Who is potentially eligible for government assistance?

In 2014, everyone earning less than 400% of the Federal Poverty Level (FPL) which is determined by the number of members in a household (family size)  

Family Size     400% of FPL     
  1                          $43,320    
  2                          $58,280  
  3                          $73,240   
  4                          $88,200
Health Care Reform
Perspective

Entitlements

With the Health Care Reform debate heating up again, we hear almost daily about many provisions being debated or challenged in court.  The bill has been hailed as the largest entitlement program since Medicare in the 60’s, as approximately 65-70% of the non-Medicare population in this country could be eligible for help from the government to purchase health insurance.

But most American’s don’t understand the scope of this entitlement, where the money is going and where it will come from.  What exactly are we about to spend almost $1 Trillion tax payer dollars on? And how will we pay for it? 

Beginning in 2014, the bill provides government subsidies to offset all or a portion of a person’s monthly cost of health insurance for any qualified individual with a household income less than 400% of the Federal Poverty Level  (FPL - see table to the left).  With this help, the CBO expects we will increase the number of Americans with health insurance by 32 million (from 83% to 94% of the population).

Beginning in 2010, the bill phases in over a ½ Trillion in new taxes and cuts almost ½ Trillion in costs from Medicare/Medicaid.  These taxes and spending cuts raise over $1 Trillion to fund these subsidies.

Because the CBO’s projected new spending is lower than the projected new taxes and spending cuts, the bill is assumed to provide an overall savings to the Federal Government (i.e., it reduces the deficit).

Each of the below topics helps to explain the fundamentals of the bills cost. The first three topics are written to educate and are based on published information/facts that are relevant about the topic at hand.  The last topic is my point of view about all of this, which may not be relevant to all of you, but entertaining none the less! 

How is the Government going to help people pay for health insurance?   

What are the implications of the Medicaid Expansion?

What are the implications of the Premium Subsidy program? 

My Point of View - How does an Entitlement Bill lower our deficit?       










How is the Government going to help people pay for health Care? 


The eligibility for help and mechanism for help is in two categories:

1.       First, is an expansion of the current Medicaid program run in combination by the states and federal government.   According to CBO estimates, the number of people enrolled in Medicaid will increase by 16 Million.  This is a 46% increase over current enrollment.  

Medicaid offers health insurance at low or no monthly premiums, offers virtually 100% coverage, for those below certain income levels (rising to 133% of the FPL in the bill in 2014).  The trade-off relative to other forms of coverage for the participants is that a relatively small number of providers will accept Medicaid patients. 

2.       The second entitlement is a brand new “Subsidy” program where individuals or families have their monthly premium for health care capped at a percent of their income.  The below table shows the “maximum monthly premium” that a household will be responsible for paying when purchasing silver plan coverage through the new insurance exchanges.  This plan of benefits is comparable to median benefits currently offered by employers.

The government will pay any premium that exceeds these amounts. In addition to premium subsidies, anyone earning less than 250% of the FPL will have their benefits increased so that out of pocket expenses (like copays & deductibles) will be minimized.     

Although there are many details in the regulations that define how these two programs will work, they are the two components driving the cost of the bill. The goal of both entitlements is simple… reduce the number of uninsured.   



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What are the implications of the Medicaid Expansion?

When people realize that this legislation expands Medicare by 46%, even though the bill was passed almost 1 year ago, many are surprised.  The dynamics of such as expansion bring up some interesting challenges worth consideration and debate:
  • Medicaid is currently managed primarily at a State level and has been a large driver for many State’s budget problems.  The reform legislation has the federal government paying for the early years of this expansion, but handing the budget responsibilities back to the states on future years.  

This has brought concern from many Governors across the country as they know that this will be their long term initiative and an entitlement program that many of them feel they can’t afford now much less expand.  Taxpayers are also concerned about the cost of this expansion and the impact on other programs like education when the states are managing their budgets.

