Is the healthcare reform law constitutional?

Let me start by saying, I don’t know for sure and neither does anyone else yet. Further, we likely won’t know until the current state-initiated lawsuits ultimately reach the Supreme Court. And even then, in light of recent court rulings and growing public cynicism toward the court, what we are likely to end up with is a divided judgment and continued polarized public opinion. Nonetheless, I have attempted to outline the basic legal question below. I have also posted links to additional quick reading addressing this issue at the end of the blog. I am hoping some of my legal scholar readers and others will chime in with more and better explanation.

The basic question of the lawsuits filed by 14 states (to-date) is does the current law violate federalism, that is does it violate the constitutional division between the federal government and state government powers?

This question must be answered in a few parts. First, as long as a federal law applies to powers given to the federal government within the constitution, the federal law will always trump state law; this is outlined in the Supremacy Clause of the constitution (Article VI, Clause 2). So the question becomes does the content of this law fall within the jurisdiction of the federal government? This is where the debate lies.

Supporters of the law argue that under the Commerce Clause (Article I, Section 8, Clause 3) the federal government is allowed to regulate activities of interstate commerce or activities that are likely to significantly impact interstate commerce. The broadening of the commerce clause to include activities that themselves are not directly interstate commerce but will significantly impact interstate commerce came primarily out of cases brought in the New Deal, WWII era and represented a significant expansion of federal regulatory power.

Supporters argue that healthcare has a large impact on interstate commerce allowing broad federal power in regulating the healthcare industry. Even most opponents agree there is likely room for the federal government to regulate aspects of healthcare under the Commerce Clause but focus the question more narrowly to the constitutionality of requiring individuals to carry health insurance.

The implementation of this requirement will, in many cases, require individuals to purchase insurance from private companies. Opponents argue this positive mandate is a broad, unprecedented expansion of power under the Commerce Clause. While it has been widely upheld that once an individual actively chooses to engage in commercial activity, the federal government can then regulate that activity (regulation of firearms purchases, safety standards on cars, etc), it is not clear that the government can compel passive individuals to engage in commerce (requiring the purchase of private healthcare insurance).

The response of supporters to the above argument is that the so-called personal mandate does not truly fall under the Commerce Clause and instead should be interpreted under the Taxing and Spending Clause (Article I, Section 8, Clause 1) which gives the federal government power to levy taxes to support the defense and general welfare of the country. Supporters argue that the personal mandate is actually not a mandate but a legal tax that incentivizes behavior that supports the general welfare of the country.

In summary, it is widely thought the most viable constitutional question is does the personal requirement to carry health insurance amount to an inappropriate expansion of federal power that violates the Commerce Clause or is it a reasonable form of taxation to support the general welfare as outlined in the Taxing and Spending Clause?

There are other legal issues that have been raised including whether the Medicaid expansion represents a violation of the 10th amendment’s prohibition on requiring states to enforce federal law. These other challenges, however, at this point are not thought to be major threats to the law’s constitutionality.

So what do I think? I believe to have a viable healthcare system, it is important to expand the insurance risk pool as broadly as possible. Expanding the insurance risk pool requires significant motivation for most, if not all, citizens to continuously carry insurance (via a public or private plan or health organization). A mandate or automatic enrollment (with appropriate cost controls and support) is likely the only way to achieve high enough rates of insurance participation to appropriately share risk.

At the same time, I understand and empathize with concerns about government requiring individuals who have made no active forays into commerce to purchase products from private, often for profit, companies. In my opinion, this is another example where a public option could have made sense. A public option, open to all Americans, could have offered a third way. Car insurance is an example of a generally well-accepted government (albeit state government) mandate to purchase a private product. Again, it is not totally analogous because one has a choice not to drive and therefore not to carry car insurance. But in a nation, where there is an implicit if not explicit expectation of expensive healthcare, I am not sure that the analogy is so far off. I am not sure there is a way to opt out of healthcare in the same way one can opt out of driving.

