Officials: China Wants To Improve Its Health Care, So It Launched A Massive Hack On The US

Daily Caller News Foundation | Steve Ambrose
Tanks in Beijing

US determines China behind hack of health care provider

Plugging The Hole In The Bottom Of Obamacare

Opinion | Bill Frezza
U.S. President Barack Obama delivers remarks on the fifth anniversary of the Affordable Care Act, commonly known as Obamacare, in the Eisenhower Executive Office Building on the White House campus in Washington March 25, 2015. REUTERS/Jonathan Ernst

As the country returns to cash doctoring for more and more of its medical care, we’re likely to see more innovations like MDSave

Obamacare Gives Big Windfall To Insurance Companies As Quality of Healthcare Declines

Opinion | David Williams
U.S. President Obama speaks about Supreme Court ruling on "Obamacare" subsidies while delivering a statement from the White House Rose Garden in Washington

Americans don’t need more cronyism when it comes to their health care.

Paying More And Buying Less: The Story Of Obamacare

Opinion | David J. Hebert
Obamacare

That insurance companies are seeking congressional approval to increase their rates is no surprise whatsoever.

Are Obamacare Co-Ops On The Brink Of Collapse?

Daily Caller News Foundation | Richard Pollock

All but one of the 22 remaining co-ops suffer large net operating losses

Obama’s health insurance deception

Opinion | Patrick Chisholm

The president repeatedly assures us that if we like our current health insurance plan, we can keep it. That’s like telling New Orleans residents on the eve of Katrina that if you like your house, you can keep it.

The House-Passed Health Care Plan Revisited: Employer Mandate Penalties on Small Firms

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As the President, the House Speaker, and the Senate Majority Leader continue closed-door negotiations on a final health care reform bill, they should reacquaint themselves with the crippling impact the employer mandate

Health care reform ready for its booster shot

Opinion | Robert Wright

America’s health care system is so sick that it is tempting to believe that whatever comes out of Congress later this month will have to be an improvement over the current ailment. If nothing else, American health care resembles a mash-up of the television medical dramas House and Scrubs, sometimes great but mostly tragically comical. The bleeding edge of global medical research slices into the ignorance of human physiology more deeply in the United States than anywhere else. Yet, America spends far more of its GDP on health care than any other country in the world and in exchange receives average outcomes disturbingly low for such a technologically advanced nation. That is because tens of millions of un- or underinsured Americans rely upon uber-expensive emergency room care while untold millions more receive care a far cry short of the technological frontier being conquered in their own backyards.

Massachusetts health program, model for Obama’s reform, strains state budget

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Since 2006, the cost of the state’s insurance program has increased by 42 percent, or almost $600 million. According to the Rand Corporation, ‘in the absence of policy change, health care spending in Massachusetts is projected to nearly double to $123 billion in 2020’

Congressional Misdiagnosis

| AJ

As Congress moves forward with its health care reform efforts, a last-minute proposal to revoke the 64-year-old exemption from federal antitrust laws for health insurers has flown under the media radar. Proponents of the repeal proposal tout it as a broadly popular effort to slow the consolidation of the health insurance industry and promote more vigorous price competition.

Healthcare Bill Punishes Married Couples

Politics | AJ

Some married couples would pay thousands of dollars more for the same health insurance coverage as unmarried people living together, under the health insurance overhaul plan pending in Congress. The built-in ‘marriage penalty’ in both House and Senate healthcare bills has received scant attention. But for scores of low-income and middle-income couples, it could mean a hike of $2,000 or more in annual insurance premiums the moment they say ‘I do.’

How Oppressive Can A Nudge Be?

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Probably the most distinctive innovation in the Obama Administration’s brand of liberalism is its interest in behavioral economics and the power of modest incentives–the “nudge,” as administration official Cass Sunstein calls them–as an instrument of policy. The theory, sometimes called

December 17, 2009

Mark Schmitt

Probably the most distinctive innovation in the Obama Administration’s brand of liberalism is its interest in behavioral economics and the power of modest incentives–the “nudge,” as administration official Cass Sunstein calls them–as an instrument of policy. The theory, sometimes called “soft Chicago school” economics because of its association with Sunstein, formerly of the University of Chicago Law School, and Freakonomics co-author Steven Levitt of that university, is that government can guide society gently toward certain results by understanding our sometimes less-than-rational response to choices.

Mark Schmitt, Senior Fellow at the New America
Foundation and Executive Editor of The American
Prospect, offers a response to Alan Wolfe’s
recent New American Contract Policy Paper
critiquing libertarian paternalism.  See also:
 Wolfe responds to Schmitt.

