Thursday, December 31, 2009

Suppose it passes...

At the risk of re-igniting controversy during the holidays, the actual possibility of HCR passing largely in the form of the Senate Bill does suggest examining what it would mean. Especially for farmers.

First of all, critics would point to the taxes and other negative consequences.
2010: Physician Medicare payments decrease 21% effective March 1, 2010
2011: “Annual Fee” tax on health insurance, allocated according to share of total premiums. Begins at $2 billion in 2011, then increases to $4 billion in 2012, $7 billion in 2013, $9 billion in the years 2014, 2015, and 2016, and eventually $10 billion for 2017 and every year thereafter. Two insurers in Nebraska and one in Michigan are exempt from this tax.
2012: Medicare payment penalties for hospitals with the highest readmission rates for selected conditions.
2013: Medicare tax increased from 2.9% to 3.8% for incomes over $250,000 (joint filers) or $200,000 (all others). (This is stated as an increase of 0.9 percentage points, to only the employee’s share of the FICA tax.)
2014: Individual mandate begins: Tax penalties for not having insurance begin at $95 or 0.5% of income, whichever is higher, rising to $495 or 1% of income in 2015 and $750 or 2% of income thereafter (indexed for inflation after 2016). These penalties are per adult, half that amount per child, to a maximum of three times the per-adult amount per family. The penalty is capped at the national average premium for the “bronze” plan.
2015: Establishment of Independent Medicare Advisory Board (IMAB) to recommend cuts in Medicare benefits; these cuts will go into effect automatically unless Congress passes, and the President signs, an override bill.
2016: Individual mandate penalty rises to $750 per adult ($375 per child), maximum $2,250 per family, or 2% of family income, whichever is higher (capped at the national average premium for the “bronze” plan). After 2016, the penalty will be increased each year to adjust for inflation.
2017: Itemized deduction for out-of-pocket medical expenses is limited to expenses over 10% of AGI for those over age 65. [More detail]
Oddly, the Heritage Foundation leaves a few things out - namely, most all the benefits.
Here are some of the benefits that Democrats say would be available soon after the legislation is adopted:
No annual or lifetime limits Both the Senate and House versions of the legislation ultimately seek to prevent insurers from imposing annual or lifetime limits on coverage in new health policies. In the final package of amendments to the Senate bill, the majority leader, Harry Reid of Nevada, added new language giving the secretary of health and human services the authority to regulate annual limits from six months after the bill is enacted until the broader insurance provisions take effect in 2014. Such limits are a serious concern to people with chronic illnesses like cancer that can require expensive treatments within a relatively short period of time, and the change proposed by Mr. Reid was prompted by inquiries from the American Cancer Society.
Limits on insurance company profits Beginning in 2011, the Senate bill would set tight restrictions to force insurance companies to spend the bulk of their revenues on providing medical care to beneficiaries. The legislation would require insurance companies in the large group market to spend at least 85 percent of their revenues on care and insurers in the individual market to spend at least 80 percent of revenues on care. Critics of the private health insurance, including Senator John D. Rockefeller IV, Democrat of West Virginia, and Senator Sherrod Brown, Democrat of Ohio, said setting such requirements on what insurers call “medical loss ratios” was needed to tamp down on profiteering.
Short-term expansion of state high risk pools To help people who cannot obtain insurance because of pre-existing conditions, both the Senate and House bills would provide $5 billion to increase the availability of coverage through state high-risk insurance pools. This provision would take effect 90 days after enactment of the legislation, but many details remain to be worked out.
New financing for community health centers The House bill provides $12 billion in additional financing for community health centers, which serve needy populations, particularly in rural areas. Senator Bernard Sanders, independent of Vermont, won the inclusion of $10 billion in financing for community health centers in the Senate bill. The final dollar amount will be decided in negotiations between House and Senate leaders, but the money would be available for five years beginning in the current fiscal year.
Closing the Medicare drug “doughnut hole” The legislation would increase the amount of drug costs covered by Medicare by $500 in 2010. And beginning on July 1, 2010, the bill would provide 50 percent discounts on brand-name drugs and biologics that low- and middle-income beneficiaries have to pay for themselves once the coverage gap known as the doughnut hole begins.
Prohibition on rescinding existing coverage Both the House and Senate bills would bar insurance companies from rescinding existing coverage other than “in cases of fraud or intentional misrepresentation of material fact.”
Small business tax credits The Senate bill would offer tax credits to small businesses beginning in 2010 for up to 35 percent of premium costs. The full credit would be available to firms with 10 or fewer employees and average annual wages of $25,000. Reduced credits would be available to firms with up to 25 employees and with average annual wages of up to $50,000.
Patient protections For new health plans, beginning six months after enactment of the legislation, the Senate bill would prohibit insurers from requiring prior authorization before a woman sees an obstetrician or gynecologist. The bill would also require coverage for emergency care.
Discrimination protections for lower-income workers The Senate bill would bar group health plans from setting any eligibility rules for coverage that favor higher-wage employees. This provision would take effect six months after enactment of the legislation.
Cobra extension through 2013 Anyone currently paying for an extension of health benefits as permitted under federal law — for instance, after a loss of employment — would be permitted under the House legislation to continue Cobra coverage until the major insurance coverage provisions of the legislation take effect in 2013.
Reinsurance program for early retirees Both the House and Senate bills would provide federal financing for a new reinsurance program to encourage employers to maintain health benefits for employees and early retirees age 55 to 64.