Finally, I do support taxation as a means of incentivizing behavior despite its clear convolution of our tax system which may reduce returns and therefore services overall and its risk of misincentivizing behavior as seen in the recent housing bubble. I view levying a tax to incentive the carriage of health insurance as a theoretically good step. Now let’s hope that 1) the regulation of the insurance market and the steps to cost reduction are sufficient to provide fair, affordable insurance options for individuals to choose from and 2) the tax is high enough to incentivize broad health insurance coverage. Those are big hopes!

Links to short further readings:

http://roomfordebate.blogs.nytimes.com/2010/03/28/is-the-health-care-law-unconstitutional/

http://www.ajc.com/opinion/pro-con-is-the-416692.html

I am working on a longer post examining the passed healthcare reform law. Watch for that soon.

Healthcare Reform Update

NPR's On Point discussed the status of national healthcare reform on Tuesday Feb 23.  The discussion included Uwe Reinhardt, Princeton economics professor and one of our nation's experts on our healthcare system.  I'd recommend listening to this broadcast before Thursday's "bipartisan summit."  In particular, the commentary on the potential role of competition and selling insurance across state lines is interesting.  You can listen to the show at http://www.onpointradio.org/media-player?url=http://www.onpointradio.org/2010/02/curbing-health-care-costs&title=Health+Care+Battle+Lines&pubdate=2010-02-23&segment=1.

Concerned about more corruption

http://online.wsj.com/article/SB10001424052748703699204575016942930090152.html?mod=WSJ_hpp_MIDDLETopStories

http://www.nytimes.com/2010/01/22/us/politics/22scotus.html


I am concerned about today's Supreme Court ruling freeing limitations on corporate spending in federal campaigns and subsequently state and local campaigns as well (see newspaper articles linked above). While I acknowledge one can make a strict interpretation argument of first amendment rights to extend to any type of speech by any type of speaker, I think such an argument is dangerously flawed. Clearly the speech of corporations and unions is different than that of other advocacy groups and churches is different than that of individuals. Business, churches, advocacy groups and individuals are treated differently in many aspects of law (for example, corporations don't vote in elections).

Ultimately our laws are meant to enforce the will of the many while protecting the rights of the few. With a relatively unchecked flow of big money into campaigns, both the will of the many and the rights of many of the few will be compromised.

Our government is already hamstrung by the influence of moneyed interest as evidenced by the most recent efforts at healthcare reform and financial reform. It is no surprise that a healthcare reform bill written by legislators that have received millions of dollars in funding from health insurers transfers large public subsidies to those insurers with almost no cost containment measures.

Similarly it is not surprising that large, rapid Wall Street bailouts have been followed up with (to-date) minimal regulatory changes in a setting where corporate Democrats with firm ties to the financial industry run President Obama's economic team and the committees charged with financial industry oversight in Congress.

These two examples refer to a government controlled by the historically less-business friendly Democratic party IN the setting of McCain-Feingold. What will happen in the post-McCain-Feingold world with relatively unchecked interested electioneering? How much more beholden will our legislators and elected leaders be to moneyed interests?

While I believe it is theoretically possible for some citizens to sort through a tsunami of moneyed interest propaganda, I think it is improbable and therefore dangerous to unleash that tsunami. It is also possible to carry the biggest gun and remain safe in a lawless town, but society works to avoid such undesirable situations while maintaining freedoms.

I've long argued that if we want true healthcare (and health) reform, first we must pursue true campaign finance reform, freeing our legislators from moneyed interests. Unfortunately, I think we've moved in the wrong direction today.

Healthcare Reform Discussion

For my readers in Salt Lake City, I have been invited to lead a healthcare reform discussion group on Feb 2, 2010. I invite you to review the materials below and attend the discussion in person (Feb 2, 2010, 7:30 - 9:30 pm at 4348 S. Jupiter Drive (3760 E.), Salt Lake City).

For my readers not able to attend the discussion in person, I invite you to review the materials below and start a virtual discussion here. I'm very interested in your opinions. Also feel free to share additional materials in your comments. Finally, I encourage you to share your comments with others, including your legislative representatives on the state and national level.

Now for the discussion materials:

The U.S. House and Senate are currently in the midst of formulating a final healthcare bill intended to "reform" an industry that makes up nearly 20% of the national economy.