Others call it “libertarian paternalism,” and the eminent political scientist and scholar of liberalism Alan Wolfe recently published a paper through the New America Foundation’s Next Social Contract Initiative (which I helped to launch, before coming to the Prospect), that calls it something much worse–incipient totalitarianism, if the Bolshevik allusion in his title, “All Power to the Choice Architects,” is to be taken seriously. Wolfe warns that while “conservatism may not offer much of a challenge to liberalism at the moment,” there are other threats, first among them the ideas about policy derived from behavioral economics, which “deny the key liberal idea that human beings are free to live their lives in ways they collectively decide for themselves.”

I generally agree that using subtle nudges to encourage worthy behavior is not the ideal way for a government to operate. From both a liberal and a mildly libertarian perspective, it would be preferable to have big, decisive, well-defined programs that fully guarantee key public goods–such as Social Security, defense, national health insurance, or anti-trust regulation–on one side, and a fairly open field for human activity on the other, with the line between public and private, regulated and unregulated domains, fairly obvious and well-guarded.

Further, while academics like Sunstein and Obama economic advisor Austan Goolsbee may be attracted to behavioral incentives as a scholarly matter, their analysis matches all too conveniently with cautious Democratic politicians’ preference for safe, soft compromises between real public action and doing nothing. Democratic politicians have long been far too tempted to try to build progressive government out of an array of modest tax credits to encourage good parenting, voluntarism, economic development, entrepreneurship, and so forth–nudges that rarely have an effect worthy of their cost. At the end of a column in 2007 noting the dozens of tax incentives that littered the campaign platforms of the Democratic presidential candidates, I suggested that it was time for liberals to “put down Freakonomics and read some Keynes.” And Bob Kuttner earlier this year wrote a skeptical article about Sunstein’s “radical minimalism.”

But Wolfe’s critique goes much further, in ways that are thought-provoking but ultimately left me more sympathetic to the use of behavioral nudges than I started. In the most bracing section of his essay, Wolfe attempts to retain some value from the “neoclassical paradigm” challenged by behavioral economics. While acknowledging that neoclassical economics, with its assumptions of rational, fully-informed behavior, “is anything but problem-free,” he notes “one major advantage: it subscribes to the conviction, long identified with the liberal tradition, that individuals are possessed with reason, that they have both the confidence and capacity to figure out many of life’s key questions for themselves.” This is a useful insight–whatever else one might say about neoclassical economics, it reflects a fundamental respect for individuals that is valid in its own right. For that reason, many people are attached to it for ethical or ideological reasons, regardless of its results.

And that’s a reasonable ethical position to take. I certainly have a similar view of politics and democracy. As a political liberal, for example, I might think it’s irrational for a voter to prefer Sarah Palin over Joe Biden to be a heartbeat away from the presidency, but I’m unalterably committed to the assumption that individual voters given good information have to be able to make their own judgments. I’ll assume them to be rational even if they aren’t, just as some economists and economic libertarians do. As Wolfe implies, political liberalism and neoclassical economic liberalism have a shared origin in this ethical assumption about human reason.

But, that said, there are plenty of public choices that even the most committed democrat wouldn’t leave to the assumed-rationality of voters. And the assumptions about rationality of neoclassical economics are indeed “anything but problem-free”–they quite nearly led to the collapse of the world economy barely a year ago! Even purely rational choices can lead to disastrous results at times, and as Keynes understood long before there was anything called “behavioral economics,” our consistent inability to think clearly about risk and especially about uncertainty almost always leads to cycles of enthusiasm and pessimism, prosperity and crash. Wolfe says that the behavioral economists view people as wholly irrational–“rats in a maze”–but in fact they understand that people are irrational in fairly predictable ways: We put more weight on the risk of a loss than on a possible gain, for example, or we tend toward inaction rather than an active choice.

Wolfe adapted his title from the Bolsheviks, but the essay brought to mind a very different bit of Marxian doggerel: The line attributed to Trotsky, “You may not be interested in the dialectic, but the dialectic is interested in you.” Wolfe may not be interested in behavioral economics, but that doesn’t mean that behavioral economics doesn’t exist or that the phenomena its researchers have identified have no effect. We could have a world without what Wolfe calls “choice architects,” but it would still be a world in which there are choices and incentives, and someone, somewhere, has made decisions that design those choices.

