Rational Arguments

A reader writes:

We Canadians like to brag about our health care system but we often forget that while we look good compared to the US, compared to the rest of the world we’re not quite so good.  The chart on your June 23 post seems to confirm that, with Canada placing last (7th) in several categories including timeliness of care, effective care, and quality care (overall.)  Even in most of the other categories we place well down the list with lots of 5′s and 6′s, including a 6th place standing for Overall Ranking.

Yet on Long, Healthy, Productive lives (which I would argue is truly the best metric) we place 2nd!  Given our dismal performance in so many of the other categories, this seems particularly out of place.  Can you shed some light on this apparent contradiction?

(Don’t get me wrong, I’m quite happy with my health care.  I’m just very confused by the chart.)

Lots of good stuff in here.  The simplest explanation is that “long, healthy, productive lives” are due to much more than just the health care system.  I can think of any number of public (or private) things that could improve this metric that have nothing to do with the health care system.

This illustrates a larger point.  We shouldn’t focus on any one metric to measure anything.  It’s very easy to cherry pick one statistic and then claim victory.  For instance, I bet we do more pancreas transplants in the United States than anywhere else in the world.  If we use that as the only metric, then we can hold a parade today; we’re number one!  Similarly, if you use only “long, healthy, productive lives”, then Canada is number 2.  Go celebrate.

This is why whenever you hear me talk about the quality of the US health care system, I rattle of a host of different metrics.  You can’t pick any one.  They are all flawed in some way.  But, when together they paint a pretty consistent picture (as they do in the chart I posted), you have to start believing that picture is true.  To quote myself about the US:

Last in efficiency.  Last in equity.  Last in long, healthy, productive lives.  Last overall.

Next to last in quality care.  Tied for last in access.

So I repeat.  Tell me where the good news is in there.

Here’s another point that’s often overlooked.  It’s not by chance that people who want to demonize health care reform in the US always pick on Canada.  It’s because you’re not the best in the world, either.  You’re #6 to our #7 in this case.  If they want to look for someone to pick on, they are certainly not going to turn to #1 or #2.

This isn’t to say your system isn’t better than ours in many respects.  It’s just got room for improvement, too.

First off, sorry for the absence.  I was on vacation with the family.  If you followed me on Twitter, you’d know that already.

A number of you have been writing me gleefully with the new talking point against the Affordable Care Act.  It’s going to kill businesses, cost them a fortune.  How much?

On top of AT&T’s $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks.

Ironically, I haven’t been hearing this nearly as much from conservative politicians as I am from the WSJ.  IT may be because this argument isn’t nearly as powerful as it looks at first glance.

Sure, those are big numbers.  But they seem way to big to be an instant tax.  Why did no one complain before?  Here’s a likely answer:

When the Medicare Part D prescription drug bill passed in 2003, businesses were given a double subsidy to help cover the cost of providing prescription drug coverage to their retirees. The government picked up 28% of the cost of their retiree prescription drug plans, and businesses were allowed to both exclude that 28% subsidy from their income and at the same time deduct that subsidy from their income for tax purposes.

In 2013, that changes. Under the new law, businesses will still get the same 28% subsidy, and it will still be tax free. They just don’t get to deduct the subsidy.

Seems reasonable, right? This is how virtually every other federal subsidy for businesses and individuals is treated by the IRS. Indeed, Donald Marron, acting CBO director for President George W. Bush, put it this way: “[A]s the Joint Committee on Taxation recently noted, that treatment is highly unusual. In my view, it’s right that the recent health legislation closed that loophole.”

This change has garnered recent headlines because, to comply with accounting laws, companies affected by the provision have taken a one-time charge reflecting the loss of future tax deductions over the decades-long duration of their retiree health-care plans. Critics have seized on this accounting adjustment to suggest these costs—as much as $1 billion in one company’s case—are going to place immediate and substantial cost burdens on America’s businesses.

This is disingenuous.

The actual cash flow impact of these provisions begins in 2013, and is only a tiny fraction of the accounting charge-offs.

