1%

151-200 $32,000 $2,307 6.3% 16.9%

201-300 $46,000 $5,218 9.8% 20.1%

301-400 $64,000 $6,958 9.8% 20.1%

Source: Community Catalyst and PICO National Network

Change in Coverage under the Act (millions)

Many reasons for remaining uninsured (millions)

The Bottom Line• The world’s most expensive system will become

even more costly• PPACA will not lead to universal coverage• It will not make affordable insurance available to

everyone• It will leave millions uninsured and poorly

insured• It will not control the continuing growth in cost

Why? Because it doesn’t change the way we pay for health care.

The Alternative Public Route to Real Health Care Reform:

Conyers’ Expanded and Improved Medicare for All

HR 676• Extend Medicare to cover everyone

• Comprehensive benefits

• Free choice of doctor and hospital

• Doctors and hospitals remain independent

• Public agency processes and pays bills

• Financed through progressive taxes

• Costs no more than we are now spending

Medical Care Administration

9%

Insurer Billing8%

Other Insurer Costs and Profit

11%

Hospital Billing4%

Medical Care64%

Physician Billing 5%

Source: James G. Kahn et al, The Cost of Health Insurance Administration in California: Estimates for Insurers, Physicians, and Hospitals, Health Affairs, 2005

Allocation of Spending for Hospital and Physician Care Paid through Private Insurers

Big Savings from Single Payer:Billing and Insurance Overhead

Consume Nearly 30% of Spending

28%

Spending throughprivate insurers

Covering Everyone with No Additional Spending

Additional costs

Covering the uninsured and poorly-insured +6.4%

Elimination of cost-sharing and co-pays +5.1%

Savings

Reduced hospital administrative costs -1.9%

Reduced physician office costs -3.6%

Reduced insurance administrative costs -5.3%

Bulk purchasing of drugs & equipment -2.8%

Primary care emphasis & reduce fraud -2.2%

Source: Health Care for All Californians Plan, Lewin Group, January 2005

134107

241

-21

-76

-111

-59

-46 -313

$ B

Total Costs +11.5%

Total Savings -15.8% Net Savings - 4.3% - 73

How Medicare for All Could Be Paid For: One Example from a Recent Study of a

California Plan

Federal Government

(existing Medicare,

Medicaid, other)

Business (self-employed) income tax

(12%)

State and Local Govt (existing

Medicaid, other)Surcharge on income (1% above $200,000)

Employee Payroll Tax (4%)

Employer Payroll Tax (8%)

Investment income tax (4%)

Note: Payroll and income taxes between $7,000 and $200,000 only. Source: Health Care for All Californians Act: Cost and Economic Impacts Analysis, The Lewin Group, January 2005

Medicare for All offers real tools to contain costs

• Budgeting, especially for hospitals

• Capital investment planning

• Emphasis on primary care, coordination of care, and alternative ways of paying for services

Conclusion• A reform plan based on private insurance will

not lead to universal coverage and can’t control costs.

• An expanded Medicare for All program can provide comprehensive services, cost no more than we now spend, and provide tools to control costs going into the future.

The problems of the health care system will not go away under PPACA.

Real health care reform built on Medicare for All continues to be essential.

Can We Wait Another 16 Years? We Need Real Health Care Reform Before

the Premium Takes All our Income!

Source: American Family Physician, November 15, 2005

Today