  • Most States offer very low reimbursement rates to providers for Medicaid patients, which is why the network of physicians treating this group is relatively small.  In Michigan, Medicaid reimburses about 44% of the rates providers receive from commercial insurance carriers offering employer based coverage (Medicare pays about 70-80%).

 

  • The uninsured are a challenge for hospitals in many communities as they are a major access point to care for this population (i.e., Emergency Room use).  There is a high volume of uncompensated care delivered to the community each year, but this pressure has a larger impact on hospitals than physicians.  Hospitals who currently treat the uninsured with no reimbursement will see payment for these patients.  Although reimbursement will be at a much lower than commercial insurance and Medicare, it is better than nothing.

 

  • More people will have very good insurance coverage, providing payment for needed care. 

  • With this newly found insurance, it is likely that physicians will see an increase in patient volume.   However, because reimbursement rate are so low there are fewer providers that see these patients.  There is concern about whether there will be adequate access, especially with primary care physicians to treat this population.  This may prove to be a daunting challenge for providers in certain communities to meet the access needs of patients and keep their practices profitable.   

   
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What are the implications of the Premium Subsidy program?
 

As this is a new program, the crystal ball is a little cloudy on the long term impact of the government offering these subsidies.  Because it is different from any existing entitlement program and will run in a new insurance environment that doesn’t exist yet (i.e., the exchange), the budgeting for this entitlement is more difficult and less known. Here are some of the aspects of the program being discussed:

1.     The monthly caps on premiums provide meaningful help for Americans buying coverage, but also have raised concern over funding.  The premium caps (see above table ) are significantly below the actual cost of coverage, generally ranging from $500-$800 for Single Coverage and $1,500-$2,000 for Family coverage today and increasing each year.     

The government is responsible to fund whatever the gap is between this cap and the actual cost of coverage.  The CBO is estimating this gap to be $5,200 per subsidy enrollee in 2015 and trends this number at 3.65% for future years. 

2.   Another concern is whether employers will drop their health plans given that the Government will now offset the cost for their lower paid workers and higher paid works have new insurance protections in the exchanges:  

o   The CBO estimates that 8-9 Million American’s (5% of current) will lose employer based coverage (“firms that would choose not to offer coverage as a result of the proposal would tend to be smaller employers and employers that predominately employ lower-wage workers  - people who would be eligible for subsidies through the exchanges")

o   An example would be a firm with 80-90% of their employees below the 400% FPL threshold, and many below the 250% threshold qualifying them for better benefits.  With the new subsidy program, the employer can terminate their health plan and employees will be able to buy comparable or better coverage at a lower cost.  Instead of spending $8,000 per year to provide coverage, they can pay the government penalty of $2,000 per year.  The employer saves money and a majority of their employees receive good insurance at low costs.   

o   McDonald’s and Walmart are a couple of big name employers that likely fall into this situation where a majority of their workforce qualifies for the new federal subsidies. 

o   It is unclear what employers in this situation will do with their group health plan. The concern on the budget is whether instead of the CBO’s assumption of 5% of people with employment based coverage losing coverage and move into the subsidy program, more lose coverage and the program ends up covering a lot more people than expected. 

o   Note that people who meet the income threshold for the subsidies aren’t eligible to receive help from the government if their employer offers coverage that meets specific coverage and affordability requirements.


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My Point of View - How does an entitlement bill lower our deficit?
 

My concern from the beginning is about how we going to pay for this bill, especially once I understood the percentage of our population that could qualify for government assistance.   

The bill is so large and has so many rules and regulations that the debate is often on issues like the constitutionality of the individual mandate.  This is a very important issue, but the debate detracts and confuses the public from understanding the entitlement programs.  The fundamental question that I believe should be answered: Is there is popular support for spending $1 Trillion on these programs? 

I don’t think most people understand the breadth of expansion in health insurance coverage that is about to happen in 2014 to even ask the question.  Almost everything being debated has minor financial implications compared to this expansion of coverage. 