This newspaper reported last Friday that while one company calculated a $100 million hit to its first-quarter earnings, its actual cost after taxes and subsidies, beginning in 2013, was closer to $7 million a year, or less than 1% of its profits last year.

Credit Suisse’s response to the tax controversy was: “don’t overreact to the hit on earnings.” Morgan Stanley referred to it as “noise” that would have “no impact whatsoever” on their view of this earnings cycle. And UBS projected that the impact in virtually all cases represented less than 1% of market capitalization for affected companies.

First, this is an elimination of a case of double-dipping.  For-profit corporations were getting to deduct an expense they weren’t paying for.  So…  that’s not really fair.  Not only that, they were showing this as a future way to profit.  When the Act closed the double-dipping, they had to adjust their future earnings downward.  They didn’t have to write  a check or pay a tax.  They just had to show that they could not show this as a way to make extra money on your dime.  Your taxes paid for that double-dipping.  I’m not happy about that.  Why are you?

Then, they went and made it look worse.  They took the changes over decades and added them all into one large number.  So the “$100 million” hit is really closer to “$7 million a year”.  And, it doesn’t even start until 2013.

Yes, businesses are taking a small hit.  They are losing a loophole that let them double-dip and make extra money with taxpayers’ money.  No longer.  And, they are getting lots of new benefits as well.

There is likely a reason that Republicans aren’t making a huge deal out of this one.

A reader asks:

One item that I cannot find and would like to know is:  When a person applies for health insurance after the reform takes place, will companies be able to ask health questions on the application?  Also, does this reform prevent rating policies up for health problems?  These are two very important questions.  If companies can do this..the reform is not reform.  Thought you might have access to this information.

Nope.  No health questions.  No rating policies up for health problems.  That’s one of the reasons reform is reform.  From the Kaiser Family Foundation (italics mine):

How do premiums vary by age and health status? Under the status quo, people buying coverage on their own generally face medical underwriting, meaning that they can be turned down for coverage or charged a higher premium based on their health status. That is prohibited under the Congressional proposals. Premiums today also vary by the age of the policy holder, with the premium for a single 64 year old typically being five times or more the premium for a 19 year old. For families the variation in premiums by age is generally less pronounced. The House bill caps the amount that an insurer can vary premiums by age at two to one, meaning that premiums for older people would be lower than under the status quo while premiums for younger people would be higher. The Senate bill and the President’s proposal cap the variation for age at three to one.

A reader asks:

Just curious. Why don’t you permit comments/questions to your blog posts? That seems odd.

My question is what does the word “affordable” mean in the context of health care reform? I hear it over and over in this messy debate, but no one says what it means. Does affordable insurance for someone “high risk” with a pre-existing condition means a premium of $4,000 per year or $40,000?

As to comments, I have a policy (and reasons)*.  In compensation, I try to answer a ton of email.  Like this one.

“Affordable” is – as the reader notes – a subjective term.  But, to get a concrete answer as to what insurance would cost for you (if you’re not getting it from your job), go to one of the many calculators.  There will be no rate difference because of your condition.  That’s one of the key pieces of reform.

*If people are curious, my recent request for suggestions on whether to change the comment policy was overwhelmingly for leaving it in place.

An observant reader asks:

The new direction features a system of national insurance plans run privately but administered by the Gov’t. Is this akin to opening up the purchase of health insurance across state lines? How will the flaws in that idea that you’ve described over the last few months be avoided?

Excellent question.  It’s not the same thing.  The difference between this and what Republicans have proposed is the deregulation.  See Republicans want to allow insurance companies in states with few regulations to be able to operate in states with lots of regulations (but without observing them).  This will destroy the risk pools in states with regulations.

Since the bill creates federal regulations which are much stronger than those seen in most, if not all states, the problem of crossing state lines isn’t as much of a big deal.  Everyone will have to play by the same rules no matter what state they are in!

