After Obama's Health Care Law
— Milton Fisk
HOW CAN THE single-payer health care movement move ahead after Obama signed the Patient Protection and Affordable Care Act? The right wing wants to repeal the law, which it sees as “intrusive big government.” Single-payer activists are rightly angry that the bill fails to produce the universal national health insurance that our society desperately needs, and instead provides massive subsidies to the private corporate insurance vampires.
For our movement, however, mounting a push for single payer that starts with a call to repeal the new law would be political suicide. It would strengthen the right by giving it what it wants. It would alienate people, including many in organized labor, who worked for the law because it was “on the table,” despite their conviction that single-payer reform was needed.
I will argue here that the single-payer campaign can move forward in the context of Obama’s Affordable Care Act.
The law, signed by President Obama in late March, is riddled with contradictions and is ultimately unviable — yet it does contain the potential for numerous positive changes. Its defining change will be making insurance affordable to 32 out of the 48 million uninsured starting in 2014. This could then become the largest step toward universal coverage since Medicare and Medicaid were implemented 50 years ago.
Yet half of those who are part of this expansion will have to buy their insurance from private insurers, with help from government subsidies. How is this supposed to work? Under the new law, insurers will face new regulations; large employers face penalties for not insuring their employees; Medicare will gradually close the “doughnut hole,” the prescription drug coverage gap for seniors. Undocumented residents will not qualify for benefits under the law.
Baby boomers can now subscribe to federal long-term care insurance with a payout of $75 a day for home or institutional care. And toward the end of the decade, employees will start paying taxes on expensive health plans they are enrolled in by their employers.
The Balance Sheet
Taken by themselves, these changes and more in Obama’s tool kit for reform do enhance fairness as well as increase society’s responsibility for more of its members. Perhaps the most important change in this regard is expanding Medicaid to cover people with incomes up to 133% of the poverty level. This step has the potential to bring public insurance to 16 million. It matches an equal number of the uninsured above 133% of poverty who will be able to buy private insurance.
The federal government will reduce the states’ burden for this expansion of Medicaid by paying 98% of its cost for 10 years and 90% thereafter. But for providers to accept additional Medicaid patients, both state and federal governments must cooperate in adequately funding Medicaid.
Another important change requires the rich to bear a larger burden for health care reform. While tax rates for the wealthy have been falling since Reagan became president, the income of those in the top one percent of the population has doubled.
With the new law, Medicare payroll tax for the five million couples earning more than $200,000 will jump from the current 1.45% to 2.35%. Wealthy couples will also pay Medicare a 3.8% tax on their investment income. These measures thus enhance the solvency of Medicare.
The new law also calls for a gradual elimination of the Medicare Advantage Plan, which is rapidly hollowing out Medicare. Under this plan, Medicare pays private insurers more money to cover a senior who chooses the plan than Medicare itself spends on the average senior outside the plan. As a result, the Advantage Plan has been a significant cause of draining Medicare’s funds.
A different saving comes from taking student loans back from private lenders. This saves the government $60 billion, and earmarks $10 billion for health care. With measures in the Obama law like all those above, one can see why the right wing, with its desire for “small government” and unregulated markets, opposed it.
Nonetheless, some provisions of the Affordable Care Act have negative results that could outweigh their benefits. The uninsured who qualify for subsides to help them buy insurance will have to pay a percentage of their income for their insurance. Families making $40,000 would have to pay 5% while those making $80,000 would have to pay 10%. On top of that, there will be co-payments, deductibles, and drug costs for which they, and not the insurer, will be responsible. In many cases, their total subsidized health care cost would be unaffordable, yet they would face fines from the IRS for failing to buy insurance. By 2016, the fines could run to 2.5% of income for both individuals or families.
States would supervise so-called insurance exchanges. Private insurers would participate in the exchanges, under rules designed to encourage competition, selling insurance to low-income people and small businesses. The states would have to see to it that the insurers in the exchanges do not dump the sick, inflate premiums, or offer inadequate plans.
But the record on state supervision of insurers is not encouraging. During the Congressional debate, private insurers saw to it that the new law would not include a public insurance plan (the once-touted “public option”) in the exchanges.
