Stanford University News Service
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March 18, 2010
Adam Gorlick, Stanford News Service: (650) 725-0224, firstname.lastname@example.org
As plans for overhauling the country's healthcare system have taken shape over the past year, most of the headlines and conversations have focused on the politics behind the bill, slated for a final congressional vote in the coming days.
The issue has polarized American voters and Congress.
But what is often lost in the discussion is unbiased clarity on the proposed legislation itself. Whom will it help? Whom will it hurt? How will it really be paid for?
Stanford's Dr. Jay Bhattacharya, an associate professor of medicine and a health economist with the university's Center for Health Policy, spoke with the Stanford News Service about the nuts and bolts of the biggest change in America's provision of healthcare since Medicare was established in 1965.
"The bill will increase the number of people with insurance. It will increase taxes. And it will cut Medicare," Bhattacharya says. "Those things for sure will happen. Whether you think it's worth it or not will depend on who you are. Some people will feel the increase in taxes, some people will feel the increase in coverage."
The bill promises to cover about 35 million Americans who are currently uninsured. Who are these people, and how will the bill cover them?
They tend to be poor, self-employed or part-time workers. If they can afford to buy insurance on their own, they'll have to do so or face penalties. The bill will also extend the eligibility for Medicaid so that poor people who don't have enough money to buy insurance on their own will still be able to get it. It will provide subsidies to a lot of people who can't afford to buy insurance.
How much will this legislation cost, and how will it paid for?
It will cost roughly $1 trillion over 10 years. It pays for that in two main ways. First, it will cut Medicare by $500 billion over that 10-year period, starting as soon as the bill is implemented. Second, it will tax insurance plans offered by employers that are deemed overly generous. That's the so-called Cadillac tax.
The tax will undercut those plans completely. Almost certainly, they'll disappear from the market or be substantially shrunk. This has led to some political back-and-forth, but by 2018 the tax will apply to all Cadillac plans.
There are also some increases in Medicare taxes, and some other tax increases on the wealthy that will be used to pay for the bill. But the two main sources of funding are the Medicare cuts and tax on Cadillac plans.
If the Cadillac plans disappear because employers don't want to pay the taxes, how will the government make up the loss of that expected revenue?
Realistically, I don't know how they'll do it. The Congressional Budget Office is not allowed to project these behavioral changes. All the provisions to pay for the bill are already really unpopular, but there's no way around it. It's going to be difficult for Congress to maintain the will needed to keep those cuts going year after year.
If Medicare is cut by $50 billion a year during the coming decade, what does that mean for senior citizens' healthcare?
The government hasn't exactly decided how to do those cuts yet. But they're likely to have a substantial effect on what Medicare plans are offered and what doctors take Medicare. If you're a senior citizen, this could lead to a big change in the sort of coverage you get.
Most people on Medicare get coverage on a "fee for service" basis. That means you go to the doctor and Medicare pays for that visit. Then there's a Medicare HMO [health maintenance organization], which a minority of seniors use. And that's what's going to get changed the most.
The argument Obama has made is that it costs more to cover a person through Medicare managed care than through traditional Medicare. But making cuts to the managed care program isn't going to cover $50 billion a year. The government hasn't figured out what else to cut. This is a big question mark, and it's a debate we'll have over the next decade. Medicare is going to be the center for much of the discontent over the next few years.
And what about prescription drug coverage under Medicare?
If you have drug coverage through Medicare, you now face what's called a "donut hole" in coverage. If you pay $10,000 a year for your medication, the plan will cover the first $3,000 or so and then roughly the last $4,000. But it won't cover the $3,000 or so in the middle. The reform bill closes the gap by paying for the middle part. That's good, but it has to be paid for and actually raises the amount that Congress will have to cut from Medicare.
If you get your healthcare through your job, what will change?
Unless you have a Cadillac plan, there most likely won't be a big effect. If your employer has uninsured people working for them who are relatively healthy, they'll join your pool and your premiums could go down. On the other hand, if those people are relatively sick and they join your pool, you premium costs could go up. But on average, there will be a very minimal effect on people who have insurance through their employer but don't have Cadillac plans.
How will the bill regulate the insurance industry?
There are two kinds of insurance regulations. The first will get rid of pre-existing condition limitations. If you're sick, you will be able to get coverage through a private insurer, whereas now you might have been excluded. The second thing it will do is set minimum standards for what insurance is. That means a catastrophic insurance plan that only covers you if you have a very costly problem won't be allowed on the market. That could raise overall healthcare costs, but you get more generous insurance in exchange.
When will the reforms actually take place?
Those details have not been set yet, but taxes and Medicare cuts will happen first. So between 2010 and 2014, there will be large-scale Medicare cuts and increases in taxes to pay for the bill. In addition, most of the regulations will happen early on.
But the benefits that will reduce the number of uninsured won't happen until 2014. The mandate that you buy insurance probably won't start until then. That's because a lot of the people who are mandated to have insurance can't afford it, so the government has to subsidize them. And the money for that won't be available until 2014.
What will the penalties be for people who don't have insurance?
The main penalties would fall on employers, but Congress is still working on the details. If you have a part-time worker and you don't give him insurance, how much should the penalty be? If you penalize them a lot, that discourages employers from hiring part-time employees at all. But if you don't penalize them enough, there's no incentive for them to provide the insurance because it may be cheaper to just pay the fine.
Does the bill allow the government to make decisions regarding a person's medical treatment or care?
The bill will not result in a government takeover of healthcare. It will not result in death panels. It will not result in the government saying to doctors: "You shouldn't cover grandma's care because it's too expensive." It will provide guidance to doctors about what kind of care is most effective in certain circumstances, and doctors and patients will make their own decisions on whether to undertake that care.
The bill may force you to change your current circumstances. If you have Medicare managed care, you almost certainly will have to change the insurance you have. If you have a Cadillac plan through your employer, come 2018 you'll most likely have to change the insurance you have. Unlike what President Obama has said, if you have an insurance plan and you like it, you may not be able to keep it.
Jay Bhattacharya, Stanford Health Policy: (650) 736-0404, email@example.com
Email firstname.lastname@example.org or phone (650) 723-2558.