A reader asks:

I am 55, and disabled. Although I am eligible for Medicare (disabled for 24+ mth.), I chose to stay on my wife’s medical plan until I could take enough time to understand my options and costs. Today I received the information that although we pay >$7000 / year – JUST FOR MY PORTION OF HER PLAN! – it will still cost more than that amount for me to switch over to either a) Part”B” + Medigap + Part”D”, or b) Part”B” + Medicare Advantage.

Why? Primarily, it is because of the quantity, and types, of medication that I take for my condition, (Diffuse Systemic Scleroderma). When my local senior assistance program plugged my info into thee Medicare calculator, it spit out that I will required to pay more than the $7000 – primarily because of the “doughnut hole”.

My question is this – do any of the plans being discussed, by The House and/or Senate, address this issue?

I wish everyone who says that a public plan or Medicare is “free” would read your question.

First of all, let’s explain to everyone what the doughnut hole is:

Medicare mavens and readers of a certain age will already be familiar with the hole — the gap in coverage that leaves beneficiaries on the hook for the cost of prescription drugs when the cost of their prescription drugs passes $2,700 in a year. Coverage kicks back in when a beneficiary’s annual drug cost passes $6,154 in a year, according to the WSJ’s story on the deal.

So once you go over a certain amount (which isn’t hard) you have to shell out thousands of dollars before any coverage kicks back in.

The good news is that reform (so far) does have provisions to close this up, at least a bit.  It was part of the big deal the White House made with pharma.  Until the bill is passed, we won’t know for sure, but I suspect things will get better in terms of your out-of-pocket costs for drugs.

A reader asks:

The new Senate compromise must have freaked a lot of you out.  I’m getting slammed with emails.  I’m going to try and get through a few here.

A reader asks:

So I have a 26 year old daughter, poor college student with no insurance, no money to buy insurance and 3 pre-existing conditions.  I had to drop herfrom Federal employees plan when she turned 23.  I always feel I am on the verge of bankruptcy if one of her conditions requires a major hospital event. I can’t believe they sucked up to AARP and gave the over 55 crowd a walk into health insurance while as always they have left the rest of America who is not elderly, cobra eligible, or schip out in the cold. Whats in the new bill that might help my kid or is she looking at nothing for 3 to 4 years and then an expensive insurance possibility in the non-profit exchange?  Blue Cross is non-profit and its premiums are about as high as anyones in the FEHB excahnge. I have FEHB as a fed retireee Mail Handlers Insurance administered by Coventry and my premiums are increasing 27% come January 1, So much for cost control.

Well, things are pretty much just as they were before the deal.  What’s in the new bill for your daughter is (1) the fact that they will not be able to deny her insurance because of her conditions, (2) they won’t be able to charge her more than a healthy person because of her conditions, and (3) if she makes less than 300% (or 400%) of the poverty line she’s going to get subsidies to help her buy insurance.  This bill will likely help her.

I don’t disagree with you assessment that both the FEHBP and the reforms as proposed will do much for cost control, but of the many people writing me today, your daughter is likely to be one of the most helped with health care reform.

A reader writes:

Currently I usually work 4-7 months per year in Antarctica for an American company where I get health insurance with my job.  Then the other 5-8 months of the year I don’t work.  Do you have any idea how my health insurance would be affected in the off season (as I usually choose not to take another job during that time)?

Would I be required to carry health insurance in my off season?  Would I be required to take my Cobra (which currently is way too expensive and is pretty much junk insurance) – and take it without subsidies (as I’m sure my annual salary would qualify me for subsidies in the exchange).  Or would I be given the OPTION of choosing Cobra or choosing a plan within the exchange – with subsidies?  Or due to the short time of unemployment, would I have the option of going without insurance?  How do these health care plans intend to handle people who only work seasonally?

Excellent question.  Look, you will have to have insurance.  That’s the meaning of the mandate.  It will occur one of two ways.  If your employer gives you insurance, they will give it to you for the whole year likely.  However, in your situation, I think that’s not the way it will probably happen.

The second (and more likely) option is that you will get your insurance through the exchange.  They will likely contribute towards it during the months you are employed, and then you will be responsible for it when you are not.

COBRA is necessary right now when people can’t get decent insurance without their jobs.  You won’t want it (or need it) if reform passes.

