Wednesday, July 1, 2009

Doing some basic health care reform math

This is a short follow-up to my prior lengthy post "The U.S. health care policy morass." (Cross-posted at Open Salon.)

Some necessary basic arithmetic

The image above is taken from a quick Excel spreadsheet I put together and uploaded here. You can download it and play with it as you wish. The user input cells are the 1st, 2nd, and 6th respectively (
"Total Population," "Total Current Expenditure," and "Pct spending reduction."

[NOTE: to speculate on the effects of spending increases, simply enter a negative decimal fraction, e.g., enter "-.25" to see the upshot of a 25% increase, and so forth.]


In my lengthy post
"The U.S. health care policy morass," I cited some aggregate health care expenditure data proffered by the bipartisan National Coalition on Health Care.
In 2008, total national health expenditures were expected to rise 6.9 percent -- two times the rate of inflation. Total spending was $2.4 TRILLION in 2007, or $7900 per person. Total health care spending represented 17 percent of the gross domestic product (GDP).
I roughly estimated the 2007 figure up in the spreadsheet to $2.55 trillion for 2008. The rest is simple long division and percentage math. Nothing fancy.

As I've observed in comments elsewhere, some analysts have argued that we can in fact cover everyone, with materially better outcomes, and save perhaps 30% in the process. Even so, do the per capita math (sit down first). 2008 estimated U.S. "health care" spending ~= $2.55 trillion. Divide by a 307 million U.S. population. Decrement by 30%. You still get more than $5,800 per year
per person. And, substantially more if you restrict the gross "population" figure to only adult civilian non-institutionalized, i.e., those actually or potentially on the hook for payment. Now, of course, Congress is not buying the "save money" part. The draft Senate bill only speaks to reducing "the growth in spending" (link to that 852 page draft legislation document in my prior blog post appendix). So, re-do the math. Give yourselves more heartburn.

Recognizing that it's never going to be allocated strictly
"per capita," (e.g., just look at the monthly "family of 4" data), then the essentially zero-sum game becomes deciding who (individually) or which socioeconomic strata have to pay proportionally more. It's worth noting that, even were we to somehow miraculously cut the NHE (National Health Expenditure) by 50% [1], the resulting aggregate amount would still be more than twice our military budget.
[1] Take out the military and those incarcerated or otherwise institutionalized, ratcheting down the population to, say, an even 300 million, enter a 50% aggregate cost reduction; you still would have more than $1,400 per month for a family of four. If you further deduct an estimated "retired" subset cohort from among the 39 million people over the age of 65 -- those who would now be almost exclusively recipient-beneficiary health care system users rather than tax/premium contributors, the per capita numbers worsen concomitantly, rather dramatically so.
I'm not making any of this up. This is just grade-school arithmetic based on some published national numbers, along with some readily adjustable Excel "what-ifs?"

A big problem.
___

JULY 22nd UPDATE

Well, I watched the President's much anticipated "health care news conference" tonight. Not much really new there. He still claims that he and Congress must -- and will -- get health policy reform legislation agreed to, passed, and signed into law this year.

A core theme in all of this remains "making health care affordable" -- both for individuals and for the nation, given its impact on both personal and public budgets.

What do we mean by "affordable"? Who decides? I simply decide for myself that I cannot afford a Lexus or Dom PĂ©rignon champagne, or caviar, or vacations in Monaco, etc. Others with more substantive financial assets decide otherwise, as is their free choice. But, what about health care insurance? Many people today "decide" that they cannot "afford" it (should it not be provided as part of their employment compensation). Meaning that their own value preferences dictate that they allocate their finite financial resources toward other freely chosen ends (this usually pertains to younger, healthier people).

But, now, we're being told that we all have to contribute in some fashion. No more "free riders," because, should you get seriously injured or ill and have no coverage, society will in fact be picking up your tab.

Stipulated. That is unlikely to change materially, should you find yourself in life-threatening circumstances and bereft of resources.

