by Shawn TullyMonday, July 27, 2009
Fortune on CNN Money.com
If you read the fine print in the Congressional plans, you'll find that
a lot of cherished aspects of the current system would disappear.
In promoting his health-care agenda, President Obama has repeat-
edly reassured Americans that they can keep their existing health
plans -- and that the benefits and access they prize will be enhanced
A close reading of the two main bills, one backed by Democrats in
the House and the other issued by Sen. Edward Kennedy's Health
committee, contradict the President's assurances. To be sure, it isn't
easy to comb through their 2,000 pages of tortured legal language.
But page by page, the bills reveal a web of restrictions, fines, and
mandates that would radically change your health-care coverage.
If you prize choosing your own cardiologist or urologist under your
company's Preferred Provider Organization plan (PPO), if your
employer rewards your non-smoking, healthy lifestyle with reduced
premiums, if you love the bargain Health Savings Account (HSA) that
insures you just for the essentials, or if you simply take comfort in the
freedom to spend your own money for a policy that covers the newest
drugs and diagnostic tests -- you may be shocked to learn that you
could lose all of those good things under the rules proposed in the two
bills that herald a health-care revolution.
In short, the Obama platform would mandate extremely full, expen-
sive, and highly subsidized coverage -- including a lot of benefits people
would never pay for with their own money -- but deliver it through a
highly restrictive, HMO-style plan that will determine what care and
tests you can and can't have. It's a revolution, all right, but in the
Let's explore the five freedoms that Americans would lose under
1. Freedom to choose what's in your plan
The bills in both houses require that Americans purchase insurance
through "qualified" plans offered by health-care "exchanges" that
would be set up in each state. The rub is that the plans can't really
compete based on what they offer. The reason: The federal
government will impose a minimum list of benefits that each plan
is required to offer.
Today, many states require these "standard benefits packages" --
and they're a major cause for the rise in health-care costs. Every
group, from chiropractors to alcohol-abuse counselors, do lobbying
to get included. Connecticut, for example, requires reimbursement
for hair transplants, hearing aids, and in vitro fertilization.
The Senate bill would require coverage for prescription drugs,
mental-health benefits, and substance-abuse services. It also
requires policies to insure "children" until the age of 26. That's just
the starting list. The bills would allow the Department of Health and
Human Services to add to the list of required benefits, based on
recommendations from a committee of experts. Americans, there-
fore, wouldn't even know what's in their plans and what they're
required to pay for, directly or indirectly, until after the bills
2. Freedom to be rewarded for healthy living, or pay your real costs
As with the previous example, the Obama plan enshrines into federal
law one of the worst features of state legislation: community rating.
Eleven states, ranging from New York to Oregon, have some form of
community rating. In its purest form, community rating requires that
all patients pay the same rates for their level of coverage regardless
of their age or medical condition.
Americans with pre-existing conditions need subsidies under any plan,
but community rating is a dubious way to bring fairness to health care.
The reason is twofold: First, it forces young people, who typically have
lower incomes than older workers, to pay far more than their actual
cost, and gives older workers, who can afford to pay more, a big
discount. The state laws gouging the young are a major reason so
many of them have joined the ranks of uninsured.
Under the Senate plan, insurers would be barred from charging any
more than twice as much for one patient vs. any other patient with
the same coverage. So if a 20-year-old who costs just $800 a year to
insure is forced to pay $2,500, a 62-year-old who costs $7,500 would
pay no more than $5,000.
Second, the bills would ban insurers from charging differing premiums
based on the health of their customers. Again, that's understandable
for folks with diabetes or cancer. But the bills would bar rewarding
people who pursue a healthy lifestyle of exercise or a cholesterol-
conscious diet. That's hardly a formula for lower costs. It's as if car
insurers had to charge the same rates to safe drivers as to chronic
speeders with a history of accidents.
3. Freedom to choose high-deductible coverage
The bills threaten to eliminate the one part of the market truly driven
by consumers spending their own money. That's what makes a market,
and health care needs more of it, not less.
Hundreds of companies now offer Health Savings Accounts to about 5
million employees. Those workers deposit tax-free money in the
accounts and get a matching contribution from their employer. They
can use the funds to buy a high-deductible plan -- say for major
medical costs over $12,000. Preventive care is reimbursed, but
patients pay all other routine doctor visits and tests with their own
money from the HSA account. As a result, HSA users are far more
cost-conscious than customers who are reimbursed for the majority
of their care.
