Health care reform breakdown
Getting the low down on the high costs of practicing medicine
By Joan Trossman Bien 10/14/2010
There is a lot of confusion and apprehension about what the Patient Protection and Affordable Care Act will mean to each person. Many are concerned that it will undermine the fragile patchwork of insurance coverage that has been carefully stitched together by employers and families. People want to know if it will cost more and whether they will still be covered. Yes, it will cost more but prices of premiums and other co-pays will be going up next year with or without the new reforms. As for coverage, an additional 35 million Americans who are now uninsured are expected to gain coverage by 2016.
The reality is that health care and insurance costs/premiums have been spiraling upward with no outside controls for years. This trend cannot be stopped overnight or even at all. But the new reforms are providing regulations that will halt some of the insurance industry’s most abusive practices such as annual limits, lifetime limits, refusal to offer coverage for those with pre-existing conditions, and the practice of recession that yanks coverage from someone who has a serious illness, based on a technicality.
A small ripple of the new health care reforms went into effect on Sept. 23: adult children who are not necessarily full-time students may now remain on their parents’ health insurance plans until they reach the age of 26; insurance companies no longer may impose lifetime caps on healthcare costs; preventive care such as mammograms and vaccinations must now be paid entirely by new insurance plans without any co-pays or other cost-sharing by the patient.
Another regulation that went into effect on Sept. 23 prevented insurance companies from refusing coverage for children with pre-existing conditions. This applied only to new individual policies, often when a working parent’s employer does not offer family coverage or only the parent is covered by some other source.
Two days before that policy was activated, the major health insurers, namely Anthem Blue Cross, Blue Shield and United Health Care, announced they would stop issuing individual policies for children on Sept. 23 in at least 10 states, including California. There are an estimated 80,000 children in California who are uninsured and as many as 500,000 nationwide.
Gov. Arnold Schwarzenegger recently signed a bill barring those insurance companies that refuse to sell policies to children with pre-existing conditions from selling any new policies in the state for five years. The issue remains at a stalemate pending the outcome of lawsuits by 20 states other than California challenging the legitimacy of the reforms. The courts have ruled on a few of the issues so far but the essence of the lawsuits has not been adjudicated yet.
“This is a landmark achievement,” Ventura County Democratic Party Vice Chair David Atkins said. “It delivers peace of mind and financial security that, in turn, helps the entire economy.”
Ventura County Supervisor Steve Bennett agreed. “Overall, I think it is very good for county residents because there will be more county residents who will have insurance.”
All the traffic will bear
From here forward, the new rules will become more difficult to navigate, and health care will become much more expensive. Even before the reforms take effect, health insurance costs will climb, beginning in the next few months.
A flurry of studies on health care costs has recently been released, and they give the public and policy makers a more accurate picture of what has been happening and what the future will hold. Many preconceived notions about these costs have now been replaced with actual facts. The bottom line is that health care will continue to cost more for the next few years before leveling out.
Workers who get their health insurance through their jobs know that employers have been front-loading the costs of the employee-paid portion for years by increasing the workers’ share of premiums, and by expanding deductibles, out-of-pocket payments and the percentages of actual costs.
'“Health care reform offers incredible promise to people,” Nicole Evans said. Evans is the spokeswoman for the California Association of Health Plans, a statewide association of the health insurance companies. “I think because of this economy that we’re in, where employers are struggling to keep their doors open, the extra added cost of health benefits is a real challenge that they face. They are trying to ensure that they are still offering some sort of benefit to their employees, but they are having to shift some of their cost over to their employees.”
According to a study by Hewitt Associates, a global human resources consulting and outsourcing company, more than half of the employers surveyed say they intend to boost the portion of health care costs, which will be paid by the workers. Right now, workers in general pay 27 percent of the premiums for a family. Next year, 63 percent of employers in the survey say they plan to increase that percentage. Forty-six percent expect to raise the out-of-pocket maximums, and 40 percent will be increasing deductibles for both in-network and out-of-network providers. Some employers will be shifting to plans with smaller physician networks, all to save money.
The Kaiser Family Foundation released a survey reporting that employee contributions to health insurance costs have grown by 47 percent in the past five years. During the same period, employee wages increased 18 percent, diluted by 12 percent inflation.
