Friday, July 17, 2009

Obamacare: Investor's Business Daily Wrong About Private Insurance

By now you’ve all probably heard about the Investor's Business Daily article that claims that the House version of Obamacare would ban private insurance. This is not correct. IBD has misread the bill. But that is not to say that the bill is good in any way. . .

IBD is claiming that the House bill “mak[es] individual private medical insurance illegal.” According to IBD,

So we can all keep our coverage, just as promised — with, of course, exceptions: Those who currently have private individual coverage won't be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers.

[This] bill . . . will kill the market for private individual coverage by not letting any new policies be written after the public option becomes law.
However, this is not correct. IBD has misunderstood the portion of the bill to which they refer.

The way this bill works, individuals are required to obtain “acceptable” medical coverage. (H.R. § 101). If you do not have “acceptable” medical coverage, you will be charged an income tax surcharge of 2.5%. (H.R.§ 401).

“Acceptable” medical coverage can be obtained from any of the following: (1) the new “Public Health Insurance Option,” (2) Medicare, (3) Medicaid, (4) Tricare, (5) VA coverage, (6) state health plans, (7) a “qualified” private sector plan, or (8) a "grandfathered" private plan. (H.R. § 202).

The section IBD found addresses “grandfathered plans.” A grandfather plan is an existing plan, i.e. the private plan you currently have. The House plan provides that these grandfathered plans may not enroll new persons after the date the House bill takes effect, nor may they change their coverage. (H.R. § 102). Thus, these plans are likely to die off.

But this does not mean the end of private insurance. Private insurers will still be allowed to issue either qualifying or non-qualifying plans. Here is the difference:

Qualifying plans. A qualifying plan is a private plan that satisfies certain requirements to be established by the Health Insurance Exchange. These requirement involve coverage, benefits and consumer protection. For example:

Qualified plans (QP) may not exclude pre-existing conditions. (H.R. § 111).

Your coverage cannot be cancelled unless you stop paying the premiums. (H.R. § 112)

Providers can only vary rates according to age, family size, and geography. (H.R. § 113)

QP plans must provide the minimum types and levels of coverage established by Health and Human Services, e.g. hospitalization, drug benefit, etc. (H.R. § 124).
Qualifying plans can be purchased individually or by employers. If your employer offers a qualified plan, you are not eligible for the Public Health Insurance Option. (H.R. § 202).

Nonqualifying plans. Nothing in the House bill bans private insurers from offering non-qualifying plans, i.e. plans that do not meet the requirements for qualifying plans. Thus, presumably any type of health plan can still be offered. However, there is a catch. If your only coverage is a non-qualifying plan, you will not be considered as having “acceptable” medical coverage.

In that event, you can be fined at a rate of 2.5% of your gross taxable income. (H.R. § 401).

Thus, while the bill will encourage people to switch to new plans or the Public Insurance Option, it certainly does not ban private insurance as IBD asserts.

That said, the bill remains a horror.

I will provide a more in-depth look at the entire bill in a few days.


Tennessee Jed said...

thanks for running this one to ground. That one had me particularly worried. I'm looking forward to your in-depth review.

AndrewPrice said...

You're welcome Jed. I don't want to detract from anything that hurts the bill's chances of getting passed, but I also don't want us to get side-tracked by a mistake.

There is already more than enough reason to attack this bill.

LawHawkSF said...

Andrew: I think it was very important to point out that saying "it won't eliminate private insurance" is not the same thing as actually protecting the right to obtain private insurance. As you said, the effect will be to kill private plans even though the bill as it presently stands denies that.

The power-grabbers knew that if there was an up-front assault on private insurance, it would fail. So it comes down to "we couldn't get it in through the front door, so we'll sneak it in through the unlocked back door." Then--deny, deny, deny.

AndrewPrice said...

Lawhawk, I don't agree that it will kill private plans.

It will kill existing private plans. But beyond that, it will encourage people to end up under private (but more regulated) plans.

LawHawkSF said...

Andrew: I'm looking at the progression. It will not kill private plans as it presently stands, although it will do serious damage by throwing the industry into chaos (a "crisis" that the Obama administration is all-too-willing to exploit).

I am looking at government takeover in small doses. Who will approve the new plans? We know the answer to that. Regulation is necessary, but I'm far more concerned with the approval of plans that will likely end up with the short end of the stick, and regulation of plans that somehow always work to the benefit of the government-run plan.

