Consumer Power Report #241

One example of how this is the worst Congress ever is the new “Small Business Jobs and Credit Act of 2010” (HR 5297), signed into law on September 27, 2010. This new law includes, for the first time ever, the ability of self-employed people to deduct the cost of their health insurance premiums from their payroll tax liability, saving 15.3 percent on their premiums.

Sounds great, doesn’t it? Well, yes, yes it does. This is something we have been advocating for a long time.

So, what’s the problem? It applies only to 2010. That means it had no effect whatsoever on the decision-making of the self-employed. It is a retroactive gift to people who bought health insurance anyway. No one went into 2010 calculating that health insurance would be more affordable because of the deduction. And no one will be able to plan for 2011 with this provision in mind. Maybe it will be continued into 2011, maybe it won’t. We probably won’t know until late in 2011.

Plus, because it is a teensy part of a $50 billion law, it has generated almost no attention, except for what NASE has put out. Most of the self-employed don’t know about it, and may not know about it even when they file their taxes. How can anyone plan for anything this way?

There is a lot of talk about repealing Obamacare. It was one of the main points of the House Republicans’ Pledge to America. They would replace it with six points that have been part of the Republican program for some time – 1. Malpractice reform. 2. Interstate purchase. 3. Expand HSAs. 4. Restore doctor-patient relationship. 5. Risk Pools for people with Pre-X. 6. Prohibit taxpayer funding of abortion. Not bad for a start, though it needs equalizing tax treatment for all Americans, too.

Sounds like some pretty powerful arguments, and with Republicans surging in the coming elections and public opinion solidly against Obamacare, repeal could be a done deal, eh? Well, maybe not.

First, there is the Senate to consider. For all the inroads conservatives have made this year, the Republican block of Senators remains more like Bill Frist and Trent Lott than Jim DeMint. The latest evidence is presented in a couple of Red State blogs.

The first, by Drew Ryun, describes the machinations of “Republican insiders” to downplay the repeal issue. He says, “We understand why the Republican consultants are doing this – they think the issue is too controversial and not a slam dunk winner. These are, however, the same ‘experts’ who crowed that PA-12 was a shoe-in and HI-01 unwinnable.” But, he says, “they are wrong on the merits – healthcare is the top intensity issue among Independents.”

Then there is the fact that many of the people and organizations who may oppose Obamacare generally really kind of like some elements of it. They are already arguing for selective repeal of only those pieces they don’t like. I’ve been crossing swords about this with some people in the medical community, but it likely applies to almost everyone with a stake in health care. They want to repeal the part that messes with them, but are perfectly happy with the parts that mess with their rivals.

Physicians, for example, really hate insurance companies. One physician wrote to say he supported these provisions –

• Insurance companies will no longer be able to deny children coverage for pre-existing conditions.

• Children of parents with insurance will be allowed to remain covered under those policies until the age of 26.

• Insurance companies will be forbidden from terminating coverage for any reason other than customer fraud.

• Insurance companies will no longer be able to cap the amount of benefits and treatment a person can receive in a lifetime.

• Insurers can no longer charge customers for preventive services like mammograms and colonoscopies

He said these all make sense and he wouldn’t worry about insurance companies anyway, they’ll do just fine. He said, “These reasonable changes should not raise rates. This is simply an excuse for insurance companies exerting their monopoly and gouging patients.”

YIKES! We have our work cut out. I will try to be brief here, but if you prefer slogans to actual analysis, you should stop reading.

First, the point is not whether we should worry about insurance companies, but whether we should worry about consumers who buy insurance products. Each of these provisions, and many others, will raise costs to those buyers, make coverage less affordable, and actually increase the numbers of uninsured. They may sound nice, but they all increase costs and have a lot of other consequences, as we’ve seen over the years with many other insurance regulations. To whit –

“Denying coverage to children.” The issue here isn’t in group plans, but individual policies. We have seen repeatedly that “guaranteed issue” encourages people to game the system and buy coverage only when they think they will need it. This requirement has already destroyed the individual insurance market in several states. Everybody of any political orientation knows this. That is precisely why Obamacare included an individual mandate starting in 2014 – to avoid this death spiral. One has to wonder why they jumped the gun (by four years) on this particular provision. Very likely to discredit insurers in this market, and that is exactly what is happening. Insurers have stopped offering stand-alone coverage for kids.

“Adding ‘children’ to age 26 on their parent’s policies.” Leaving aside the question of whether it is a good idea to encourage young adults who are on their own and even married to continue being dependent on their parents, there are a host of reasons this provision is not a good idea. First, most young adults can get pretty cheap coverage on the individual market. Those who can, will do so. That leaves only the most expensive cases to use this option. Second, this applies almost entirely to the group market, where premiums are community rated within the group. So these high-cost people will be assessed premiums at the average rate. That means they will add far more costs to the employer than they pay in premiums. That, in turn, means that employers will have an incentive to stop paying for dependent coverage at all. Workers may add dependents but will have to pay the full cost of doing so. That means a very large number of families will stop covering dependents, especially those who do not use much medical care. So, once again, we will have much higher costs for the vast majority of workers and a net increase in the numbers of uninsured. This is particularly ironic since the new law also creates risk pools to cover high-risk people. Why are these 25-year-olds not going into the risk pool?

“Prohibiting recissions.” There is a very big “information asymmetry” when someone applies for insurance coverage. The applicant knows quite well what his conditions are, but the insurer does not. So the insurer has no way of pricing coverage because it doesn’t know how much risk it is accepting. It therefore requires the information on the application to be accurate. If it is not, the policy will be cancelled. The insurer has no ability to determine if an inaccuracy is fraudulent or inadvertent. Intent is notoriously hard to prove. So, how will insurers respond to this new requirement? If the application is no longer trustworthy, do not be surprised if health insurers start doing what life insurers have long done – send a nurse to the home of a new applicant to take a blood sample, blood pressure reading, weight, and see the applicant face-to-face. Of course, this will also raise costs and slow down the process, but no one will be denied for lying on their application.

“No caps on benefits.” This provision will not add much to costs because few people ever reach the caps, but one has to wonder why the caps exist in the first place. Is it just because insurance companies are mean-spirited, or could it be that they are guarding against the rare possibility of an epidemic of very expensive claims? Should such an epidemic happen, the company’s reserves could be depleted with the first handful of cases, leaving nothing left to pay the rest of the policy-holders.

“First dollar coverage of prevention.” Not everything that calls itself “preventative” is cost effective. Some things clearly are (vaccines), other things are cost effective only when provided to a high-risk population (pre-natal care, mammograms). Much of it is just wasted money on feel-good services (annual physicals). This provision makes it impossible for carriers to encourage effective care and discourage ineffective care. It will add substantial costs to everybody’s premiums.

These are just five of literally thousands of provisions in the law, all of which were enacted on the basis of feel-good slogans without any understanding or concern for the needs of real people. It’s enough to make you sick.