Wednesday, March 24, 2010

The US Health Care Reform Bill Passed

Culminating President Obama's year-long, mostly acrimonious and divisive, push to reform health care in the US, the House of Representatives approved the historic Patient Protection and Affordable Care Act 2010 (which was passed by the Senate on Christmas Eve) and sent it to the President for signing into law. The legislation, which faced opposition from within sections of Democrats and looked dead at one time, was passed without a single Repblican vote in both Senate and House (the first such instance of a major legislation being passed thus), after a compromise package that federal money provided by the bill could not be used for abortions, was tailored to secure the support of wavering Democrats.

The Bill would require most Americans to have health insurance, would add 16 million people to the Medicaid rolls and would subsidize private coverage for low- and middle-income people, at a cost to the government of $938 billion (CBO estimates) over 10 years. CBO also estimates that it would provide coverage to 32 million uninsured people (who were denied coverage either because insurers deemed them too sick or because they could not afford ever-rising insurance premiums), but still leave 23 million uninsured in 2019, of whom one-third would be illegal immigrants.

Households covered under Medicaid with income up to 133% of the federal poverty level, or about $29,327 for a family of four, would be eligible for the subsidies. People with incomes of between 133-400% of the poverty level (that’s $29,327 to $88,200 for a family of four) would be eligible for premium subsidies through the exchanges. Premiums would also be capped at a percentage of income, ranging from 3% of income to as much as 9.5%.

Further, health insurers will no longer be able to deny coverage to children with medical problems or suddenly drop coverage for people who become ill, and must allow children to stay on their parents’ policies until they turn 26. It would require many employers, those with 50 or more workers, to offer coverage to employees or pay a federal fine beginning 2014. Each state would set up a marketplace, or insurance exchange, where consumers without such coverage could shop for insurance meeting federal standards. Small businesses could obtain tax credits to help them buy insurance.

Further, starting in 2014, Americans with employer-based insurance who lose their job and have to buy their own policy, cannot be denied coverage or charged high rates because of pre-existing conditions. Before then, the chronically ill could gain temporary coverage from enhanced high-risk pools and chronically ill children are guaranteed coverage.

In order to address concerns (maninly from the insurers) that young and healthy people will not enroll because the new requirements will make their premiums higher to help subsidize the older and sicker, the Bill contains a provision that requires most Americans to have insurance or pay a federal penalty. Though there still remains apprehension that the penalties will be too small and may be weakly enforced.

The mandatory requirement to cover even people with potentially costly pre-existing conditions and the strict limits on how much more an insurer could vary premiums among the people taking out the same policy, largely to factor in age differences, means that the current practice of insurers protecting profits by trying to enroll only the healthiest individuals, while also charging enough to recoup the expense of covering sick people will become history.

It will also eventually close (eliminate by 2020) the gap in Medicare drug coverage, known as the doughnut hole, in which elderly patients must pay for prescription drugs rather than having them covered by the government. Many chose to stop taking their medicine or switched to lower-price generics.

The bill does not quite reach full universality, but by 2019, fully 94 to 95% of American citizens and legal residents below Medicare age will have coverage. The bill achieves that by requiring most Americans to obtain health insurance, providing subsidies to help the middle classes buy policies on new competitive exchanges, and expanding Medicaid coverage of the poor to include childless adults and others not currently eligible.

CBO has also said that the new costs would be more than offset by savings in Medicare and by new taxes and fees, including a tax on high-cost employer-sponsored health plans and a tax on the investment income of the most affluent Americans. Beginning 2013, affluent families with annual income above $250,000 would be required to pay an additional 3.8% tax on their investment income, while contributing more to the Medicare program from their payroll taxes. Starting in 2018, employers that offer workers pricier plans — or those with total premiums of $10,200 or more for singles and $27,500 for families — would be subject to a 40% tax on the excess premium. It also proposes savings by way of lower payments for hospitals and doctors and lower drug prices. All these reforms are expected to reduce federal budget deficits by $143 billion in the next 10 years.

However, the Bill does not contain the important public-option plan - a health plan that would compete with the private insurers and make them lower costs and become more competitive. This omission had also earned the Bill the support of hospitals and drug makers, who would be clear beneficiaries as nearly 32 million new customers enter the market to purchase health care.

Insurers, whose main trade group, America’s Health Insurance Plans, vehemently opposed the legislation, will face pressures to become more cost-effective and competitive in a strikingly different business environment, with drastic changes in the way insurance is sold to individuals and small businesses, besides much heavier regulation. However, they will stand to gain from the about 16 million of the newly insured who are expected to enroll in private plans.

The creation of state-supervised marketplace, called exchanges, in which insurers would be required to sell their policies for individuals and small businesses, will involve much greater regulatory oversight than insurers now typically face and will force them to alter their business models drastically.

Greg Mankiw has a superb post putting the health care reform debate in perspective - the Bill offers "more equality (expanded insurance, more redistribution) and less efficiency (higher marginal tax rates)" and "more community (all Americans get health insurance, regulated by a centralized authority) and less liberty (insurance mandates, higher taxes)". He opposes it on the grounds that it would place unsustainable fiscal burdens.

See also this timeline on health care reforms in the US over the past century and this summary of the changes in the Bill during its passage through Senate and House. This interactive graphic informs how the Bill owuld affect insurance consumers. See this consumer guide Q&A on health care reform. See this comprehensive linkfest on health care reforms.

The Economist approves the Plan. Links from Healthcare Economist here. Robert Reich's comments here. Paul Krugman here. See the CBO's latest estimate of the final version of the Bill. Mark Thoma has this nice analysis of the numbers who benefit from the Bill. Ezra Klein explains who will be left uninsured. David Leonhardt shows how the Bill attacks health care inequality. See Uwe Reinhardt here.

See the final version of companion the Bill, the H.R. 4872 — the Health Care and Education Affordability Reconciliation Act of 2010, and its summary. See also this health care reforms discussion document for summary of the research on the health care in the US.

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