Monthly Archives: September 2012

And now, Small Business!

The final section of this part of the PPACA is about the Small Business Tax Credit. One of the concerns of the current health care system is that small businesses don’t have a lot of opportunity or access to provide health care to their employees. While some small business workers can be covered on their spouse’s or partner’s insurance, many can’t, and this is part of the gap in coverage. PPACA to the rescue! Or at least to the something besides doing nothing!

Section 1421 provides a tax credit to small business for their portion of health insurance plans that they provide for their employees. As the number of employees goes up, or their wages do, the tax credit decreases. If you pay your employees $100,000 a year each, even if you only have a few of them, then presumably your business is doing well enough that you can pay for their health insurance as well. This credit is specifically for small business, both in size and value.

There are provisions for calculating full time equivalents from many part time employees, and if you, say, have one employee that you work 60-70 hours per week, you can’t claim them as multiple employees, only the first 2,080 hours count. Seasonal workers are not counted, if you own stock in the company, that doesn’t count, or if the worker is your dependent, that doesn’t count.

The tax credit replaces the tax deduction that currently exists for small business owners who pay for health insurance. In general, credits are better than deductions, so small business owners should have an incentive here to provide more health insurance benefits. We’ll see why this matters next week.

Because, that’s right kids, we’ve made it to the INDIVUDAL MANDATE portion of the PPACA. You’ll just have to wait through the weekend and you too can then decide if it is the best thing since sliced bread, or the work of the devil, or a compromise position intended to please few while placating many. Until then!

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Finishing up Eligibility

As we are reminded nearly daily, the election is 44, 43, 42, 41 days away. That was my self-imposed deadline (at least the latest one) for finishing going through the PPACA. Given that we are on page 123 of 955, we may not make it. But, we’ll do our best.

Sections 1412, 1413, 1414, 1415, and 1416 all deal with different topics of eligibility for the various benefits and responsibilities imposed by the PPACA. We discussed in the previous post (1411), the requirements for eligibility for the Exchanges. We’ll look at the rest of the sections in this post.

1412 allows the Treasury to determine in advance the premium tax credit and cost-sharing reduction eligibility for certain groups of people. So, for example, if a business was pre-determined to not offer minimum essential coverage, then all of its employees would be presumed to be eligible for the tax credit (depending on income), without each employee having to provide the documentation required by section 1411. It also sets up a mechanism by which the tax credits can be paid in advance, rather than waiting through the entire tax year cycle.

1413 requires that HHS set up a system by which people who apply for the Exchange are actually eligible for a state assistance program, such as CHIP (Children’s Health Insurance Plan) that those people are enrolled in those systems – which have different funding mechanisms.

While no one has really mentioned this part of the plan (giving credence to the idea that they haven’t actually read most of it) I actually see some potential resistance to this part of the Plan by various groups of people. While much discussion recently has centered around people who are characterized as being happy to be dependent on the government, there are many people who are eligible for these programs, who don’t apply for them. According to this article 2/3rds of all children eligible for SCHIP and Medicaid are uninsured (Article) Since children can’t apply on their own, one can assume that their parents either don’t know about, or don’t want to apply for, these programs. Purely anecdotally, I’ve been on several Baby Boards (bulletin boards where women discuss babies, before and after they are born) and there were many women there who knew they were eligible for assistance, but considered it to be a matter of pride that they didn’t take it. It will be an interesting research question as to whether these families, if they choose to apply for the Exchanges and are funneled into the more traditional assistance programs, will choose to go without any insurance rather than take the assistance offered.

Lots of information about security, and forms, and secretarial standards.

1414 allows HHS to have access to the tax returns to make the eligibility of aforementioned premium tax credits. The Federal Government does try to take privacy and confidentiality of information seriously, which I can attest to, having worked in the VA. I’m not saying they are perfect, but then neither is Sony, GoDaddy, and various Credit Card companies, all of whom have been hacked for private information in the recent past.

1415 says that if you get a premium tax credit, or a cost-sharing reduction payment, it doesn’t count as income for the purposes of eligibility for federal assistance. And in a rare show of brevity, section 1415 is only 115 words longer than the previous sentence explaining it.

1416 authorizes a study of the Federal Poverty Line, seeing if adjustments need to be made to it.

So that finishes up the eligibility section. Progress! Progress has been made!

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Can I, Can I?

