Consumer Power Report #215
I was interviewed on Martha Montelongo's radio show in California on Saturday. I apologized to her ahead of time, saying I really hate to be the Voice of Doom, but I don't see any other choice. Here is why:
First, the entire health care industry–every doctor, every hospital, every employer, every insurance company, every manufacturer, every nursing home, every pharmacy--is currently working overtime to see what they have to do under the massive new law. They really don't have a choice. They are in business, and to survive they must comply with whatever the laws might be. They are investing millions of dollars in attorneys, consultants, accountants, conferences, new software, and more, to somehow stay in business and not go to jail or be hit with big penalties.
Once they have made that investment and found a way to comply with the new requirements, the last thing they will want is for all of it to change again. Business needs stability. It hates constantly changing regulations that make planning impossible. Business people will be in a position of protecting their investment and opposing further change.
Next, no matter how well the Republicans do in November they will not be able to repeal this law--not over the president's veto. The best they will be able to do is not appropriate money for implementation and delay the effect of the law.
Third, it is doubtful the Republicans will do as well in the elections as they hope to. This is going to be the ugliest, most bitter mid-term election any of us has ever seen. The Democrats will be extremely well funded, with money not only from Hollywood, the unions, and the trial bar, but now from the health care rent-seekers who want to carve out a better deal for themselves. The Democrats' narrative of tea partiers being extremist racist bigots is already taking hold. The media and the intellectual elite all agree with that narrative.
Meanwhile, the consequences of this legislation are already coming to light. As Nancy Pelosi said, now that the bill is the law of the land, we can find out what is in it. And it isn't pretty (see below).
IN THIS ISSUE:
The immediate effect for most of us will be an increase in insurance premiums. There are dozens of provisions that take place right away (like in 90 to 120 days) that will raise costs of coverage. These include:
- New taxes on medical equipment and drugs that will raise prices for services.
- The "slacker mandate" that will allow "children" to age 26 to stay on their parents' coverage. Most people in this age group can get far less expensive coverage in the open market, leaving only the sickest and most expensive to exercise this option.
- The elimination of lifetime caps. This one shouldn't be very expensive, but for reasons discussed below there will be substantial administrative costs involved with compliance.
- Mandatory first-dollar coverage for preventive services. This sounds benign, but the law defines "prevention" very broadly to include pretty much everything you might see a doctor about if you aren't actually bleeding to death.
- Minimum loss ratios of 80 percent for small groups and individual coverage, and 85 percent for larger groups. Minimum loss ratios encourage excessive spending on services resulting in higher, not lower, premiums.
Because these provisions go into effect within the next six months, health insurers will have to raise premiums in the middle of the year. The premium you or your employer currently pay was not set to accommodate these additional costs. That means insurers will have to send out new notices of a mid-year rate hike, and adjust all their computer software to accommodate the new benefits. They will also have to send out new plan documents describing the changes in coverage to all 160 million Americans currently covered. That alone will be a substantial new cost that no one planned for.
Plus, there does not currently exist any federal office to oversee these changes in private health insurance contracts. Presumably the new plan documents will have to be filed with someone, but with whom? Nobody knows.
Curiously, because the requirement to accept people with pre-existing conditions doesn't go into effect for several years, there is also a provision to create a temporary national high-risk pool, effective June 23, 2010. But no such organization currently exists. They have less than three months to create one. How in the world can they do this? And why did they not simply use the state pools that already exist?
SOURCES: Several groups have developed timelines for implementation. Here are some of them:
The law refers to guidelines of the U.S. Preventive Services Task Force in determining what services must be covered on a first-dollar basis (no deductibles, co-payments. or coinsurance). Any service rated with an A or B by the task force will be covered. Here is a link for more information.
Speaking of the pre-existing conditions provision, despite what the president said, the legislation did not prohibit denying kids coverage due to pre-existing conditions, at least not until 2014, as Robert Pear found out and reported in The New York Times. He quotes Obama as saying, "Starting this year, insurance companies will be banned forever from denying coverage to children with pre-existing conditions." But, "To insurance companies, the language of the law is not so clear."
That is being kind. In fact the language is quite clear. Pear writes, "The new law says that health plans and insurers offering individual or group coverage 'may not impose any pre-existing condition exclusion with respect to such plan or coverage' for children under 19, starting in 'plan years' that begin on or after Sept. 23, 2010." The clowns who wrote this language were apparently unaware that a "pre-existing condition exclusion" has a precise meaning. It refers to an "exclusion" from coverage of a particular condition such as asthma. It has nothing to do with accepting or denying an applicant from coverage.
As William Schiffbauer explains, "The fine print differs from the larger political message. If a company sells insurance, it will have to cover pre-existing conditions for children covered by the policy. But it does not have to sell to somebody with a pre-existing condition. And the insurer could increase premiums to cover the additional cost."
Two days later, the Associated Press reported that the insurance industry isn't going to make a fuss about this. They are intimidated by the bullying tactics of this administration, so they will go ahead and pretend that the law was written correctly, even though it wasn't. The article says, "In a letter Monday to Health and Human Services Secretary Kathleen Sebelius, the industry's top lobbyist says insurers will accept new regulations to dispel uncertainty over a much publicized guarantee that children with pre-existing medical problems can get coverage starting this year."
Not that this is a Big Whoop one way or the other. The Democrats love to use it as a talking point, but the number of children denied coverage for pre-existing conditions is minuscule in any event. The only people who might be affected are new applicants for individual coverage. No one in a group plan and no one already covered would be affected at all.