The readings/viewings below are meant to serve as a primer for a provocative discussion. I hope the discussion will examine 1) what are the problems with the current system, 2) what are the solutions being proposed by Congress, 3) what are other possible solutions and 4) how much will legislative process influence the final reform effort?

Please feel free to review as much or as little of the information below as you wish. If time is limited, I'd recommend reviewing the first three documents first.


1. Basic overview of the House and Senate bills.
http://www.kff.org/healthreform/upload/housesenatebill_final.pdf


2. Two different comentaries on healthcare reform strategies.
http://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html?pagewanted=1&_r=2

http://www.theatlantic.com/doc/200909/health-care


3. Two New Yorker articles looking at the pros and cons of regional variation in our vast healthcare system.
http://www.newyorker.com/reporting/2009/12/14/091214fa_fact_gawande?currentPage=1

http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande


4. Two Frontline episodes relating to healthcare. The first examines other healthcare systems around the world and the second places healthcare within the larger context of government finances.
http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/view/?utm_campaign=homepage&utm_medium=proglist&utm_source=proglist

http://www.pbs.org/wgbh/pages/frontline/tentrillion/view/?utm_campaign=searchpage&utm_medium=videosearch&utm_source=videosearch


5. Finally, for the political junkies like me, a discussion between two progressives about the current healthcare bills and an article about the sticking points between the House and Senate bills.
http://www.pbs.org/moyers/journal/12182009/watch.html

http://healthcarereform.nejm.org/?p=2723

One step closer?

As promised, Max Baucus (D-Montana), chairman of the Senate Finance Committee, has released a draft bill today called America’s Healthy Future Act (http://finance.senate.gov/sitepages/leg/LEG%202009/091609%20Americas_Healthy_Future_Act.pdf). The bipartisan support he has been promising for months, however, has not yet materialized. No Republicans have endorsed the bill and many Democrats are also criticizing the bill.

I have been reviewing the draft bill tonight and have highlighted major provisions below. I also refer you to the Congressional Budget Office (CBO) analysis for a more thorough overview of the major tenets and their budget impact (http://www.cbo.gov/ftpdocs/105xx/doc10572/09-16-Proposal_SFC_Chairman.pdf).

As I have repeatedly said, the devil is in the details and unfortunately, the details are looking devilish. The bill can be divided into three major categories: regulating health insurance, expanding coverage and reducing cost/paying for the expanded coverage.

Regulating health insurance
According to the draft bill, insurance companies cannot deny coverage based on pre-existing conditions. Premiums can be adjusted upwards based on smoking/tobacco use, geographic location, family size and age. No other demographic or health factors can be used to set health insurance premiums. Mr. Baucus’ draft allows for large variation in premiums based on age (up to 500% increase with increasing age). The age adjustment provision is likely to be unpopular, especially among baby boomers!

Expanding coverage
Overall the CBO estimates Baucus’ plan will increase health insurance coverage from 83% to 94% of the legal non-elderly population. Notably 25 million people will remain uninsured; up to 1/3 of the remaining uninsured will be undocumented residents. The Baucus plan explicitly excludes undocumented residents from any of the provisions of the bill. For comparison, the Democratic House bills are expected to reduce the uninsured to 17 billion people.

Medicaid
Baucus calls for expanding Medicaid to all individuals making less than 133% of poverty ($14,500 per person or $29,000 per family of four). This will account for 37% ($287 billion/$774 billion over 10 years) of the cost of Baucus’ bill and is projected to decrease the uninsured by 11 million. Notably in addition to the $287 billion cost to the federal government, expanding Medicaid will also increase costs to the states due to matching requirements. This cost to the states is projected to be ~$40 billion dollars over 10 years. This is the provision that will cover the neediest of America’s working poor and is also included in the other Democratic House and Senate bills.

Personal mandate
The bill includes a personal mandate to carry health insurance. A fine of $750-$900 per person per year will be charged to individuals not carrying health insurance. An economic hardship exemption is included for those who cannot find health insurance for less than 10-13% of their income.