The ultimate goal is complete takeover of medical care, and this is only step one.

AndrewPrice said...

Lawhawk, Two points.

First, if their ultimate goal is the total government take over of health care (European style), then this bill, if it passes, will set that goal back a generation. This thing will cause such havoc in the federal budget that they will be forced to repeal it just to keep the government from collapsing.

Second, don't believe that this will cause a crisis in the insurance industry. In fact, don't believe that this will hurt insurance providers at all.

They already handle government mandates easily, as each state imposes many of the same types of mandates being imposed in this bill. They will simply do what they always do. . . issue an addendum page and use this change as an excuse to boost profits.

It is very telling that the insurance industry has climbed on board (in principal) with this reform.

Pittsburgh Enigma said...

Wow. Thanks for catching this Andrew.

The thing I find frightening, though, is what exactly is a "qualified" private sector plan? Something more expensive and less useful than my existing plan? For example, I could easily see them disqualifying high-deductible plans, because I've already heard rumblings that they don't like deductibles. My only choice for a "qualified" plan might be a low-deductible or no-deductible plan that will end up being incredibly expensive. Then my only other affordable option would be the "public" option.

If the bill gets passed with that kind of wording, then "qualified" could end up meaning whatever they want it to mean.

LawHawkSF said...

Andrew: Your conclusion in the first paragraph of your reply puts us in exactly the same position on the issue. This is such a budget busting economy destroyer that it won't survive, pass or not.

But assuming the worst, and it does pass, and the economy doesn't end up looking like 1929 x 2, and only if the insurance industry is much more prepared than in the past, then I foresee chaos followed by bad decision-making. I was here for the first implementation of Medicare. My mom had a private plan from work but was old enough for the new Medicare plan (which she didn't want). When she had a major heart attack and a nearly deadly stroke, the confusion between Medicare, the hospital billing office, the employer benefits office, and the insurance company meant that I had to sell the house that she had lived in since (believe it or not, 1929) to cover medical bills that eventually got covered anyway. Theory is good, but I've seen the results of government meddling in providing health care up-close and personally. I couldn't care less about insurance companies, my concern is for the insureds.

As for compensating for government-imposed mandates and climbing on board, the insurance companies may be committing suicide without knowing it. The stated (and probably genuine) goal of Medicare was to provide medical coverage for retirees and social security beneficiaries. The insurance companies spent a few years on how to make greater profits while providing less coverage, and things settled down. But back then, even the most liberal of legislators would have been horrified at the concept of a government takeover of medical care. It is now the hidden goal of the government's plan, and the stated goal of radicals and ultraliberals.

We need health care reform. Government must be involved, no matter how much we may wish it weren't so. I support your plan as you have been revealing it in your series. But right now, we're discussing the current proposed plan, and I apparently simply see more evil intent in it than you do. Yet we can both agree on one thing. Whatever the intent, the result is a monumentally horrible plan which will cause immeasurable and unprecedented harm to the economy.

AndrewPrice said...

Enigma, You're welcome. I thought it was important to bring this out before people put too many eggs into the "end of private insurance" basket.

The exact nature of the required benefits is not clear because they aren't fully spelled out. Instead, HHS is ordered to determine what benefits need to be included, within certain guidelines.

It is not clear if there will be a limit placed on deductibles, because that's not addressed in the plan. My guess would be that HHS cannot tell a provider to lower their deductible because they are simply mandating minimum types and levels of coverage and the are leaving the pricing up to the private insurers. But that is certainly something to be concerned about.

FYI, the government plan will come in four tiers.

AndrewPrice said...

Lawhawk, I agree that many on the radical left want socialized medicine, and that is something that needs to be considered carefully.

Tennessee Jed said...

Lawhawk, I like you see potential evil in the intent of this bill. I would also like to remind folks of a couple of things. I spent a career in the insurance industry, albeit on the property and casualty side, not healthcare. They have done a lot of good, provided a useful service and like attorneys, are not inherently evil. As a matter of fact, profit, in my book, is not a dirty word. Much of the problem people find with the insurance industry has roots in over regulation by, (you guessed it) government. I would say to people, it is not always a motion picture made from a Grisham novel. Cheers!

Writer X said...