Countless policies that were created long before behavioral economics came along, as well as countless accidents in the world, have created circumstances that nudge individuals’ behavior strongly in one direction or another. The home mortgage tax credit, for example, was established in the 1950s as a way to support the housing industry and help build a middle-class society; today it is a powerful nudge toward one choice–buying a home–and against both other housing options and other forms of savings. A wise “choice architect” might suggest some modernization to that structure. Or, to take the classic example often cited by Sunstein, Goolsbee and others: Most current voluntary retirement savings plans require people to actively choose to participate. Changing them so that people have to opt-out if they don’t wish to save retirement preserves the choice but has the effect that far more people will elect to save, and thus will be better off in retirement.

Does such a change deny human autonomy? It’s hard to see it. If people retain their choice to save or not to save, but those who don’t give it much thought or don’t feel strongly about it are more likely to do what’s in their own economic interest and that of society as a whole, what harm is done?

Ultimately the question about behavioral incentives has to be what they’re replacing. If government uses behavioral incentives to nudge people in purely private realms of activity, then they certainly can be a threat to liberty. I wouldn’t want government to nudge people toward marriage or childbearing any more than I would want government to mandate those things–even if I thought they were social goods. What about food? It’s a tougher choice–obesity is a major public health problem, and incentives such as a tax on soda might be able to reduce it, but what to eat seems like a choice deeply related to individual dignity. On the other hand, there are already plenty of government incentives that nudge people toward overconsumption–corn subsidies high among them–so a bit of “choice architecture” that would reverse or offset those choices might be wise.

On the other side, there are problems for which we need big government, with its firm mandates, generous subsidies, and structured regulations. We can’t nudge our way to universal health care or economic recovery. There are more dangers in that direction–that we will continue to try to govern through tax incentives and a complex array of inadequate gestures instead of initiatives of a scale adequate to the problems–than that “libertarian paternalism” will encroach on our basic freedoms. But as a complement to other policies, in the space between public and private, understanding just how people make choices–and gently encouraging the obviously better ones–seems like a valuable addition to the arsenal of public policy.

The Baucus Individual Health Insurance Mandate: Taxing Low-Income and Moderate-Income Workers