Health insurance exchanges and subsidies
The bill establishes state-based online health insurance exchanges, Travelocity-like sites, where people can compare and purchase health insurance. The exchanges are meant to create competition and increase transparency. It is in the exchanges that a government or public health insurance plan might compete. The Baucus bill, however, does not include a public option. Instead it creates seed funding for the establishment of regional non-profit co-op insurance plans to serve as competitors to private for-profit insurance companies. The CBO and others do not believe these co-ops will have enough market share to actually decrease cost significantly.

In the bill individuals/families with access to an employer-sponsored health insurance plan will not be able to purchase insurance through the exchanges. Those who are 1. eligible to use an exchange and 2. whose incomes are less than 400% of poverty ($43,000 per person or $88,000 per family of four) will be eligible for government subsidies to offset insurance premium costs on an exchange. The subsidies will be set so that the cost of insurance premiums range from 3% to 13% of an individual’s/family’s income. These subsidies account for the largest portion (60%, ($463 billion /$774 billion) of the bill’s cost.

Employer mandate
The Baucus bill does not include an employer mandate. Instead, if an employer’s employees use the subsidies on an exchange, that employer can be charged a “free rider” fee, capped at $400 per employee per year (this fee will be indexed to the subsidy cost). Remember, however, the average individual health insurance plan in the US costs nearly $5,000 per year. It seems $400 would be a small price to pay in exchange for not offering a $5,000 health insurance plan!

Additionally, small businesses with less than 25 employees will be eligible for tax credits up to 50% of the cost of contributions to employee health insurance premiums. This tax credit, however, will only be available for two years per business.

Reducing cost/paying for expanded coverage
Paying for the program has been Mr. Baucus’ major focus, with the hope of getting Republicans on board with a less costly bill. According to the CBO analysis, Mr. Baucus’ bill will not add to the deficit over the next 10 years.

The CBO estimates the cost of the Baucus bill at $774 billion over 10 years (compared to ~$1 trillion over 10 years for the more liberal Democratic House and Senate HELP bills). I think this is a rather optimistic estimate for the Baucus bill. Below are the ways the Baucus bill plans to pay for the costs.

Fines
Personal fines for not carrying coverage are expected to raise $20 billion over 10 years. Similarly employer “free rider” fines are expected to raise another $20-30 billion over 10 years. This accounts for 6% of the total cost of the bill.

Health insurance tax
A large share of revenue will come from an excise tax on “high-cost” health insurance plans. Earlier in the year, Mr. Baucus had been in favor of taxing all employer-based health insurance plans. When that became politically untenable, he developed an alternative plan, taxing insurance companies directly on “high-cost” health insurance plans.

Currently the “high-cost” plans are defined as >$8,000 per individual plan or >$21,000 per family plan. A 35% tax is proposed. Notably the “high-cost” plans are indexed to general inflation, not healthcare inflation. Healthcare inflation has often outpaced general inflation by 300%. This means that with each passing year the 35% tax will encroach onto relatively lower cost plans.

The goal of the tax is to pressure insurance companies into lowering costs while raising revenue. I believe it will just result in cost transfer to all insurance consumers. Further, because it is not a direct tax, it distorts normal consumer behavior in the insurance market. This excise tax will account for a large revenue source, $215 billion over ten years or 28% of the projected costs.

Fees on industry
Fees on the pharmaceutical, medical device manufacturing, health insurance and clinical laboratory industries will raise $130 billion dollars over 10 years. Without strict regulation and competition (not included in this bill), these costs will be passed directly onto the consumers, increasing healthcare costs overall.

Reimbursement changes
Finally, savings in Medicare and Medicaid are slated to save $409 billion over 10 years or 53% of the proposed costs. These savings are to come from capping home health and rehabilitation reimbursement, limiting overpayments to Medicare Advantage plans (private insurance administered Medicare plans that cost 14% more on average than government administered Medicare plans) and reducing imaging and physician reimbursement. In fact, these proposed savings are dependent on a 25% physician reimbursement cut in 2011. Capping this spending is highly unlikely…
While it is a success to finally have a draft bill out of the Senate Finance Committee, I find this bill highly disappointing. It seems to satisfy no one. The bill’s shortcomings are that inadequate industry regulation, lack of significant insurance competition and unrealistic financing. If passed, this bill will be a boon for insurance companies, serving them up an expanded market, subsidized by the government. At the same time, minimal fees on employers may incentivize dropping employer-sponsored insurance.