It's also increasingly increasingly argued of late (albeit not universally) that health care is a fundamental "right." Now, as a matter of long-settled law and policy -- as I pointed out in my prior post -- access to health care is indeed a "right," but it is a "right of last resort," a contingent, means-tested safety net "right" that comes with economic destitution (or close enough to it).

And, as of now, once you reach the age of 65 (I'm 18 months out), it becomes simply an "entitlement" right in no way contingent on personal income or net worth -- i.e., Medicare.

But, now, we're being told that we all have to contribute in some fashion

Well, consider military defense, and police and fire protection. We regard those without a second thought as basic "rights,"[**] and we assume that our various tax contributions suffice to provide them. Taxes may go up or down, defense, police, and fire department budgets may rise or fall, but we don't expect an annual arithmetic average "per capita" bill from the government for them. You earn more, you pay more. Justifiably so, it is argued, because you have more to lose (whether that should properly be progressively so is another argument for another topic).


** And, we readily recognize that those with sufficient means and desires can freely purchase enhanced protections via private security services and/or moving to more affluent areas -- e.g., gated communities -- that accord greater protective amenities.
Look at my spreadsheet example above. How many families could be expected to "afford" a monthly health care premium of of $2,769, or even $1,938 a month in the wake of a 30% decrement in annual costs?

THE CURRENT DRAFT HOUSE BILL: "AFFORDABILITY CREDITS"

Having taken a "social insurance" basic "entitlement" model off the table, federal policymakers are now busy hastily constructing yet another inscrutably complex system via which to assess and provide for "affordability." For example, from page 135 of the 1,018 page draft House bill:
The requisite individual "affordable contribution credit" is to be capped at 11% of income for those at a maximum of 400% of the "Federal Poverty Limit (FPL)."

(Click any of these images to inflate them for easier viewing, btw.) That 2nd graphic is from page 137. Let's take a look at the most recent stratified FPL table (just for the lower 48 states and DC; Hawaii and Alaska are perhaps 20-25% higher)

OK, sticking with our "family of 4" meme, 11% of $22,050 divided by 12 months comes out to $202.13 per month ($2,425.50 a year) for a 4-person household with an income of $88,200 (4x the FPL).

A couple of observations:

  • This look distressingly like "corporate welfare," in that the government will be expected to make up the difference between the "market price" of insurance coverage and your "affordable contribution" (just as is the case with the Federal Employees Benefit Plan) should you not be otherwise covered through your employer (or via your own wealth enabling you to purchase coverage and/or services at retail). Perhaps this explains why "Harry and Louise" are now on board ad nauseum of late touting reform. Forcibly bring in 40+ million new "policyholders," without having to charge them anywhere near full retail, while still making bank via the U.S. Treasury? What's not to love?
  • It also looks distressingly like -- well -- "welfare," overtly (begging yet again the question of health care as a fundamental "right" like national defense). We will need another numbing federal bureaucracy within which to vet "affordability eligibility" ongoing for millions. And, while some people are inveterate wards of the state, many others move repeatedly up and down in the socioeconomic strata. Eligibility will have to be re-determined at least annually. Take a number. Now serving number 342 at window 8. Provide two photo IDs and your last IRS 1040. No, I'm sorry, we do not recognize Power of Attorney, your mother must come here in person. Yes, I understand that she's bedridden in a nursing home. Sorry. She must appear in person. Two photo IDs, and last Form 1040. No, your place in the queue expires at 5 pm today.
In my prior post I concluded:
We seem to be headed toward an inscrutably hyper-complex re-jiggering of our no-value-adding "health care" paper-pushing industry. I hope I'm wrong.

I'm not yet seeing much to allay that concern.
___

JULY 30TH UPDATE

The draft House bill -- "America's Affordable Health Choices Act of 2009" -- now has a number, H.R.3200. Now, recall my concern set forth just above in the 2nd bullet point:

"We will need another numbing federal bureaucracy within which to vet "affordability eligibility" ongoing for millions. And, while some people are inveterate wards of the state, many others move repeatedly up and down in the socioeconomic strata. Eligibility will have to be re-determined at least annually."
Well, here you go:

H.R.3200, SEC. 245. INCOME DETERMINATIONS.