You’re probably going to be best off with the plans in the exchange with subsidies.

I’m getting a lot of emails about the Republican health care bill.  Many are saying I’m being unfair.  A surprising number are pointing me to this press release from John Boehner:

In a letter delivered tonight, CBO estimated that the GOP health care plan would reduce average private health insurance premiums per enrollee in the United States relative to what they would be under current law.  Specifically:

•    For the small group market (generally businesses with 2 to 50 employees), the GOP plan would reduce premiums in 2016 for example by up to 10 percent.
•    For the individual market, the GOP plan would reduce premiums in 2016 by up to eight percent.
•    For the large group market, the GOP plan would reduce premiums in 2016 by up to three percent.

Can we first agree never again to use press releases from politicians as evidence in an argument? Please?

Let’s address the points anyway, as they provide a good lesson on the difference between the cost of insurance and the cost of care.  I am not quibbling that the GOP bill may bring down the cost of insurance for the Average American.  I can do that easily.  If we kick everyone who is sick out of the risk pool, then insurance becomes very cheap.  Go read this.  After all, insurance for healthy people is cheap!  The problem in America is that if you’re not healthy and actually need care, insurance is very expensive.  So how does the Republican plan lower the costs?  The CBO tells us:

The first source encompasses factors that affect an “apples-to-apples” comparison of the average price of equivalent insurance coverage for an equivalent population under the amendment and under current law. Provisions in the amendment that belong in this category include the medical malpractice reforms and the requirements for administrative simplification assigned to the Secretary of HHS. Those changes would reduce spending related to the delivery of health care services and would thereby reduce health insurance premiums without substantially changing the amount of coverage provided or the mix of enrollees covered. Similarly, the amendment’s subsidies for reinsurance in the small group market would reduce the average premiums charged in that market because those subsidies would reduce the net costs that insurers incurred to provide that coverage.

So the first way they get premium reductions is by malpractice reform.  That will lead to some reduced health care costs (less than $5 billion a year) from less defensive medicine.

The second source of change in average insurance premiums is changes in the average extent of coverage purchased. Those changes can reflect both changes in the scope of insurance coverage—the benefits or services that are included—and changes in the share of costs for covered services paid by the insurer—known as the “actuarial value.” With other factors held equal, insurance policies that cover more benefits or services or have smaller copayments or deductibles have higher premiums, while policies that cover fewer benefits or services or have larger copayments or deductibles have lower premiums. Provisions in the amendment that would reduce insurance premiums by affecting the amount of coverage purchased include the State Innovations program, which would encourage states to reduce the number and extent of benefit mandates that they impose, and provisions that would allow individuals or affiliated groups to purchase insurance policies in other states that have less stringent mandates. CBO’s assessment was that the amendment would not have a substantial effect on actuarial values. However, that assessment represents an important source of uncertainty in this analysis of effects on premiums, because some of the savings from avoiding state mandates of benefits might be used to purchase coverage with a higher actuarial value.

The second way premiums get reduced is by getting states to stop requiring insurance to pay so much.  In other words, the plans can require more out-of-pocket expenses.  This makes premiums less.

The third source of change in average insurance premiums is changes in the characteristics of the people who are enrolled in different insurance pools. If relatively healthy people join an insurance pool, then the average insurance premiums for that pool would tend to decline; conversely, an influx of relatively unhealthy people would tend to raise premiums for that pool. For example, provisions in the amendment that promote the automatic enrollment of workers in health insurance and the coverage of dependents under age 26 in family policies would act to improve the average health status of both the small group and large group insurance markets and thereby reduce average premiums per enrollee in those markets.

The third way is by allowing even more cherry-picking so that only healthy people get into insurance risk pools.  That makes premiums less.

This really shows you why you need to read the full report.  Yes, Mr. Boehner can (in his press release) claim that the average premium will go down.  But that gets accomplished by (largely) increasing out-of-pocket costs and making things even harder for people with pre-existing conditions.  This is not health care reform.  It’s making things worse.