Consumer assistance provisions Both the House and Senate bills would begin to impose new requirements aimed at making it easier for consumers to interact with insurers, including a requirement that health plans adopt uniform descriptions of plan benefits and appeals procedures and that they begin using identical forms. [More]

Those are the more immediate changes.  When the exchanges get fully implemented this is what the health insurance situation for various families would look like.

So what happens if reform does pass? For starters--and this is no small thing--the insurance company will have to sell you a policy, no matter what pre-existing conditions your family brings to the table. And you’ll know from the start that the policy will cover basic services because the government will be defining a basic benefits package. That package is going to include a broader range of services than the typical non-group policy would without reform. So when your doctor recommends a standard test or procedure, you won't have to panic it falls into some hidden policy loophole.

But what will that coverage cost? The basic premium is roughly the same, according to Gruber’s calculations that he extrapolated from official Congressional Budget Office estimates. But that $50,000 income means you’re also eligible for federal subsidies. Large federal subsidies. In fact, the government will cover about two-thirds of the price, so that you’re left owing just $3,600.

Now, you could end up spending a lot more on medical care if you or someone in your family gets sick. But here, too, the federal government would step in to help. Under the reforms, the government would limit out-of-pocket spending to around $6,000 per year. Combined with the premium, you’re on the hook for around $10,000 total, or about a fifth of your income.

That’s not pocket change, for sure. A family making $50,000 will have to make serious sacrifices to find $10,000. But it’s better--light years better--than finding $25,000 or more. It’s potentially the difference between having to give up your home, get an extra job or declare bankruptcy. Just knowing the bills that could come will be the difference between getting care you need--and skipping it, at grave risk to your health.

It’s a difference you’d feel at other income levels, too. If your family of four makes more money--say, around $75,000--your premiums and out-of-pocket expenses will be higher, but still a few thousand less than it’d be without reform. If you make less money-- $35,000--the savings would be much larger. (If you make less than that, you'll probably be on Medicaid, which offers even more protection.)


[Another helpful summary chart from WSJ.]

Perhaps none of this information will sway many farmers in their opposition or support of health care reform. My guess is those who have acceptable insurance they can currently afford oppose, all other would at least consider supporting reform.

The point for our industry is health care reform looks to me much like ag subsidies - a transfer from many to few. Since many of us get coverage from individual market, reform would be a big plus, both from cost and access angles.