The law’s impact on women is both positive and negative. Premiums for women will no longer be based on differences experienced in illness between women and men. Instead for purposes of setting premiums, both will belong in the same community and thus will pay the same premiums. (By contrast, the law allows insurers to charge an older person a premium three times as large as that of a younger person.) But in view of recent claims that Anthem of California cancelled the insurance of some women diagnosed with breast cancer, it is of interest that the law allows cancellation of coverage only for fraud.
The issue of subsidized insurance that could cover abortion threatened to defeat the proposed law. Only a complex set of rules pacified Congressional opposition. When a plan in a state insurance exchange covers abortion, federal funds used to make the purchase must be segregated from the private funds that would be needed for the plan’s abortion coverage. This respects the letter of the Hyde amendment’s prohibition on using federal funds for abortion. But a state may outlaw any plan in its insurance exchange that covers abortion.
Provisions in the law also forbid insurers to deny coverage for pre-existing conditions, to terminate coverage for poor health, or to set lifetime dollar limits on coverage. The insurers’ response is that these provisions will lead to higher premiums for everyone. This is indeed what will happen, since the law does not regulate how fast or how high premiums will go. Even a formal procedure for negotiating premiums is missing.
The law does require, however, that the insurers’ medical loss ratio — the share of premiums going to health care rather than profits and overhead — be at least 85%.
Even by their own accounting, few insurers meet this standard. The ratio is much lower for individual than for group plans, due to the extra paperwork. Moreover, how high an insurer’s ratio is depends on how many actual business expenses it can call medical expenses.
The government is relying on the National Association of [State] Health Commissioners to set a uniform standard. Vigorous enforcement of a reasonable standard of what counts as a medical expense could stop an increase in premiums whose main aim is increasing profits.
The Obama law backs away from regulating hospitals. The reason is that, well before Congress passed the law, president Obama negotiated a $155 billion reduction over 10 years in Medicare reimbursements to hospitals. If enforced, this would slow the hospital building, administration, and technology spree for which Medicare reimbursements paid. To avoid regulation, drug makers also agreed with Obama to forgo $85 billion in charges to government health programs for drugs. All such deals, though, are more fragile than laws.
A Failing System
Thus far I have talked about some of the many reform provisions in the Affordable Care Act. I focus now on two features making it a risky deal. The first is that it perpetuates employer-based health insurance. The second is that it gives commercial insurers an expanded role in health care.
Employer-based insurance started during World War II. Since wages were frozen by the unions’ no-strike pledge, employers were willing to buy industrial peace by offering health benefits in lieu of higher wages. It then got a boost both from the 1947 Taft-Hartley law, which allowed unions to bargain for health benefits coming through either an employer’s self-insurance plan or a fund set up by an employer and controlled by the union. When Congress failed to pass president Truman’s single-payer bill, union leaders were ready to bargain with employers for health insurance.
Employer-based insurance then became a legacy that neither Obama nor the current labor leaders wished to challenge by backing a single-payer plan. In fact, Obama’s health reform law adds a mandate to the system of employer-based insurance. For employers with more than 50 employees, it mandates contributions offsetting part of the cost of employee health insurance.
If the employer fails to offer coverage or offers insufficient coverage, sizeable penalties can result, even when just one of the employees qualifies for a government insurance subsidy. Different forms of “employer mandate” were also the center of bills proposed, but not passed, by presidents Nixon in 1971 and Clinton in 1993.
The sheer number of people already covered by employer-based insurance makes the step of locking it in through an employer mandate a major feature of the Affordable Care Act. Currently, 162 million people are covered under some form of employer-based insurance. Ninety-five percent of firms with 50 or more employees offer insurance. On average, families now pay 27% of the total average cost of $13,375 for their employer-based coverage. With the new mandate, eight million more employees could get insurance from their employers.
Under employer plans, the health benefits employees receive will depend ultimately on negotiations with employers. Success will vary with economic conditions. For the last 30 years, employers have had the upper hand, allowing them to reduce not just wage increases but also the quality of health plans. The difficulty is that the need a group of employees has for health care remains steady whereas the economy, and with it employees’ negotiating power, fluctuates.
The new employer mandate puts a bottom on these fluctuations but fails to provide the steadier source of funding a public health plan would offer. Moreover, adding the employer mandate will not end premium inflation. Putting employees in an employer pool can lower their insurance costs. But once they are in a pool, the cost will rise annually, just as it had been doing for other employees.
Another issue for the employer mandate is its effect on equal treatment. Critics on the right have pointed out an inequality. The employers will make contributions to put them in compliance with the mandate. But these will be larger than most of the subsidies the government will grant those buying insurance in the exchange.