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Abstract: The individual mandate in the Baucus health care plan would impose punitively high, regressive taxes on low-income and moderate-income working families. Its penalties and additional taxes on business would discourage companies from hiring or continuing to employ low-income and moderate-income workers. The plan would substantially raise health insurance premiums. Yet the plan would still leave millions of Americans without access to affordable health insurance. Adding to their misfortune, it would then punish them with a tax penalty precisely because they are uninsured. A key component of the health care plan released by Senator Max Baucus (D-MT) on September 16 is its individual mandate–a legal requirement that nearly every American obtain health insurance or face substantial tax penalties. The mandate would be implemented through new requirements for employers, a new system of state-based health insurance exchanges, and the IRS, which will impose tax penalties on the uninsured and share personal financial data with employers and health insurance companies. While making health coverage available to all Americans is an admirable goal, the structure of this particular mandate severely restricts customer choice and imposes a punitive and regressive financial burden on those with the least ability to pay. In effect, the Baucus plan would tell the working poor: "If you have been choosing between food and health insurance, you no longer have that choice. You must buy the health insurance, and we will decide what kind of health insurance you will buy and how much you will pay for it." The Individual Mandate and the Tax Penalty Under the plan,almost everyone who is not covered by a government health program would be required to purchase health insurance starting in 2013. The documents that Senator Baucus has released do not specify the coverage requirements except in the vaguest terms, so accurately estimating the premium cost is not yet possible. Pending amendments suggest that no coverage requirements will be specified in final legislative language and the details will be left to the discretion of appointed officials after the bill is passed. However, it is clear that almost everyone will be required to obtain coverage, and most will be required to pay for it. The mandate will apply to all adults on behalf of themselves and their dependents under age 18. The mandate will apply to 18-year-olds, even if they are still in high school and unable to secure a full-time job without dropping out. The plan would make exceptions for religious objectors, for undocumented aliens, and possibly in some "hardship" cases if approved by the Secretary of Health and Human Services. However, everyone else would be required to purchase insurance chosen by their employer or approved by a state government-sponsored "exchange."[1] Those who do not purchase insurance would face a heavy annual tax penalty. Those with incomes between one and three times the federal poverty level (FPL) would face a penalty of $750 per person up to $1,500 per family. This penalty could apply to individuals with incomes as low as $10,831 per year. The penalty for those with incomes above three times FPL would be $950 per person with a maximum of $3,800 per family.[2] Implementing the Mandate Those who do not qualify for government health plans or have access to an employer-sponsored health plan would be required to purchase coverage through a state-sponsored "exchange." (It would be possible to purchase health plans outside the exchanges, but plans would have to meet all requirements of the exchange regardless of how they are purchased.) Employees who are offered only single coverage at work would be required to purchase coverage for their dependents under age 18. Otherwise, they would pay the tax penalty. People whose employers offer health plans would be required to enroll in their employer’s plans, unless they can prove that they are already covered through a government program or a family member’s employer-based plan. This would force most employees to choose only plans offered through their workplaces. The Baucusplan makes an exception for employees whose share of the premium exceeds 13 percent of their family income (not just income from that employer).[3] They would be permitted to opt out of their employer’s plan and purchase insurance, perhaps receiving an income-based subsidy if they purchase through the exchange. Families with incomes below four times the FPL that are ineligible for Medicaid (roughly, those with incomes between $29,330 and $88,200 for a family of four) would be eligible for premium subsidies in the exchange. The subsidy is calculated so that the net cost of a standard plan (details unspecified) with an actuarial value of 70 percent (70 percent of what is unspecified) would range from 3 percent of income at the lower end (1.33 times FPL) to 13 percent of income for those with incomes between three and four times the FPL.[4] These subsidies would not be available to those with access to employer-sponsored insurance, except in the case described above. In companies with more than 50 employees that do not offer employer-sponsored insurance, the average cost of the premium subsidy[5] would be charged back to the employer as a tax–a portion of which would be inevitably passed on the employee in the form of lower wages. Taxing the Sick The Baucus proposal includes several provisions that will impose higher taxes on taxpayers who need more health care, regardless of income level. It imposes an "Annual Fee on Manufacturers and Importers of Medical Devices," which amounts to an excise tax on all medical devices priced over $100, including everything from wheelchairs and walkers to pacemakers, hearing aids, and MRI scanners.[6] There is a similar annual fee on health insurance companies, clinical laboratories,[7] and manufacturers and importers of branded drugs. All of these annual fees would be passed on to consumers in the form of higher prices and, in the case of devices and drugs covered by insurance, in the form of higher insurance premiums. These annual fees (that is, taxes) total over $13 billion and would be allocated according to market share.[8] Yet the true impact would be higher because the taxes paid would be treated as profit for corporate income tax purposes. The results could increase the effective tax to as much as $17.6 billion. This may result in money-losing companies paying tax on "profits" they do not actually have. Some provisions tax those who need health care, but only if they make enough to pay income taxes. For example, it would reduce the cap on income that can be placed tax-free into a Flexible Spending Account (FSA or "cafeteria plan") from $5,000 to $2,000.[9] In addition, it would raise the threshold for itemized deductions of medical expenses from 7.5 percent of income to 10 percent, further penalizing those with high medical expenses not covered by insurance. Another provision would increase the threshold for deducting excessive medical expenses for income tax purposes. Currently, medical expenses (other than those paid pre-tax through an employer) that exceed 7.5 percent of adjusted gross income are deductible. The Baucus proposal would raise this threshold to 10 percent. This would raise taxes on more than 6 million households that face high health care costs, about half of which have incomes low enough that they would qualify for the subsidies these taxes are intended to pay for.[10] The revenue from these taxes is intended partly to offset premium subsidies for households with incomes below four times the FPL, but these taxes would be imposed on Americans who need medical devices or prescription drugs, have high out-of-pocket costs, or pay their own health insurance premiums. In effect, the Baucus proposal would tax the sick to subsidize insurance for the healthy, and many of the taxes would be imposed on the same people "helped" by the subsidies. Taxing Low-Income Workers The Baucus proposal imposes a partially hidden, substantial tax burden on those who can least afford to pay. First, workers offered insurance through their employer on a pre-tax basis would be required to purchase it, unless their share of the premium exceeds 13 percent of income.