Appearing on CNN yesterday morning, Senator Orrin Hatch (R, Utah) groused about what he called the “Europeanization” of health care. Translated, that means that we have decided to take a more collective approach to survival. If you cannot afford health insurance, your fellow citizens will help you pay for it.
Hatch is correct: in 2014, a family of four earning $88,200 (or four times the federal poverty level) will get a subsidy to help buy insurance in the new Exchanges. $88,200 may sound like a fortune if you live in Idaho (where median income for a family of four is $58,000), but in Maryland, Massachusetts, Connecticut, and New Jersey, $88,200 is actually less than median income for a family of four. Even in New Hampshire, median income for a family of four is $87,396. (Half of all families of four earn less; half earn more. In other words, a family that size bringing home $88,200 in New Hampshire is smack dab in the middle of the pack.) See this fascinating table that shows median income for individuals as well as families including of two to six people in all fifty states. It’s startling to see how widely incomes vary in different parts of the country.
What Hatch doesn’t acknowledge is that premiums will be significantly higher in states like Connecticut–where the cost of virtually everything, including labor, real estate and a doctor’s visit is higher than in Idaho. This why a Connecticut family of four earning, say, $70,000 will need some help. At this point, we don't know just how high premiums will be in any state because we don't know how much health care will cost in 2014. What we do know is that over the past 10 years, the amount that insurers have paid out in reimbursements to doctors, hospitals and patients has been climbing by roughly 8% a year as both prices and volume climb. (Each year patients are undergoing more tests and treatments while also taking more drugs.) Even if health care inflation slows over the next three years, premiums will almost certainly be higher in 2014 than they are today. The goal, under reform, is to “break the inflation curve” so that the cost of care isn’t spiraling faster than GDP. Ideally, our health care bills would rise no faster than the average workers’ wages.
Moreover, it's important to remember that the subsidy is set on a sliding scale: a family of four earning $86,000 would get a small tax credit; a family of four earning $30,000 would receive a much larger subsidy. For a calculator that lets you see how much help you will receive, based on income, family size, and current insurance status, go to this site, click on "Health" near the top of the page; scroll down and click on "What Does Health Bill Mean to Me– List of Resources to Help." Scroll down on that page and you’ll find links to some good information including a helpful calculator from the Washington Post that lets you see: 1) what percent of your income you would be expected to pay for premiums, 2) your maximum out-of-pocket costs for co-pays and deductibles as a percent of total costs, and 3) how reform would affect your taxes.
The good news is that, in 2014, when the full reform plan rolls out, people who earn up to 400 percent of the federal poverty level ($88,2000 for a family of four, $44,320 for an individual) will not have to spend more than 9.5 % of their income on premiums. Low-income families who don’t qualify for Medicaid would be expected to pay only 3%. The government would help subsidize the rest.
The legislation also puts a lid on how much a family is expected to pay out-of-pocket in the form of co-pays and deductibles. Again, the caps are set on a sliding scale. For example, cost sharing for a family earning 100 to 150 percent of the federal poverty level (FPL) is capped at 6% of total costs; those from households earning 150 to 200 percent of the FPL will pay no more than 13% of total costs; and out-of-pocket expenses for households earning 200 to 250 percent of the FPL will be capped at 27% of total costs. (If you’re buying insurance in the Exchanges you will have the opportunity to choose a plan that requires less out of pocket spending, though the premiums will be higher.)
Hatch really should take a look at the information at the Now Public site. He might feel better. Or he might not. But I think that most Americans will find that the more they learn about reform, the less scary it becomes.
To my simple mind, either they have to really work fast and hard to get health care costs down or we’ll be seeing unheard amounts of deficit numbers by 2014(unless economy comes back rebounding like a BUll). I sure hope these things roll out well.
I agree. We will have to face increasing costs and possible reductions in services and access but at least these actions will be squarely in the public’s eye instead of hidden in personal stories and anecdotes. We will no longer be able to stick our heads in the sand and say everythings’ just fine.
Mike: I think we are more likely to see changes in the services we get for the same problems rather than loss of access to services.
ray–
Ray– You’re absolutely right. The good news is that Medicare will be cutting Medicare costs beginning this year –slashing fees for diagnostic tests that are done too often, for example.
And these changes will spill over into the private insurance market– private insurers want to save money too.
White House budget director Peter Orszag understands what a threat spiraling health care costs are to the economy, and I’m confident that the White House will encourage Medicare to do what it needs to do.
Mike–Short-term costs will cotinue to climb, longer-term, they will level off, and some costs will drop. (For instance, I think Medicare will wind up negotiating for discounts on drugs– especially super-expensive cancer drugs.. And insurers will begin to demand discounts as well.
We also are likely to see some specialists incomes fall as more physicians join large accountable care organization where they are on salary. Those salaries will be good (as they are now at places like Internmountain or Kaiser P in Northern California) but they won’t be as high as the annual incomes some specialists now earn by working very long hours, fee-for-service.
As we move away from fee-for-service there just won’t be the same incentive to do high volume. This is good for docs and patients. Docs working in large accountable care organizations will no longer have to worry about overhead, hiring staff, paying for malpractice insurance, etc. This will be taken care of by the organization.