When the CBO issues statements about the bill’s impact on the deficit, their comments are based on the balance between their cost estimates of the almost $1 Trillion dollar entitlement program verses the $1 Trillion in taxes and spending cuts that pay for the new entitlements. 

Make no mistake, this bill spends a significant amount of new tax dollars and cuts significantly into Medicare to expand its role in providing health coverage for Americans. 

As the debate for repeal of all or parts of the bill begins, it is interesting to see the CBO issue reports that show that the repeal of the bill will increase the deficit.  This misses a couple key questions:

  • Do we have $1 Trillion dollars to spend on new entitlements?

 

  • Should we be increasing taxes by a half a trillion dollars to pay for these entitlement programs?

 

  • Are the assumptions about cutting a half a trillion dollars out of Medicare actually achievable (the chief actuary of medicare says it isn’t even close to achievable (click here)?

 

  • Given the current budgeting challenges Medicare and Medicaid, what makes anyone think that this won’t add to budget pressures already in place?

 

  • Why aren’t we talking about the budget impact of this entitlement beyond the 10 years? 

The CBO has specifically stated that this legislation will add to the deficit beyond the initial 10 years. This bill has only 6 years of these entitlements included in the CBO’s analysis, with funding for the bill occurring over more than the 6 years.  We are all now living with the budget impact of Medicare that was passed in 1965.  How would expanding a program of this magnitude do anything but increase government spending?    

  • Where is good fiscal judgment here?  Would any investor buy into this deal with the assumption that over the 10 year period it would have a positive return? 

I believe that insurance reform is needed, that controlling health care costs is a priority, but they can be done without the entitlement programs that cost $1 Trillion dollars.  Insurance exchanges that stop discriminatory pricing practices by insurance companies can be created, individual and employer mandates can be enacted (or not), and all of the cuts in Medicare can occur that are currently in the bill without these new programs and the price tag that follows them. 

By not spending this money, we don’t achieve universal coverage….we continue to have challenges with our uninsured.  It is a social challenge that almost everyone, including me, agrees we need to address, but is now the time to do it?   

I’ve yet to see the government successfully manage the cost of an entitlement program that involves health care.  When I met with my Congressman prior to the bill passing (a Democrat who I voted for), one of my requests of him was to have the government prove they could manage and cut Medicare spending before passing the entitlements.   Show me you can pay off the credit card you have before we give you a new one.  

Let’s work on insurance reform so people who need insurance can buy it without restrictions and let's managing Medicare and Medicaid.  Let’s figure out how to control costs first then we can expand coverage to more people once we know how.

Want to e-mail the President or Your Representatives in Congress? 

Here is an easy way to do it:

http://www.emailthecongress.com/emailcongress.html
       


Here's a quick note to email to your representatives if you'd like to use/modify:

Under the new health care reform legislation, our country launches an entitlement program that, absent employer coverage, provides 2/3's of our non-elderly population significant government assistance to purchase health insurance at low to no costs (through exchange subsidies or Medicaid).

I do not believe that we have the money to pay for these programs right now and believe that the government is naïve in thinking that we can cut ½ Trillion out of Medicare to fund this bill. Medicare is severely under funded already and the government has yet to make the cuts necessary to manage these costs much less fund the entitlements created in this new bill.

As one of your constituents, I do not support the entitlements contained in this legislation and implore you to repeal or amend this bill so that these programs do not take effect in 2014.

Sincerely,


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Sources: 

CBO Letter : Congressional Budget Office Letter to Nancy Pelosi, March 20, 2010;  http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf

CBO Letter : Congressional Budget Office Letter to John Boehner, January 6, 2011; http://www.cbo.gov/ftpdocs/120xx/doc12040/01-06-PPACA_Repeal.pdf

Joint Committee on Taxation Report JCX-16-10, March 20, 2010; http://www.jct.gov/publications.html?func=select&id=48

CHRT; Issues Brief June 2010; http://www.chrt.org/assets/cover-michigan/CHRT-Issue-Brief-June-2010.pdf

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