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Roeder Financial
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La Mesa, CA 91941-6433

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Ranking Health Care Provisions From Best to Worst
(10 = best, 0=worst and a negative number is unspeakable)

Rick Roeder, FSA       April 2010

No Lifetime Limits or overly restrictive Annual Limits on Coverage starting on 9/23/10. RANKING: 10

COMMENT: Sensible. Was very unfair for a financially responsible person to go broke because of an extended illness.

Under Medicaid or Medicare, preventive care will not have co-pays or deductibles. Also, immunization and preventive health care must be provided for children and teenagers under family coverage at no additional charge. RANKING: 9

COMMENT: Only concern is that hypochondriacs will overuse the system. Otherwise, everything should be done to encourage early diagnosis of illness. Now if there was only some way to mandate daily exercise or limit consumption of Twinkies!

Employers will be allowed to offer incentives of up to 30% of the total premium cost for preferred behavior such as smoking cessation or attaining weight benchmarks. RANKING: 9

COMMENT: On second thought, maybe there is a way to limit Twinkie consumption.

Coverage extended to most of 32 million uninsured. RANKING: 7

COMMENT: Our nation's emergency rooms may be more restricted to actual emergency care instead of primary care for the uninsured. How refreshing is that!

Federal subsidies will be available to uninsured who are not eligible to be covered under expanded Medicaid coverage. A federal subsidy, for those using insurance exchanges to purchase coverage, will ensure that the cost of the coverage will not exceed 9.8% of the purchaser's income. RANKING: 7

COMMENT: It will be interesting to observe how many of those uninsured, ineligible for Medicaid, will elect to not purchase coverage. In theory, the combination of the subsidy and the fine for not being covered (the greater of $695 or 2.5% of income) will be enough incentive to induce coverage election. However, this assumes rational behavior – in 21st century America, perhaps a great leap of faith!

Will eventually close the prescription drug “donut” hole by 2020 with tax rebates for those affected in the interim. RANKING: 6

COMMENT: After Medicare's coverage of $2,830 of drug coverage, the donut hole refers to the next $3,610 that is out-of-pocket before Medicare Part D coverage kicks in. Addressing this gap will be helpful to those with chronic conditions requiring regular medication (ie, diabetes, hypertension).

Elimination of pre-existing condition policy restrictions for children on 9/23/2010; for adults on 1/1/2014. RANKING: 5

COMMENT: On the surface, this is long overdue. However, I am concerned about the cost of insurance for the healthy. The added premiums for high risks will be factored into the premiums paid by others. The Congressional Budget Office (CBO) claims that projected premiums in 2016 will only rise from 10-13% from current levels. If that proves to be the reality, I will crawl from San Diego to El Centro – in August! One way or the other, the healthy will be paying for this. Provisions like this underscore the bill's biggest failing. The major focus of the bill was not on streamlining overall costs. For adults with pre-existing conditions and at least 6 months of being uninsured, there will be a stop-gap national risk pool slated to start in late June and lasting until 2014, available for coverage at “standard” rates. How solid are the numbers used in the CBO analysis? The costs associated with this subsidy over the next couple years will offer some insight.

State risk pools, meeting certain federal standards, can continue to be employed and be entitled to specified federal reimbursements. A cautionary note: None of the existing state risk pools are self-sustaining without additional state funds. It is estimated that the current subsidy of such pools are about 23% of reimbursements. Due to the recession and daunting pension costs, most states are already teetering on the financial brink.

Starting 9/23/10, dependent children under age 26 will be allowed to continue on their parents' policy if they do not have coverage available from an employer. RANKING: 4

COMMENT: Congress gave a recession-related concession to all those young adults who are still in college or have been unsuccessfully trying to enter the job market during challenging economic times. This seems like the least Congress can do after we have mortgaged the financial future of their next generation.

About half of the coverage extension will be via Medicaid for low-income individuals who are earning less than 133% of the deemed federal poverty level – now defined as $10,800 for an individual or $22,000 for a family of four. RANKING: 4

COMMENT: The expansion of Medicaid may mean even more cost shifting to the insurance companies than already exists. Will higher Medicaid payouts to doctors eliminate added cost shifting? Time will tell, but color me skeptical in light of projected Federal budget deficits of $12.7 trillion through 2020.

One of the financing mechanisms is a first. Starting in 2012, there is a 3.8% tax on unearned income for individuals with income over $200,000 or families with income above $250,000. The tax is estimated to generate $210 billion over the next decade. The 3.8% is comprised of both the existing combined 2.9% employer/employee rate plus an additional 0.9%. RANKING: 4

COMMENT: All previous Medicare taxes had been on earned income. One of the unheralded parts of the bill are the exclusions from unearned income. It makes sense that pensions and IRA distributions are excluded. The bill will indirectly help prop up the teetering financial status of many municipalities by excluding municipal bond income from the definition of unearned income. One analysis indicates that 90% of the added income from families with income in excess of $500,000.