As I digest the details and talk to more farm families, I sense health insurance reform could have unexpectedly disproportionate effects on our industry. Some possibilities:
  • Larger farms would enjoy less health insurance pricing advantages via their group rates versus single family coverage.
  • The efficiency of husband-wife farms would be restored as optimal labor utilization as women would not be working/commuting/struggling simply to keep insurance coverage.  Our industry is ripe for a much larger female operator contingent with the relative decline in the importance of muscle-powered ag.
  • Young couples could more easily return with the health insurance - and specifically, pregnancy coverage - question dissipating as a major hurdle.
  • Uniform policies would eliminate rural disadvantages.
  • Aid to rural health centers might keep care a little closer, and small towns more attractive to live in.
There undoubtedly will be more unpredictable cultural and economic consequences for farms, but clearly not all results will be unfortunate. In fact, I can't find many issues until you get to those with incomes over $200K who will pay another 0.9% in Medicare taxes.

But I would suggest most farmers would escape many of the costs as well, in effect creating another transfer of wealth from non-farmers to us. We have already established our staunch belief in the righteousness of such schemes, so there should not much moral twitching about exploiting a new entitlement.

In fact, the smart angle for producers might be to talk against socialized Obamacare (although insurance reform is a long way from nationalized health care) in order to get along, while hoping secretly it passes.

If it fails, we'd better hope the fervor against such programs doesn't gather steam and look for other expensive wealth transfer programs to cut.  In fact, given the much-decried cost/size of HCR, how much easier would it be for ag subsidies to pale in comparison?


Anonymous said...

Why is it that agriculture is so self righteous and self delusional about wealth transfers, as you say, from non farmer to farmer? Doesn't it gnaw at the conscience sometimes? Must be tough to sleep at night sponging off of others.

livinthedream said...

To Anonymous, I guess everybody wants to get their share, I don't like farm program payments, but if they're offered to my competitors i must take them too. Much of the benefit of farm program payments is soon lost in higher cash rents and higher farmland prices. All farm program payments are made subject to farmland use restrictions which will conserve the land for future generations. Food in the U.S. is safe, cheap, and abundant, part of the reason is the financial stability that farm programs have given farmers in the past. Hope i've been helpful,

John Phipps said...


The SCA (safe/cheap (affordable)/abundant) argument is bogus. Subsidies make no difference in any of those cases, as the potato industry, to name one, demonstrates. They are political subsidies - we get'em because we can.

Which gets me back to my original point: why would farmers oppose this HCR bill?

Dairy said...

John, I think the problem is that most farmers strongly identify themselves as conservatives without really realizing what this means. You even describe yourself as leaning to the right, yet I don't see many of your ideas shared by so-called conservatives. At least you don't blindly follow their ideology. This is the error made by many farmers I know. What does it mean to be a conservative? A Republican? I used to think I knew--something about "small government", "fiscal responsibility", "family values," etc. But anymore I don't have a clue. As near as I can tell, the essence of "conservatism" is the belief that people are fundamentally bad and the world is better off when it's every man for himself. Conservatives like to keep the focus on a host of bogus "moral issues" and a fear of "big government"--which have nothing to do with food or gasoline or health care or climate change. Then, all the while they do everything possible to remove the gloves from the invisible hand of predatory capitalism, destroying the middle class, and moving wealth upwards. Some farmers seem to think that they are high enough on the food chain to benefit from some aristocratic conservative policies such as elimination of inheritance tax. They are used as puppets in these debates, giving the ideas enough creditability to have a chance to benefit the really wealthy.

To most farmers, the idea of being a "liberal" just does not fit their persona. Images of hippies, PETA supporters, and Hollywood nutcases come to mind. We are comfortable with what we know, and are reluctant to change. However, in general, those on the left are the ones who identify problems and change to find a solution. Conservatives just stay the course. If the founding fathers were conservative, we would all be limey right now!

It disgusts me that a group like Farm Bureau, who is supposed to represent our interests, so quickly jumps on the conservative bandwagon and opposes HCR. Do they not think that farmers have to buy their own insurance? We must be careful to evaluate ideas for what they really are and not paint ourselves into corners with political labels.

