Obamacare – First draft from the feds

by: Clyde Middleton   posted: 2009-06-07 12:21:00
Viewed 754 times. 4 Comments.

As you are reading, keep this in mind:

The president is trying to avoid broad-based levies such as a Senate proposal to tax some employer-provided health benefits Axelrod said. Instead he is urging lawmakers to reconsider limiting all tax deductions for Americans in the highest tax brackets.

The fallacy, of course, is something we learned in Intro to Economics. You change tax policy, the taxpayers change behavior. Thereafter, either the tax policy chases after the new behavior or it has to raise rates on the old behavior to keep pace. I can't believe how silly-stupid these NeoLibs are.

I am running through the draft legislation. There are lots of typos, and it just ends after introducing a new section, so this is clearly an early draft being floated by the fed. Here’s the full draft.

Insurers lose their rights to privacy in their business records. Our health records will be cross-tabbed to our income-tax returns. Insurers may be forced into unprofitable positions by not being able to charge premiums to the demonstrably unhealthy and having to refund premiums to the healthy. Insurers must become “Gateways” with all sorts of requirements. State MUST participate or the fed will do it all for them. Dependent coverage increases to age 26. Assisted living will become the new Medicare.

This is NOT the supplemental plan Obama has discussed – one to just fill in the blanks where the existing industry is not present. This is a wholesale change on every level to the medical-insurance industry.

Here are the highlights:

Must insure; must ignore health status

Page 3:

(1) such rate shall vary only by— (A) family structure; (B) community rating area; (C) the actuarial value of the benefit; (D) age, except, that such rate shall not vary by more than [2 to 1]; and (2) such rate shall not vary by health status-related factors, gender, class of business, claims experience, or any other factor not described in paragraph.

Assume I sell health insurance. One person is mid-40s, exercises, eat well, and neither drinks or smokes. I develop a premium of $300 a month based upon my expected expenses for medical care. Another person, same age, has a family history of cancer, smokes and drinks like tomorrow is going to be their last day, and has a history of going to the ER to get their toenails clipped. Based upon their claims history, lifestyle, and health risks, I develop a premium of $600 a month. Under Obamacare, I cannot charge the later person more than the former. How do I stay in business? I charge both $450.

Can’t I just deny to cover the latter slug? No.

Page 4:

Each health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.

Further, if I can’t even consider health history, et. al, I am not even going to ask about it else I’ll be faced with a discrimination suit if I find some other basis to refuse them, which doesn’t seem to exist now anyway. Further, Page 5 has a requirement that once written, I must renew the policy if the insured wants it.

The healthy are going to underwrite the unhealthy.

Managing profits

These provisions are similar to state regulations for utility companies – they have to prove revenues and expenses, and can only make a certain amount of profit. It is being done by capping overhead at 20% or 25% depending upon the type of policy. This is close regulation of a large chunk of the economy that has heretofore not been regulated.

Page 5:

(a) CLEAR ACCOUNTING FOR COSTS.—A health insurance issuer offering group or individual health insurance coverage shall submit to the Secretary a report concerning the percentage of total premium revenue that such coverage expends—(1) on reimbursement for clinical services provided to enrollees under such plan or coverage; (2) for activities that improve health care quality; and (3) on all other non-claims costs, including an explanation of the nature of such costs. (b) ENSURING THAT CONSUMERS RECEIVE VALUE FOR THEIR PREMIUM PAYMENTS.—(1) REQUIREMENT TO PROVIDE VALUE FOR PREMIUM PAYMENTS.—A health insurance issuer offering group or individual health insurance coverage shall provide an annual rebate to each enrollee under such plan or coverage on a pro rata basis in the amount by which the amount of premium revenue expended on activities described in subsection (a)(3) exceeds—(A) with respect to a health insurance issuer offering group insurance coverage, 20 percent, or such lower percentage as the Secretary may by regulation determine; or (B) with respect to a health insurance issuer offering individual insurance coverage, 25 percent, or such lower percentage as the Secretary may by regulation determine

It seems that the “rebate” required is not based upon insurer company-wide results but on an individual policy basis. So if overhead exceeds the cap, the amounts have to be eaten and the monies refunded. The legislation does not state directly what the base is for the percentage calculation. It must be the medical expenses incurred. In action, then, this means that a policy for which little or no medical expenses are incurred, the insured will receive a substantial rebate. However, since other medically intensive policies cannot charge a higher premium this would serve to force the insurance company to operate at a loss. Can this be true?