(a) In General- In applying this subtitle for an affordability credit for an individual for a plan year, the individual's income shall be the income (as defined in section 242(c)) for the individual for the most recent taxable year (as determined in accordance with rules of the Commissioner). The Federal poverty level applied shall be such level in effect as of the date of the application.

(b) Program Integrity; Income Verification Procedures-

(1) PROGRAM INTEGRITY- The Commissioner shall take such steps as may be appropriate to ensure the accuracy of determinations and redeterminations under this subtitle.

(2) INCOME VERIFICATION-

(A) IN GENERAL- Upon an initial application of an individual for an affordability credit under this subtitle (or in applying section 242(b)) or upon an application for a change in the affordability credit based upon a significant change in family income described in subparagraph (A)--

(i) the Commissioner shall request from the Secretary of the Treasury the disclosure to the Commissioner of such information as may be permitted to verify the information contained in such application; and

(ii) the Commissioner shall use the information so disclosed to verify such information.

(B) ALTERNATIVE PROCEDURES- The Commissioner shall establish procedures for the verification of income for purposes of this subtitle if no income tax return is available for the most recent completed tax year.

(c) Special Rules-

(1) CHANGES IN INCOME AS A PERCENT OF FPL- In the case that an individual's income (expressed as a percentage of the Federal poverty level for a family of the size involved) for a plan year is expected (in a manner specified by the Commissioner) to be significantly different from the income (as so expressed) used under subsection (a), the Commissioner shall establish rules requiring an individual to report, consistent with the mechanism established under paragraph (2), significant changes in such income (including a significant change in family composition) to the Commissioner and requiring the substitution of such income for the income otherwise applicable.

(2) REPORTING OF SIGNIFICANT CHANGES IN INCOME- The Commissioner shall establish rules under which an individual determined to be an affordable credit eligible individual would be required to inform the Commissioner when there is a significant change in the family income of the individual (expressed as a percentage of the FPL for a family of the size involved) and of the information regarding such change. Such mechanism shall provide for guidelines that specify the circumstances that qualify as a significant change, the verifiable information required to document such a change, and the process for submission of such information. If the Commissioner receives new information from an individual regarding the family income of the individual, the Commissioner shall provide for a redetermination of the individual's eligibility to be an affordable credit eligible individual.

(3) TRANSITION FOR CHIP- In the case of a child described in section 202(d)(2), the Commissioner shall establish rules under which the family income of the child is deemed to be no greater than the family income of the child as most recently determined before Y1 by the State under title XXI of the Social Security Act.

(4) STUDY OF GEOGRAPHIC VARIATION IN APPLICATION OF FPL- The Commissioner shall examine the feasibility and implication of adjusting the application of the Federal poverty level under this subtitle for different geographic areas so as to reflect the variations in cost-of-living among different areas within the United States. If the Commissioner determines that an adjustment is feasible, the study should include a methodology to make such an adjustment. Not later than the first day of Y2, the Commissioner shall submit to Congress a report on such study and shall include such recommendations as the Commissioner determines appropriate.

(d) Penalties for Misrepresentation- In the case of an individual intentionally misrepresents family income or the individual fails (without regard to intent) to disclose to the Commissioner a significant change in family income under subsection (c) in a manner that results in the individual becoming an affordable credit eligible individual when the individual is not or in the amount of the affordability credit exceeding the correct amount--

(1) the individual is liable for repayment of the amount of the improper affordability credit; and

(2) in the case of such an intentional misrepresentation or other egregious circumstances specified by the Commissioner, the Commissioner may impose an additional penalty.
"Provide two photo IDs and your last IRS 1040. No, I'm sorry, we do not recognize Power of Attorney, your mother must come here in person. Yes, I understand that she's bedridden in a nursing home. Sorry. She must appear in person. Two photo IDs, and last Form 1040. No, your place in the queue expires at 5 pm today."

