HR 3590 – A Brief Analysis


Before getting started, I want to state that I think it is despicable to have a vote at 8 PM on a Saturday. I am not sure why this would be done, but the reasons I come up with do not make me happy. Possible reasons:

  1. To avoid calls from people in their district as the office is closed
  2. Hoping some opposed will be unable to show up for the vote
  3. The Republicans have a dinner at 8 PM

I personally think we should debate this bill, so I am not against voting on starting debate. It just seems a bit underhanded to have votes on a non-work day at a late hour. Will they vote on the final bill Sunday during church, hoping any Senators allied with the Religious Right don’t show up? This is not such an emergency it needs to be voted on during off hours and I hope the American public, in general, see the underhanded manipulation going on. Rant off.

I have read the bill. All 2,064 pages of it. The majority of the bill is not overly disconcerting, like the House bill was, although many points are a bit vague. In this blog entry, I am going to focus on a few things I see that are problematic.

Taxes and Fees

There are numerous new taxes in the bill. Most of these are contained near the end of the bill, in the 9000s. As I go through these, I want to focus on the potential impact to the average American. I am not including all taxes in the bill. As you look through this, remember that States have until 2014 to have an Exchange in place.

Section 9001 (pages 1979 – 1996): Excise tax on “Cadillac” plans. Any plan worth more than $8,500 (individual) or $23,000 (family) will be taxed at 40% for any benefits above the limit starting in 2013. The limit will be raised by the Cost of Living for each year after 2013. The problem I have with this tax is two-fold:

  1. The tax is based on amount, not benefits. I have an average health plan currently. The group I am in, however, is very small (6 employees and 3 on COBRA) and has numerous claims. Thus the policy is currently worth more than $18,500. This is still below the threshold for family, but it is about half way there. With more claims, the policy could be negotiated over the limit within the next few years. This will unlikely affect me, as I am working on moving on to another health plan, but it opens up the reality that employees in very small businesses could get socked.
  2. The adjustment is on Cost of Living and not rise in the average medical costs. over the past few years, if not longer, medical has been rising at a higher percentage than the Cost of Living.

This tax starts in the year 2013.

Section 9005 (page 1999): Health Flex Savings Account (HFSA or FSA) contributions capped at $2,500. Many companies have FSAs where individuals can sock away a portion of their wages to pay for health costs (co-pays, prescriptions, etc). Under the act, you will only be able to have $2,500 put aside for all of your out-of-pocket costs. This might work for healthy families.

This change takes place in 2011.

Section 9008 (pages 2010 – 2020): $2.3 billion fee imposed on manufacturers of brand name pharmaceuticals. There is a part of me that welcomes this one, as the profit ratios of drug companies is rather high, but I fear the fee will only raise the price of brand name drugs. This will push more people towards generics, which is probably good overall, but it could end up stifling doctors from prescribing newer drug therapies for diseases. Fortunately, the amount is low enough that it should not be overwhelming to R&D of new drugs.

This fee applies to all drugs sold after December 31, 2008. Yes, that means it is retroactive.

Section 9009 (pages 2020 – 2026): $2 billion fee imposed on manufacturers or importers of medical devices. This one makes less sense to me. Raise the price of medical devices? if you raise the price, the providers have to raise prices.

This fee applies to all medical devices sold after December 31, 2008. Also retroactive.

Section 9010 (pages 2026 – 2034): $6.7 billion fee imposed on Health Insurance Providers. This one will impact the average Joe. Total medical spending in the United States is estimated somewhere around $2.5 trillion dollars. Insurance companies control about $1.6 trillion of this market, based on the average insurance for the average American. They have a profit of about 3.3% average, which means somewhere around $53 billion in profits amongst all insurance providers. A $6.7 billion fee is about 12.5% of the profits that insurance companies make. This expense WILL be passed on to the consumer.

This fee applies to all insurance plans sold after December 31, 2008. Yes, also retroactive.

