The NCPA Fact Checks Obama’s Health Policy Address during SOTU
Paid Family and Sick Leave for Workers
The president emphasized the plight of the 43 million American workers who do not have paid sick leave. Many of them feel they cannot afford to take a sick day to convalesce after an illness or to care for a sick child. He proposes to mandate that employers provide seven days of paid sick leave to workers each year.
The president didn’t mention that an estimated 100 million workers who have paid sick leave likely don’t get seven days annually. He also didn’t mention that his own advisor Jonathan Gruber has research showing workers themselves wind up paying the cost of mandatory benefits through lower wages.
Thus, if employers are forced to provide seven paid days off of work for every worker, employers will adjust worker pay to compensate for the cost. This will inhibit pay raises, and it will impact paid vacation days. It could even harm the employment prospects of workers most likely to stay home and care for a sick child.
The president should have called for expanding Health Savings Accounts (HSAs) to all workers, allowing them to set aside funds for medical needs. The president could have also proposed allowing workers to use HSAs to compensate for income lost to sick days.
Currently, workers who have HSAs can use funds from their accounts to replace income lost due to sick days. However, this is considered a non-medical use and exposes workers to a penalty of 20 percent, plus ordinary income taxes.
Expanded Coverage in the Health Insurance Exchange
The president touted the fact that millions more people are now covered through employer plans and state or federal health exchanges. Yet, research has shown that the exchange subsidies will cause employers to drop coverage.
Moreover, firms are cutting back workers’ hours to avoid having to provide them with health benefits. Mandatory benefits are not free; workers bear the cost in the form of lower wages. Jonathan Gruber, health policy advisor to President Obama, came to this conclusion in research published in the 1990s. Many of these newly covered individuals were not allowed to choose the coverage they would have preferred.
The PPACA contains structural flaws that will have to be reformed. The NCPA has proposed solutions to correct the ACA’s structural problems. We have also proposed a health policy agenda for the 114th Congress.
Expanded Medicaid Coverage
About 6 million additional people are now covered through Medicaid expansion. Yet, many of them are finding it difficult to find doctors willing to work for the paltry fees state Medicaid programs pay doctors who treat Medicaid enrollees.
Moreover, the NCPA has shown that states have alternatives to expanding Medicaid that will help low-income residents access private coverage for very low fees. Jonathan Gruber also has research showing that 50 percent to 75 percent of new Medicaid enrollees from past expansions were those who dropped private coverage.
The Health Care Economy
The president is correct that health care inflation is as low as it has been in many years. The reason is because an estimated 35 million Americans either have Health Savings Accounts or Health Reimbursement Arrangements. Millions more have high-deductible plans. The average deductible in an employer plan is now around $1,000 — double that for a family plan.
When more people have some “skin in the game” and control more of their medical dollars, doctors and hospitals behave competitively. The president and Congress can build on this cost-conscious behavior. President Obama should make good on his pledge to work with Republicans when they send him bills to reform flaws in the PPACA and reform the U.S. health care system.
Veterans Health
The president is correct that every veteran deserves access to high-quality health care when he returns. We should do more — so far, progress has been insufficient to fulfill this promise. Access to quality medical care for our nation’s veterans is inadequate compared to the need.
The VA fails to curb suicide risks, for example. The VA has been plagued by fraud, waste and mismanagement. The system is failing those with post-traumatic stress, mental disorders and traumatic brain injuries. The president should have discussed how his administration would correct these deficiencies. The NCPA has solutions to assist with these problems.
Precision Medicine Initiative
The president’s proposal to expand personalized medicine is laudable. However, the best way to expand personalized medicine is to boost competition in health care. His administration has routinely championed a top-down approach to medical innovation. They believe that engineering can devise the optimal approach to treating disease.
Yet, innovation is best achieved in a competitive marketplace where providers compete to find better solutions and are unobstructed by bureaucratic barriers. Providers — doctors and hospitals — can only achieve this in a marketplace where they are competing to attract consumers’ patronage and when patients control more of their own health care dollars.
I wish I had said it, but it’s a quote by NCPA Senior Fellow Pam Villarreal…
This also applies to many of President Obama’s health care initiatives. Paid sick leave, employer mandates, exchange subsidies, expanded health plan regulations (community rating/guaranteed issue), new taxes on the health care industry. It’s an attempt to finance health care with ‘OPM’ — Other People’s Money!
