Senate Bill Proclaims Health Care Is Not a Right; It’s a Business Where the Customer Gets Fleeced

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By Richard Holober

Wall Street knows a gold mine when it sees one, and it likes what it saw in the Senate health care bill.  Health insurance company stocks soared to an 18 month high the day the Democrats reached the magic 60 votes needed for passage of its overhaul bill. 
 
For the better part of a year, Congressional Democrats have labored mightily, only to give birth to a mouse of a reform.  After being truncated in the House, the public option is now gone for good, as is the possibility of Medicare eligibility for those below the age of 65. With those threats removed, private insurers will benefit substantially from a bill that delivers them 32 million new customers, with virtually no cost controls and no price competition.
 
True, there are some important advances in the Senate bill. More poor Americans will gain Medicaid coverage, and modest income earners will receive taxpayer subsidized premium assistance to purchase private health insurance.

Persons denied coverage for pre-existing medical conditions will now be able to purchase health insurance. Horse trading with progressives including Senator Bernie Sanders has tweaked the bill to improve government funding for health clinics serving the poor and for aid for medical students training to become primary care physicians.

With the significant exception of winning coverage rights for the uninsurable with pre-existing conditions, there are no historic boasting points in the Senate bill. 

Democrats could have won expanded coverage for the poor and insurance subsidies for lower wage families the same way they built social programs in the past: incrementally through stand-alone spending and tax credit legislation that would have avoided the political debacle and tragic giveaways of this overhaul.

Health care advocates have spent months wrestling with the steady unraveling of their hopes for real change.

A new President who campaigned on the notion that health care was a human right, and the strongest Democratic majorities in Congress in nearly three decades, created what appeared to be an ideal moment to rewrite the rules that made the United States the only advanced nation where health insurance is dominated by for-profit companies and most coverage depends on the vagaries of job benefit plans.  

Instead, the Senate bill delivered an historic breakthrough in the wrong direction. For the first time tens of millions of citizens are forced to buy a product - insurance - from one of two government-sanctioned but virtually unregulated private corporations.   (Yes, motorists must buy insurance under state law, but no one in government orders you to own a car).
 
Big drug companies won early by cutting a back room deal with President Obama that assured immunity from pricing reform in exchange for their pledge of $150 million for ads touting the health care bill. President Obama set the tone for the subsequent Senate giveaways when he reneged on campaign promises to contain spiraling prescription drug prices by legalizing drug reimportation from Canada, and by negotiating Medicare bulk purchases of medicine.  

The White House now promises anew to honor its drug reimportation pledge in some future piece of legislation, while it parrots Big Pharma’s big lie that it is unsafe to reimport US-manufactured drugs.

This latest White House pledge pulls back the curtain on the argument that we must enact one all-encompassing reform now or the historic moment will pass us by for a generation to come. If the White House is now committed to a stand-alone drug importation bill, why not follow that model and enact the various good elements of the bill piece by piece?

For many progressive advocates who have worked for years to expand coverage for low income Americans and to provide access to the uninsurable, the trade offs in the Senate bill are worth it.  One can respect and sympathize with that perspective, but please don’t try to candy coat it by proclaiming this bill an historic victory for reform. 

Here’s a brief rundown of some of the winners and losers in the Senate bill:

Winners:

Private Insurance companies win in two big ways. They pick up another 32 million customers who are required to purchase in the private market, from state health exchanges or from a federal government-sanctioned private insurance duopoly.  Private insurers in the individual market may spend up to 20% of their revenues on executive pay and stock options, shareholder dividends, overhead and other costs that are totally unrelated to the provision of health care services. This 20% overhead ratio compares to 3% for overhead cost in the Medicare system. Insurers are free to pass along costs to their customers and have avoided price competition or other cost containment measures.

Pharmaceutical manufacturers who brokered a deal early on to escape tough bargaining over pricing and legalization of drug re-importation from Canada where US-manufactured drugs are sold at deep discounts compared to U.S. prices.

Poor children and adults, including single adults at income levels up to 133% of the federal poverty line, who obtain coverage under Medicaid (MediCal in California) and expansion of the SCHIP Medicaid coverage for children. The Congressional Budget Office estimates that 15 million more Americans will be covered under expanded eligibility for these Medicaid programs.