To adequately control cost, we either have to regulate insurance profits or introduce a large non-profit competitor that will have enough market share to actively negotiate cost. This cost negotiation, however, has to be realistic (not dependent on a 25% across the board cuts on physician reimbursement in one year).

Amendments and discussion on the bill are set for next week. Stay tuned.

What to listen for in President Obama’s speech

As most of you know already, President Obama will be speaking to a joint session of Congress on Wed Sep 9 at 6pm MST. Our lawmakers have just returned to Washington after taking the month of August off to go home to their respective states. August was filled with contemptuous partisan debate over healthcare reform as evidenced by the yelling at town hall meetings and swastika painting on at least one lawmaker’s office. In his speech, Mr. Obama will attempt to re-energize lawmakers and the citizenry to support and move forward with his healthcare reform goals.

Before the August recess, three committees in the House passed similar reform bills and the Senate Health, Education, Pensions and Labor Committee passed a bill. These four bills were all crafted and passed exclusively by Democrats.

The Senate Finance Committee missed self-imposed deadlines and did not introduce a bipartisan bill before the August recess. Today, however, Senate Finance Committee chairman Max Baucus (D-MT) released a draft healthcare reform proposal (http://www.ama-assn.org/ama1/pub/upload/mm/399/hsr-finance-committee-framework.pdf). I’ll review this in an upcoming blog as more details arrive. The bill ultimately proposed and passed out of the Senate Finance Committee is likely to herald the final healthcare reform bill passed this year (that is if a final healthcare reform bill is passed this year)!

Currently, the House and the Senate are bogged down in partisan debates about how to reform healthcare and it does not appear there are enough votes to support any current proposal. This stalemate has prompted President Obama’s speech.

Below I outline some of the key topics in the healthcare reform debate that President Obama is likely to address in his speech. As always, this reflects my knowledge and opinions and isn’t comprehensive.

Health insurance reform
This seems to be the only area of consensus currently. Both Democrats and Republicans seem to agree that this is a “win-win!” Any bill passed will likely include elimination of pre-existing condition exclusions and tightly restrict rescission (the process of dropping individuals from insurance once they get a costly illness).

Further, there is bipartisan support for limiting premium cost rating based on health conditions. It is likely health insurance premiums will only be able to be adjusted based on a limited set of parameters including age, geographic location, smoking status and family size. For example, insurance companies will be allowed to charge a 60 year old smoker in New York, City five times more for his/her insurance than a 20 year old non-smoker in Des Moines, Iowa but will have to charge the same rate for a 30 year old thin, healthy man in Stillwater, Oklahoma and a 30 year old obese woman with endometrial cancer in Stillwater, Oklahoma. Some argue obesity should also be included as a rating criterion, but to-date that seems unlikely.

Finally it is likely that lifetime maximums will be outlawed and out-of-pocket maximums will be capped, possibly related to income and or health savings accounts maximums.

This will be a feel-good section of the talk for Mr. Obama, touting regulation of the insurance companies to ensure more “equitable, secure” insurance coverage. The problem, of course, is that these measures due nothing to decrease cost and will likely increase cost.


Covering the uninsured
As discussed in my earlier blog, the high rate of uninsured (and underinsured) is a high-profile issue in the healthcare reform debate and one Mr. Obama is sure to address. Listen for these topics:

Expanding Medicaid
There seems to be consensus that the federal government will require and help states to expand Medicaid up to at least 133% of poverty for all legal citizens and perhaps as high as 250% of poverty for some citizens (children, pregnant women). Some states already have eligibility at or above these thresholds and they will be required to maintain their higher eligibility requirements. This is a topic Mr. Obama will spend little or no time on, as Medicaid does not “play to the masses” who are hesitant to support low-income Americans. It is, however, the plank of reform that will expand coverage to many of the neediest in America and will prove to be quite costly over time.

