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.