If I am correct, let’s go back to our $300 and $600 developed premium example.

The would-be $300 policy holder has a healthy month (let’s just ignore yearly numbers to make this simple). Actual medical expenses are $100. Remember that their premium was adjusted upward to $450 because of the inability to charge more to unhealthy folks. At $100, the company can take another $25 for overhead. Taking $450 less $125, this suggests that there is $325 open to rebate.

The $600 person had a month precisely as anticipated: $480 in medicals, $120 overhead (25%) for $600 premium. However, the company was only allowed to charge that person $450, so they have a loss of $150.

Total revenue for the two policies: $900. Total direct expenses: $580. Actual overhead (let’s assume 25%): $145. Total expenses: $725. Putative profit: $175. Amount seemingly required for rebate: (Policy One) $450 less $100 less $25, or $325. Actual profit: ($150). A loss.

Preventative healthcare

Always a good thing, right? Language on Page 10 drives down the ability to charge co-pays to any but a “minimal amount.” But check this out.

Page 11:

(b) SITES OF CARE.—Nothing in subsection (a) shall be construed to prohibit a group health plan or a health insurance issuer offering group or individual health insurance coverage from establishing conditions for coverage for the services described in subsection (a) that requires that such services be [performed by providers with appropriate expertise?].

Yeah, I’d put a question mark there, too. It seems that they are trying to support the “in-network” provisions, but this language would open the door, I think, to arguing expertise rather than affiliation. If I am correct, it would require companies to have payment agreement, as are in place now, but not just for local docs. The payment agreements would need to be nationalized. We’ll see if this addressed more specifically later on.

Dependent coverage

Page 11:

SEC. 2709. EXTENSION OF DEPENDENT COVERAGE. "(a) IN GENERAL.—A group health plan and a health insurance issuer offering group or individual health insurance coverage that provides dependant coverage of children shall make available such coverage for children who are not more than 26 years of age.

Every policy I have seen so far tops dependent coverage at age 18 or 19, and runs it up to 23 if the dependent is a full-time student. This increases that age and does not require student status.

Annual limits

Page 11:

SEC. 2710. NO LIFETIME OR ANNUAL LIMITS. A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish lifetime or annual limits on benefits for any participant or beneficiary.

This removes the oft-seen $1,000,000 lifetime limit. In essence, this exposes the insurer to no cap on expenses, yet the insurer cannot bring in more revenue for that extra expense unless it distributes it to every policy holder – so average premiums will rise.

Adding family members and self-insurance

This section tells that an insured can retain their current policy. In context, of course, there seems to be a lot of changes to the premium, availability of rebates, etc. But what if your employer offered the policy only for employees or for dependents up to age 18, 19, or 23?

Page 16:

(2) ALLOWANCE FOR FAMILY MEMBERS TO JOIN CURRENT COVERAGE.—With respect to a group health plan or health insurance coverage in which an individual was enrolled prior to the effective date of this title and which is renewed after such date, faniily(sic) members of such individual shall be permitted to enroll in such plan coverage.

They’re in now.

Same page:

SEC. 2720. LIMITATION ON SELF-INSURING. A group health plan that has 250 or fewer members of the group shall not self-insure such group. The Secretary shall establish guidelines for determining the number of members in a group for purposes of this section.