[11] This could impose substantial hardships on low-wage workers in companies with generous (i.e., "expensive") health plans. Because employers are required by law to offer the same health insurance options to all full-time employees, low-income workers in mostly high-paying companies (for example, support staff at a law firm) would be at a substantial disadvantage. They could be required to purchase insurance designed and priced for upper-income people, even if the premium nearly exhausts their paychecks. For example, someone who earns $15,080 per year before taxes by working 40 hours per week at the minimum wage could be required to pay $1,960 for a generous individual health plan or even more for a family plan. A minimum-wage worker could be required to pay almost 20 percent of his or her income in payroll taxes and mandatory health insurance. This employee would not even have the option of declining the health insurance and paying the $750 penalty, since employees would not be allowed to opt out of their employer plans unless they could prove they had other insurance. In effect, the worker would be forced to buy an expensive health insurance plan instead of other necessities, such as food and rent. Furthermore, if the value of the employer-offered plan exceeds $8,000 for an individual or $21,000 for a family,[12] the employee would be subject to a 35 percent excise tax on the amount above those limits. This tax rate is much higher than the income tax rates that most families pay on regular income. Figures from the Current Population Survey and the Medicare Expenditure Panel Survey show that more than 570,000 families that pay no income tax or are in the 10 percent income tax bracket would be subject to this punitive 35 percent tax on "excessive" health benefits. More than 7.2 million households–almost 94 percent of those paying the excise tax–would pay higher taxes on their health insurance than on their income.[13] Of course, because purchasing the insurance would become mandatory, those numbers could become even higher if this proposal becomes law. (See Chart 1.) A full-time minimum-wage worker with a generous employer-paid plan could be forced to pay hundreds of dollars in excise tax even if the employer paid the entire health care premium. An amendment proposed by six Democrats on the Senate Finance Committee–which Chairman Baucus has recommended accepting–would make the excise tax 40 percent instead of 35 percent. If this were adopted, all affected taxpayers would pay a higher tax rate on health insurance than on regular income. A worker whose share of the premium for employer-based insurance exceeded 13 percent of family income could opt out and purchase insurance through the exchange, but this would generate a hefty tax bill for the employer, which would either be passed on to the employee in the form of lower pay or endanger the employee’s job.[14] Low-income and moderate-income workers who purchase health insurance through the exchange rather than through an employer would be in a different, yet potentially more oppressive situation. Companies with more than 50 employees that do not offer health plans would pay a special tax to "reimburse" the government for the premium subsidies provided to their employees through the exchange. This tax would add to the cost of hiring and retaining these employees, and the money would have to come from somewhere. Businesses do not have unlimited funds to dole out based on their own beneficence or the government’s instructions. They must pay all employment-related costs out of payments received from customers for their employees’ work. To pay the taxes to subsidize health insurance for their employees, they would likely be compelled to reduce the pay of those same employees–in effect, making the employees pay for their own subsidies. Even worse, employers who lack enough revenue to pay minimum wage plus the cost of other benefits and the new taxes would be forced to lay off their lowest-paid employees to comply with the law. Curiously, the tax will not affect all employers equally. Each employer’s tax would be the total cost of the subsidies for its low-income and moderate-income employees or $400 for each full-time employee, whichever is less. For an employer with mostly low-income employees, hiring another would increase taxes by only $400. However, an employer with mostly high-income employees would pay a tax equal to the average subsidy in the exchange to hire a low-income employee. This average would be calculated annually and would likely amount to thousands of dollars. At the margin, the penalty would be the harshest for companies with many higher-income employees who hire or continue to employ lower-income support staff. The inevitable result would be that these companies would lay off lower-income workers or reduce their hours to less than full-time, and companies with mostly low-income employees would be forced to downsize or cut wages to make up for the new taxes. The Baucus plan would have another, even stranger effect on hiring. Because the subsidy amount is based on family income and family size, not the wages that the employer pays, employers would naturally prefer to hire workers from higher-income families with fewer children. For example, hiring a single parent could incur a substantially higher tax penalty than hiring a worker with a working spouse or parent(s), or a worker who is single and childless. Business would be discouraged from hiring those who need the jobs the most. Mandatory Loss of Privacy Taxing employers based on employees’ family income would require informing companies of their employees’ family incomes from other sources. Employers would have to be provided with this information so they would know how much tax to pay, even if their employees do not want to provide the information. Furthermore, employers could use this information to discriminate against workers from low-income families–precisely the people who need the jobs the most. In addition, subsidies provided in the exchange would be transferred by the federal government directly to insurance companies, who would bill policyholders only for the remaining premium, based on income. To make this system work, health insurers would need to be provided with information on the family income of their policyholders, even if those policyholders wish to keep that information private. To enforce these provisions, the bill would therefore require individuals, health insurers, employers, and government health agencies to report detailed health insurance information on all Americans to the IRS, adding significant administrative costs and reducing privacy protections. The IRS would also be required to report personal income data to state exchanges, insurance companies, and employers because premium credits and out-of-pocket limits would depend on income. The Effect of the Baucus Proposal The net result is unambiguous: The Baucus proposal would impose punitively high, regressive taxes on low-income and moderate-income working families–those with the least ability to pay. It would also subject them to lower incomes, job losses, and reduced job opportunities. While the families with the lowest incomes will be hit hardest, moderate-income families would also suffer from higher taxes and lower incomes. Yet even at this high price, millions of Americans would still be left without health insurance, and the plan’s tax penalties would further punish these uninsured for their misfortune. Meanwhile, all Americans, even those who can afford the higher premiums and higher taxes, would suffer needless invasions of their privacy as they are forced to reveal the income of other family members to their employers and provide private, personal financial information to their health insurance companies. America does not need health care "reform" that increases premiums and taxes and punishes the less fortunate. Americans need reform that increases choices and options, eliminates regulations that needlessly increase costs, protects privacy, and empowers individuals and families to make their own decisions and control their own health care. Robert A. Book, Ph.D., is Senior Research Fellow in Health Economics, Guinevere Nell is a Research Programmer, and Paul L. Winfree is a Senior Policy Analyst in the Center for Data Analysis at The Heritage Foundation.


