Life Under Health Care Reform

Time being scarce the last few weeks, I'd originally planned on writing a post of this format about one of the Senate bills, but since the House bill (HR 3962: Affordable Health Care for America Act) is currently the one in the news, I'm focusing on that. The purpose here is to try my best to cut through the hysteria and hype coming from both sides and take a realistic look about what changes we would notice as US citizens if the House health care reform bill becomes law.

The first thing to keep in mind is that nothing much happens until 2013. This could probably called the "keep incumbents from being hurt by this act, especially Obama" provision. Whether the long term effects of the bill are good or bad, change often causes pain and confusion at first, and one of the key ways of getting legislators on board for the bill is to assure them that they're unlikely to be immediately booted out of office by voters upset about their premiums. This kind of cynicism is hardly unique to this one bill or to either party -- it just is what it is. So take the below as a discussion of how thing would be under HR 3962 in the period 5-6 years from now, assuming that is passes and there are no changes made between now and then.

The bill provides several new regulations on insurance companies and on you, which you'll notice quite clearly.

1) You will be legally required to purchase insurance. If you don't (and unless you fit criteria for financial hardship as defined in the bill) you will be fined either 2.5% of you income, or the average cost of the plans in the lowest tier of the health insurance exchange. So, if you make 40k/yr, you would be fined $1000. If you make 60k/yr, you would be fined $1500. If you refuse to pay your fines, you'll be treated exactly like any other tax evader (which means you can potentially be sent to jail.) The Senate bill specifically exempted non-payers from being sent to jail, but the House bill fails to differentiate those who refuse to pay health care fines from those who refuse to pay other taxes, so it is believed that standard tax evasion rules would apply. There will also be penalties placed on employers who do not offer their employees health insurance.

2) Health insurance companies will not be allowed to turn you down for coverage because of any pre-existing conditions you may have, nor will they be allowed to refuse to cover care related to those conditions.

3) Health insurance companies will be required to charge all people the same for the same plan -- not charge people with existing health problems more and vastly limits the amount that insurers can charge more to insure older people.

4) Provides subsidies for most American citizens if they are buying individual health insurance, in order to make complying with the individual mandate more affordable.

So what happens to you? Well, if you've one of the roughly 80% of Americans who currently health insurance through your employer: nothing much. If your employer wasn't providing coverage to some of its employees before, and decides to comply with the employer mandate rather than paying the relevant fines, it may seek to recoup the costs of expanding health coverage by increasing the share of your health benefits you have to pay for. Given that the average employer provided family health care plan currently costs about $13,000/yr, it's likely that there's a lot of room for your employer to push more of that cost in your direction. (And when it comes to cost savings, most of us would prefer that to layoffs.) In Massachusetts, which passed similar health care reform in the past, employer plan premium have been rising at almost twice the national average rate over the last few years. If the cost to you of your employer's insurance plan increases to beyond 12% of your annual income (for example: $400/mo for a family making 40k/yr) you would be eligible for subsidies from the government, but otherwise you would be on your own.

If, on the other hand, you currently do not have health insurance or have individual health insurance, you would be greatly affected by the bill. You would become eligible to buy your insurance through the national insurance exchange (and if you didn't buy coverage, you'd be fined, see above.) Among these plans would be the much discussed "public option", which would essentially be the same as a private health insurance plan except that it would be administered by a government agency. Adoption of the public options plans is not expected to be high, as the CBO estimates that their premiums will be higher than the average of the private plans in the exchange offering the same benefits.

The plans on the exchange are not necessarily cheap, but you will know pretty clearly what level of coverage you are getting as the plans will have to meet government defined levels of coverage. If you feel daunted by researching what an insurance plan does or does not cover, this might be a major benefit. If not, it might reduce flexibility for you. The average "basic" exchange plan for an individual is expected to cost $5,300 per year, the average for a family of four is expected to be $15,000. In addition to these premiums, you could expect to pay about 2,000 a year in co-pays and deductibles as an individual, or $5,500 as a family. (Obviously, if you get very little care, this would be less. My own family has deductibles similar to the exchange levels on our employer-based health care plan, and our total out of pocket last years was under $1000.)

However, you also receive a scaling set of subsidies in order to offset your costs, depending on how much money you make. Here are a few examples (these are directly from the CBO subsidy analysis):

A single person making $20,600 would pay an annual premium of $900 ($75/mo) and would pay no more than $600 in out of pocket expenses for the year. If he didn't buy insurance, he'd pay a fine of $515.

A single person making $38,300 would pay an annual premium of $4,300 ($358/mo) and would pay no more than $1,800 in out of pocket expenses for the year. If he didn't buy insurance, he'd pay a fine of $957.

A family of four making $42,000 would pay an annual premium of $1,900 ($158/mo) and would pay no more than $1,200 in out of pocket expenses for the year. If they didn't buy insurance, they'd pay a fine of $1050.

A family of four making $66,000 would pay an annual premium of $6,300 ($525/mo) and would pay no more than $3,700 in out of pocket expenses for the year. If they didn't buy insurance, they'd pay a fine of $1650.

These subsidies are currently designed to scale according to the enrollee's income, not according to the cost of the plan, so from what I can tell customers would be cushioned initially from any drastic increases in the cost of coverage (such as Maine, Massachusetts and other states passing similar regulations have experienced). However, that might potentially change if the cost of the program spiralled rapidly out of control due to the increased cost of providing insurance under this model.

In this regard, it might almost be a benefit to have the public option in play, as it would make it much harder for people to claim "it's all because of insurance company profiteering" if the public options premiums continue to run higher than private plan premiums as the CBO projects.

A few useful sources, though not everything in this post is derived from them alone:

The CBO analysis of the House bill.

The official summary of the House bill. (This copy of the file is at the Heritage Foundation, but the actual file is the one the House Democrats put out.)

CBO analysis of subsidies.