Yet, there is now a significant amount of research that illustrates the beneficial effects of having consumers control more of their own health care dollars. The low health care inflation rate Obama mentioned is due to consumers prudently watching their health care spending (due to cost-sharing).
While on the topic of consumers controlling more of their health care costs (ex: using an HSA or similar vehicle)when will these options ever be extended to seniors on Medicare as one would surmise that they are the more proliferate consumers of healthcare. Many seniors, like me, may wish to ‘self-insure” to fill in all or some of the Medicare gaps as opposed to purchasing a useless or non cost-beneficial Medi-gap or other commercial supplemental plan. Some may even wish to use their HSA (if ever available to us) as a way to pay for an affordable ‘concierge practice’ supplement to meet their unique needs for care. We seniors, would settle for an HSA subject to some limitations, just as they are offered to many corporate world employees. Its nonsense, IMO, that many of us on Medicare pay $6-7000 in annual premium supplements(married couple) to a commercial insurer or retiree group plan… that, essentially limits it coverage to the non-covered 20 % amounts BUT ONLY AFTER incurring $3000 of out-of pocket costs in a given year. Personally, in this example, I’d rather apply the $3000 every year to my HSA account and negotiate with cash for some of my healthcare needs that Medicare doesn’t cover. I know that John Goodman suggested something like this years ago BUT no one seems to bed pushing this idea.
Bill Cooper
You write: “… many of us on Medicare pay $6-7000 in annual premium supplements(married couple) to a commercial insurer or retiree group plan… that, essentially limits it coverage to the non-covered 20 % amounts BUT ONLY AFTER incurring $3000 of out-of pocket costs in a given year.”
When you write “BUT ONLY AFTER incurring $3000 of out of pocket costs,” I assume you are talking about the variation of Plan F private Medigap insurance available in a few states that has a $2180 deductible this year. Of course those of us on Medicare who can buy such a modified Plan F also have a half dozen other private Medigap choices that cover dollar one of the gap plus the option of public Part C Medicare Advantage with their more typical co-pays. I also wonder in what state is a Plan F version with a $2180 deductible as expensive as you state ($1800-$2300 a year–see NOTE)? Typically the trade off is high deductible, lower premium (I live in Massachusetts and we have no such Medigap option; we cannot buy any standard Medigap plan in Massachusetts, even one that protects against unlimited OOP).
Of course A retiree policy can be whatever the former employer or union wants it to be but then again such a retiree can switch to buying supplemental insurance of his or her choice individually.
NOTE: When you write $6000-$7000 a couple I am pretty sure you are counting the Part B premium, no?
Dennis Byron..Thank you for commenting. I unintentionally failed to mention that my retiree supplement did include both a drug benefit and a modest dental plan and its feasible that the value of those two benefits would reduce the total premium possibly as much as 25 % if my plan eliminated the drug benefit (not an option)and we elected not to pay for the modest dental coverage(an option).I obviously need to pay more attention to whats available in the marketplace. Lets say that a quality, individual, supplemental plan would only run me $3-400/month by sharpening my pencil, wouldn’t I need to make this evaluation which plan to enroll in each year as plan features and costs adjusted to the need for each insurer to meet its profit objectives. Why not allow my wife and I to pool and reserve funds each year in a self-directed HSA-type account with tax relief similar to an employer-sponsored plan(even if limited to an annual dollar amount)and use those funds as a supplement to our Medicare Plan B coverage. Further, while we cannot be guaranteed good health forever, why not allow us to accumulate any unspent funds for the long term care costs that we know will eventually arise..when we, not the government will be paying those costs. We are already seeing the effect on various state budget deficits that medicaid financed long term care has created..Finally, I much appreciate your taking the time to respond to my personal situation as well as offer some thoughtful,clear advice, which may have been better suited in another forum. You also corrected my misleading numbers. I should have simply asked this forum, why not extend HSA,s to seniors on Medicare and let the forum answer both sides of that question without making it personal.
Bill, I’m not arguing against HSA. I was just wondering what supplemental coverage with a high deductible that you had that cost so much (which is not the only reason to choose one plan over another, by the way).
