Tuesday, August 11, 2009

You'll be able to keep your insurance? Probably not.

We all know by now that Obama's line is that if you like your insurance, you'll be able to keep it. Nothing to see here, folks. Move along. The only things that will change are the things that need to change. It's just a matter of helping people not presently covered.

This assumption makes it intensely frustrating to discuss this issue with liberals and even with some "conservatives." Which is why I'm posting about it here. When conservatives point out the provisions in the health care bill for a committee and a powerful Commissioner (always capitalized in the bill) to set benefits, payments, etc., and express worries about rationing, liberals shrug it off. On their view, this is simply a limitation on something that is going to exist on top of what we already have, so how can it be giving us less than we already have? On their view, it's a win-win situation. People who don't have coverage now can hardly be worse off by getting coverage they don't have, and if it isn't all they could wish for or desire, well, they are still better off than they are now. And people already covered by insurance should have no worries, because giving coverage to other people can't possibly harm them. What are we, envious of the good fortune of the presently unfortunate?

There are enormous problems with this line of reasoning, starting with the fact that there is more reason to believe that under the new bill even the people presently using Medicare would have their benefits restricted more, and restricted by invidious criteria such as whether or not they have dementia or their quality of life. Here is just one example of restrictions on benefits: As this analysis--with quotations from the law--shows (read point #1), readmissions for particular conditions will not be paid for until and unless a hospital has discharged a certain number of other patients within a certain period of time for that same condition! This is apparently not a regulation presently in place, and this is therefore new rationing of the most blatant kind. So the "win-win" implication is highly dubious right from the get-go. Update: (8/13/09) On this particular point and on further study of the bill, I have decided to correct the details of John David Lewis's analysis here. It appears that the way the rationing would work, rather, would be that the government would have an abstract and complex ratio worked out for how many readmissions for that condition the hospital had in excess of the "expected" readmissions. The hospital would then be penalized for that excess by having its payments cut for the year as a whole by a particular sum of money worked out, again, in an abstruse fashion by the bureaucrats. This is a slightly different mechanism from the "discharging a certain number of other patients" mechanism Lewis implies, but it still is, obviously, direct rationing of readmissions. It motivates hospitals by punishment not to readmit patients.

Moreover, as the same analysis shows (point #3), catastrophic-only policies, such as some prudent and non-wealthy Americans presently have (I know some myself), appear to be outlawed altogether. So if that's your plan, you will certainly have to drop it. And (see point #4) employers will be pushed toward dropping employer coverage and pushing people into the "public option," because the tax the employer has to pay if it does not cover its employees for health insurance will often be less than paying for the present health insurance benefits.

But the problems with the liberal win-win assumption, which is just a variation on the perennial problem in which liberals make false "all else being equal" assumptions, seem to me to go even farther than that.

To see why, let's start with something that Investors Business Daily brought up--the question of enrolling new people in an insurance plan after the new law goes into effect. As reported here, IBD noticed that the bill outlaws, somehow, enrolling new members in health insurance plans after the bill goes into effect. This point was to some degree corrected and finessed by the Heritage Foundation, here, by pointing out that what is actually outlawed is enrolling new members in plans other than "health care exchange" plans. So insurance companies can enroll new members after the law goes into effect, but they can only enroll them in plans that conform to heavy new federal regulations.

The Heritage Foundation rightly points out the heavy costs and economic problems with these regulations. What they don't expressly mention is this: The benefits packages of insurance programs in the health care exchange are set by the same committee that sets the benefits package for the "public option" (the federal health care for people without any insurance), and they appear to be set in such a way as to be identical to the parallel public option plans (with names like "basic," "premium," and "premium plus"). What this means, as far as I can see, is that once the legislation is in effect, all private insurance companies will be able to enroll new people only in plans that are exactly the same as the similarly-named government plans in terms of benefits--clones, in fact, of the government plans, with benefits decisions being made by the very same people that decide the benefits levels, etc., for government plans. In other words, "private" insurance will be indistinguishable from "public option," by regulation.

Now, one could argue that the insurance plans can cover people at higher levels if those people happened to be enrolled in the plan before the new legislation goes into effect. But that is enormously unlikely. And it is also enormously unlikely that employers would cover old employees differently from new employees. The union negotiators would not allow it, if nothing else. I cannot imagine that Blue Cross Blue Shield of Michigan (my insurance company) will continue ad infinitum to maintain a separate plan with better benefits operating on "old" rules--which, however, are dying out in the nature of the case because they can't enroll any new customers--for people like me who happened to be enrolled before Year One of Obamacare while setting up an entirely different, heavily regulated plan for all new enrollees. Obviously, they will just accept Health Care Exchange status for their present plans and conform them to the new regulations.