As I've also stated before: We seem to be headed toward an inscrutably hyper-complex re-jiggering of our no-value-adding "health care" paper-pushing industry.

And, should these provisions survive to become part of any passed legislation, this requisite new "affordability eligibility" bureaucracy will be a big part of it, diverting scarce, precious clinical health care dollars into clerical verification cubicles as "the Commissioner shall establish...for the verification of income for purposes of this subtitle..."
___

IT GETS WORSE

Under this legislation, we've obviously given up on the concept of health care as a "right" in favor of viewing it as a personal responsibility -- enforceable under tax law via IRS scrutiny. You are to be additionally taxed should you not be able to produce documentation of your having "acceptable health care coverage."

TITLE IV--AMENDMENTS TO INTERNAL REVENUE CODE OF 1986

Subtitle A--Shared Responsibility

PART 1--INDIVIDUAL RESPONSIBILITY

SEC. 401. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE COVERAGE.

(a) In General- Subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:

`PART VIII--HEALTH CARE RELATED TAXES

`subpart a. tax on individuals without acceptable health care coverage.
`Subpart A--Tax on Individuals Without Acceptable Health Care Coverage
`Sec. 59B. Tax on individuals without acceptable health care coverage.

`SEC. 59B. TAX ON INDIVIDUALS WITHOUT ACCEPTABLE HEALTH CARE COVERAGE.

`(a) Tax Imposed- In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent of the excess of--

`(1) the taxpayer's modified adjusted gross income for the taxable year, over
`(2) the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer.

`(b) Limitations-

`(1) TAX LIMITED TO AVERAGE PREMIUM-

`(A) IN GENERAL- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the applicable national average premium for such taxable year.
`(B) APPLICABLE NATIONAL AVERAGE PREMIUM-

`(i) IN GENERAL- For purposes of subparagraph (A), the `applicable national average premium' means, with respect to any taxable year, the average premium (as determined by the Secretary, in coordination with the Health Choices Commissioner) for self-only coverage under a basic plan which is offered in a Health Insurance Exchange for the calendar year in which such taxable year begins.

`(ii) FAILURE TO PROVIDE COVERAGE FOR MORE THAN ONE INDIVIDUAL- In the case of any taxpayer who fails to meet the requirements of subsection (e) with respect to more than one individual during the taxable year, clause (i) shall be applied by substituting `family coverage' for `self-only coverage'.

`(2) PRORATION FOR PART YEAR FAILURES- The tax imposed under subsection (a) with respect to any taxpayer for any taxable year shall not exceed the amount which bears the same ratio to the amount of tax so imposed (determined without regard to this paragraph and after application of paragraph (1)) as--
`(A) the aggregate periods during such taxable year for which such individual failed to meet the requirements of subsection (d), bears to

`(B) the entire taxable year.

`(c) Exceptions-
`(1) DEPENDENTS- Subsection (a) shall not apply to any individual for any taxable year if a deduction is allowable under section 151 with respect to such individual to another taxpayer for any taxable year beginning in the same calendar year as such taxable year.

`(2) NONRESIDENT ALIENS- Subsection (a) shall not apply to any individual who is a nonresident alien.

`(3) INDIVIDUALS RESIDING OUTSIDE UNITED STATES- Any qualified individual (as defined in section 911(d)) (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during the period described in subparagraph (A) or (B) of section 911(d)(1), whichever is applicable.

`(4) INDIVIDUALS RESIDING IN POSSESSIONS OF THE UNITED STATES- Any individual who is a bona fide resident of any possession of the United States (as determined under section 937(a)) for any taxable year (and any qualifying child residing with such individual) shall be treated for purposes of this section as covered by acceptable coverage during such taxable year.

`(5) RELIGIOUS CONSCIENCE EXEMPTION-

`(A) IN GENERAL- Subsection (a) shall not apply to any individual (and any qualifying child residing with such individual) for any period if such individual has in effect an exemption which certifies that such individual is a member of a recognized religious sect or division thereof described in section 1402(g)(1) and an adherent of established tenets or teachings of such sect or division as described in such section.

