Wednesday, April 7, 2010

Insurance revisions steal Obama-care show

This article appeared in the April 6, 2010 edition of the Springfield Business Journal.

This article appeared in the April 6, 2010 edition of the Springfield Business Journal.

The much-debated health care reform legislation is now law. Despite all the rhetoric, name calling and brick throwing, the act does very little to reform health care.

The law focuses on health insurance reform, and it is not the end game; it is little more than the end of the beginning. As the post-enactment dust begins to settle, certain hot-button topics will fade: government-run health care, Medicare cuts and abortion. Those issues were overhyped to alarm constituencies preprogrammed to react.

Two issues will dominate as the fight shifts from the U.S. Congress to the states: the mandate to purchase health insurance and the cost of expanding Medicaid.

The insurance mandate

Some states threaten legislation to block the mandate, and others threaten litigation.

Do not count on state laws and lawsuits accomplishing much more than giving talking heads ammunition (though people with no knowledge of constitutional law will begin making confident statements about the true meaning of the interstate commerce clause).

There also will be a proliferation of claims that the mandate was actually a Republican invention.

If the goal is to protect the health insurance industry, a “universal” mandate to purchase private insurance is certainly preferable to “universal” governmental insurance such as Medicare for all.

Insurance companies already are funding millions into an Enroll America campaign. The battle over the mandate will fade.

The Medicaid expansion

It does not have talking-head appeal, but it will be the real battleground as to the future of health insurance.

The act requires states to expand Medicaid to cover households earning less than $30,000.

The expansion is paid by the federal government, but the subsidy eventually drops to 90 percent. The federal subsidy only covers the “expansion” of Medicaid, but money is fungible and so are Medicaid “covered lives.”

Questions linger. How soon before the lines become blurred between existing and expanded funds and covered persons? What happens when a state cuts benefits or eligibility in its existing program while expanding its program with federal funds under the new law?

The feds will regulate the expansion, but states will prove extremely inventive in leveraging federal dollars.

For years, the federal government has attempted to rein in states which impose a “tax” on providers to increase matching funds from the federal program, but every year more states climb on the provider tax gravy train. Imagine the clever ways states will transform “existing” into “expanded.” How soon before federal regulations merge the two?

Medicaid varies not merely in eligibility criteria but also in services covered. Relocating recipients will lose certain services covered in their old states. Does the new law give rise to a federal mandate to cover a certain menu of services under Medicaid?

Medicaid also varies in what states pay for the same service. The new law requires Medicaid programs to pay primary care physicians Medicare rates.

How soon before federal regulations require Medicaid to cover the same services and pay the same as Medicare?

The new law subsidizes the mandated purchase of health insurance for households earning less than 400 percent of the federal poverty level, which is approximately $88,000. Depending on each state’s eligibility standards for Medicaid and the Children’s Health Insurance Program, the insurance subsidy could cost more than existing programs.

How soon before federal regulations transform the subsidy into coverage provided directly under Medicaid – with a sliding scale determining individual premium payment responsibility?

Pressure now exists to evolve Medicaid into a federally funded doppelganger of Medicare for persons in households under 400 percent of the federal poverty level. Everyone else would be covered under private insurance until they attain Medicare eligibility.

Paul Taylor is CEO and chief legal counsel of Springfield-based Ozarks Community Hospital. He can be reached at

Healthy Americans must help pay for the sick

This article appeared in the March 15, 2010 edition of the Springfield Business Journal.

President Obama wants to get health care reform back on track.

The tactic he has been using did not work. He used presidential authority to “demand” a bill meeting his reform expectations.

If Congress could produce nonpartisan reform, Obama’s approach might have made sense. Unfortunately, no one in Congress seems capable of drafting legislation designed to solve the problem.

The only way this Congress designs “reform” is by benefiting certain players (the insurance industry, the hospital lobby, the pharmaceutical companies, etc.) at the expense of other players, and above all, by satisfying a particular political agenda.

The nation is in desperate need of a reformed health care system, because the current one is a complete mess. However, as urgent as the need is, the leading House and Senate bills would do little more than postpone the inevitable day when the system must be finally, fundamentally reformed.

It is possible to provide universal health care to all U.S. citizens without adding to the deficit and while promoting individual responsibility and preserving a meaningful role for the private insurance industry. All it really takes is a frank assessment of the current system and a willingness to design a reformed system with only one goal in mind: providing quality health care to everyone for the lowest possible cost. The 60/40 split in the Senate became the focus of so much national attention centered on health care reform that it might as well serve as the model of reform: a 60/40 solution, as follows.

The total cost of providing care for every U.S. citizen is calculated at Medicare rates, divided by the total number of lives and discounted to 60 percent, creating a “universal” annual premium. The cost per life would be low because the pool would cover everyone, including young healthy people. This premium would be assessed against everyone but collected in a variety of ways. Those who are covered under Medicare or Medicaid would have the premium paid under those programs. Employees would have half of the premium deducted from their wages with the other half paid by the employer.

Self-employed persons would be expected to pay the premium, and those who do not would have it assessed against them as a tax. Those covered under unemployment would have the premium paid as a benefit. There would be no tax deduction applicable to payment of the premium. The program would collect the premiums and disburse funds through a system of statewide fiscal intermediaries – insurance companies processing and paying claims much as they do now for Medicare. The Democrats will favor this part of the solution.

The total cost of care in 2009 was approximately $2.5 trillion dollars or about $8,000 per U.S. citizen, according to the Centers for Medicare and Medicaid Services. The annual premium to cover 60 percent of that cost would be $4,800 or $400 per month.

Is it fair to burden the young with the cost of caring for the old? Yes. It is more than fair: It is necessary. The U.S. Department of Health and Human Services says one-tenth of the population accounts for 63 percent of spending on health services, and one-half accounts for just more than 3 percent of spending. The healthy half must pay a premium based on helping to cover the whole.

Unlike the per capita distribution of the cost of care for the 60 percent pool, the cost of paying for the remaining 40 percent would be assessed against the pool of payers based on individual and group loss ratios and risk factors. The assessment of cost based on individual utilization of health care is a critical element in cost control. Universal health coverage in this country will collapse without it. The distribution of risk and responsibility for payment would look similar to the current hodgepodge of governmental resources, private insurance and individual payment arrangements. Legislation would prohibit loss of coverage for pre-existing conditions and other nefarious insurance practices, but individuals with higher risk factors would pay higher co-insurance premiums to cover the 40 percent share. The Republicans will favor this part of the solution.

Health care providers will say it is impossible to provide quality care at Medicare rates. It can be done, and it will be done, if there is a level playing field among all providers – and if there are payers covering all patients.

Paul Taylor is CEO and chief legal counsel of Springfield-based Ozarks Community Hospital. He can be reached at