The only real question is this: Are the benefits settings for health care exchange plans minimum requirements or maximum? Liberals seem to assume they are minimum requirements. Even Obama's stumbling analogy to the Post Office and Federal Express seems to imply the same--that the private sector will still be allowed to offer better plans than anything the government is offering, and pay doctors accordingly, if they can get people to buy them. But I have my serious doubts. Let's look at some of the language of section 203 of the bill. To see the full language of the bill at this point, you will need to go to section 203. Under the "public option," the bill already has three levels of coverage, called "basic, enhanced, and premium." The benefits for these plans under the "public option" are set by the Commission, as stated already in section 123 of the bill. That these are maximum benefits under the "public option" is not in question--the whole point of having the commission set these benefit levels under the public option is to define what people are entitled to and to place some limitation on this entitlement. The new plan is going to break the bank as it is.

Now, when it comes to the exchange participating plans (that is, the only private plans that will be allowed to enroll new members after the law goes into effect), here is some of the language:

(A) IN GENERAL- A basic plan shall offer the essential benefits package required under title I for a qualified health benefits plan.

(3) ENHANCED PLAN- A enhanced plan shall offer, in addition to the level of benefits under the basic plan, a lower level of cost-sharing as provided under title I consistent with section 123(b)(5)(A).

(4) PREMIUM PLAN- A premium plan shall offer, in addition to the level of benefits under the basic plan, a lower level of cost-sharing as provided under title I consistent with section 123(b)(5)(B).

The appearance here is very much that these plans are being set up as clones of the public option plans. But there is more evidence to that effect when it comes to the supposedly gold-plated "premium plus" plans:

(5) PREMIUM-PLUS PLAN- A premium-plus plan is a premium plan that also provides additional benefits, such as adult oral health and vision care, approved by the Commissioner. The portion of the premium that is attributable to such additional benefits shall be separately specified. [Emphasis added]

Do you see that? The only mention of the possibility that private plans might offer additional benefits not included in the government plan specifies that such additional benefits have to be approved by the Commissioner. I cannot see any way to interpret this except that the benefits levels otherwise are maximum benefits levels and that any way in which the benefits in the private sector are better than those in the public sector must be pre-approved by the government bureaucrat in charge of the system as a whole. And the examples given, vision and dental care, are pretty minimal thus far. The idea that the entire high quality of the health care system (not rationing re-admissions, not limiting physician payments, and so forth) might be carried by such extra benefits and might be allowed by the Commissioner, is highly, highly dubious. And in any event, when the extra benefits of ostensibly private plans require the permission of a government bureaucrat before they can even be offered, this is hardly a continuation of business as usual beyond some government-guaranteed minimum!

But there's more evidence that the government will set a ceiling as well as a floor to private packages. In section 203b it is specified that the exchange-participating entities may not offer more than one plan of each kind in a defined "service area." This certainly looks like a limitation on competition. It appears that the Commissioner will be able to guarantee that there are only a limited number of "private" plans (the scare quotes are becoming increasingly appropriate) available for any given area, which certainly calls into question the idea that people will simply be able to keep receiving insurance of the kind they already have without any benefit limits set by the government.

But there is still more evidence. At the end of section 203, there is a paragraph on state-mandated benefits which may go beyond federally mandated benefits. One might think this section irrelevant to the question at issue, but it isn't.

(d) Treatment of State Benefit Mandates- Insofar as a State requires a health insurance issuer offering health insurance coverage to include benefits beyond the essential benefits package, such requirement shall continue to apply to an Exchange-participating health benefits plan, if the State has entered into an arrangement satisfactory to the Commissioner to reimburse the Commissioner for the amount of any net increase in affordability premium credits under subtitle C as a result of an increase in premium in basic plans as a result of application of such requirement.

Why is this evidence that the government will be setting ceilings on coverage under private plans? Because when a state mandates coverage of benefits the federal government hasn't approved, the state has to pay the federal government the difference in premiums brought about by the additional required coverage. Think about that. This is supposedly talking about private plans. Why is the state having to pay the federal government the extra money rather than just paying the higher premiums to the private plans? After all, that's what the liberals are telling us it would be like for us individuals: If you can pay the higher premium, you can get a better plan, as good as you like. But this section makes it evident that exchange participating plans (the only ones allowed to enroll new members after the law goes into effect) have their premiums effectively capped by the federal government. The federal government enters into a contract which the Commissioner negotiates with the insurer to provide the coverage (this is spelled out in detail in section 204), and no provision is made for private people simply to pay more for whatever better coverage they can find. If additional coverage is required by the state, the state must pay the additional premium that coverage requires to the federal government, who presumably pays it to the insurance company with which it has entered into a contract. No similar provision is even made for private individuals, and in any event, the existence of the federal government as a middleman makes it absolutely evident that this is by no means business as usual. Think about it: Does the federal government contract with UPS and Fedex? In order to get a service from Fedex, do you have to pay the additional cost to the federal government who then passes it on to UPS, with whom it has a contract for offering mail services to the public? Of course not. This is nothing even remotely like private free enterprise, even in the supposedly private plans.

And since the federal government is negotiating the contracts, and since the exchange plans operate only under federal contract and by federal permission, the federal government will have every motive and full power for capping premiums and hence capping benefits.

It seems to me that the case is very strong: So-called private plans that can enroll new members under Obamacare will not be permitted to compete simply by offering better benefits than the government plan offers, with such benefits paid for by willing individual customers or even employers.

So I don't think you'll be able to keep your insurance, or your health care system, for that matter, even if you like it.