Your answer: a retiree plan. You should look at an individual option but make sure your state of legal residence offers guaranteed issue of private supplements before changing and see if there is continuous open enrollment or not. If it is available in your state, look at a high-deductible Medigap Plan F (plus a Part D) and see how it compares to what you are paying now.
Of course, once you leave the retiree plan, you may never get back in and there might be other implications. You probably have some timing notification obligations to your former employer/union as well.
Thank you again..All of your thoughts and considerations have crossed my mind over the last 4-5 years BUT I never seem to complete the comparison of companies and options and jump. While I’m obviously not enamored with my particular retiree group plan, I am concerned that once I opt out, I cant get back in, and that may create some other issues as you cautioned. No desperation here, yet, where the money needs to come from to pay any out of pocket, non-catastrophic, healthcare expenditures, BUT concerns about the future,and when our participation in the costs can only increase. The required IRA distributions may need to be used to a degree for some of those expenses and NOT for the golf trip to Hawaii. Still want to grow the future healthcare reserve account, however, and some net tax relief would help.
If the premium is $6,000-$7,000 a couple, and the supplement covers 20% of the bill… then consider how much $7,000 actually covers.
If the couple each has $250,000 of medical bills, then Medicare covers 80%, or $200,000.
The couple has to pay $50,000.
That $50,000 of coverage is $49,000 of premiums in 7 years.
There has to be a better way!
Don Levit
Don..thanks for your input..As noted above, I mistakenly overlooked the fact that there is a decent drug benefit plan as well as modest dental. Its possible that I overstated my case by $2000-2500. My point.. am currently in a position to self insure BUT I know that I must continue to grow my PHSA,s (personal health savings accounts) and NOT draw them down too low and have a major catastrophic loss, wipe me out. Just looking for some help from Uncle Sam so that I’m better prepared to deal with the eventual consequences of a totally bankrupt government led health system, and a retiree qualified HSA would help.
How much interest are you earning on your personal health savings account?
We had a discussion this very day regarding offering our patented product as a Medicare supplement, although not fulfilling the criteria of any of the governmental letters.
Don Levit
I live in NJ and my wife and I have standard fee for service Medicare plus a Part D plan and a supplemental plan.
The current annual cost for both of us combined is as follows:
Standard Part B premium: $2,517.60
Part D Plan (Optum Rx): 1,296.00
Plan F United Healthcare 4,552.76
Total: $8,366.36
If standard Medicare offered an annual out-of-pocket maximum of $10,000 per person, I might be inclined to skip the supplemental plan though my wife and I are also subject to the IRMAA surcharge which is not in the above numbers. I joke by saying that it costs a lot of money to make healthcare feel free at the point of service.
Barry
1. Is your Plan F high-deductible? I would guess not because your prices sound to be just about the same as Massachusetts’ Your Plan F pays dollar one on co-pays and deductibles, correct?
2. A bipartisan Medicare reform plan like what you say you want (but with a $6700 OOP limit instead of a $10,000 limit) has passed in the House of Representatives for the last four years. This year, hopefully, it will also pass the Senate. At least Senator Wyden supports it so we seniors only need five other Democratic Senators who do not have it in for us senior citizens to vote in favor of it.
Dennis,
Yes, our supplemental plan has a zero deductible. United Healthcare doesn’t offer a high deductible ($2,000) plan at least in our county. If it did, I think it would be about $800 per year per person cheaper than our zero deductible plan.
I didn’t know about the $6,700 OOP proposal that made it through the House. I would definitely drop the supplemental plan if the OOP provision doesn’t allow balance billing. It’s a bit of a downer to also have to pay the IRMAA surcharge but it’s a “problem” that I’m sure a lot of people would like to have.
Don Levitt
You are not comparing apples to oranges (not that I will argue that Medicare is good insurance or good value). The $6K-$7K is not just for the Medigap. It also includes the couple’s Part B and Part D premiums (or equivalent in the particular case Bill Cooper provided). You are also not factoring in the pre-paid Part A and Part B premiums.
The total implicit premium for Original Medicare with all its faults (lifetime limits, no annual OOP limit, no annual physical, no drug coverage, etc.) and gaps (deductibles, co-insurance, etc.) is about $11,000 a year, or $22,000 for the couple. Then you add the $7000 to that, divide by two and compare to average for everyone else in country. Not surprisingly, it’s higher. That’s because we’re old and sick.