Lower income uninsured above these Medicaid poverty levels but who receive subsidies under the individual mandate if they earn up to 400% of the federal poverty level can be scored as winners. According the Congressional Budget office, 18.75 million Americans who will now be required to purchase insurance under the Senate’s individual mandate will qualify for some level of government premium subsidy, which is based on income and is phased out as income reaches  $43,320 for an individual or $88,200 for a family of four.  

This is a significant win for lower wage Americans, and a compelling arguments advanced by liberals who support the Senate bill.

Nebraska, which escapes the state requirement to cover one-half of the cost for the expanded Medicaid coverage after 2017, under a deal worked out to get Senator Ben Nelson’s vote.

Some Medicare recipients in three Florida counties that have large retiree populations escape cuts to costly Medicare advantage programs, under a separate deal brokered by Florida Senator Bill Nelson.

Longshoremen, construction workers, mineworkers, police and firefighters who avoid the excise tax on “Cadillac” health plans, because the Senate has exempted these hazardous occupations with costlier health plans and higher utilization rates. Other occupations that are equally or more hazardous, such as farm labor, garbage collectors, manufacturing, hospital and transportation workers receive no special treatment and face excise taxes even though many of these workers traded away wage increases to hang onto to health insurance as premium prices skyrocketed.

Individuals with pre-existing conditions who are denied coverage would become eligible to purchase coverage. Estimates of the number locked out for pre-existing coverage range from five million to as many as 12.6 million over a three year period  (These persons with pre-existing conditions are also included in the figures for uninsured Americans who would get subsidized or unsubsidized coverage or Medicaid coverage under the Senate plan. Job-based group health plans do not generally exclude coverage for pre-existing condition.)

Now Some Losers Under The Senate Bill:

Union members and other workers with good health benefits (except longshoremen, construction workers, mineworkers, police and firefighters). The bill creates a 40% excise tax on “Cadillac” health care plans, which is any plan that costs more than $8500 for an individual or $23,000 for family coverage.

This punishes union workers who have traded away modest wage gains to cover the skyrocketing costs of health premiums over the past decade. The Congressional Budget Office recently pointed out the costs of employer-paid health coverage is  already borne by the workers who receive lower wages to offset these costs of employment.

Now the Senate would make workers pay twice by taxing some health benefits at an excessive 40% rate. This would also disproportionately hurt union and non-union workers in businesses with higher health costs, including those with older workers and at smaller businesses that cannot negotiate better insurance pricing.

It is estimated that by the time the Senate bill is implemented in 2013, about 20% of all employers would be hit with the excise tax. An employer poll found that 63% of businesses would cut health benefits to avoid this excise tax.

Responsible businesses that pay living wages with good benefits. The House version of health care reform imposes an 8% payroll tax on employers that do not pay for at least 72.5% of the cost of health insurance premiums for individual worker coverage, or 65% of the premium cost for family coverage, for specified levels of health benefits to workers and their dependents. This sounds like a good step in the direction of employer responsibility, once you concede that the employer-based health insurance system is here to stay.

That amount is actually too low to provide decent coverage for their uninsured workers, but compare it to the Senate version, which contains no employer payroll tax for failure to provide health coverage. The Senate bill merely imposes an employer penalty that grows to $750 per employee over several years for each employee that is not offered health coverage and who purchases federally subsidized insurance on the insurance exchange. Unlike the House bill, the Senate bill does not specify what percentage of the premium cost the employer must cover for its insurance plan.

What does that mean in real terms? In California, beginning January 1, 2010, it will cost $18,012 a year for Kaiser coverage plus dental and vision care for a family of four for a local government employee within the CALPERS system.  These figures are typical of the cost in public or private employment for a "Chevrolet" health insurance plan.  Under the House bill, an employer would have to cover 65% of that premium, or $11,709 to avoid the payroll tax.  In the Senate bill, an employer who decides to offer no insurance and pay the $750 penalty instead, saves $10,959 per each employee with dependents, compared to the House bill, based on the Kaiser coverage costs.