[1]Individual and small-group plans sold outside the exchanges would be required to meet the same requirements as plans sold through the exchanges, and all insurers would be required to offer plans through the exchanges. However, only plans sold to individuals through the exchanges would be eligible for the subsidies described below. [2]A proposed amendment would cap the maximum penalty at $1,900 per family. [3]According to the initial Chairman’s Mark issued on September 16, this exception would almost never apply in practice because premiums paid on a pre-tax basis are not included in the 13 percent and almost all employer-sponsored plans are paid on a pre-tax basis. However, an amendment proposed as part of the modification issued on September 22 changed this so that the employee’s share would count as paid by the employee even if paid on a pre-tax basis. Committee on Finance, U.S. Senate, "Chairman’s Mark," September 22, 2009, p. 31, at http://finance.senate.gov/sitepages/
leg/LEG‰202009/091609‰20Americas_Healthy_Future_Act.pdf
(September 23, 2009), and "Modifications to the Chairman’s Mark: ‘America’s Healthy Futures Act of 2009,’" September 22, 2009, p. 7, at http://finance.senate
.gov/sitepages/leg/LEG‰202009/092209‰20Modifications‰20to‰20the‰20
Chairman‰27s‰20Mark‰20Final.pdf
(September 23, 2009).
[4]A proposed amendment would change this range to 2 percent to 12 percent. [5]This tax has a per-company cap of $400 per full-time employee. [6]The exemption for devices that cost less than $100 is in a proposed amendment. [7]An amendment may remove the fee for clinical laboratories. [8]It would cost $12.3 billion if the tax on clinical laboratories is dropped. [9]A proposed amendment would set the cap at $2,500. [10]Authors’ calculations based on the Center for Data Analysis Individual Income Tax Model. The projection is for year 2014, the first full year the Baucus plan would be in effect. [11]This assumes passage of the amendment changing the treatment of pre-tax premium payments. (See Footnote 2.) Otherwise, they would be required to buy it regardless of premium. [12]An amendment proposed by six Finance Committee Democrats and accepted by Chairman Baucus would provide slightly higher limits for retirees over age 55 and those engaged in "high-risk" professions. [13]Authors’ calculations using data from the 2008 Current Population Survey and the 2001-2003 Insurance Components of the Medical Expenditure Panel Survey. [14]This assumes passage of the amendment changing the treatment of pre-tax premium payments.