We’ve talked a bunch about the Exchanges, or the place where you go to buy health insurance if you can’t, or choose not, to buy it from your employer. However, there are rules governing who is actually allowed to purchase insurance on these Exchanges. There are also guidelines for who can receive premium assistance, whose employer based insurance in unaffordable, and who is exempt from tax penalty if they don’t have insurance.

Most of these requirements were laid out in previous sections, but the next 6 sections, including this one, 1411, explicitly state that the Secretary of Health and Human Services has to come up with a program to assess the eligibility of people for these various items. So, yes, they said previously that you have to meet these requirements, and now they are saying that the government has to make sure they determine whether you meet these requirements. I suppose that is better than the alternatives – either saying you have to do something and then not caring if you do it, or worse, making requirements that you have no possible way to prove you meet. That last one sounds like something the Vogons would do.

So the Secretary of HHS has to make this program. Then what? You have to give them information, name, date of birth, SSN, etc. If you are claiming a tax credit because your employer doesn’t provide minimum coverage, then you have to include a lot of details about your employment status, and the cost of the coverage, and the cost-sharing. I hope there is a form. I’m sure there will be a form. J

The thing you really need to understand about the PPACA is that is references a lot of other sections of the PPACA and many other laws. For instance, if you wanted to claim an exemption from having to hold insurance, which is allowed in section 1311, subpart d, subsubpart 4, subsubsubpart H, in order to be exempt from the tax penalty as laid out in section 5000A of the tax code, then section 1411 tells you how to do that.

Just as aside, this is the first mention of WHO might be eligible for such an exemption. These include religious exemptions, people who are members of health care sharing ministries (oh, you’ve never heard of those – well – are you in for a treat! See the footnote.), Indian, or eligible for a hardship exemption.

There are then pages, and pages, and pages about exactly how the Secretary can develop this system, what happens if there are problems, liability for false information, confidentiality of information….and so on for six pages. We’ll assume that the Secretary has read them too.

Remember – there are 5 more sections about eligibility. We’ll finish those out this week.

Footnote: A Health Care Sharing Ministry is a group of people who pay money into the system, and then when they need health care services, they receive money from the pool, after meeting some basic level of out-of-pocket expense. They are typically not-for-profit. They are faith-based, being predominately Christian, and usually expect their members to live a “Christian lifestyle”. The members have no guarantee of payment. But they aren’t health insurance. No siree-Bob. Even though Washington State shut one such organization down, for not registering as an insurer.

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A little departure

I have posts on the details of the PPACA queued up, so don’t fret – we will get back to that. But I wanted to take a little departure to explore a topic that came up while reading Facebook in the car on the way to work this morning. Don’t worry – I carpool, so I wasn’t driving while reading. That would be a public health failure.

One of the threads I was reading contained the comment that the best way to correct the problems in the health care system would be to get rid of Medicare/Medicaid and all private insurance, and go with strictly free market capitalism for health care. I’m sure that the commenter was not the only person in the country who thinks about this as a possibility. After all – it works (with caveats) for cheese and sweaters, why shouldn’t it work for health care? So – let’s explore that concept, and see what we conclude.

To start with, we have to figure out what people mean when they say the “free market” system. Do they mean a market that upholds the assumptions of Perfect Competition, a theoretical construct in economics used to define the most efficient market? Do they mean laissez-faire economics, where there are few, if any, government regulations, including those preventing Monopolies (which by the way, are the antithesis of Perfect Competition). Do they mean no government ownership of any resources of production? Or, more cynically, do they mean that the government just doesn’t do anything they don’t want it to? The question matters, because all understanding any system starts by clarifying the assumptions you have made about that system. This is especially true in economics, where we don’t do ANYTHING without an assumption of some kind.

Since finding out what this particular person meant, assuming he or she could clarify it precisely, is not possible, we will make an assumption based on what little information we do have – that the goal was to get rid of all private insurance and Medicare and Medicaid. First off – that in and of itself defies the free market. In any case where you have a product that has risk associated with it – such as whether or not your house will get hit by a hurricane, whether or not that drunk driver will hit your car, or whether or not you will develop a devastating health condition – the free market will create an insurance system to make a profit by spreading your individual risk out over large groups of people. But I’m pretty sure the person in question didn’t think about that. So, we will continue to consider a world where – by some magic that doesn’t include government regulations preventing the very thing that the free market would invent were we to get rid of current health care provision system (are you still with me?) – there is no Medicare, Medicaid, or private insurance.