It isn't just insurance companies that are being intimidated. AT&T and other large companies with union workforces have discovered the new law includes the removal of a tax break they have been getting for continuing their prescription drug coverage for retirees. The original thinking when Part D was enacted was that the coverage costs taxpayers about $1,200 per beneficiary, so taxpayers would save a lot if big corporations continued to cover their retirees. To encourage that, the feds offered a tax credit of about $600 to companies that continued such coverage.
This new law has removed that credit and, because of union contracts, the companies will have to continue the coverage for a while even without the tax credit. So there is an instant new annual cost of $600 per retiree for these companies. FASB requires these companies to account for such future liabilities on their books. They didn't have any choice in the matter. As publicly traded companies, they are required to report to the SEC any material change in their financial condition.
Bloomberg reports, "Health-care costs may shave as much as $14 billion from U.S. corporate profits, according to an estimate by benefits consulting firm Towers Watson." It adds, "AT&T previously received a tax-free benefit from the government to subsidize health-care costs for retirees, who would otherwise be on a Medicare Part D plan. Under the new bill, AT&T will no longer be able to deduct that subsidy."
The Wall Street Journal comments, "We and others warned this [health care law] would lead to AT&T-like results, but like so many other ObamaCare objections Democrats waved them off as self-serving or 'political.'" It says Commerce Secretary Gary Locke decried the company statements as "premature and irresponsible." And, "Henry Waxman and House Democrats announced yesterday that they will haul these companies in for an April 21 hearing because their judgment 'appears to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.'"
The paper concludes that the Democrats' bill "was such a shoddy, jerry-rigged piece of work that the damage is coming sooner than even some critics expected."
The New York Times reports "Some States Find Burdens in Health Law." It writes, "Because of the new health care law, Arizona lawmakers must now find a way to maintain insurance coverage for 350,000 children and adults that they slashed just last week to help close a $2.6 billion budget deficit."
It adds, "Louisiana officials say a reduction in federal money to hospitals that treat the uninsured under the bill could be a death knell for their state-run charity hospital system." And, "In California, policymakers estimate they will have to come up with an additional $500 million a year to make necessary increases in payments to Medicaid providers."
On the other hand, "states like Massachusetts and Wisconsin, which already have extensive health care safety nets, do not expect to spend much more money, while still taking in billions in federal grants."
The article goes on to say many states with large numbers of uninsured people are expected to benefit because of the new federal subsidies available to those people, but it neglects to mention that most of those newly insured will be spending new money for their share of the coverage. This is money they will no longer have to spend for other, perhaps more important, things.
SOURCE: New York Times
This new burden is part of the reason 14 state attorneys general have already filed suit to stop the new law. The Washington Times editorializes that this law is a "radical interpretation of the Commerce Clause." It writes, "All previous Commerce Clause cases have dealt with regulating pre-existing activity, but if someone is not buying health insurance, there is no commerce to regulate. The clause has never been used to compel private citizens not engaged in commerce to spend money on a government-mandated program. This is a new, extreme and potentially dangerous interpretation."
It goes on to say, "At stake are two fundamental views of the nature of the Constitution. In one, government power is limited. It enables and supports human liberty, serves as a referee to keep the game fair and punishes criminals who break the law. In the other view, government is a coercive mechanism that aims at perfecting a social vision in which personal freedom takes a back seat to the utopian plan where the ends justify the means."
The stakes could not be higher.
SOURCE: Washington Times
The states are not the only source of lawsuits against this new law. While the AMA has become a subsidiary of the Democratic National Committee, the Association of American Physicians and Surgeons (AAPS) released a statement saying it has "became the first medical society to sue to overturn the newly enacted health care bill, the Patient Protection and Affordable Care Act (PPACA)."
Along with the Commerce Clause and the Tenth Amendment, AAPS is also claiming a Fifth Amendment violation. It says the law "violates the Fifth Amendment protection against the government forcing one person to pay cash to another. AAPS is the first to assert this important constitutional claim."
The statement continues, "AAPS asks the Court to enjoin the government from promulgating or enforcing insurance mandates and require HHS Secretary Kathleen Sebelius and Social Security Commissioner Michael Astrue to provide the Court with an accounting of Medicare and Social Security solvency."
SOURCE: AAPS Release
Finally, let's wrap up with a couple of quickies.
The GAO issued a statement that it "could not render an opinion on the consolidated financial statements of the federal government (other than the Statement of Social Insurance) because of widespread material internal control weaknesses and other limitations." Oh, boy. Let's put 'em in charge of health care, eh?
SOURCE: Government Accountability Office
Lots of people have questions about the new Medicare tax on capital gains and other "unearned income." Here is a statement that the brokerage firm Edward Jones put out to its clients.
SOURCE: Edward Jones
Little noticed in all the brouhaha is the new CLASS Act for Long Term Care that is part of this law. Fox News reports that workers will automatically have about $200 a month withheld from their pay unless they take action to opt out of the new program. The brokers who know something about LTC insurance tell me this is a lousy deal. The benefits do not justify the cost.
SOURCE: Fox News Video
Obama did not get a bump in the polls now that health care is law. Quite the opposite, according to USA Today and Gallup. The article says, "Nearly two-thirds of Americans say the health care overhaul signed into law last week costs too much and expands the government's role in health care too far, a USA TODAY/Gallup Poll finds, underscoring an uphill selling job ahead for President Obama and congressional Democrats."
The poll also finds that Obama's approval rating has dropped to 47 percent approving and 50 percent disapproving--the first time his disapproval rating has hit 50 percent.
SOURCE: USA Today