Thank you. There is actually bipartisan support for this type of reform. President Obama himself has proposed it in at least one of his budgets.
Did anyone pick up on the statement that the President proposed a “wealth tax.” This would mean a triple tax on accumulated savings. (1) income tax, (2) dividend or cap gains tax, and (3)a tax on accumulated wealth.
In addition, the president said that if Republicans agree with some of his proposals he would work with them. If they differed then on aspects of his proposals, they could focus on areas of agreement.
NEVER did he say he would work with Republicans on areas when he disagreed with them. Sounded like a ONE WAY street to me.
Does this surprise you? Not me.
I wonder what Warren Buffett thinks of the proposal.
No problem. Buffet gave his kids’ inheritance to Bill and Melinda Gates and is probably getting great tax avoidance benefits already (to be fair, the poor heirs still got a billion or two each)
I have disagreed with John Graham before on the assertion that mandatory benefits necessarily cause lower wages.
The workers who have the most paid sick leave — teachers and government workers, for the most part — also have higher cash salaries than workers with no sick leave.
I think that you have to fold in the degree of bargaining power when you make assertions about benefits and wages. Workers with strong bargaining power get more of everything — benefits, wages, pensions, et al.
it is the workers with poor bargaining power –i.e. in restaurants and retail —
who are forced into the painful tradeoffs that are described in the first section of this post.
First, a small clarification. Teachers are government workers. Teachers in the private sector, such as those working in parochial or private schools make less in salary and benefits than their government employed counterparts.
Then, the use of the phrase “bargaining power” oversimplifies the reality that government employees, though their unions, have a symbiotic relationship with the politicians who approve the salary and benefits of said workers.
Unionized workforces in competitive private sections industries (e.g. the auto industry) have less bargaining power.
Nonetheless, thank you for bringing up the distinction.
Bob
As Mr. Herrick says, it is not his “assertion.” It is Gruber’s research. As anyone who has ever done a budget in a big company knows, it’s also just the way the bean counters look at it (the budget calls for a 5% increase in personnel costs next year; divvy it up anyway you want as long as it’s legal).
Bob and Dennis
I believe it’s even more fundamental than that. There is a market value for the labor of dishwashers and busboys in restaurants, for example. Because their income is modest, say $15,000, they probably don’t want to spend $5,000 of their hard-earned money on health coverage. On the other hand, the restaurant owner (presumably earning $100,000) probably is willing to spend $5,000 on health coverage (knowing his after-tax cost will only be $3,000). If you force the restaurant to contribute, say, $3,500 towards the dishwashers’ health coverage, the dishwashers will object; they may even look for another job rather than contribute $1,500 towards their coverage. Depending on how much the restaurant owner has to absorb, the cost of compensation for dishwashers will have risen 23% to 33%. At that point, you fire marginal workers, or buy a better automated dishwasher and hire a more experienced person to run it.
If a government mandate raises the cost of mandatory fringe benefits, these benefits necessarily impact the cash-wages portion of total compensation.
Just to add a little color, waiters in Denmark make about $20 an hour minimum plus they get taxpayer funded health insurance. I’m not sure how much sick leave they get. While I don’t know the exact numbers, I’ll bet there are far fewer restaurants and restaurant employees as a percentage of the total population in Denmark and throughout Western Europe than in the U.S. Moreover, on my first visit to Copenhagen a few years back, I was shocked to find that a basic burger and fries cost about $25 vs. $10 in NYC, itself a high cost city at least by U.S. standards. Whether it’s sick leave, health insurance, a higher minimum wage or whatever, it all has to get built into the price of the product or service at the end of the day. There’s no free lunch. Since President Obama never met a payroll, he doesn’t seem to get that.
Thank you, but I would have to respond on behalf of the low-wage worker who prefers money to health benefits: Why does the government force me to accept more income as benefits than cash? That would be the least painful interpretation of an employer mandate.
Devon, in the states that expanded Medicaid, a $15,000 restaurant employee would cost his employer exactly zero for health care. That employee would get Medicaid. (The employer would pay some extra income tax, personally, for the expansion of Medicaid.)