So – you get sick, and what? You go to a doctor, and they charge you money. Ok, so what happens if you don’t have enough money? Well, under a truly free market system, if you can’t buy cheese, you don’t get cheese. No money, no sweater. Logically following then, if you can’t pay your doctor for their care, or the pharmacist for their drugs, then you stay sick. You might get better on your own. Or you might not. In the end, a free market system, with no insurance, would mean that if you got hit by a car, or you got a severe infection, or if you developed a disease like cancer, then unless you were a multi-millionaire, you would die. That’s it, end of story. Most people simply cannot save enough money to pay for health care if they have a disease that is much more complicated than say a minor cold, even if prices were to drop to a fraction of what they are now. Health care is a million times better than when it was possible to pay for services with a chicken and some canned goods. The procedures, the machinery, the devices, the drugs, everything. That’s, in part, why an insurance market for health care was developed in the first place. Because health, and health care, aren’t just cheese and sweaters, where the middle-income people just get lower quality versions of, and low-income people do without. If you get hit by a car, and you don’t have the money to pay, in a truly “free-market” world for this good, you die.

Now, even in our current world, before or after the PPACA, this is still a possibility. We haven’t the addressed the questions of whether it is ok with us as society that anyone dies from a lack of health care. There are questions of personal responsibility versus luck of the draw, etc. There are probably people out there that think it is just fine and dandy if people die if they can’t pay. We can think about those issues in later posts. But what I can say is that the idea that there is a free-market system, that doesn’t include private health care insurance, which would allow anyone except the super-wealthy to survive, is patently ridiculous.

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Cost-Sharing!

Wait – what was that? The idea that people who purchase these plans are expected to share in the costs? Yep, that’s right. However, if you make between 100% and 400% of the poverty level (which, in 2012, is $11,170 for a single person, $23,050 for a family of 4, and more in Alaska and Hawaii) then you are eligible for reductions in cost-sharing, according to section 1402. This reduction varies by precisely how much your income is, but ranges between 1/3rd and 2/3rd .

Cost-sharing, in case you didn’t know, is the co-pay and coinsurance amounts that you often have to pay for health insurance. For example, in my health plan, I pay $25 to see a doctor, and 15% of any procedure performed. These would be my cost-sharing portions. If my household income is less than 400% of the poverty level, then those amounts would be reduced.

There are a couple of special provisions – pediatric dentistry is apparently exempted. In general, if the dental and vision plans are stand-alone, and not bundled with the health insurance, then they are not subject to any requirement of the PPACA. And if a person can be defined as an Indian (language that of the Act, not mine), and has income less than 300% of poverty line, then cost-sharing is eliminated altogether. If you are Not Lawfully Present, then you don’t get cost-sharing reduction. That means no cost-sharing reduction for undocumented peoples.

The next section is a shift in topic, to thinking about eligibility, so we’ll save that as your Friday Fun!

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Affordable Coverage Choices for All Americans

That’s the title of Subtitle E.

And, because this is the Federal Government, affordable coverage choices start with taxes and subsidies. This shouldn’t surprise anyone that has taken any economics, as the primary tool of a government has to affect actions in the economy is through taxes and spending.

This particular section – 1401 – discusses a tax credit, given against a tax, for premium assistance. What the heck?!?

First – this implies that there is premium assistance for those who are unable to afford their health insurance premiums. And there is. Since insurance is mandated, the Act recognizes that not all people will be able to afford the premiums, so it gives some people money back. This applies if your household makes over 133% of the poverty level. If it makes less – you are probably (at least under the Act) eligible for Medicaid. There is some chance that your particular state will decide not to expand Medicaid coverage to people who make between 100% and 133% of the poverty line, or who don’t have dependent children. If your state doesn’t expand this coverage, I suggest you think about why, and possibly, how to move to state that does.

The premiums in the Exchanges, which are what the rebates are for, are also related to the color of the plan (remember the colors of the plans back in this post?) – with the amounts tied into the second lowest cost for a silver plan. Confused yet?

If you choose to buy insurance from your employer, rather than through an Exchange, and that health care is deemed to be meeting the essential minimal coverage guidelines, and to be affordable, or you receive health care under a free choice voucher (a later section) then you aren’t eligible for the premium assistance. It is up to you to decide if your health insurance would be cheaper through your employer, or through an Exchange.

So – because you received money, that’s considered income. To avoid having people taxed on this “income” the IRS gives you a tax credit. That’s the Feds for you – if there is a complicated way to do something – that’s what they choose.