An old adage in buying insurance is to buy insurance for that which you can’t afford to cover yourself. Assume, for example, that to get auto insurance with a $100 deductible costs $300 more a year than the same policy with a $500 deductible. It should be up to the insured whether they wish to “buy back” that deductible. They are assuming the risk of incurring it just like an insurance company assumes a risk in issuing a policy to begin with.

In health insurance, a company has heretofore held the flexibility to review the cost of a premium compared to the risk of anticipated medical expenses, and then to enter into a contract with their employees to cover them as the employer calculated to be the most cost efficient for it. For groups of less than 250 employees, no more.

The behavior that one might see in the economy will be self-insurance groups that are broader than they have been before. This is common in the industry for general liability insurance – it’s like the credit union concept. The insureds are the insurers.

Gateways & 'Medical Advisory Council'

Page 21 includes the text: “ASSISTANCE TO STATES TO ESTABLISH AMERICAN HEALTH BENEFIT GATEWAYS.” Sounds like government-approved insurers.

Page 34:

(3) SELF-EMPLOYED INDIVIDUALS.—9 "(A) DEEMING.—An individual who is self- employed (as defined for purposes of the Internal Revenue Code of 1986) shall be deemed to be a qualified employer unless such individual notifies the applicable Gateway that such individual elects to be considered a qualified individual. (B) ELIGIBILITY.—In the case of a self- employed individual making the election described in subparagraph (A)—(i) the income of such individual for purposes of section 3111 shall be deemed to be the total business income of such individual as described in [IRC definition to be supplied]; and (ii) premium payments made by such individual to a qualified health plan shall not be treated as income for purposes of [insert appropriate reference to Internal Revenue Code of 1986].

This suggests that premiums for self-insured folks – provided they purchase from a Gateway – are fully deductible.

What’s the blood extracted to become a Gateway? The Fourth Amendment, it seems.

Page 39:

SEC. 3102. FINANCIAL INTEGRITY. 17 "(a) ACCOUNTING FOR EXPENDITURES.—(1) IN GENERAL.—A State shall keep an accurate accounting of all activities, receipts, and expenditures of any Gateway operating in such State and shall annually submit to the Secretary a report concerning such accountings. (2) INVESTIGATIONS.—The Secretary may investigate the affairs of a Gateway, may examine the properties and records of a Gateway, and may require periodical reports in relation to activities undertaken by a Gateway. A Gateway shall fully co-operate in any investigation conducted under this paragraph. (3) AUDITS.—A Gateway shall be subject to annual audits by the Secretary.

Hot Air also focused on this point.

This procedure is very similar to the regulation of utilities within states. They fall under the rubric of quasi-public companies. If the state can audit at will, they can disallow expenditures at will, and therefore control the financial operations of the company. It is nationalizing under a different name – it’s just that the government doesn’t get to keep the profits.

Next, Page 42 states that the Secretary shall “establish a council to be known as the 'Medical Advisory Council'.” Who knows where this behemoth will travel. The broader section is called “Seeking the best medical advice.” Sounds like a centralized committee to determine what is the appropriate level of care of every individual in the nation. Great. Reading on, a-yep, see page 46, et seq.

Look at this next section – so much for the Tenth Amendment.

Page 54:

(B) NEGATIVE DETERMINATION.—If the Secretary determines that the State has not enacted or does not have in effect the insurance reforms described in paragraph (1), the Secretary shall establish a Gateway in such State as soon as practicable after the Secretary determines that such State has enacted such reforms.

So, if a state doesn’t buy into the concept, the feds will do it for them. The concept is further hammered home beginning on Page 55 in a section entitled “(d) FEDERAL FALLBACK IN THE CASE OF STATES THAT REFUSE TO IMPROVE HEALTH CARE COVERAGE.”

Whew. Is American Civil War v2.0 being invited? What happens, this time, if several states decide to withdraw their Congressional delegations?