Section 9012 (page 2034): Any expenses allocable to Medicare Part D will no longer be eligible for deduction on a tax return. Medicare Part D is prescription drugs for senior citizens. This goes into effect in 2011.

Section 9013 (pages 2034 – 2025): Starting in tax year 2013, deductions for medical expenses will be based on 10% of income instead of 7.5% of your income. This rounds out, for the average worker, to about $1000 in medical expenses that can be claimed now that will not be deductible in 2013. In the 25% tax bracket, this represents a $250 loss.

Section 9015 (pages 2041 – 2044): High wage earners ($200,000 individual and $250,000 family) will have a new Medicare Hospital Insurance tax added of .5% to every dollar above this amount. No, this one does not affect me or the average person reading this email. The tax, however, is aimed at a group of society that will likely never use Medicare. In addition, the fact the bill is raping Medicare makes it a very interesting tax. But I guess government has to throw things wherever they can tack them on.

Section 9017 (pages 2045 – 2046): Tax of 5% on all elective cosmetic surgery. A tax on boob jobs? 😉

Section 1501 (pages 320 – 341): People not carrying government approved health care will be fined $750 per person not covered per year (or $62.50 per month) beginning after 2016. This fine will rise yearly based on Cost of Living increases. The fine is only $95 per person in 2014 and $350 per person in 2015. The fine will be effective on anyone not covered for one month (three months in the case of Native Americans) and will not apply to prisoners, those will religious reasons for not being insured, individuals not lawfully present in the United States and hardship cases (determined by the Secretary on a case by case basis).

Cost of Plans

The House bill was a bit easier to calculate on costs, as it gave very specific premium estimates. The Senate bill bases everything on a reference plan, which is the second lowest cost silver plan. As these plans have not yet been created, there is not much that can be established on costs to individuals.

At max, you will pay 9.8% of your income for premiums if you file an income less than 400% of the poverty level. As a married couple, you MUST file jointly to be eligible for premium assistance to keep it at this 9.8% level. In addition, if you are less than 150% of the poverty level, you will only pay up to 2.8% of your income in premiums. This is in section 1401 (pages 238 – 260).

As for cost sharing, the estimated cost sharing I have seen are around $11,500 for a family. The government will subsidize 2/3rds if you make between 100% and 200% of the poverty level, 1/2 if between 200% and 300% and 1/3rd if you are between 300% and 400%. This is in section 1402 (pages 260 – 268).

Average family in the US today makes about $58,000 with a Modified Adjusted Gross Income of approximately $45,000. This is how things break down:

                       Today                     Senate Plans
Premiums         $4300                     $4500
Cost Sharing     $5000                     $5750

This supposes you end up on government insurance, which may or may not happen. The $4300 figure today is based on an employer paying the largest share of the load. The cost sharing here is based on the 1/2 subsidy for family.

My Thoughts

The legislation is better than the House version, but there are still major problems.

  • Inclusion of National Health Care Plans – I am not opposed to this on some arbitrary philosophical ground, like so many, but a realization that when the government offers something, companies bow out. I watched as seniors I know lost their drug plans when the government added Medicare Part D (and watched their savings dwindle as Medicare covered less than the plan they were paying for). Time and time again, the insurance companies find ways to bow out of the more expensive markets when Uncle takes care of it. It is likely a national health plan for everybody will mean most of us have to move to the plan.
  • Heavy fees on insurance companies, pharma and medical devices – I see these as costs that will be thrown back on the consumer.
  • Vague cost saving measures – The sections of the bill that talk about how to drive down costs are way too vague to be of any value, at least by themselves. With fees and measures that will raise costs, I would like to see a more definitive plan on reducing costs.

I really wish the government would focus on the real pain points rather than try to change a system most people are overall happy with. Yes, I want reform. But reform is one thing, sweeping change is another. Let’s fix what is broken rather than throw out the baby with the bathwater.

Peace and Grace,
Greg

Twitter: @gbworld
Miranda’s Believe site: http://tinyurl.com/mirandabelieve

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