Monday, March 22, 2010

We Have a Health Care Law

Health care reform passed the US House last night. The legislation is a significant step forward in health insurance coverage and insurance reform. Coverage issues are initially addressed by an expansion of Medicaid, not only in the number of people eligible but also in the quality of services. The quality will be improved by increasing doctor reimbursement rates to the same level as Medicare. States will receive increased federal funding to cover the Medicaid changes.

Insurers will no longer be allowed to exclude children with pre-existing conditions. Adults with pre-existing conditions will be given immediate access to a high risk pool. Insurers will not be able to drop people who become sick. Lifetime plan limits are eliminated.

Rate setting reform will stop the use of such things as health status and sex from being used to establish premium rates.

The infamous "donut hole" in senior drug coverage is eliminated.

Small businesses will receive tax credits to purchase insurance coverage for employees.

Dependent children may continue on their parents' plan until age 26.

Insurers with excessively high administrative expenditures will be forced to give rebates to customers. Customers will have an appeals process to contest plan changes or decisions.

All of this is pretty positive stuff, but now a cautionary note. This bill contains an insurance mandate; basically, one way or another by private insurance or Medicaid or Medicare, you have to be covered. That is not bad or unprecedented by itself. Most of us are right now under an insurance mandate. If you drive a car, your state forces you to buy insurance. Also, this bill has various tax credits for those unable to afford the coverage.

The problem with the mandate is that it will do nothing to curtail health care inflation. The mandate may help with insurance inflation because the market will be huge and many new insurers may enter the expanded market. However, the costs of medical procedures, hospital stays, pharmaceuticals, etc will go unchecked and may in fact be fed by the new money in the market.

If, as promised by Senate Majority Leader, Harry Reed, that a vote on a public option is coming within a year, then all may be well. A public option is a health insurance plan operated non-profit by the government. The plan is much cheaper than the private plans from which insurance companies extract huge profits. More importantly, a public option enables the government to leverage down health costs. If the public option is hugely popular and millions of people become a part of that plan, along with Medicaid and Medicare, then the federal government can begin to set limits on providers. The government could, for example, tell hospital chains "we will no longer pay $1,500 a day for a hospital stay, we will only pay $1,000 a day. If you don't like it, we will take our 50% of the market somewhere else." That's the way a public option helps control the staggering health care inflation that has now driven health care spending to the level of 18% of our Gross Domestic Product.

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