The bills seriously endanger the trend toward consumer-driven care
in general. By requiring minimum packages, they would prevent
patients from choosing stripped-down plans that cover only major
medical expenses. "The government could set extremely low deduct-
ibles that would eliminate HSAs," says John Goodman of the National
Center for Policy Analysis, a free-market research group. "And they
could do it after the bills are passed."
4. Freedom to keep your existing plan
This is the freedom that the President keeps emphasizing. Yet the bills
appear to say otherwise. It's worth diving into the weeds -- the terri-
tory where most pundits and politicians don't seem to have ventured.
The legislation divides the insured into two main groups, and those two
groups are treated differently with respect to their current plans. The
first are employees covered by the Employee Retirement Security Act
of 1974. ERISA regulates companies that are self-insured, meaning
they pay claims out of their cash flow, and don't have real insurance.
Those are the GEs and Time Warners and most other big companies.
The House bill states that employees covered by ERISA plans are
"grandfathered." Under ERISA, the plans can do pretty much what
they want -- they're exempt from standard packages and community
rating and can reward employees for healthy lifestyles even in re-
strictive states. But read on.
The bill gives ERISA employers a five-year grace period when they
can keep offering plans free from the restrictions of the "qualified"
policies offered on the exchanges. But after five years, they would
have to offer only approved plans, with the myriad rules we've already
discussed. So for Americans in large corporations, "keeping your own
plan" has a strict deadline. In five years, like it or not, you'll get dump-
ed into the exchange. As we'll see, it could happen a lot earlier.
The outlook is worse for the second group. It encompasses employees
who aren't under ERISA but get actual insurance either on their own
or through small businesses. After the legislation passes, all insurers
that offer a wide range of plans to these employees will be forced to
offer only "qualified" plans to new customers, via the exchanges.
The employees who got their coverage before the law goes into effect
can keep their plans, but once again, there's a catch. If the plan changes
in any way -- by altering co-pays, deductibles, or even switching
coverage for this or that drug -- the employee must drop out and shop
through the exchange. Since these plans generally change their policies
every year, it's likely that millions of employees will lose their plans
in 12 months.
5. Freedom to choose your doctors
The Senate bill requires that Americans buying through the exchanges
-- and as we've seen, that will soon be most Americans -- must get
their care through something called "medical home." Medical home
is similar to an HMO. You're assigned a primary care doctor, and the
doctor controls your access to specialists. The primary care physicians
will decide which services, like MRIs and other diagnostic scans, are
best for you, and will decide when you really need to see a cardiologists
Under the proposals, the gatekeepers would theoretically guide patients
to tests and treatments that have proved most cost-effective. The
danger is that doctors will be financially rewarded for denying care, as
were HMO physicians more than a decade ago. It was consumer outrage
over despotic gatekeepers that made the HMOs so unpopular, and killed
what was billed as the solution to America's health-care cost explosion.
The bills do not specifically rule out fee-for-service plans as options to
be offered through the exchanges. But remember, those plans -- if they
exist -- would be barred from charging sick or elderly patients more
than young and healthy ones. So patients would be inclined to game the
system, staying in the HMO while they're healthy and switching to fee-
for-service when they become seriously ill. "That would kill fee-for-ser-
vice in a hurry," says Goodman.
In reality, the flexible, employer-based plans that now dominate the
landscape, and that Americans so cherish, could disappear far faster
than the 5 year "grace period" that's barely being discussed.
Companies would have the option of paying an 8% payroll tax into a
fund that pays for coverage for Americans who aren't covered by their
employers. It won't happen right away -- large companies must wait
a couple of years before they opt out. But it will happen, since it's likely
that the tax will rise a lot more slowly than corporate health-care costs,
especially since they'll be lobbying Washington to keep the tax under
control in the righteous name of job creation.
The best solution is to move to a let-freedom-ring regime of high de-
ductibles, no community rating, no standard benefits, and cross-state
shopping for bargains (another market-based reform that's strictly
taboo in the bills). I'll propose my own solution in another piece soon
on Fortune.com. For now, we suffer with a flawed health-care system,
but we still have our Five Freedoms. Call them the Five Endangered
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