Baucus Plan Increases Out-of-Pocket Costs for Many Families

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The mandates in Senate Finance Chairman Max Baucus’s (D-MT) U.S. health care reform bill will:

  • Force individuals to pay more money out-of-pocket, and
  • Compel businesses to reduce wages, salaries, and job opportunities.

Baucus’s plan for "reform" requires that individuals currently without insurance must purchase insurance through either their company or an exchange mechanism. If a worker decides to purchase insurance on the exchange, his or her employer will be responsible for subsidizing the cost of that insurance through a new tax. Businesses will also be capped as to how much they will be able to charge workers whose income falls below 400 percent of the federal poverty level (FPL). Consequently, these mandates will reduce employment opportunities and slow economic growth. The Baucus Plan The Baucus plan caps the employee share of insurance premiums for individuals and families based on income. Specifically, individuals and families with incomes falling between the poverty level and four times the FPL will see their employee shares capped at an amount between 2 and 12 percent of their income. For example, a family whose income would place them toward the bottom of this scale–around 150 percent of the FPL, or almost $35,000 for a family of four–would pay a maximum of 4.5 percent of family income, or almost $1,600, to purchase insurance. The maximum payable amount of out-of-pocket expenditures increases to 12 percent for families making almost 400 percent of the FPL ($87,336 for a family of four with two children in 2008). The 12 percent cap for a family with an income just under 400 percent of the FPL would result in a maximum out-of-pocket contribution of $11,000 to purchase insurance. In 2013, those under 133 percent of the FPL would be eligible for Medicaid.[1] Beginning in the second year the Baucus proposal would be in effect, families would be required to pay a set percentage of insurance premiums rather than a cap on payments based on income. This requirement will increase the financial burden on families, since there is little reason to expect that the rise in health insurance premiums will continue to outpace income. After three years, the effective out-of-pocket costs would rise to 3.2 percent for those at 100 percent of the FPL and 13.9 percent of income for those with income 300-400 percent of the FPL.[2] These calculations were based on the original chairman’s mark and will be slightly less under the new, modified Baucus plan. The September 22 modified chairman’s mark changes the numbers to 2 percent and 12 percent, respectively. Senator Baucus’s plan also has an escape hatch for full-time employees who pay more than 13 percent of their income to obtain insurance through their employer-offered plan: These employees would be able to purchase insurance through the exchange and have their expenditures capped at 13 percent, with their employers paying a penalty. Direct Impact to Employees Employees forced to purchase insurance under the Baucus plan would be affected in two different ways:

  1. They will be required to pay a certain percentage of their income to purchase insurance; and
  2. Some workers will see their businesses taxed by the government to cover their newly subsidized insurance.

Since the mandate is effectively an increase in employers’ labor costs, workers can expect to see their wages and hours of work shrink as businesses pass on these increased costs to employees. According to the Congressional Budget Office, businesses will likely reduce low-income workers’ hours or even eliminate such positions entirely. In addition, when filling low-income jobs, employers will have a strong incentive to hire workers who are covered under someone else’s insurance plan, such as teenagers covered under their parents’ plans, those with Medicaid, or single workers who would not need a family plan to comply with the mandate. The Baucus plan will also likely have a negative affect on employee pay and could potentially lead to increased prices for consumer goods. In a recent survey of human resource executives, 86 percent of respondents said they would pass costs of health care on to employees. Other respondents said they would cut jobs, and over a third would pass on the cost of the increase to customers through higher prices.[3] These survey findings are consistent with other research that shows that businesses pass on higher mandated labor costs to employees–often transferring as much as 88 percent of the new costs.[4] Effects of the Baucus Plan For families and individuals who are required to purchase individual coverage, they will pay substantial out-of-pocket costs.[5] A family with 200 percent of the FPL will pay 7 percent of their income–which, in 2013, would be over $3,000–to purchase an acceptable insurance plan. The out-of-pocket costs would almost double to 12 percent of income for a family making 300 percent of the FPL. A family of four at 300 percent of the FPL has slightly over $23,000 in income more than a similar family at 200 percent of the FPL. The family at 300 percent of the FPL will pay a maximum out-of-pocket cost over $5,000 more than a family at 200 percent of the FPL. So while income increases by a third, the out-of-pocket insurance costs more than double. This escalating cost makes work more expensive as families advance up the income curve and could act as a disincentive for working more. Table 1 (PDF) Table above shows the estimated change in the average premiums paid by singles and families of four with incomes between 100 and 400 percent of the FPL, as well as the maximum contribution paid by those individuals or families and their employers. The maximum contribution that enrollees would be expected to pay toward their insurance premiums begins at 2 percent of income for those with total family income at 100 percent of FPL and gradually increases to 12 percent of income for those with income at 300 percent of FPL. For those with a total family income between 300 and 400 percent of FPL, the maximum contribution is a constant 13 percent of income. In addition, table 1 estimate the average change in the cost of:

  • An employer-sponsored insurance premium in order to meet the standards set by the Baucus proposal for a "silver" plan in 2013; and
  • An insurance plan that covers 70 percent of the actuarial value as well as the average cost of an insurance plan purchased by those same individuals in the absence of the Baucus plan.

In essence, the difference in average price between these two plans is the change in total compensation for employees, assuming that employee wages and other benefits do not fall. However, as noted earlier, either wages or employment will likely fall in order to pay for the new mandated insurance requirements. Disparate Impact on Low-Wage Workers The Baucus plan will heavily impact semi-skilled and low-skilled workers. The pay-or-play mandate will encourage businesses to hire workers either below 133 percent of the FPL and Medicaid eligible or over 400 percent of the FPL. Businesses will also give preference to workers who are more likely to purchase single coverage as compared to family plans, as well as dependents of individuals who already have health coverage. The Senate Finance Chairman mark expands coverage but at a steep cost to businesses. These costs are quickly passed to employees. The bill also increases the marginal cost of work for semi-skilled employees as each dollar they earn means they must pay more out of pocket for their own health insurance. Ultimately, the Baucus reform "plan" will reduce the affected employees’ incentive to work as well as their likelihood of finding a new job in the future. Rea S. Hederman, Jr., is Assistant Director of and a Senior Policy Analyst, and Paul L. Winfree is a Senior Policy Analyst, in the Center for Data Analysis at The Heritage Foundation.