There is a 10% tanning tax on indoor salons. This provision is estimated to raise $2 billion. RANKING: 3

COMMENT:While it is laudable to promote the prevention of skin cancer, this provision seems picayune and inconsistent. I would have been more impressed if this tack had been taken further and this 10% tax had been extended to junk food. Instead, there is a much milder approach to America’s junk food fetish. Restaurant chains, with 20+ locations, will be forced to show calorie counts for each food selection. In New York City, where calorie counts are already required to be shown, health officials opine that 15% of customers say that their choices are affected by the calorie count information. So, perhaps, I am being overly dismissive -- but I doubt it.

Reduced payments of $132 billion over 10 years will be available to Medicare Advantage plans. This will translate into higher premiums and/or lower benefits for the 10 million insureds in such programs. RANKING: 3

COMMENT: Critics of Medicare Advantage plans opined that the extra monies paid to the Advantage plans did not always correlate into extra benefits.

Insurers will have various parameters that will greatly limit their pricing flexibility. In addition to not charging additional premiums for pre-existing conditions, insurers will also be required to pay out 80+% of premiums in claims (currently, the industry average is about 74%). Further, an elderly shuffleboard player cannot be charged more than triple the premium for a young person addicted to his boom box. RANKING: 3

COMMENT: Healthy covereds will be subsidizing other covereds. Not exactly man-bites-dog news. This lack of pricing flexibility will create some significant problems for insurers.

Pharmacutical research received the benefit of 12 years of exclusivity for new drugs before the generics can sell the drug. RANKING: 3

COMMENT: This is one of the ways that reform did not “bend” the upward cost curve. Generics can cost about 1/3 of the brand-name drug. However, some protection of research is needed to encourage ongoing research. Overall, the lobbying efforts of big pharma paid off as they did very well. Twelve years of exclusivity and donut hole closure are both plusses for the industry.

Continued linkage of employment to health insurance coverage via fines on non-complying employers. RANKING: 2

COMMENT: If the system is going to be revamped, it makes sense to eliminate the linkage between employment and coverage. Since small employers (defined as having 50 or fewer employees) do not have to provide coverage, some employees may find themselves gravitating to large firms for coverage. This is problematic on two counts. First, America has relied largely on small business to pull us out of recessions. Small employers need talented employees. Also, has anybody noticed all the recent large one-time charges for health care costs made by large American companies (ie, the ATT $1 billion dollar charge was recently announced )?

Employers, with fewer than 50 employees, will receive tax credits of 35% (increasing to 50% in 2014) for offering coverage.

Employers, having employees in the 50-200 range, will have to pay a fine of $2,000 a year on each non-covered employee, excepting the first 30.

Employers, with at least 200 employees, will have to automatically enroll their employees in their health plan.

“Cadillac” insurance plans will become subject to a 40% excise tax paid by the insurer. Cadillac is defined as offering an estimated value of at least $10,200 for individual coverage or $27,500 for family coverage. RANKING: 2

COMMENT: Guess who will not be offering Cadillac plans any more? This is a heavy-handed manner to try to control “excess” usage. Using catastrophic coverage, paired with a flexible spending account, would have been a much more effective way to do so.

Estimating added cost of reform to be $870 billion over the next decade. RANKING: 1

COMMENT: Both the CBO and reform proponents maintain that the added costs will be more than offset by Medicare coverage reductions and new taxes and create about $138 billion in overall savings. Color me highly skeptical. First off, the cost of Medicare/Medicaid is being expanded in at least 3 realms: 15 million new beneficiaries, elimination of prevention-related copays and increase in certain reimbursements to doctors. I believe there will be significant added premium costs for insureds.

Catastrophic Coverage (ie, very high deductible policies) are restricted to those under age 30. The linked element to such policies, flexible spending accounts, have had their annual maximums reduced from $5,000 to $2,500. RANKING: 0

COMMENT: This is one the bill's disturbing aspects. One way to help control medical costs is for the individual to have more direct “ownership” of said costs. Catastrophic care policies are an effective way to deal with the “quasi elective” nature of an increasing number of drugs (ie, dealing with high cholesterol, impotence, etc) and innovative, life enhancing surgical procedures. While it assuredly is the intent to prevent one getting socked with too much out-of-pocket expense in one year, to preclude the election of a catastrophic care policy is heavy handed and myopic.

One element that thankfully did not get incorporated into the Bill. In an apparent effort to create embarrassment in the deliberation process, Tom Coburn (R-Oklahoma) proposed a provision that sex offenders would be prohibited from being prescribed Viagra. RANKING: -27

Last, and not least, there is one large gorilla left in the tent. What if the law suit contemplated by the Michigan Attorney General, and 12 other Attorney Generals, which challenges the federal government's constitution right to compel coverage (or face a fine) is successful?

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