I really appreciate seeing your ideas on this blog--it gives me some hope that I still might be in the right profession.

ljs said...

To Anonymous, If you honestly believe that farming is an easy way to make money, then you are a fool not to be doing it. All you need is to go out and buy some land, machinery, livestock, seed and the like. Anyone can get in on the gravy train. What's stopping you?

John Phipps said...


You remind me I need to update my background info, but as you say, what the heck do labels mean anymore? To be sure I have become more liberal, but compared to most farmers on farm policy, I look like Ron Paul.

On health care I seem to be on the other side. What I think is happening is ideological categories have become obsolete, as we have more power to choose.

Also it seems holding contradictory positions depending on the political situation is now acceptable.

from Virginia said...

And John, some of us Republican conservative, albeit a small number, would oppose both farm subsidies and health care "reform", as well as many other federal initiatives, as being an inappropriate role for the federal government under the tenth amendment. I am still waiting for my liberal friends to tell me what those specific rights are that are reserved to the states.

livinthedream said...

john, as individuals hcr would save farmers money, it does go against the conservative ideology of most farm organizations such as farm bureau, personally i think hcr is desperately needed in this country, imho health care is a basic right that should be denied to no one, and is an entirely appropriate role for government. Perhaps more farmers should make farm bureau aware of their feelings on this subject.

dairy said...

Va, I'm afraid that the 10th amendment is kind of a dangerous straw to grasp onto. After all, its strict interpretation would not only prohibit HCR and farm subsidies, but also Medicare, Medicaid, and Social Security. The federal minimum wage becomes a crime against state sovereignty, and the federal ban on workplace discrimination and whites-only lunch counters become an unlawful encroachment on local business. Certainly health care must play a part in the "general welfare of the United States".

Yes, John, ideological categories are becoming obsolete--and that's a good thing. However, we still have to make a decision at every election. I, too, find myself embracing many libertarian ideas. But as my Dad, who has studied politics his entire life, pointed out to me, most of these ideas do nothing to fulfill our human duty of helping the less fortunate.

Anonymous said...

John it sounds great but it just won't work. Why people are greedy and lazy (why communisim failed). A market and or capital driven system, yes with all it's flaws, is still the best fix. This HCR will be ripe for abuse ,fraud, and unintended STUFF.

John Phipps said...


Your comment about moral responsibility is on target, I think, but even the most hardened proponent of individual responsibility can be "turned" by the unique American experience of being refused health insurance coverage even when they can pay hefty premiums. Worse yet, when it happens to your child.

To be sure it might logically be best for the species and the economy for such individuals to literally lose all they own via an accident or serious illness (weed out the weak), but I don't think this degree of purist thought is really the argument.

The issue I have is why, if you are employed, those same selection pressures don't apply? Why does where you work determine your health outcome?

If this is a Constitutionally guaranteed "right" I'm sure reading it wrong. I think the post I had quoting Reason editor Matt Welch really addresses the conservative bona fides of helping protect citizens from those risks they cannot efficiently guard against themselves. I'll try to post some stuff from Burke (I think) about this concept.

Moreover, even if you have Cadillac coverage (say federal government employees) it is obvious the current system will ensure little if no wage growth as health care costs expand without control.

In short, being against any change is simply waiting for your turn to fall into the great insurance darkness.

Thanks to all for reading and your thoughtful comments.

(Blog note: I'm trying to meet a FJ humor column deadline today as well, so I'm suffering some philosophical whiplash bouncing back and forth.)

Anonymous said...

Here's an interesting reaction the Matt Welch piece you posted that seems quite relevant to the discussion...

Anonymous said...

Without some cost control mechanisms, it will all be for naught. In a purely capitalistic system, when at the end of your life someone asks you what will you pay for "one more day", you might say "all I have". Providers know this. HCR can not ignore the elephant in the room. I have never been more disgusted by my senator {Grassley} than when he spoke of "unplugging Grandma". Pandering to the fears of fools can get you re-elected but it doesn't solve many problems.