Disclaimer: I am not a lawyer, nor do I play one on the Internet. This is entirely my own analysis, except for the portions expressly noted as coming from other people. It makes me a tad nervous that no one else has said already what I am saying here, and I am open to correction. But the more I look at the bill itself, the more convinced I am that I am right.


William Luse said...

If you are correct, then Obama has been lying about what the meaning of 'keep' is.

Lydia McGrew said...

Hey, by his own account he hasn't read it. I don't know why people bother asking him questions about it. He's a lot more clueless than we are, plus being absolutely committed ideologically to passing it and having a lot of power to push it through. A dangerous combination.

alaiyo said...

Bless you for this very helpful analysis!

William Luse said...

"...if the State has entered into an arrangement satisfactory to the Commissioner to reimburse the Commissioner for the amount of any net increase in affordability premium credits under subtitle C as a result of an increase in premium in basic plans as a result of application of such requirement."

Have you ever seen such a string of prepositional phrases? Such language ought to be illegal and the perpetrators arrested. No wonder nobody wants to read it, when every sentence initiates a battle to stay awake.

Lydia McGrew said...

There's probably a special bad writing school congressional aides have to go to so they can write stuff like that. Maybe it's part of law school.

To be clear: I'd guess most insurance companies will keep their names after being scooped up into the health care exchange. So it may well look like you are keeping your insurance. But as far as I can tell the benefits they actually offer will be controlled by the federal government in the new way described in the post.

Beth said...

I plan to quote y'all on language here! :-)

jonathan said...

Let me get this straight. Some federal bureaucrats will decide what benefits must be included in all new insurance plans. One of these bureaucrats, the Commissioner, decides what benefits cannot be included in any of them (simply by withholding approval). Even states can't get around this by mandating additional benefits without paying money to the federal government.

Moreover, folks who enter the health insurance market, switch out of their current plan, are switched out of their plan by their employer, or change employers, will be forced to adopt one of these government-approved plans. Eventually, everyone will have one of these plans, because those of us who can avoid these changes will eventually die and our children will have no choice.

And somehow this is a public "option" that competes in the market?

Lydia McGrew said...

Jonathan, I think you've got it.

And to make the slimy language game even slimier, the "public option" doesn't even refer to these government-approved plans in the health care exchange. They're supposedly the private ones. (Try not to die laughing.) The "public option" is the sort of Ur-plan, the plan granted by a beneficent government and paid for who-knows-how to all those others who do not otherwise have "private" (quote-unquote) insurance.

William Luse said...

Is my intuition correct that the private insurance companies (who will eventually be part of the exchange) will end up financing a good part of the public plan? Is that what Obama means by not having to raise our taxes to finance the public plan?

Jeff Singer said...


Great work on this post...I think you should shop it around to a mainstream website for publication.

Here is what is so maddening to me, as a guy who thinks markets are really, really good at allocating scarce resources. Obamacare is totally and completely anti-market -- rather than stepping back and asking how we could do a better job of making the health market work better (e.g. giving more power to individual consumers as opposed to employers, allowing plans to compete across state lines, etc.) and then using government money to help those who still can't afford insurance (through a reformed Medicaid), Obama (and the Democratic Congress) are asking how they can organize and control the health care system BETTER than the market. It is totally crazy and quite frankly depressing.

Lydia McGrew said...

Bill, I don't know the answer to that. I could make an argument either way. For example, the implication of tight control over the premiums for the "private" plans would seem to indicate that that is _not_ the case. For example, if the Commissioner allows only dental and vision benefits as extras in the private plans, I don't think the excess premiums alone from those will be enough to pay for all the expanded basic benefits across the board to all the uninsured. But I haven't yet read any part of the bill (there are many parts I haven't read, that's for sure) that actually says how premiums for the "private" plans will be set. Might the people/employers in private plans be graciously permitted to pay higher premiums for the same benefits they would get with the "public option"? I would think not but don't know for certain.

Jeff, exactly. It's infuriating but pretty much inevitable when we are dealing with people with a completely collectivist mindset regarding allocation of resources. Just like communists with food, they truly believe that radically centralizing an entire industry brings about a more rational distribution of and payment for goods and services than letting the market work. You can't argue them out of it. It's an article of faith.

William Luse said...

Well, he's planning on insuring 47 million people who don't have it. Let's say (generously) that 50% of them can afford it but haven't gotten it. The other 50 can't afford it. The former group will now be compelled to participate in a program they may or may not want. So if they *must* be insured, they'll have to pay something. That's a tax hike. The latter group will be automatically signed up on the federal tit. How's he going to pay for it?

Lydia McGrew said...

I assume he'll "pay" for it in part by reducing the quality of medical care across the board and, in addition to messing up the entire medical system, he'll print money. How else does the government pay for its massive programs?

William Luse said...

"he'll print money"

hello inflation.

"How else does the government pay for its massive programs?"

Taxes, either hidden or overt. It's all too murky. I don't like murky. I saw in one of the excerpts from the bill the words "trust fund." Social Security has one of those. I wonder if the new one will likewise be ripe for plunder.