Equality is also an issue for the employer mandate itself. The mandate rests on an “experienced-based” rather than a “community-based” norm for premiums. Thus, insurance plans for workers in unsafe industries will be more costly than for workers in safe ones. Employees are not in a common pool where local burdens become less significant by spreading them out.
I turn now from the employer mandate to criticizing the role the Affordable Care Act gives to the insurers, only a handful of whom are not-for-profit. The great majority are part of the financial industry, handling money to make money. They ran the earlier not-for-profits out; their only contribution to health care has been to allow it to become more expensive.
Insurers defeated the proposed public option, which Obama had promised in his campaign. They argued that, if they are to pay dividends to their stockholders and millions to their officers, they cannot be expected to compete with a public option. It is no exaggeration to say that the guiding purpose of the new law has been to keep the insurance industry alive, protecting it from its own excesses.
How well does it do this? Not very well, I’m afraid. The Affordable Care Act gives the insurers the 16 million Americans in families making between 133% of poverty and $80,000. These people would not otherwise be part of the insurance market. Only through a government subsidy can they purchase insurance. Since wages are rising more slowly than the cost of insurance, the amount of the subsidy will have to increase if the plan becomes more expensive. Alternatively, their benefits may be cut.
The problem of insurance inflation is not limited to the burden it puts on the government through higher subsidies. It also puts a burden on those who pay for insurance without the aid of subsidies. To solve the broader problem of premium inflation, the new law calls for review of premium increases and of the share of premiums going to health care. Yet one cannot address the problem without definitions of standards and threats of penalties.
Those who trust markets to solve the problem will say that competition between insurers makes talk of standards and penalties superfluous. But the evidence is in from the past 20 years that even when there has been competition among insurers it has not curbed premium inflation. There is little hope for the kind of competition within the insurance exchange or generally that could tame inflation.
Why blame the insurers rather than the doctors and hospitals? There is, indeed, greed enough to go all around. Were the insurers not accountable to Wall Street, they could have curbed provider greed, exercising their power as paymaster to discount drastically medical charges.
As it is, there is a strong incentive to honor the higher charges, since they justify raising premiums — and with more premium income the insurers can make more investments, from which they receive further income with which to reward their investors.
A maverick insurer who decides to compete by offering lower premiums and discounting medical charges will find that doctors and hospitals will close their doors to patients insured by such a maverick.
From Failure to Hope
The conclusion is that insurers will use the employer and individual mandates in a way that makes health care unaffordable for the nation. We shall soon be unable to afford the Affordable Care Act.
Employee groups will no longer be able to negotiate the ever more expensive insurance plans they need with their employers. The government will no longer be able to afford the increasingly large subsidies low-income people will need to buy health insurance. The inflation initiated by the for-profit insurers will inevitably affect the costs of care under Medicaid and Medicare.
The logical and rational answer is not to divide people up into a different set of insurance pools. It is to put them into one big pool, which they would pay into according to their means to create a single-payer system.
A big step forward for single payer would be simply to make major parts of the Obama law obsolete by amending Medicare. By doing this we could achieve a single-payer system — without opening up the Obama law to amendments, a step the right would use for mischief of its own.
The separate law would call for the extension of Medicare, first to an age group containing people ranging down to, say, 10 years younger than those now eligible, with full benefits. Then, after a fixed interval of, say, five years, those between 10 and 20 years younger would be eligible. Eventually everyone would be on Medicare without violating the Affordable Care Act.
The strategy is not new, but the context of the Obama law gives it a relevance it lacked. It parallels the way the law de-privatizes Medicare through periodic reductions in funds for the Medicare Advantage Plan.
Where would we get the funds needed to extend Medicare? They would come from a transfer to Mericare of funds otherwise available to pay private insurers and Medicaid. These funds would be what people in the lower-age group would have paid had they not become eligible.
If calling to “repeal the bill” is repugnant and trying to amend it is dangerous, the option of periodic extensions of Medicare to younger cohorts is neither. The extensions could provide a means for winning single payer.
Most importantly, however, we shall go nowhere without a movement several times stronger than any yet mobilized for single payer in the United States. Organized labor has the human and material resources to help build this movement. Moreover, the broad left must increase its efforts to secure support for single payer in organizations to which it has access.
ATC 147, July-August 2010