This does not invalidate your point about tradeoffs, you just need a different example.
As for Europe, most of their nations have had a low native birth rate for years, and in many countries there are still rather few immigrants. I think this is why they are OK with eliminating low wage jobs. They just do not have the large block of uneducated teenagers that America has.
Note to Dennis:
Why are Democratic senators opposed to a bill that would cap the out of pocket limit on Medicare?
Just curious. Seems like a no-brainer to support.
Apparently because in addition to being based on a proposal co-authored by Democratic Senator Wyden (and being based on earlier thinking co-authored by former Democratic-administration CBO and OMB director Rivlin), both using base concepts developed in the 1990s by the Brooking’s Aaron and now President-Obama-appointed Medicare Trustee Reischauer (then of the far left Urban Institute), the resulting House bill was sponsored by Congressman Ryan, Wyden’s and Rivlin’s other co-author. Of course, the Democratic Senate failed to act on 400 other House bills over the last four years so I don’t think their lack of support for Wyden-Ryan Medicare Reform was particularly aimed at we senior citizens.
Bob,
I think opposition to out-of-pocket limits for Medicare probably relates to the CBO score and how to pay for it, especially if raising taxes are off the table. I have no idea what the CBO score would be, especially over a ten year time horizon, but I’m pretty sure it’s a substantial number. Getting rid of the SGR formula (doc fix) faces the same hurdle.
There are a number of changes I would make to the ACA if it were up to me but most of them cost money. They include: (1) changing the maximum age rating band from 3 to 1 to 6 to 1 as Avik Roy proposed in order to eliminate the need for young people to pay more than their actuarial cost for insurance, (2) eliminate the taxes on drug companies, device manufacturers and insurers, (3) eliminate the employer mandate, (4) get rid of the MLR rules and let the risk corridor and reinsurance rules run their course, (5) shrink the number of required benefits in the essential benefits package, (6) create a new copper level plan that would allow people to buy policies with an actuarial rating as low as 40% to 50% at most, and (7) cap an individual’s contribution toward the health insurance premium at 9.5% of the cost of the 2nd lowest priced silver plan in the market regardless of income instead of cutting the subsidy off above 400% of the FPL income.
That would leave us with expanded Medicaid, subsidies, the individual mandate to purchase insurance, guaranteed issue, and allowing young people to stay on their parents’ plan until age 26. I have no idea what doing all that would cost but I would be willing to pay somewhat more in broad based taxes to make it happen.
Widening the age bands from 3:1 to 6:1 or something like that would reduce the cost, because there would be less need to subsidize young people to pay their artificially high premiums. The actual political purpose of the 3:1 bands is to habituate young people to the belief that health insurance is too expensive for them to buy without government “help”.
It may have changed this year, but when I analyzed the exchange premiums last year it did not appear that insurers were actually charging three times the premiums for upper middle-age enrollees compared to the youngest adults. Maybe the states that I examined where anomalies. I was amazed that insurers wouldn’t get young adult premiums as low as possible and upper middle-age enrollees as high as possible.
Some states have tighter than 3:1. NY, DC, et cetera have 1:1.
John, your statement about the purpose of the 3:1 ratio is a little bit too conspiratorial, in my view.
As Uwe Reinhardt has pointed out, most large group plans create a level premium for all employees, young and old. Medicare has no age rating either.
That left the individual market as the home of age rating. Over the years, millions of self-employed persons between ages 55 and 65 have been hammered with very high premiums, to the point where some in this group became uninsured (at precisely the time they needed insurance very badly.)
The 3:1 ratio was a move towards community rating. Maybe it was too timid, maybe it was ill designed. But it was an effort to make things easier on the older set, by introducing the kind of solidarity that liberals favor.
Let’s think economically.
According tot he latest Kaiser Family Foundation, the employer-based premium for a single person is $6025, of which the employee pays $1,081 (18 percent). Of course, we know that this is a fiction: The employee pays 100 percent.
Nevertheless, I was surprised to learn that it is more common in small firms than large firms for the firm to pay all of the employees’ premiums. (32 percent in small firms versus 6 percent in large firms.)
The more the employer pays, the less important age rating is. It is irrelevant if the firm pays the entire premium, for what I hope are obvious reasons.
