Subsidizing Our Way To Affordable Health Insurance: A Futile And Unaffordable Quest

As the debate over health care reform becomes all-out warfare between parties and within the Democratic party, Congress will adjourn shortly for its August recess with many of the key questions unresolved. However, the bill as shaped by two or three House committees (H. R. 3200, America's Affordable Health Choices Act) gives a point of departure to consider the most that we might expect out of such a bill.

As described in our last three posts, this bill calls for both an individual and employer mandate as well as a small public option to be available to the uninsured and employees of small employers through a national insurance exchange. Individuals would be subsidized by the government to offset their premium and out-of-pocket costs. People with household incomes up to 400 percent of the federal poverty level (FPL) would be eligible for subsidies. Tax credits would also be provided to small employers with fewer than 25 full-time workers, covering up to 50 percent of their premium costs. These new subsidies, of course, are in addition to the many subsidies the government already provides to individuals and employers through long-standing tax-exemptions of insurance costs. H.R. 3200 also calls for expansion of Medicaid for all individuals with incomes up to 133 percent of the FPL (about $14,000 for an individual and $88,200 for a family of four).

The CBO projects the cost of H. R. 3200 to be about $1 trillion over 10 years, not including the increased costs of Medicaid, for which it lacks jurisdiction to score. "Conservative" projections estimate that the bill will increase the U. S. budget deficit by $239 billion in 2019. Governors have already weighed in against the increased costs of Medicaid expansion, pleading for an increased federal role in paying for it, and political opposition to the bill's inflationary trends seems certain to spread beyond the Republicans and Blue Dog Democrats to others. As the debate intensifies, we can expect that eligibility for subsidies will be tightened up.

Returning to the affordability of health insurance, the supposed reason for reform legislation, there is an obvious disconnect from the impacts of a deepening recession. Much of the population, including the broad middle class, are in increasingly dire straits in their ability to pay for necessary health care. Average annual health care costs for a family of four are now $16,771, including insurance premiums, deductibles and other out-of-pocket costs. For a family of four with an income of $88,200 (four times the FPL and much more than the median U. S. median income), these average costs exceed 19 percent of family income, well above the 10 percent considered by the Commonwealth Fund as a hardship level.

We have to remember that the costs of health insurance often have little to do with the total costs of health care for individuals and families. For those with significant health problems, their costs will be much higher. And although the current proposals in Congress call for annual limits on out-of-pocket spending ($5,000 for individuals and $10,000 for families), insurance premiums and out-of-network charges are not counted against these limits.

This bad situation is getting worse. The unemployment rate is poised to soon rise above 10 percent, and the broader unemployment rate is already more than 20 percent in a number of states. Tax revenues have fallen precipitously in many states, and 16 states are now paying for unemployment insurance in borrowed funds. Draconian cuts are being made in safety net programs all across the country.

So it seems certain that federal payments for subsidies will far exceed any projections that are now being discussed. There are at least 100 million Americans less than 65 years of age with incomes below 400 percent of FPL. If eligibility for federal subsidies is set at that level, the CBO projects that their cost will be about $773 billion between 2013 and 2019. Concerning Medicaid expansion, the CBO has also estimated that extending Medicaid to an additional group of Americans with incomes for a family of four up to $33,000 a year would cost about $500 billion over 10 years.

We can be sure that the Senate will restrict subsidies below these levels and that any final health care reform bill, if ever enacted, will further exacerbate the problems Americans face in paying for health care. And to boot, federal law would mandate them to purchase health insurance, under penalty of fine, and an underinsurance product at that. A working draft of the "actuarial value" of insurance coverage in the Senate Finance Committee last month stated that a policy of "bronze" or "silver" value would cover 65 and 73 percent of total health care costs, respectively -- undercoverage by any standard. A family of four with an income at 300 percent of FPL would pay 15 percent of their income on health care. So we would end up with a mandate for inadequate coverage which much of the population, as well as taxpayers, cannot afford.

The strong conservative challenge that is building against H. R. 3200 is largely due to its deficit-busting certainty as well as its increase in entitlement to health care without credible cost containment requirements. As a progressive advocate of real health care reform, I can only agree with these concerns. What is likely to emerge from Congress on health care reform this year, if anything, will not be real reform and will only add to our problems.

Although still very much under-recognized and fought against by the medical industrial complex and complicit corporate media, there is only one solution to cost containment of our runaway market-based health care system. H. R. 676, coupled with a private delivery system, is a paygo alternative that assures universal coverage of necessary health care for all Americans. It would save up to $400 billion a year and provide a structure within which to put in place other cost-saving efficiencies.

The private health insurance industry is an impediment to reform, not part of the solution. It has survived to this time only through generous subsidies from the government, whether in the employer-based or individual markets or privatized Medicare and Medicaid programs. Until we recognize this, all of our incremental approaches to build on our multi-payer system will be of no avail.

Adapted from Do Not Resuscitate: Why The Health Insurance Industry Is Dying, and How We Must Replace It, and The Cancer Generation: Baby Boomers Facing a Perfect Storm, with permission from the publisher, Common Courage Press. Order link
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John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press

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