Two words that worry me in this bill: acceptable and qualified. The bill reads like the tax code: it's purposely convoluted so that after reading it six times, you give up with a headache and just cry "uncle."

Watching the news today, it seems that the passage of this ridiculous bill has lost some of its steam, especially after the scathing CBO report. What do you think, Andrew? My fear is that the Obama team will repackage it somehow with a newer, brighter bow and try to sell it again--just as it is but with different words. They will not rest until they can look successful in this fight. I hope the Republicans and the moderate Dems will stay in the fight.

CrispyRice said...

My fear is that they'll "bribe" various congressmen into voting for it by giving them who-knows-what. Our whole system makes me sick sometimes.

Good catch, Andrew. I agree with LawHawk that the progression will be the same. All the talk radio hosts have latched onto the IBD's article, though and are championing "page 16!"

Saw a great sign today - "Funeral Directors for ObamaCare!"

LawHawkSF said...

Tennessee: I agree that insurance companies are not inherently evil by any means, and profit is one of the things that keeps businesses in business. That is the main reason I emphasized the insureds and didn't concern myself much with the insurance companies (they can take care of themselves). In fact, after I passed the bar, I went to work for the Equitable Life Assurance Society of the United States, the third largest financial institution in America at the time.

AndrewPrice said...

Jed, You make a good point. As with all other professions, I've seen insurers do good and evil. Over all, they carry out a good function.

But when it comes to industry lobbies (be it insurers, lawyers, doctors or plummers), I am always suspicious, especially when they favor increased regulation. That often means they've found a way to use those regulations against competitors, or they are robbing the tax payer.

AndrewPrice said...

Writer X, In general, the use of the word "qualified" is nothing new in the benefits arena. I am surprised by "acceptable." Even though it basically means "qualified", that is a total failure of the usual effort they take to disguise their true meaning. It also kind of tells you who is in charge doesn't it?

In terms of passing the bill, I am of two minds. On the one hand, I don't think they ever intended to get much through Congress. They talked about universal coverage, but it was mainly a placebo for their more rabid followers. When the rubber hit the road, they never even tried to propose what they had been promising. And now, with support falling and key democrats in the Senate refusing to support each of the proposed taxes (not to mention the Senate bill cost 1/3 what the House bill costs), it seems like the whole exercise is DOA.

BUT. . . once then get the two bills into conference committee, they can completely redraw the final bill to their liking and can then drop it on both houses for a lightening speed (non-filibuster-able) vote. That could well lead to a surprise "victory."

AndrewPrice said...

Thanks CrispyRice. I'm sure they are looking for ways to bribe key democrats right now.

I hope this doesn't steal anyone's momentum against the bill. There is more than enough reason to kill this thing, without relying on a mistake.

Tennessee Jed said...

Andrew - I don't doubt for a second that industry lobbyist organizations are primarily looking out for their members interests, although I'm not sure it means they are automatically trying to screw taxpayers. I do understand up to a point, the insurance industry not wanting to be totally on the outside looking in and the administration has shown themselves to be expert at bullying private enterprise.

The left loves to paint the insurance industry as "the bad guys," but they have generally over the years been around a 3% profit margin, hardly outrageous. If this amount were completely eliminated from all health care costs, it would make less than a half percent difference. The private sector does better than the government in expense control, so what has to happen in my view is attacking the underlying costs just as you have been suggesting and keep government out of the health care business as much as possible. As I said, I eagerly await more from "The Price Solution."

AndrewPrice said...

Jed, Don't get me wrong, I am not anti-insurance and I certainly don't subscribe to the strange view the left has about the industry. I think the insurance industry has been a good thing for society at large, and I am all for them turning a profit.

What troubles me is when companies or industries use regulation to benefit themselves or their members at the expense of the rest of us. Take for example the Business Round Table who have been pushing for nationalized health care because they want to take health care costs off their own books and dump those cost onto the taxpayers.

I want government to act rationally and on behalf of all of the people, not just the ones who have access to the legislators.

Tennessee Jed said...

Andrew - I'm sure I must be missing something. I checked out Business Roundtable's Health Care Proposal at their website and couldn't find where they were looking to dump employer plans or private insurance plans for nationalized healthcare. I didn't like the fact they support mandating all Americans must have coverage. They do support government subsidization of insurance for safety net Americans who can't afford premiums on their own, however that is a far cry from a public option. You may have newer information or I may misunderstand their proposal.