Personal mandates
This is a hot topic issue. Should individuals be required to carry health insurance (as they are auto insurance) or is a personal mandate an infringement on fundamental liberty? The Republicans have generally opposed personal health insurance mandates while the Democrats have been more favorable to them (with economic hardship exemptions). Most experts agree that personal mandates are necessary to reach desired insurance coverage rates and pool risk, reducing total healthcare costs.

The current Democratic bills all include personal mandates and the draft released by Senator Baucus today also includes a personal mandate with a fine for not carrying health insurance (again, an economic hardship exemption is included). All current viable proposals also include tax credits to help individuals/families with incomes up to 300% of poverty pay ($66,000 for a family of four) for health insurance premiums if they do not receive employer sponsored health insurance.

President Obama may or may not address this directly. A personal beef of mine is that personal mandates should be realized through automatic enrollment in health insurance, not after the fact fines which still do not result in health insurance coverage.

Employer mandates
Employer mandates are even more controversial than personal mandates. Again, the liberty question, is it too great of an infringement on liberty to require employers to either offer or contribute to the cost of health insurance? Most Democrats favor requiring employers to offer health insurance and instituting fines for not offering health insurance (with a small business exemption). Those fines then would be used to subsidize premiums for individuals/families. Republicans tend to be more hesitant to this idea. Some experts fear that unless employers are required to foot a significant portion of insurance costs, they will continue to drop insurance coverage as costs increase (happening currently).

Another option does not require employers to offer insurance or pay a fine for not offering insurance, but instead institutes a payroll tax that then would be used to offset premiums (via subsidies) or fund a public program.

All viable employer mandate proposals include sliding-scale fines/fees based on business size as to not unduly burden small businesses. Current bills also include tax credits to off-set the cost of health insurance for small employers.

Public option
The grand-daddy of controversy. Should there be a “public option,” a.k.a some type of public health insurance program. President Obama strongly supported this on the campaign trail but has waffled more recently on his commitment to this issue. Most progressives feel this is essential to controlling costs as it will create a non-profit competitor with a large risk pool and large market leverage in the insurance market. Republicans fear this will offer unfair competition and introduce “big-brother” government into healthcare too much (remember that the government already pays for >50% of healthcare costs in the US via the VA, Medicare, Medicaid/SCHIP, military and government employee insurance).

Mr. Obama’s words on this topic will get the most press after the speech. Will he call for a public option or will he not??? I’m not sure. He’ll probably continue to waffle because it does not appear a public option has enough votes to pass the more conservative Senate. At the same time, many Democrats in the more progressive House refuse to pass a bill that does not contain a public option.

In my estimation the more important question, which gets much less coverage, is what would the public option be? Current proposals require the public option to

1. be viable without tax-payer subsidies (that is the plan will have to be solvent based on premium income alone without tax subsidies within a set period of time, such as 3-5 years) and

2. be available to only a very limited portion of the population (those who do not have access to employer insurance and meet certain income guidelines).

Such a limited public option would have much less impact (at least in the short run) on the current market than many tout. Unfortunately, little of the details will likely be addressed in Mr. Obama’s speech.

A “compromise” to the public option dispute being proposed by some Senators is co-op insurance. These co-op plans, like a public option, would be non-profit providers of health insurance and so in theory reduce costs. The drawback to these plans, however, is that because they would be smaller local or state co-ops, they would not be able create the centralized risk pool and large market leverage that a public option would. Therefore, co-ops would have less ability to reduce cost. If Mr. Obama signals he is in favor of, or at least willing to accept, co-ops, it is a large move away from progressives’ goals.

Reducing healthcare spending
The discussion above was all about coverage expansion. The other big healthcare concern is cost. How do you pay for current healthcare and pay for coverage expansion? As always, the money trail is vital to any successful healthcare reform, so listen carefully. Americans want it all, and they want it cheap, ala Wal-Mart. I have listed specific cost topics below.