But let’s say the employee pays 20 percent of the premium. If the large firm A age rates, the younger employee pays less and the older employee pays more. If the large firm B does not age rate, the younger employee pays more and the older employee pays less.
If the firms are exactly the same in all other respects (ceteris paribus), what changes to bring them into equilibrium? The most efficient way is that A’s younger employees would earn lower wages than B’s younger employees, and A’s older employees would earn higher wages than B’s older employees.
If this were not the case, we would have to find an economic reason for B to be the standard. It would not surprise me to learn that not age rating leads to solidarity among employees because their wages are compressed closer to the median than with age rating. Also, I suspect that not age rating ensures that a higher proportion of younger employees take up health benefits, which the carrier would require.
But these arguments don’t really hold for the individual market, especially a politically driven one.
John:
You are viewing the premiums – community rating v. age rating on an individual basis.
If the entire group saves premiums for the employer, the savings can be distributed per employee, so that each employee and dependent pays x dollars less (some employees obviously receive more benefits and some less, but the entire group experiences premium savings).
Or, the employer retains the savings and provides higher retirement benefits, per employee, that meets any discrimination rules.
Don Levit
Thanks John. You are correct that when an employer values solidarity ( and/or when a union demands it, age rating will be discouraged.
The individual market of course has no solidarity, and cash-strapped firms cannot really afford solidarity. (just as they often cannot afford unions.)
Where you and I might differ, John, is that I do not mind health insurance being a little island of equality. Medicare is the same price for an 85-year old as for a 65 year old, which I think is great.
Of course this requires tons of government cash to achieve.
Bob..I’d like to add to your last statement..”tons of government cash”…which they really don’t have in their pocket, so they quietly pass the bills along to our grand-children and their successors to one day ante-up. When we will ever make this market more market driven so that all of us (including we seniors) have a clearer understanding of what these healthcare services actually cost so that we can begin to save/reserve and budget for those expenses, whether they be modest or catastrophic, and allow for a payment to the providers more aligned with their cost for services provided. My wife recently had an endoscopy..the total charges for the medical services provided was x$$ with traditional medicare payment Y minus .7x$$. We see this charade going on with most covered expenses. An ever-increasing mass of retirees are seemingly not even concerned about this dichotomy as long as Medicare keeps paying most or all of the bill. But what happens when their favorite Doc says I’ve had it, I’m outta here. When I raise my voice with this question, most of my neighbors will say, why are you worrying about this, or, I’ll get the occasional true story where ‘Medicare paid almost a million dollars so that my wife could beat cancer, and whats bad about that’. Shouldn’t we care and know whether the final bill is a case of over-charge or underpayment? We wouldn’t and don’t shop for our groceries without having a good feel for price and quality of goods whether we are spending our own hard earned savings or using food stamps as the dollars many have on hand for these essentials are becoming more scarce. Many of we healthy seniors have far too much time on our hands and we can and should spend more of it helping the needy that will continue to fall through the cracks. Or we can let this charade continue allowing those cracks to become craters..with room for many more to fall overboard.My advice to many seniors is to join the Lions,Baby Basics, and/or any other charity that brings aid to the needy as those small steps WILL eventually impact both Medicaid and Medicare costs in a positive way. Should everyone have insurance? Yes. Should everyone have the same coverage, deductibles and premiums? No.Should there be safety nets for the truly needy that can never help themselves? Yes. Can we finally move to a more market driven health-care delivery system? I hope so. Simplistic, unsophisticated, and wordy generalizations, I’m sure, to many that comment here, but representative of many that feel trapped in a system that is artificial and not built upon economic realities.Realities that one day we will have to face.
Good points, Bill,. I would disagree to this extent, however.
If seniors were to be charged the correct actuarial rate for comprehensive health insurance, about 90 per cent of those senior citizens would still need government help to pay the premiums.
The actuarial cost of a comprehensive policy on an 80 year old would be at least $30,000 a year, Very few seniors could pay that kind of premium year after year
A free market might still issue indemnity policies to 80 year olds for a decent premium. These policies pay like $1500 a day for hospital care. Actually quite a few seniors had such policies before Medicare.
Such a policy would never cure cancer. It is a tradeoff we probably do not want to make.