How will Gateways find the uninsured and those wanting insurance? Page 56: "SEC. 3105. NAVIGATORS.” A new job!

Who’s going to pay Navigators? Dunno. Page 57:

Under such standards, a navigator may not—(A) be a health insurance issuer; or (B) receive any consideration directly or indirectly from any health insurance issuer in connection with the participation of any employer in the program under this title or the enrollment of any eligible employee in health insurance coverage under this title.

Layers and layers. If insurers don’t pay them, does the insured? Does the state?

So is being a Gateway a good thing? Seems the government will help with premiums for lower-income folks ONLY if the insurer is a Gateway. Compulsory by any other name.

Page 63:

(b) PAYMENT OF CREDITS.—(1) IN GENERAL.—The Secretary shall, with respect to an eligible individual (as defined in subsection (i)) and on behalf of such individual, pay a premium credit to the Gateway through which the individual enrolled in the qualified health plan involved. Such Gateway shall remit an amount equal to such credit to the qualified health plan in which such individual is enrolled. Subject to the limitation described in paragraph (2), the amount of such credit shall be—

The section goes on to discuss income levels vis-à-vis poverty and the amount of credits to be passed through to the insured.

Future planning

Page 78:

SEC. 3112. SMALL BUSINESS CREDIT. (a) CALCULATION OF CREDIT.—For each calendar year beginning in calendar year 2101, the Secretary shall make a payment in the amount described in subsection (b) to each qualified small employer …

(Emphasis added)

No comment. Well, OK, a comment: Does our federal government proof the docs it distributes to the American public? Pathetic.

Big Brother Approaches: We know who you are

“Ve notiz zat jou don’t haz inzuranc. Vy not? You zall NOW!”

Page 89:

SEC. 6055. REPORTING OF HEALTH INSURANCE COVERAGE. (a) IN GENERAL.—Every person who provides health insurance that is qualifying coverage shall make a return described in subsection (b). (b) FORM AND MANNER OF RETURN.—A return is described in this subsection if such return—(1) is in such form as the Secretary prescribes, (2) contains—(A) the name, address, and taxpayer identification number of each individual who is covered under health insurance that is qualifying coverage provided by such person, and (B) the number of months during the calendar year during which each such individual was covered under such health insurance, and (3) such other information as the Secretary may prescribe.

Read it again. BIG. RED. FLAG.

Electronic information

Page 107:

(b) CONTENT.—The standards and protocols for electronic enrollment in the Federal and State programs described in subsection (a) shall allow for the following: (1) Electronic matching against existing' Federal and State data, including vital records, employment history, enrollment systems, tax records, and other data determined appropriate by the Secretary to serve as evidence of eligibility and in lieu of paper-based documentation.

Catch that? The entire health insurance database needs to be designed so it can cross-reference our income-tax records. All government all the time.

This is violating my right to privacy.

Community living

Page 113 begins a section to create an extended assisted-living industry:

SEC. 3201. PURPOSE. The purpose of this title is to establish a national voluntary insurance program for purchasing community living assistance services and support

There are all sorts of variables – five-year vesting, disabled for 90+ days, redetermination of premiums not applying to the 65+ crowd. It seems, however, that this will open a door to converting apartment and condo complexes into assisted-living facilities en masse. The larger section also grandfathers existing people that are in assisted living INTO the program of available insurance. How many people are out there now? We just bought all of them that otherwise had existing resources to do it themselves? This is also result in folks no longer having to prove financial eligibility for Medicare to pick up the tab – so less estate planning to get the home to heirs three years before filing for assistance.

Page 145 begins a long discussion of the CLASS fun usage. The CLASS fund is the premiums collected for the above “voluntary insurance.” Seems it will be all run by the government, including as the insurer. As the section drones on for pages, it seems that this will appear just like another payroll deduction ala Social Security and Medicare, except that initial enrollment will be voluntary.

The document then introduces a new section, Subtitle F, but ends without supplying any text.

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