Taxing health benefits
Currently employer healthcare benefits are not taxed. This offers employees a large chunk of tax-free income and shorts Uncle Sam. Earlier in the spring and summer, taxing healthcare benefits (or at least the most expensive healthcare plans) was a popular way of financing healthcare. However, as the summer has progressed, this has fallen out of favor. Mr. Obama is unlikely to support this.

Interestingly, however, Mr. Baucus’ draft today included essentially a back-hand tax on high cost healthcare plans (tax on plans >$21,000 for family plan, average family plan ~$14,000). Rather than taxing the employee, it will levy a tax on the insurance company that offers the high-end plan. Interesting! I guess as long as the individual doesn’t feel like they have a new direct tax, they can be happy. Personally, I think healthcare would benefit from people feeling more of the cost directly, but more on that in another blog.

Taxing the rich
Think you could escape this never-ending debate, think again. The Democratic House plans include a healthcare surtax (~1-5%) on the rich (incomes above ~$200,000 per year per person, the top 3% of income earners). As you would expect, there is strong Republican opposition to this tax and it is unlikely to ever pass the Senate. I doubt, Mr. Obama, will comment on this at all.

Taxing payroll/employer fines
This was discussed above, but again, either taxing payroll or leveraging fines against employers who do not offer health insurance to their employees is a possible means of raising revenue to support healthcare reform. Unfortunately, the fines included in the current bills (~$400-$1000 per employee) are far below the cost of health insurance and therefore are unlikely to make a significant dent in the cost of expanding healthcare coverage. Further, some companies may chose to pay the fine over offering health insurance, exacerbating the number of uninsured and increasing public and individual healthcare costs.

A payroll tax option could prove more viable over time as it would likely be set as a percentage of payroll and increase annually with inflation (or healthcare costs), where a fine would likely be a flat dollar amount that may or may not automatically increase with inflation. Payroll taxes, however, are not included in the current popular Democratic plans. A payroll tax is included in the bipartisan Bennett-Wyden plan that gets little attention.

Taxing industry
As discussed above, taxpayers tend to favor taxes that they do not see directly. Taxing healthcare industry players has not been a large area of discussion, but in Senator Baucus’ draft released today he included “fees” to be levied on the pharmaceutical companies, medical device manufacturers, health insurance providers and clinical laboratories to the tune of $13 billion annually.

This proposal is likely to face strong opposition from the pharmaceutical, medical device, health insurance and laboratory industries (most of which have VERY, VERY powerful lobbying networks). Again, I think healthcare would benefit from people feeling more of the cost directly, which this financing scheme would not achieve.

Because this proposal is new to the debate, I am not sure what President Obama might say about it. It is populist, but will face corporate opposition…stay tuned.

Reimbursement
Finally attempts to control/reduce/redirect reimbursement to healthcare providers are being advocated. Policy makers believe, rightly so, that by controlling reimbursement you can control healthcare utilization and ultimately cost. All the current proposals increase primary care reimbursement and attempt to decrease what is viewed as “over utilization” in the system. For example, radiology reimbursement will be cut in the current proposals (for those in the know, increasing imaging use rate assumption from 50% to 75-90%). The current bills also include the creation of “accountable care organizations” that would financially incentivize provider networks to manage care efficiently, in many ways similar to the old school HMOs.

All proposals also call for fraud reduction with increased fines and surveillance for Medicare/Medicaid fraud.

Reimbursement reform to improve “quality, affordable” care also will be a feel good portion of the talk for Mr. Obama but will face strong doctor/industry opposition.

Another form of reimbursement reform being proposed is standardizing insurance claim processes. It is estimated that ~25% of all healthcare dollars in America are spent on administrative costs. Instituting standard, automated claims processes, if done right, should dramatically reduce administrative costs with no adverse impact on patient care.

Medical malpractice reform
Not really on the table currently, and likely to not to be mentioned by President Obama. I think this is unfortunate, as defensive medicine costs are high and likely not to decrease without some malpractice reform.

Alright, there is my two cents on what to listen for in Mr. Obama’s speech. Let me know what you think of the speech.