There are provisions in this section to review this tax credit, and the insurance plans in general, after 5 years, to see if it met the purported goals of increasing health insurance coverage without being too burdensome on the populous. If the history of the US is any indication, it will be unlikely that a tax credit will get eliminated, but it’s possible.

You might be asking yourself, why all of this complicated tax credit, premium assistance, etc, is part of a Reform Act intended to make getting health care easier? Well – that’s because it isn’t precisely intended to make getting health care easier. If that were the goal, it would have set up a single payer system. Single payer systems, which have been referred to as socialist, the work of the devil, and sensible, are present in the US, but only if you are old, or a veteran. Otherwise, you get insurance. So the PPACA is there to make getting insurance easier. It’s also good, if you like the PPACA, that they picked a taxation system, rather than trying to implement a mandate strictly through the use of the Commerce Clause of the Constitution. The Opinion that supported the constitutionality of the individual mandate made it clear that they wouldn’t have done so had it not been a tax matter.

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Risk, Risk, Risk

1343 is an interesting section. One of the main issues with insurance to date is that, of course, insurers don’t want to have higher risk individuals in their plans. Because higher risk equals more health care expenditures equals lower profit. And you do remember that health insurance companies, for the most part, are just interested in making a profit.

So, this section provides for payments to plans that have higher than average risk profiles, and charges those plans that have lower than average risk profiles. If this were the Texas school funding system, they would call that a Robin Hood plan. The goal is, of course, to create an incentive for insurers to include both higher and lower risk people in their plans, so that the overall risk profile is the same in all plans.

We’ve reached the end of Subtitle D. How are people feeling about the topics covered so far, I wonder? We’ve talked about preexisting conditions, rate reforms, essential benefits and reinsurance. We haven’t actually gotten to the most controversial, and least liked, portion of the Act, the insurance mandates. So far, most of the changes made are things I suspect most people would probably support, if they knew about them. Not everyone, of course, but then some people don’t like rainbows, bubbles or puppies either. I’ve never known what to make of those people.

I’ll be posting another post tomorrow, starting with the next sections. Meanwhile – anything anyone wants more details on?

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More Fun with Reinsurance

We’ll continue our analysis of the reinsurance market – or the method by which the PPACA hopes that they can compensate for any risks associated with offering health insurance in smaller risk pools.

Section 1342 – Establishment of Risk Corridors For Plans in Individual and Small Group Markets

Why don’t we take a moment and discuss why these smaller markets exist, and why they might be a problem for health insurers.

The first question is pretty easy – smaller markets exist because not everybody in this country works for a large corporation. Small groups are those employers that have less than 100 employees, and the individual market is for people who do not have access to any health insurance through an employer. These people might be freelancers, or small business owners, or in a relationship such that they are not eligible for health insurance through their partner’s employer, etc.

The second question is a little more complicated. Why do insurers not just give these people the same plans as those people who work for large corporate employers? There are several reasons.

One is that the price of insurance plans is negotiated by each employer, and would therefore be dependent on the bargaining power of each side. A large corporation has a lot of clout when they decide who will get their millions of dollars in health insurance premiums. The insurers will not just want to give you, an individual, the same rate and benefits that they gave someone with more ability to bargain with them. Remember – the health insurance company doesn’t really care about your health, other than the fact that the healthier you are, the more profit they have. Companies, since they offer health insurance as a benefit to employees, want to have premiums as low as possible, but they also have their own profits to consider. Since they pay a portion of your health insurance premium (although the amount they pay differs widely) they want the lowest price possible. They could just not care, and pay nothing, but if they did that then they might not skilled employees. Balance – it’s all about balance.

The second is that large corporations have lots of people – and therefore have a lot of healthy people compared to the likely number of sick people. Health insurance, after all, makes its money by betting that you won’t get sick, while recognizing that you of course, will get sick at some point. You, all by yourself, or in your small company, don’t have as many people to spread that risk over if you happen to get sick.

Finally, there are the concepts of adverse selection and moral hazard. Adverse selection is the idea that people who want insurance are the more likely to need it because they are riskier in some way. Moral hazard is the idea that if you have insurance you are more likely to engage in risky behavior. The insurance company hopes to limit each of these possibilities by using your employment as a signal of sorts that you are not likely to take advantage of the health insurance they are offering. After all, the company was willing to hire you, so you can’t be TOO bad. And presumably, their families aren’t TOO bad either, if this same responsible, working, person was willing to engage in a long term relationship with them. Of course, they can’t know any of this for sure but insurance is all about probabilities. Due to laws protecting large groups (HIPAA) – they can’t deny you insurance based on your individual characteristics – but there are not as many protections for smaller groups.