During the past year, the share of health care costs paid by employers dropped $87 per worker, but the worker paid $120 more during the same period. How much did the average worker pay in 2010? The average family preferred provider organization (PPO) plan cost $3,823.
Up, up and away
The Kaiser study found that the actual cost of employer-provided health insurance rose only 3 percent this year. Over the past decade, premiums have gone up 114 percent. and workers have been slapped with a 147 percent increase.
Several factors that have caused the rise in health insurance rates. One of the biggest increases has been pharmaceutical drugs. An AARP study found that since 2006, the consumer price index has risen 13.3 percent. During that same period, brand-name drugs have shot up 41.5 percent. Those same drugs rose more than 8 percent just in the past year.
The McKinsey Global Institute surveyed U.S. health care costs in 2007 and compared them with 13 other countries. It found that U.S. patients consumed 20 percent fewer drugs per capita than patients in Germany, Canada and the U.K. Yet those same drugs cost U.S. patients 70 percent more than in the other countries.
A 2009 Harvard study reported that about 45,000 Americans die each year as a result of not having access to adequate medical care. It also reported that when compared to other wealthy nations, the U.S. ranks 28th in life expectancy. The conclusion of yet another group, the Organization for Economic Cooperation and Development, was that the reasons that health care is so much more expensive in the U.S. are higher administrative costs and the fee-for-service structure that rewards the provider for the number of services provided but does not reward better treatment.
Rising costs are reflected in higher insurance premiums. “One thing that health care reform can probably do a better job at is managing medical care costs,” Evans from CAHP said. “Medical care costs are increasing two to three times faster than the rate of inflation, and it has had an impact on the price of health care coverage.”
Evans pointed to the current system of hospital networks. “We have a system right now where medical providers have incredible leverage, in California in particular,” she said, “because they have the clout to demand high prices. When you have a hospital system negotiating with the health plan, there’s a lot of power behind that whole group.”
Many critics of the health care reforms insist that one of the primary sources of inflated health costs is malpractice litigation. They say tort reform is required for any meaningful reduction in costs. It has been the conventional wisdom that our litigious society causes higher malpractice insurance premiums for doctors who, in turn, practice defensive medicine by ordering more tests than are really necessary.
That premise was recently turned on its head by a Harvard School of Public Health study. It found that malpractice litigation and defensive medicine accounts for only 2.4 percent of total health care spending. Unlike previous reports, which merely projected estimated costs, this study looked at actual costs. Of the $55.6 billion being spent in this way, $45.6 billion was attributed to defensive medicine by hospitals and not by physicians.
Physicians were also found to be out of touch with the reality of malpractice costs. When the price of their malpractice insurance premiums went down 30 percent, defensive medicine costs across the board dropped only 0.4 percent.
Here in California, customers of private individual health insurance policies were just hit with significant premium increases by Anthem Blue Cross, Blue Shield, Aetna and HealthNet. Those increases, which began on Oct. 1, ranged from 14 percent up to 29 percent and affect 1 million Californians.
California requires health insurers to demonstrate that at least 70 percent of their premium costs are spent directly on patient healthcare. That percentage will be going up when the full reform package kicks in by 2014 and requires that 80-85 percent of those dollars go directly to health care.
One final footnote to the high cost is the annual compensation of insurance and pharmaceutical CEOs. For the sake of comparison, according to PhysiciansSearch.com, a family physician earns an annual salary of $150,000 and a cardiologist earns $310,000. In 2009, the CEO of UnitedHealth Group was compensated more than $106 million.
Schering-Plough’s ex-CEO took away a salary of $49.6 million plus an unknown bonus tied to the company’s takeover by Merck.
Introducing the Affordable Health Care Act formerly known as Obamacare
Everyone wants to know how these new rules will affect access to their own doctors and how much it will finally cost. People are concerned about how it will affect their taxes, Medicare and how the coverage of uninsured people and the promised extra services will be paid for. Above all, the universal question is: How much will this cost me?
Right now, according to a Kaiser Family Foundation survey, the average employer-sponsored insurance plan for family coverage costs $13,770 per year. Of that, employees currently pay nearly $4,000.
The U.S. Centers for Medicare and Medicaid Services reported that by 2019, it will cost Americans an average of $13,652 per person. But that is only $265 more than health care would be costing without the reforms. Most of those who are uninsured will be purchasing their insurance through state-run exchanges. For those who cannot afford the entire cost, government aid will come in the form of tax credits.