`(B) EXEMPTION- An application for the exemption described in subparagraph (A) shall be filed with the Secretary at such time and in such form and manner as the Secretary may prescribe. Any such exemption granted by the Secretary shall be effective for such period as the Secretary determines appropriate.
`(d) Acceptable Coverage Requirement-

`(1) IN GENERAL- The requirements of this subsection are met with respect to any individual for any period if such individual (and each qualifying child of such individual) is covered by acceptable coverage at all times during such period.

`(2) ACCEPTABLE COVERAGE- For purposes of this section, the term `acceptable coverage' means any of the following:

`(A) QUALIFIED HEALTH BENEFITS PLAN COVERAGE- Coverage under a qualified health benefits plan (as defined in section 100(c) of the America's Affordable Health Choices Act of 2009).

`(B) GRANDFATHERED HEALTH INSURANCE COVERAGE; COVERAGE UNDER GRANDFATHERED EMPLOYMENT-BASED HEALTH PLAN- Coverage under a grandfathered health insurance coverage (as defined in subsection (a) of section 102 of the America's Affordable Health Choices Act of 2009) or under a current employment-based health plan (within the meaning of subsection (b) of such section).

`(C) MEDICARE- Coverage under part A of title XVIII of the Social Security Act.
`(D) MEDICAID- Coverage for medical assistance under title XIX of the Social Security Act.
`(E) MEMBERS OF THE ARMED FORCES AND DEPENDENTS (INCLUDING TRICARE)- Coverage under chapter 55 of title 10, United States Code, including similar coverage furnished under section 1781 of title 38 of such Code.

`(F) VA- Coverage under the veteran's health care program under chapter 17 of title 38, United States Code, but only if the coverage for the individual involved is determined by the Secretary in coordination with the Health Choices Commissioner to be not less than the level specified by the Secretary of the Treasury, in coordination with the Secretary of Veteran's Affairs and the Health Choices Commissioner, based on the individual's priority for services as provided under section 1705(a) of such title.

`(G) OTHER COVERAGE- Such other health benefits coverage as the Secretary, in coordination with the Health Choices Commissioner, recognizes for purposes of this subsection.

`(e) Other Definitions and Special Rules-

`(1) QUALIFYING CHILD- For purposes of this section, the term `qualifying child' has the meaning given such term by section 152(c).

`(2) BASIC PLAN- For purposes of this section, the term `basic plan' has the meaning given such term under section 100(c) of the America's Affordable Health Choices Act of 2009.

`(3) HEALTH INSURANCE EXCHANGE- For purposes of this section, the term `Health Insurance Exchange' has the meaning given such term under section 100(c) of the America's Affordable Health Choices Act of 2009, including any State-based health insurance exchange approved for operation under section 208 of such Act.

`(4) FAMILY COVERAGE- For purposes of this section, the term `family coverage' means any coverage other than self-only coverage.

`(5) MODIFIED ADJUSTED GROSS INCOME- For purposes of this section, the term `modified adjusted gross income' means adjusted gross income--

`(A) determined without regard to section 911, and
`(B) increased by the amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax.

`(6) NOT TREATED AS TAX IMPOSED BY THIS CHAPTER FOR CERTAIN PURPOSES- The tax imposed under this section shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

`(f) Regulations- The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance (developed in coordination with the Health Choices Commissioner) which provide--

`(1) exemption from the tax imposed under subsection (a) in cases of de minimis lapses of acceptable coverage, and

`(2) a process for applying for a waiver of the application of subsection (a) in cases of hardship.'.
(b) Information Reporting-

(1) IN GENERAL- Subpart B of part III of subchapter A of chapter 61 of such Code is amended by inserting after section 6050W the following new section:

`SEC. 6050X. RETURNS RELATING TO HEALTH INSURANCE COVERAGE.

