Tag Archives: health care system

Three Ways to Fix Health Insurance (No Matter What Happens With Obamacare)

Whether Obamacare is fully implemented or collapses under the weight of its 906 pages of law, its 15,000 pages of regulations, and the well-publicized glitches in its rollout, the underlying, ineluctable problems with health insurance remain largely unresolved. How we respond will determine whether we hit the iceberg and sink or veer away in time to save our private health care system.

To understand some of the real cost drivers for health insurance, let’s look at the “Doe” family. John and Jane Doe pay $600 per month for health insurance for their family of four. Most states have a list of benefits, or “mandates,” that, by law, insurers must cover – from gastric electrical stimulation to breast implant removal. While some states have fewer mandates, others have piled them on. (Utah has 26, while Rhode Island, Maryland, and Minnesota all have at least 65.) The Doe family could see savings up to 50% or more on their insurance rates if they could just buy a basic health plan without the mandates. That could drop their monthly premium to as low as $300.

Premiums would come down even further if tort reform ended “jury lotto,” where patients get large, unjustifiable settlements or jury awards for medical treatment gone awry. While doctors are human and are certainly capable of errors, the legal system allows for these big settlements even when doctors are not at fault.

Here’s the scenario: Imagine that Doctor Smith treats a woman who complains of an ear infection and gives her a prescription, telling her to call if the condition doesn’t improve. The woman dies a few days later from a brain tumor. The family sues, alleging the doctor should have been able to diagnose the tumor. The jury sympathizes with the grieving family, believes that doctors should be omniscient, and reasons that rich doctors and their insurers can easily afford a large payment, so the family receives a $10 million award. The pestilential result is that everyone’s health insurance rates go up to cover such settlements, the doctor’s malpractice rates increase, and he now orders extra tests for the next patient to protect himself from the next lawsuit.

Tort reform could provide significant savings to the health care system, resulting in insurance premiums dropping as much as 10%. The Doe family might now see its insurance rate go down to as low as $240 – a whopping 60% drop in their monthly premium.

(Some have talked about allowing consumers to buy across state lines to reduce premiums even further by increasing competition and making it easier to buy policies in states that mandate fewer benefits, though this has not yet been shown to be true.)

A third way to drive insurance rates down is consumer engagement – changing the dynamic so that people actually know and care about what their health care costs. As long as it is Other People’s Money (OPM), there is little incentive to lower the cost of care, which continues to rise and, in turn, drives up insurance rates. (Contrary to public opinion, a recent analysis by the accounting firm PriceWaterhouseCoopers found that health insurers pay an average of 87 cents to providers of medical and pharmaceutical services out of each premium dollar and, after expenses, earn just three cents in profit. The problem, then, with health insurance isn’t that insurers are gouging people; it’s that costs are high, and consumers are generally unaware and unconcerned.)

So how can we get engaged? Even while we wait for the regulatory and legal changes that will need to occur to reduce mandates and rein in unjustified malpractice awards, here are two things for consideration in lowering health care costs.

First, we need to change our mindset as consumers when it comes to health insurance. What if we treated health insurance more like homeowner’s insurance? In other words, what if we bought coverage for the unexpected (illness or injury), while paying for our day-to-day medical needs out of pocket, as we do for home repair and maintenance? Great insurance options to consider include high-deductible health plans with linked Health Savings Accounts (HSAs). In general, we need to shift our thinking on health care from OPM (Other People’s Money) to MM (My Money).

Second, how about a radical “Groupon” type of approach? Let’s say John Doe is diagnosed with a hernia and needs an operation. There are three hospitals in town. All three are fully credentialed and meet quality standards. John’s surgeon can admit to them all. Hospital 1 is an older, traditional facility in a more frugal setting, with an estimated cost for the surgery at $10,000. Hospital 3 is a new, state-of-the art “Hyatt” hospital with high end amenities and a fancier environment – estimated cost: $50,000. Hospital 2 is in the middle, with an estimated $25,000 price tag. Here’s what John’s health insurance company tells him:

“You are covered at all three hospitals. But if you go to hospital 3, you have an additional $2,000 copay. If you go to hospital 2, we’ll cover the cost at 100%. If you go to hospital 1, we’ll pay you $2,000. Your choice.”

John is comfortable at hospital 1 and likes the idea of getting rewarded for choosing a lower cost setting. He has his surgery done there. He gets the $2,000, while the insurance company saves $38,000 off the cost of hospital 3.

This kind of savings will eventually be reflected in lower premiums for everyone. Decisions like John’s will also encourage hospitals to lower costs, as market forces come into play, leading to even more reductions in insurance costs.

Conclusion

We are not going to reform the health care system and resolve our health insurance problems overnight. And even if Obamacare is fully implemented, we still need to make fundamental changes, including how we see and use health insurance as consumers. If we are going to steer the Titanic away from the iceberg, we as consumers need to change our mindset and get engaged – and have financial incentives to do so, leading to powerful market forces. Once the sleeping giant of the American consumer awakens, watch out.

19 Specific Taxes Directly Related To Healthcare Reform

Introduction
As we approach April 15 and many of us are thinking about our taxes, we are starting to notice some tax changes and many of these are related to healthcare reform, i.e. the Patient Protection and Affordable Care Act of 2010 (PPACA). Whether or not you are “for” or “against” healthcare reform as currently legislated, you will definitely feel the impact of some new taxes.