With savings like that for businesses that offer no health coverage, the Senate bill makes no progress towards an employer mandate. Big winners under the Senate bill are the Wal-Mart’s and other low-benefit businesses that get off with a slap on the wrist for skimping on health coverage.  The Congressional Budget Office estimates that between eight to nine million workers, mostly lower wage, would lose employer provided health coverage because many businesses would opt to cut costs and pay the tiny penalty.

Women buying individual coverage. Women forced to purchase insurance under the individual mandate lose access to abortion services under both Senate and House bills, and many argue that the House bill is worse. With either bill, the historic compromise on federal funding for abortion is breached. The Senate bill stigmatizes women desiring private health care coverage for abortion services by requiring them to pay with two separate premium checks, one for all other services and another for abortion services  This has been described as putting a new Scarlet Letter on women who take advantage of their reproductive rights

Individuals forced to buy insurance who don’t receive subsidies. For the 13,750,000 who are forced to buy unsubsidized individual coverage, the Senate bill delivers these sheep directly to the insurance industry wolves. (Actually the Senate bill delivers all 32 million uninsured to these wolves, but taxpayers will foot the bill for the 18.25 million who receive subsidies).

Everyone else who remains trapped in a bloated health insurance system controlled by profit motives that are choking American competitiveness, and who has now missed the opportunity that a robust public option or expansion of Medicare eligibility would have provided to contain costs, create competition with a for-profit oligopoly, and move the ball towards the goal of health care as a right.

Democrats. In 2003 George Bush pulled a fast one by enacting Medicare Part D Drug Coverage, with an implementation date in 2006. Proclaiming the drug cost problem solved, Bush put a lid on the growing uproar about soaring prices during the 2004 election campaign. The delayed implementation date hid the explosive Medicare Part D costs and its failed promise for seniors until after the 2004 reelection was over.

This time, Democrats are pulling a fast one on themselves. Implementation of the Medicaid improvements, subsidized individual premiums for lower income earners, and access for people with pre-existing conditions are delayed until 2013. These are the benefits touted by proponents that might prove popular with millions who will receive coverage for the first time, but this coverage will not be in effect during the next congressional and presidential election cycle. 

As the bill was continually weakened, Democrat spokespersons have had a tougher time extolling the merits of what remained in the bill. Incessant opposition from Republicans and increasingly vocal protest from progressives who have grown weary of the whittling away of reform is turning this botched Senate bill into a loser for its Democratic proponents. Polling data shows support for the reform slipping down towards 40%  or lower. Democrats may proclaim a breakthrough, but its by no means certain voters will be convinced come Election Day. Democrats appeared distracted by the health care drama, while public anxiety grew about jobs and the economy. Placing all focus on a dubious health bill, instead of an aggressive jobs program, may come to haunt Democrats in the midterm elections.

The bill now moves to the conference committee where a ray of hope remains that it can be improved. Link here to see a comprehensive list of improvements to fight for in the conference committee. 

If House Democrats have the backbone, these are improvements that should not be automatic deal breakers with the Senate:

• Repeal the anti-trust exemption for private insurance companies;
• Add a meaningful employer mandate;
• Raise the health premiums dollar amount that trigger the excise tax to tax Goldman Sachs style executive plans, not blue collar worker insurance;
• Fund expanded coverage with a modest tax on individuals earning over $200,000 a year or families earning over $250,000;
• Implement expanded Medicaid coverage as soon as possible and extend Medicaid eligibility to adults up to 150% of the federal poverty line;
• Reduce the maximum annual out-of-pocket limit for coverage to 5% of income;
• Give Medicare the power to directly negotiate for lower drug prices;
• Make the minimum private insurer medical loss ratio 90%; and
• Prohibit insurance companies from selling their products across state lines.

Those improvements would make it possible for Democrats to pass the straight face test when they boast about this health plan. 
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Richard Holober is Executive Director of the non-profit Consumer Federation of California. CFC advocates for consumer protection laws, and supports single payer health care, expansion of safety net health programs and has supported health care employer mandate proposals. CFC has not taken a position on the health care bills pending in the Congress.