HHS Releases Obamacare’s Long-Awaited Health Insurance Issues

Leave a comment

On November 20, 2012, the Obama administration chose to release long-awaited regulations that would have the most impact on the shape, and the price, of health coverage when Obamacare’s major provisions are slated to take effect a little over a year from now, on January 1, 2014.

The new rules demonstrate how we are headed for a world of rising health insurance premiums, shortages of physicians and hospital beds, and possibly a future “solution” based on bureaucratic rationing and restricted eligibility for life-saving treatments.

“Insurers will not be able to charge someone more just because they are sick or because they were sick,” as Health and Human Services Secretary, Kathleen Sebelius describes the law’s ban on surcharges and exclusions for pre-existing conditions.

So how much could this add to the premiums? We can get an idea by looking at premiums for the “guaranteed issue” type of insurance that already exists as a result of the HIPAA law passed in 1996 (by a Republican Congress, and signed by President Clinton).

HIPAA requires guaranteed issue insurance with no surcharges or exclusions for pre-existing conditions to individuals and families who have lost employer-sponsored coverage and exhausted their COBRA continuation coverage (if any).

To take an example, in Virginia, CareFirst BlueCross charges $1978 per month for “guaranteed issue” coverage (with variations depending on the deductible the customer selects). An equivalent plan without “guaranteed issue” costs $333 per month.

That’s a difference of $1645 per month, or almost $20,000 per year more.

As it stands now, people with pre-existing conditions might find it worthwhile to pay that much, but others can get coverage at a much lower rate. However, for 2014 and forward, only the more expensive coverage will be available.

This means that healthy families buying coverage on their own could see premium increases of $20,000 – a far cry from the decrease of $2500 promised by candidate Obama in 2008.

It is possible in theory that with more people, including healthy people, enrolling in guaranteed-issue insurance, the average health of the insurance pool would improve, and the premium increase could be lower than the full $20,000. But it is not likely to be much lower.

Consider the decision from the point of view of a healthy customer with no pre-existing conditions.

Would they rather pay an extra $20,000 for insurance, or pay a penalty of a few hundred dollars for not having “qualified” insurance?

Especially if they know that if they ever develop a serious health problem, they can always get insurance at the same “guaranteed issue” rate they they would pay without it.

Even if they have to wait until the next calendar year to begin coverage, most people would have saved more then enough in the years before to pay out-of-pocket until the following year and still come out ahead.

In other words, the same ban on surcharges and exclusions for pre-existing conditions that makes it easier for those with pre-existing conditions to obtain coverage simultaneously makes going without insurance much more attractive for those without pre-existing conditions.

In addition, the new rules also require plan benefits in each state to be equivalent to those of a benchmark “typical employer plan” offered in that state now.

The rules provide three options for selecting this benchmark plan, and in all cases the benchmark plan is likely to be more generous than a typical individually-purchased plan today. In other words, the most generous (expensive) plan of today will be the minimum plan in 2014. Lower-cost options would not be available.

More seriously, this combination of factors could lead to a collapse of the insurance market.

Starting in 2014, the Department of Health and Human Services will have to approve the premiums of “qualified” health plans.

Would Secretary Sebelius approve premiums of $24,000 per year? If so, she would be subject to criticism for raising nearly everyone’s premiums – and if not, insurance companies might not have enough money to pay claims in the new environment.

Your comments are always welcome!

 

 

 

Room for Compromise: Eliminating the Fiscal Cliff

Leave a comment

Congress has less than one month to prevent across-the-board tax increases scheduled to take effect January 1, 2013, and the compromise legislation that could prevent these tax hikes is vague. However, now that the election is behind us, it appears as if Congressional Republicans may be more inclined to compromise.

Many Republicans have softened the strict position that they will not accept any tax increases for the upper classes, and Democrats may have begun to realize that they will be unable to raise the necessary revenue based on increases for the rich alone.

It is now time to prepare for an alternative plan – the fiscal cliff could be eliminated by maintaining current tax rates while capping deductions and reducing spending and reforming entitlement programs, such as Medicare and Social Security.

The impending “taxmageddon”…

In approximately three weeks, taxes on nearly every form of taxable income will increase absent legislative action; these tax hikes will affect us in every tax bracket.

Taxes on ordinary income will revert to pre-Bush-era levels, the tax rate on dividends will more than double, the maximum estate tax rate will rise from 35 to 55 percent, and taxes on certain capital gains will increase from 15 to 20 percent. Even the 2 percent payroll tax holiday is set to expire.

While most compromise legislation has focused on allowing some of these rates to rise while maintaining current rates for lower-income groups, Congress may be able to leave most tax rates in place if they focus on capping deductions and reducing spending for all taxpayers.

Of course, while this is a tax increase in itself, the impact would be far less dramatic than allowing tax rates to increase across the board.

A Cap On Deductions

The Tax Policy Center recently released figures showing that a $17,000 cap on deductions (such as mortgage interest and charitable deductions) could raise an additional $1.7 trillion over the next ten years. This far surpasses the $440 billion that would be raised during ten years by allowing tax rates for the wealthiest taxpayers to increase from 35 to 39.6 percent, as President Obama has proposed.

While this cap would impact some middle-class taxpayers, the Tax Policy Center found that the wealthiest taxpayers would generate the bulk of this additonal revenue.

Despite this, about 25 percent of the tax increase would affect taxpayers earning between $112,000 and $228,000 – and 20 percent would impact taxpayers with incomes below the $112,000 level.

It appears that capping deductions is an idea that both sides could be willing to work out. President Obama has proposed capping deductions at 28 percent, though this would raise only approximately $288 billion in the next ten years.

Reducing Entitlement Spending

Raising taxes is not the only way to prevent the impending fiscal cliff – reducing spending levels on entitlement programs, while extremely unpopular among liberals, could prevent outright tax increases in 2013.

President Obama has previously indicated that he might be willing to increase Medicare premium levels and also increase the eligibility age from sixty-five to sixty-seven.

Similarly, proposals have been introduced that would increase the retirement age for Social Security purposes and limit annual cost-of-living increases for current recipients.

While these proposals are widely unpopular, some Republicans have said and agree that any compromise would have to include a reduction in entitlement spending.

Despite their unpopularity, the Republican position could force Congress to finally address some of the problems inherent in the entitlement system to guarantee more secure benefits for future generations.

Conclusion

Enough space exists between the Republicans’ proposed $17,000 cap and the president’s proposed 28 percent cap to make the possibility of finding a compromise position realistic.

Reforming entitlement programs could help prevent an outright tax increase while increasing the longevity of these benefits.

The emergence of these post-election proposals  presents a silver lining to the impending fiscal cliff discussions and provides hope that a compromise can be reached.

Your comments are always welcome!