By 2013, changes will become more visible. The so-called doughnut hole in Medicare drug costs will eventually be phased out. This program, instituted by the Bush Administration, has placed a financial burden on those older than 65 and on fixed incomes, due to the annual rise in drug prices.
Also in 2013, the medical pretax bank accounts, or flex accounts, will be reduced to a maximum of $2,500 instead of the present $5,000. The wealthiest Americans, individuals making more than $200,000 and $250,000 for couples, will begin to pay a hospital tax.
But it is 2014 when major portions of the reforms will kick in. The biggest change will be the requirement for all Americans to have health insurance or else to face a small fine that will be fully phased in to reach 2.6 percent of income by 2016.
There are two reasons behind this. First, this requirement is in exchange for a ban on certain insurance company practices, such as refusing coverage to anyone with any pre-existing condition, charging different rates based on gender, health status or other factors; and dropping a customer from coverage when the patient gets sick. Companies won’t be able to impose either a lifetime cap or an annual cap on coverage. The second reason for requiring health coverage is to prevent people from purchasing insurance only after they get sick.
Other changes in 2014 include the rule that companies with 50 or more employees will be required to offer health insurance to their workers or pay a penalty. However, a new RAND report expects a huge jump in businesses that will start to offer insurance, rising from the 84.6 percent that do so presently up to 94.6 percent after the reforms. RAND said most of the increase will be in small businesses because employees will demand it due to their own obligation to be insured and the projection that the larger pool of businesses in the state-run exchanges will lower the price of insurance.
Also, Medicaid or in California, Medi-Cal, will be extended to include those earning 133 percent of the poverty level. Federal funds will cover the new participants. People whose income is less than 400 percent of the poverty level but who do not qualify for Medicaid will receive credits through their state insurance exchange. Medi-Cal will stop reimbursing for what are called “never events.” These are medical mistakes that should never happen, such as operating on the wrong body part.
Insurance companies whose total premiums exceed $25 million will have a provider fee imposed based on market share.
In 2018, one more piece of the legislation will go into effect, “Cadillac” plans, expensive insurance plans with all the bells and whistles, that are provided to select workers will be subject to an excise tax.
The end result of all of these new rules and changes will be a huge reduction in the number of uninsured Americans. RAND predicts that by 2016, the number of uninsured will drop from 52 million down to 18 million.
Some love it, some hate it
All of these new reforms are being challenged in the courts by 20 states throughout the country. A federal judge in Florida has set a hearing on Dec. 16, for arguments on whether to block health care reform from going into effect.
The opposition to health care reform is passionate. Dr. David Rosenfeld is a proctologist and cancer surgeon in Simi Valley, and he is dead set against the program.
“My concern is that when the government takes over, it is just going to be a mess and that it really isn‘t sustainable,” Rosenfeld said. “There are better ways to do it. I kind of like the free market system. They say the system isn’t working but they haven’t really pushed for a volunteer system. There are a lot of people that want to give, especially in the medical field. I can’t afford to take a day out of my office, and lose the income. But what if I could figure out my lost income for that day and take it off my taxes? I feel that would go a long way.”
Rosenfeld had another idea for changing the insurance system. “I would like to see everybody with catastrophic insurance,” he said. “A huge deductible but full coverage for the worst that could happen and the premiums would cost $50 a month for everyone. Patients would pay the doctors directly so it would be up to the patient to find the doctor charging reasonable fees.”
Supervisor Steve Bennett likes most of the reforms and said the county is ready for this change. “Health care reform puts a big emphasis on having a medical home and using primary care,” he said. “That is the county’s model. If more people have insurance, they are more likely to come in early before things get worse. We can manage that with our primary care physicians rather than waiting for them to walk into the emergency room. If more people walking through the door are insured, that should be a help to the taxpayers.”
Atkins of the Ventura County Democratic Party would prefer what is called a public option, where all medical care is administered by the government, in addition to the private system. “Costs that insurance companies charge must be strongly regulated to prevent abuse of their new customer base,” he said. “Competition from a public option would help ensure that Americans have alternatives.”
Atkins recalled the early days of Social Security and Medicare. “Those programs were attacked by right-wing scare tactics in their own day,” he said. “Both programs have been reformed and improved greatly since their original implementation. The recent health care reforms are not perfect, but they are a huge step in the right direction, fixing a broken system.”