Docs won’t feel the same pressure to work very long hours to make money and meet their overhead. This is probably good for them and definitely good for patients. When doctors feel forced to do more procedures and more tests, sometimes they wind up doing unnecessary tests–and sometimes they wind up treating patients when they are very tired.
None of this is good for anyone.
Also see Panacea’s comment and my reply.
Panacea– Yes, less back surgery for lower back pain, more medication, physical therapy, etc.
Fewer angioplasties—greater use of inexpensive medications plus change of diet and exercise.
In terms of access to services, I don’t think we’ll see access limited to any necessary services.
There are, of course, some services that some patients think are necessary which aren’t.
But overtime, the public will become better educated about what is necessary and what isn’t.
Bloomberg just reported on a new study done in Denmark showing that mammograms do not reduce cancer deaths–confirming studies done in the UK and the US.
I don’t think we’re going to deny access to mammograms (they’re not that expensive) but more and more primary care doctors and gynecologists are going to begin eexplaning to patients that we just don’t have the evidence that mammograms save lives–and we do have evidence of mammograms leading to unnecessary lumpectomies and mastectomies when mammograms find tiny tumors that would have disappeared . .
Maggie,
I couldn’t find the subsidy calculator you reference, but did find one at http://healthreform.kff.org/SubsidyCalculator.aspx
Thanks for your blog.
You say that the subsidy will be set to hold medical premiums to 9.5% of income. Will the plans be structured so those who want referral free-access to specialists pay more out of pocket -in addition to their part of the premium- than those who participate in managed plans?
Gry O. & Ginger
Gary O-Thanks for an alternative link. I’m Osrry that the link I provided didn’t work. . .
GingerG–
I don’t think those details have been worked out.
I suspect that going forward, more and more plans will be HMOs that use networks– often very large networks.
This is one way to bring down the cost of care.
But I would guess that there will also be plans in the Exchanges that let
people pick plans that let them go out of network.
Presumably, they would be more expensive. I would guess that subsidies won’t pay for the extra expense–but as I said, I don’t think this has been decided.
There are so very many details that need to be worked out before 2014. This is why they can’t make the whole reform plan a reality next year.
I’m holding Obama to his promise to lower premiums by $2500 per family per year. I’m also holding him to the $940 Billion price tag … to the penny.
It’ll be interesting to see once people understand how the cap on premiums is on a progressively adjusted sliding scale is fair or not. 2/3 of Americans receive employer sponsored care and wouldn’t have access to any subsidies.
Most employers offer the same plan rates to everyone, so someone making 88,200 annually pays the same premium amounts as some making $45,000 annually. This makes employer plans regressive, since people making less have a larger chunk of their income going to premiums as opposed to their bosses. To show this say an employer’s group insurance rate might cost a every employee $450 every month. For the person making 45,000/year that equals %12 of their income. For a person working at the same company on the same plan making $88,200 that equals 6.1% of their income. What is to be considered fair? Can these cost limits on the exchange plans filter over to group insurance rates or will the insurance plans make up for any costs passing them to the rest of the 2/3 covered under employer group rates? Does the legislation do anything to keep everyone’s annual costs from skyrocketing or just the plans in the exchange? Thanks for the wonderful posts, your blog is extremely informational.
Gary–
Thanks for the kind words.
You make an interesting point about how regressive employer plans are.
What makes them acceptable, I think, is that the employer pays such a large chunk of the premium–as much as 85% to 100% in many cases, and rarely less than 75% (here I’m thinking of large employers).
So it would be very unusual for anyone to be paying $450 a month–even for a familoy plan.
Today, a good family plan costs close to $14,000. If the employer pays 85% and the employee 15%, that works out to $2100 a year for the employee–or less about $180 a month.
So for the employee earning $45,000 that is less than 5% of total income.
The real problem is for employees earn much less– say someone in the mailroom earnign $21,000. Probably they just won’t sign up for the insurance; it’s too expensive for them.
Though under reform, if you earn less than 4 times poverty ($88,200 for a family of four) and your employer’s insurance is going to cost you more than 9.5% of your income, you are eligible to go to the Exchange and buy insurance there with a subsidy from the government!
As to premiums in employer plans, keep in mind that in many cases the employer self-insures–he keeps hte premiums he takes in from employees, using the money to reimbruse for their medical expenses. The insurer simply adminisers the plan (doing all of the paper work) and the employer typically gives him 15% of premiums to cover administrative expenses, maketing (selling these administrtive services to other employers),and profits for investors.
So the insurer doesn’t drive the cost of premiums in these employer-based plans. Premiums rise because the amount that the employer is paying out to hospitals, doctors adn patients keeps spiraling as both prices and volume continue to rise (employees undergo more tests and treatments every year, and consume more drugs.)
In general it’s the underlying cost of care itself, not insurers, that have been driving premiums skyward.
Insofar as Medicare reins in spending by changing the financial incentives–so that doctors don’t make more by doing more–the way doctors adn hospitals bil for medical services may well change (more and more docs on salarly, and more and more “bundling of hopsital and doctors fees”–which encourages effficiency and better collaboration.
All payers will benefit from these changes which should, over time, “break the curve” of healthcare inflation.