[1]These numbers are based on the original Senate Finance chairman’s mark and do not reflect changes after September 22, 2009. [2]Congressional Budget Office, "An Analysis of Premiums Under the Chairman’s Mark of America’s Healthy Future Act," letter to Senate Finance Chairman Max Baucus, September 22, 2009, at http://cbo.gov/ftpdocs/
106xx/doc10618/09-22-Analysis_of_Premiums.pdf
(September 24, 2009).
[3]Towers Perrin, "Health Care Reform 2009: Leading Employers Weigh In," September 2009, at http://www.towersperrin.com/tp/getwebcachedoc?webc
=USA/2009/200909/HCR_Pulse-Survey_Sept-09_Final.pdf
(September 22, 2009).
[4]David Winston, Christine Olsen, and Rea S. Hederman, Jr., "The Cost of No Medicare Reform: What Industry and Government Would Pass to Consumers, Investors, Taxpayers, and Workers," Heritage Foundation FYI No. 67, October 16, 1995, at http://www.heritage.org/Research/Social
Security/FYI67.cfm
.
[5]All estimates assume that individuals will purchase a "silver" plan, which would be slightly more generous than the minimum "bronze" plan required. However, since the required actuarial value between the silver and bronze plans is only 5 percentage points, the difference in the premiums will likely not be substantial.

Fannie Med? Why a “Public Option” Is Hazardous to Your Health (Policy Analysis)

| Alex Beehler

President Obama and other leading Democrats

have proposed creating a new government

health insurance program as an option for

Americans under the age of 65, within the context

of a new, federally regulated market — typically

described as a “National Health Insurance

Exchange.” Supporters claim that a new government

program could deliver higher-quality

health care at a lower cost than private insurance,

and that competition from a government program

would force private insurers to improve.

A full accounting shows that government

programs cost more and deliver lower-quality

care than private insurance. The central problem

with proposals to create a new government program,

however, is not that government is less

efficient than private insurers, but that government

can hide its inefficiencies and draw consumers

away from private insurance, despite

offering an inferior product.

A health insurance “exchange,” where consumers

choose between private health plans with

artificially high premiums and a government program

with artificially low premiums, would not

increase competition. Instead, it would reduce

competition by driving lower-cost private health

plans out of business. President Obama’s vision of

a health insurance exchange is not a market, but a

prelude to a government takeover of the health

care sector. In the process, millions of Americans

would be ousted from their existing health plans.

If Congress wants to make health care more

efficient and increase competition in health

insurance markets, there are far better options.

Congress should reject proposals to create a

new government health insurance program — not

for the sake of private insurers, who would be

subject to unfair competition, but for the sake of

American patients, who would be subject to

unnecessary morbidity and mortality.President Obama and other leading Democrats

have proposed creating a new government

health insurance program as an option for

Americans under the age of 65, within the context

of a new, federally regulated market — typically

described as a “National Health Insurance

Exchange.” Supporters claim that a new government

program could deliver higher-quality

health care at a lower cost than private insurance,

and that competition from a government program

would force private insurers to improve.

A full accounting shows that government

programs cost more and deliver lower-quality

care than private insurance. The central problem

with proposals to create a new government program,

however, is not that government is less

efficient than private insurers, but that government

can hide its inefficiencies and draw consumers

away from private insurance, despite

offering an inferior product.

A health insurance “exchange,” where consumers

choose between private health plans with

artificially high premiums and a government program

with artificially low premiums, would not

increase competition. Instead, it would reduce

competition by driving lower-cost private health

plans out of business. President Obama’s vision of

a health insurance exchange is not a market, but a

prelude to a government takeover of the health

care sector. In the process, millions of Americans

would be ousted from their existing health plans.

If Congress wants to make health care more

efficient and increase competition in health

insurance markets, there are far better options.

Congress should reject proposals to create a

new government health insurance program — not

for the sake of private insurers, who would be

subject to unfair competition, but for the sake of

American patients, who would be subject to

unnecessary morbidity and mortality.
Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.