As an aside, Business Roundtable is not really an insurance industry lobby group per se. They are more of a "big corporate America" group although my old employer (INA/CIGNA/Ace Ltd. as Fortune 1000 companies are members. The insurance industry association's lobby group is A.H.I.P. and from what I understand they are actively fighting the "public option." Their plan is on their website as well. You have studied this in far greater detail so I'm not really doubting your conclusions. Wow, it's late so I'll sign-off for tonight.

AndrewPrice said...


You’re right about AHIP, they are fighting the public option, but they seem to like the rest of the plan. They are taking the position that the government should encourage everyone to have insurance (they don’t say force though) and that the government should subsidize everyone below 400% of the poverty level to buy private insurance (which is what the House bill does). They also don’t seem to oppose the coverage mandates (e.g. pre-existing conditions), though they want people to be able to keep their current plans.

The Business Round Table is not an insurance lobby. They are a big business lobby and I was only using them as an example of a group that, in my opinion, lobbies for regulations that benefit their members at the expense of the rest of us. Their positions on global warming and open immigration come to mind.

On health care, I’ve seen their proposal and it’s utterly vague, except for the ideas that everyone should be required to have health care and that the government should pick up the tab for “low income” people. Though, like all lobbyists, they knew to avoid using the word “government.” Instead, they merely talk about “income support” as if it could come from the sky. But I’m not relying on their written proposal. I’m relying on the BRT spokesman that I’ve seen many times over the past 8-10 years, who have repeatedly made the case that the American system of having employers provide health care is putting them at a “competitive disadvantage to the rest of the world” and that they want Congress to change that. They don’t say “socialize it” but that’s the obvious intent.

Also, a couple years ago, the BRT joined with AARP and SEIU (biggest union in the world) in a group called Divided We Fail for the purposes of promoting a health care crisis. This group, while also not calling directly for “socialized medicine”, has been screaming about the health care crisis bankrupting individuals and businesses and encourages people to contact the government and demand a “right” to health care. That’s not really a position taken by someone who wants to reform the current system, but leave it in place.

The dumping of employer plans is not advocated by the BRT in their plan, but that will be the obvious effect of the proposal -- see the House plan.

Finally, Jed, I’m not saying each of the parts of the plans advocated by these groups is bad. But, overall, the plans advocated by these groups are far too short on reform and far too long on benefiting their own members at the taxpayer’s expense.

Tennessee Jed said...

Thanks Andrew - that helps explain a lot. I certainly would only want government subsidy of private insurance IF it was part of a total replacement for MEDICARE and MEDICAiD. The tax payers are paying so much now for government paid for health care, I'd rather see government out of the business of being a direct provider (payor) altogether since their history is one of inefficiency and inability to control cost. Their abuse of the tax payers is typically the worst of all.

Of course, employer subsidization (even partial) is a form of compensation and therefore a not insignificant cost. In a true free market world I suppose, the money set aside by employers to partially subsidize premiums and administer the group plan could be converted to salary which an employee could use to purchase a policy.

Naturally, that extra salary would be fully taxable unless the tax laws permitted a deduction for insurance purchase. In Obama nation, he wants to tax the health care benefits anyway (except for his buddies in the unions.) As you have consistently pointed out though, the real savings answers must come from driving down medical costs. In the mean time, I will await your next installment

AndrewPrice said...

Jed, You're welcome.

I am working furiously on the next part. I hope to have it early in the week.

I agree about Medicaid and Medicare, I can't understand why they wouldn't eliminate those and roll them into the new system. Instead, they're just lumping another whole program on top of everything else that already exists. What a mess.

And you're 100% right about Obamacare carving out special treatment for unions. How does that make sense as a policy matter? It doesn't. That's pure political payback.

USS Ben USN (Ret) said...

Excellent post, Andrew!

Thanks for clearing that up. I also got a lot of info from the comments.
When it comes to Obamascare or cap n' tax, we need to let the lobbyists know that we don't support these boondoggles, and neither should they.

AARP bigwigs think that most of their members want this fiasco, but they are wrong. Lots of folks want solutions, but they don't want Medicare redux on steroids.

AndrewPrice said...

You're welcome Ben. Like I said, there are more than enough reasons to knock this thing down without relying on one that isn't true.

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