Industry the September 2011 issue

Truth & Consequences

Debt ceiling legislation and the tattered economy will play havoc on healthcare reform. But could the outcome be a single-payer system?
By Joel Wood Posted on September 1, 2011

First, let’s put aside the presidential race, wherein any GOP nominee will pledge to upend the act. To predict the outcome of the presidential general election, says Charlie Cook, the nation’s most successful political prognosticator, he’d much rather know the unemployment number in October 2012 than he would the name of the nominee (Michele Bachmann and Sarah Palin excepted).

As for specific healthcare reforms, some are popular, particularly with respect to pre-existing restrictions for children. Even the “slacker” provision for kids up to 26 staying on their parents’ plan doesn’t seem to bother anybody. The market changes probably account for about 2.5% of increased premiums, according to Lockton, and most people don’t seem to think that’s too high a price to pay.

The more the clock ticks toward the end of the year, additionally, the harder it is going to be to modify the minimum medical loss ratio (MLR) requirement of the act, which went into effect in January. The Council has been seeking enactment of H.R. 1208, which would remove agent/broker compensation from the MLR calculation. The legislation has gotten lots of bipartisan support in the House of Representatives, but Democratic senators have been exceptionally difficult to persuade. The MLR has put downward pressure on compensation for health plan brokers, particularly those in the individual market. If it isn’t fixed this year, the odds become much greater that a price-control MLR regime may be here to stay.

I’d similarly argue that the preventive-care credits are popular and aren’t going away.

Beyond that, I view the act as being highly vulnerable, particularly as we approach the 2014 implementation of exchanges and subsidies. One of the reasons is contained in the debt-ceiling deal President Obama signed into law in late July. The American Enterprise Institute (a right-tilting think tank) issued an August study by scholar Joseph Antos that explains the threat to the PPACA.

The “Budget Control Act,” Antos notes, ties increases in the federal debt limit to cuts in spending on a dollar-for-dollar basis. In a deal described by one opponent as a “sugar-coated Satan sandwich,” Obama agreed that Medicare should be put on the chopping block along with other federal programs. That, wrote Antos, could prove to be the thread “that unravels the massive expansion of health spending created in last year’s PPACA.”

Under the deal, the first debt limit increase of $900 billion triggers a cut in spending of $917 billion over the next decade. Discretionary programs, including defense, would be subject to a cap that allows them to grow at 2.1% a year, rather than at the 8.5% growth we have seen in recent years. A second increase in the debt limit of $1.2 trillion is permitted if it is accompanied by an equal amount of spending cuts.

The budget act creates a special joint committee of Congress that is charged with producing a plan for the necessary cuts. Because the committee will be evenly divided between House and Senate, Republican and Democrat, “it is doomed,” says Antos. “Political hostilities will only heighten now that the hard-fought debt negotiations have been settled. Even if this new gang of 12 were able to agree on a plan, the chances that the full House and the Senate would pass it are nil.”

The Council’s general counsel, Scott Sinder, predicts that the debt crisis is so daunting that Congress will punt the exchange subsidies down the field on year-by-year basis to stay solvent. Of course, Democratic leaders in Congress and the administration downplay the expected price tag of such subsidies, as they believe employer-sponsored plans will prevail. I think that’s wishful thinking almost to the point of being deliberately deceptive. The healthcare reform law doesn’t bend the cost curve. Basic benefit plans will be rich. Opt-out penalties for employers will be relatively tiny. Federal subsidies will be available up to 400% of the federal poverty line. The costs of this regime are going to be astronomical. Millions of employers are likely to flee. America can’t afford it.

The most cynical of spectators, in which group I include myself, believe that congressional and administration leaders knew that the numbers don’t add up. The more rapidly the system tanks due to shifted costs to government, the more rapidly a single-payer system moves to the front of the line. Finally, the reality is that every other major entitlement program was approved with bipartisan support. PPACA had no Republican support.

Joel Wood Senior Vice President, Government Affairs, The Council Read More

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