So all of that means that people who are part of the small and individual insurance market, about 62.7 million people under age 65, will be affected by these changes. The previous section (1341) described how this market would be handled until the year 2014, when this section (1342) takes effect. This section provides additional payments to participating insurers in this market, in order to allow them to adjust to covering higher risk individuals that they had likely not been covering previously.

That was a lot for what was essentially a small section, but hopefully it clears up some issues.

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Back to Work

While I don’t plan to change the name of this blog from stayathomeeconomist to atworkeconomist, I have recently returned to the full-time paid work force. As a result, I might actually have time to finish going through the PPACA. Toddlers and computers rarely mix so the last couple of months it have been challenging to find the time to write.

For those of you who have been otherwise occupied and didn’t notice, we have entered the election season. While I am not intending to get into politics – there are plenty of those places out there on the Interwebz – it behooves me to note that the Republican Party Platform specifically refers to the PPACA (as Obamacare) 9 times, and calls to repeal the Act as soon as possible. My hope is that by finishing this, you, my readers, can decide for yourself if it is worth repealing.

Since it has been a while since I began this, let’s recap a bit:

The first part of the Act makes immediate changes to health care insurance. We should have already felt these impacts, to some extent, in our lives. Lifetime limits were removed; annual limits were subject to requirements. Rescission was eliminated. Co-pays for items considered preventative care were eliminated (one area of which, contraception, was the subject of much debate recently). Being able to cover your children on your own health insurance was extended to age 26 (Blog Post 3/26).

Public opinion on the various component parts of these reforms has been generally favorable, except of course, the part where we have to pay for them by all buying insurance. (KFF Poll)

I started to make a list of the rest of the items that the first parts of the Act covers, but then realized that it was about as dull as reading the Act yourself, which if you are here, you clearly would rather I did. Plus – my original posts were funnier than a list. So go read them.

For those of you who already did – I’ll move on to the latest section.

Part 5 of the PPACA addresses the question of Reinsurance and Risk Adjustment. I can see why people who read the first 124 pages and got to this section decided to throw up their hands and go play golf or something. Just the title makes me want to go to sleep.

Section 1341 – Transitional Reinsurance Program for Individual Market

What is reinsurance you might ask? Reinsurance is when your insurance company buys insurance. In this case, it is to help ease the burden on the insurance companies for covering high-risk people in the high-risk pools.

Because – really – that’s the crux of the problem with health care in this country. It’s based on an insurance model and insurance doesn’t want to cover risky people. In the case of health care, some of the risk comes from personal action – like driving too fast, or skydiving, or whatnot – but most health problems are either complete chance, or a combination of genetic predisposition and lifestyle choices. And it is all well and good to say that everyone should make the best lifestyle choices possible, but economics, geography and fate all interact to make it impossible to predict with 100% certainty who will need millions of dollars of health care in their lives and who won’t.

So how can we solve this dilemma? There are three main options:

  1. We can go completely free market – if you can pay for health care, great, otherwise, you will die.

    This option has already been tossed out of the window in this country, because we have health care insurance, insurance that heretofore has been linked to employment. That makes health then become a matter of class. If you have a middle class job that has benefits, then you will have at least some protection against the conspiracy of genes, environment and chance that results in your health from day to day. If you don’t – well, we aren’t quite ready to say as a society that those people should just die. Some among us are, but not, thankfully, yet the majority.

  2. We can go single-payer – the government pays for all health care through taxation.

    This system is a non-starter in America. Doctors don’t like it, patients don’t like it, and politicians hate it. The efficacy of such a program is certainly mixed, depending on how you rank the outcomes, but even if it was the best deal in town, we don’t want to buy it.

  3. We can do a hybrid. Private health care, paid for by insurance, but that insurance is required for all.

    This is what the PPACA is intended to do. It faces the reality of the situation that we have an insurance system here, it is unlikely to go away any time soon, but that the current nature of that system (at least up to the implementation of the act) does not address everyone’s needs, and results in many people being denied health care. So let’s fix the last part, without fighting the uphill, if not impossible, battle of fixing the overall system.

So the Act recognizes that insurance companies are not going to want to cover higher risk individuals and creates an organized system of reinsurance so that companies are at least somewhat protected from the increase in the care they are required to offer.

Ok – that’s enough to chew on for one day.

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