This article attempts to identify and list the taxes that are directly related to the Patient Protection and Affordable Care Act. This article is intended to list and identify taxes associated with healthcare reform — it is not intended to take any formal position for or against healthcare reform. In fact, the author has strong opinions that the US healthcare system is desperately in need of serious healthcare reform and that many aspects of the current reform approach outlined in the Patient Protection and Affordable Care Act make serious attempt to address some of the key issues.

Background
Based upon the count of many experts, there appear to be 19 specific taxes or increased taxes directly related to healthcare reform, estimated by some experts to total $500 billion over 10 years. I have ranked the taxes from largest to smallest, with a description of the tax and when it was effective or will be effective for those not yet in effect.

Summary of PPACA Related Taxes

  1. Surtax on Investment Income ($123B): By far the largest tax and going into effect January 2013, this is a new 3.8% surtax on investment income for households with more than $250,000 income.1
  2. Increase in Medicare Payroll Tax ($87B): Beginning January 2013, this tax increases the Medicare employee and self-employed tax on wages in excess $200,000 for an individual/$250,000 for a family by 0.9%.2
  3. Mandate Tax ($65B): Beginning January 2014, any individual without a qualified health plan will be subject to an income surtax.3 In addition any employer not offering health coverage, and at least one employee qualifies for a health tax credit, will be subject to a tax. Any employer requiring a waiting will be subject to an additional tax.4
  4. Tax on Health Insurers ($60B): Beginning January 2014, all health insurance companies and health plans are subject to a federal premium tax, which phases in until 2018.5
  5. Excise Tax on Comprehensive Health Insurance Plans ($32B): Beginning in January 2018, there will be a 40% tax on “Cadillac” health insurance plans.6 Cadillac health insurance plans are those with very rich benefits and are determined by a comparison to an inflation adjusted premium level.
  6. “Black Liquor” Tax ($24B): This is a tax on a special type of bio-fuel.7 Tax in effect during 2007 – 2009, ended in January 2010 as part of healthcare reform bill.
  7. Tax on Innovator Drug Companies ($22B): $2.3 Billion annual tax on the industry imposed relative to sales made that year. Began in January 2010.8
  8. Tax on Medical Device Manufacturers ($20B): Beginning January 2013 there is a 2.3% excise tax on all items >$100.9
  9. High Medical Bills Tax ($15B): Beginning January 2013, the threshold for deducting high medical bills was increased to 10% of adjusted gross income.10
  10. Flexible Spending Account Cap ($13B): Beginning January 2013, the formerly unlimited FSA is now capped at $2,500. This tax has been called the “special needs kids tax” since this eliminates the option of families with special needs children to tax effectively pay for tuition for these children.11
  11. Medicine Cabinet Tax($5B): As of January 2011, Health Savings Accounts(i.e., HSA) are no longer able to purchase non-prescription, over-the-counter medicines other than insulin.12
  12. Elimination of Prescription Drug Subsidy($5B): As of January 2013, employers no longer able to deduct prescription drug subsidy for coordination with Medicare Part D drug program.13
  13. Codification of “economic substance doctrine” ($5B): Beginning January 2010, new provision permitting the IRS to disallow legal tax deductions when the IRS deems the action lacks “substance.”14
  14. Tax on Indoor Tanning Services ($3B): Beginning July 2010, new 10% excise tax on indoor tanning salons.15
  15. HSA Withdrawal Tax Increase ($1.4B): Beginning January 2011, taxes for withdrawals were increased from 10% to 20%.16
  16. Health Insurance Executive Compensation Limit ($0.6B): Beginning January 2013, PPACA establishes a $500,000 limit for annual executive compensation.17
  17. Blue Cross Blue Shield Tax Increase ($0.4B): Beginning January 2010 a special tax deduction is permitted only if loss ratio is greater than 85%.18
  18. Excise Tax on Charitable Hospitals (minimal): Beginning January 2010, new $50,000 tax on hospitals if they fail to meet specific rules established by CMS.19
  19. Employer Reporting of Health Insurance on W-2 (minimal): Requires employers to include additional information on W-2’s regarding health insurance plans.20

Bottom Line
Although there may be many well intended uses for these taxes, it is clear that healthcare reform has significantly increased tax revenues. The outstanding question remains, will the Patient Protection and Affordable Care Act reduce the cost of health care, increase the access to care, and improve the quality of care for everyone? These were and have been the primary objectives of any healthcare reform effort. As we as a country look forward to our financial futures, we need to carefully assess the impact of health care reform, make modifications where appropriate, and refocus on the key objectives to be sure we achieve what we all know to be the key issues at hand: reduce costs, improved access, and maximum quality of care.

1 Reconciliation Act, pages 87-93.

2 Reconciliation Act, pages, 87-93, 2000-2003.

3 PPACA, page 317-337.

4 PPACA, Pages 345-346.

5 PPACA, Pages 1986-1993.

6 PPACA, Pages 1941-1956.

7 Reconciliation Act: Page 105.

8 PPACA, Pages 1971-1980.

9 PPACA, Pages 1980-1986.

10 PPACA, Pages 1994-1995.

11 PPACA, Pages 2388-2389.

12 PPACA, Pages 1957-1959.

13 PPACA, Page 1994.

14 Reconciliation Act, Pages 108-113.

15 PPACA, Pages 2397-2399.

16 PPACA, Page 1959.

17 PPACA, Pages 1995-2000.

18 PPACA, Page 2004.

19 PPACA, Pages 1961-1971.

20 PPACA, Page 1957.