The High Cost of Reform (Health Reform Part 3 of 4)

Political Heretic

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Sat Mar-20-10 04:57 PM
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The High Cost of Reform (Health Reform Part 3 of 4)

Edited on Sat Mar-20-10 05:47 PM by Political Heretic

(NOTE: - the original source contains hyperlinked text linking to additional resources and references. Please click on the link below for full review.)

Previous Parts:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7956377|Part 1 - The Trillion Dollar Wealth Transfer>
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7964125|Part 2 - The Facade of Reform>

LINK:http://practical-vision.blogspot.com/2010/03/high-cost-of-reform-health-reform-part.html|The High Cost of Reform (Health Reform Part 3 of 4)>

By Political Heretic
March 20, 2010

If you are a working class family, you will very likely go to bed and night praying the same prayer after insurance reform (or, if you prefer, you can use the euphemism “health care reform”) that you prayed before reform:

Dear God, please don’t let me or anyone in my family ever get really sick. Because if we do, it will bankrupt us.

Let’s say you are a family of four with a combined income at the median income level for my home state, the state of Oregon. Under the insurance reform bill, your family would get a tax-credit that would bring your annual premium costs down to approximately $5,550 (see the Kaiser Family Foundation subsidy calculator for details on figuring this subsidy.) Not exactly chump change, but admittedly less than it would cost your family without it.

This tax-credit is being called a “subsidy,” which can be confusing. Your family would still be paying the full premium amount of nearly $10,000 annually, however upon filing taxes you would be eligible to get some of that money back. If your family happens to have other critical expenses or debts at the time you receive your tax refund, its not outside the realm of possibility that you may feel forced to use that credit for other critical debt just to keep your family afloat, which puts you right back to square one with a nearly $10,000 premium bill annually.

Next, you have the cost of your insurance deductable. If your family is struggling to get by, which could easily be the case if you are making median income in a high cost part of the state of Oregon, you would likely be part of a “Bronze” insurance package (See Part 1 for more detail.) Under a bronze plan, your family’s deductible would be $2,000.

Then you have our out-of-pocket costs for care. Under the Senate insurance reform bill being considered, the annual cap on out of pocket costs would be approximately $12,000 for your family of four. Under a Bronze insurance package, your coverage ratio would be 60 / 40 – meaning the insurance provider would pay 60% of costs after your $2,000 deductible is reached, and you would be responsible for the other 40% of costs up to about $12,000.

So imagine your son or daughter is in serious need of major health care. You have tests, hospitalization, surgery and perhaps physical therapy to follow. You pay 40% of incurred costs given the type of insurance plan you family can afford. You will easily have expenses pushing you up to the max of your annual cap on out of pocket expenses. (Even if you had an 80/20 coverage plan, you will still easily reach this cap, given the extreme cost of care in the United States

So, in this year you and your family would be facing approximately $19,500 of costs for health care, assuming you were able to apply your tax credit to the cost of your premium, and assuming that your year of crisis falls neatly between calendar years. This translates to 31% of your median income. Thirty One Percent.

For many if not most families, that's bankrupting. If that would have happened to me when I still was living in my own home, it would have put me on the street.

So here we are, in the “greatest” country in the world, and after over a year of political bickering and back and forth, hard working American families get ordered by law to buy crappy private insurance without any significant protection against rising rates and exponentially increasing costs of care. We get legislation that leaves millions of American families in the same situation they were in before insurance reform: praying to God that their family never gets seriously sick, because it will be bankrupting.

Meanwhile, Japan, Germany, the United Kingdom, France, Italy, Canada, Australia, Austria, Belgium, Denmark, Finland, Greece, Iceland, the Netherlands, New Zealand, Norway, Spain, Sweden and Switzerland are all guaranteeing their citizens health care at little or no out of pocket cost.

Short Term Gains, Long Term Failure

The scenario above is the reality millions of American families will face after insurance reform. And it illustrates one of the greatest tragedies of Washington politics. Partly because of reelection concerns, party because of our culture of immediate gratification and partly because of generations of basic economic calculations built on unproven assumptions that bear little resemblance to reality, politicians choose a system of short term benefits at the cost of long term disasters.

Not only is it true that millions of Americans will not be benefited at all by this legislation (15 million, to be exact,) and not only is it true that millions of Americans will be no better off after insurance reform than they were before insurance reform (if you can’t afford costs of care after reform, then you’re no better of than you were if you couldn’t afford costs before reform) – but it is also true that millions of Americans who will see modest benefits from this legislation in the short run will watch as those benefits shrivel and fade away in the long run.

Why?

Given the fact that there is no direct control of prices for either insurance premiums or medical services, these costs will continue to exponentially rise year after year. Even with a 85% MLR requirement (Medical Loss Ratio, the proportion of health care insurance premium dollars spent on health care claims,) without related price regulation mechanisms, such a cap only encourages rising prices to expand profit margins.

So each year both the cost of health services and the cost of insurance is going to go up. This means more and more families will be maxing out the out of pocket cap for co-payment medical expenditure. This means that more and more families will be breaking the $10,000 barrier on health care each passing year, thus pressing family after family into financial crisis.

Likewise as premium costs increase one of two things will happen. Either the government’s tax credits for families below 400% of FPL (Federal Poverty Line) will fail to keep up with rising costs, passing more and more of the burden back to families until the point where they are right back to where we all started – with premiums so expensive they cannot be paid. Or, the government will continue adjusting tax credits to offset rising premium rates, in which case the supposed “savings” to the federal deficit will be eviscerated as the government spends unsustainable amounts of money desperately trying to prop up a faulty system.

These are the long-term harms we are accepting for the sake of some short term, temporary gains. Like cowards, our politicians have chosen to punt our health care crisis to our children to let them deal with it. Because sooner or later, rising premium and health service costs will bring us right back to the crisis we face today.

Coming Soon:

Part 4 – Is Something Really Better than Nothing?