`(a) Requirement of Reporting- Every person who provides acceptable coverage (as defined in section 59B(d)) to any individual during any calendar year shall, at such time as the Secretary may prescribe, make the return described in subsection (b) with respect to such individual.

`(b) Form and Manner of Returns- A return is described in this subsection if such return--

`(1) is in such form as the Secretary may prescribe, and
`(2) contains--
`(A) the name, address, and TIN of the primary insured and the name of each other individual obtaining coverage under the policy,
`(B) the period for which each such individual was provided with the coverage referred to in subsection (a), and
`(C) such other information as the Secretary may require.

`(c) Statements To Be Furnished to Individuals With Respect to Whom Information Is Required- Every person required to make a return under subsection (a) shall furnish to each primary insured whose name is required to be set forth in such return a written statement showing--

`(1) the name and address of the person required to make such return and the phone number of the information contact for such person, and

`(2) the information required to be shown on the return with respect to such individual.

The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

`(d) Coverage Provided by Governmental Units- In the case of coverage provided by any governmental unit or any agency or instrumentality thereof, the officer or employee who enters into the agreement to provide such coverage (or the person appropriately designated for purposes of this section) shall make the returns and statements required by this section.'.

(2) PENALTY FOR FAILURE TO FILE-
(A) RETURN- Subparagraph (B) of section 6724(d)(1) of such Code is amended by striking `or' at the end of clause (xxii), by striking `and' at the end of clause (xxiii) and inserting `or', and by adding at the end the following new clause:

`(xxiv) section 6050X (relating to returns relating to health insurance coverage), and'.

(B) STATEMENT- Paragraph (2) of section 6724(d) of such Code is amended by striking `or' at the end of subparagraph (EE), by striking the period at the end of subparagraph (FF) and inserting `, or', and by inserting after subparagraph (FF) the following new subparagraph:

`(GG) section 6050X (relating to returns relating to health insurance coverage).'.

(c) Return Requirement- Subsection (a) of section 6012 of such Code is amended by inserting after paragraph (9) the following new paragraph:

`(10) Every individual to whom section 59B(a) applies and who fails to meet the requirements of section 59B(d) with respect to such individual or any qualifying child (as defined in section 152(c)) of such individual.'.

(d) Clerical Amendments-

(1) The table of parts for subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

`Part VIII. Health Care Related Taxes.'.

(2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new item:

`Sec. 6050X. Returns relating to health insurance coverage.'.

(e) Section 15 Not To Apply- The amendment made by subsection (a) shall not be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

(f) Effective Date-

(1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 2012.

(2) RETURNS- The amendments made by subsection (b) shall apply to calendar years beginning after December 31, 2012.

What will be the bureaucratic FTE necessarily devoted to determining compliance with the myriad foregoing provisions? How many childhood immunizations, annual checkups, MRIs, arthroscopic surgeries, splints, and rounds of chemo and radiation would these FTE otherwise pay for?
___

PPACA

1 comment:

BernieO said...

The problem with the per capita cost number is that a lot of that cost is hidden in higher fees for goods and services, government expenditures which are divided between national and state, etc. I wish people could see an estimate of just how much they really are spending now for health care in addition to what they pay in insurance.

Drug companies argue that without our overpaying for drugs they would not have enough money to do research into new drugs (like Viagra, hair loss cures, etc.). In effect, Americans are subsidizing the cheap prices other countries pay. Not to mention we subsidize a lot of their research through direct government funding. Imagine public outcry if Americans ever find this out which they would if Democrats had the brains and/or guts to tell them.

If we ever wake up and demand equal treatment, the drug companies have the option of renegotiating the cheap prices they charge other countries.

To get informed quickly on the health care issue watch Frontline's "Sick Around the World" to get the truth about health care in other countries. Also read James Fallows' Jan '05 article "A Triumph of Misinformation" in the Atlantic Monthly which describes the techniques that were used to bamboozle the public the last time we tried to reform our system. Conservatives are using the same tactics this time around, with many of the the same players - George Will and Elizabeth McCaughey, eg. (Both are available online.)