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Healthcare Reform: HR 3590 Details in Plain English

December 22nd, 2009 · 4 Comments

Overview and Pricetag: 

Following the House of Representatives by a few weeks, the Senate is about to pass HR 3590, a 2074 page bill to enlarge access to health insurance for the vast majority of Americans. As previously discussed, the House bill wasn’t a revolution but evolution of the status quo. The Senate bill reflects an even slower evolution of the status quo, paring down several of initiatives pushed for in the House bill. The core elements are the same though, with Medicare set for covering more poor people, Employers being prodded into covering more employees, and individuals being nudged to buy insurance.The bill will cost $870 billion over the next ten years (as opposed to $1 trillion in the House version) and should reduce the deficit by $130 billion. 31 million people would gain coverage, leaving 23 million people without coverage (compared to 36 million gaining coverage in the House version).

So is this going to happen or what?

Assuming that the Senate bill passes on Tuesday, The House and Senate will attempt to iron out their differences in what I affectionately call the “mother of all conference committees” (twitter hash tag #moacc). After sorting through all of their differences the House and Senate will have to pass the measure again. Expect more bickering, compromises and noise for the next few months.  

Provisions:

Employers Must Provide Coverage: Companies with 50 or more employees must offer insurance coverage or pay a $750 per employee penalty. Employers can also offer a voucher to workers to buy their own insurance. Coverage can be a very subjective term, with the House defining coverage at about 70% of premiums while the Senate considers coverage 60%. This $750 penalty is much lower than the House version which would tax 8% of a company’s payroll. The Senate would offer subsidies to employers with less than 25 employees, covering up to 50% of premiums.

Individuals Must Buy Coverage: Slowly phased in over several years, individuals will eventually have to pay a 2% tax if they don’t buy themselves insurance coverage. Families making 400% above the poverty line (about $90K for a family of 4) would get subsidies.

Medicaid for More People: Last, the bill would expand Medicaid to all folks making 133% of the poverty line ($30K for a family of 4). The House covered 150% of the poverty line ($33K for a family of 4). This slight decrease in poverty line means that CHIP (free insurance for poor kids) will stick around for the few families that fall between 133% and 150% of the poverty line.

Public Option: The Senate has no public option in its plan. Instead, the same group that negotiates with private insurers to offer coverage for Federal employees would also negotiate two alternatives to the plans available on the insurance exchange.

Insurance Exchange: A standardized insurance marketplace would be available for individuals and small businesses to buy insurance.Funding:

Taxing Excessive Insurance Plans: $150 billion: Very expensive health insurance plans ($8.5K per person or $23K per family) would get a special 40% tax. Certain high-risk occupations like firefighters and coal miners would be exempted. In practice “Cadillac plans” are given to executives and union employees. It is estimated that 30% of teachers in CT have “Cadillac plans” as do GM auto workers. This is really a revocation of the tax exempt status of employer based health insurance plans for companies that are abusing the tax exempt status (without the exemption benefits would be taxable as income at about 40%).

Health Care Company Taxes: $100 billion: Drug makers, device makers, and insurance companies would have to pay special taxes. Non-profit insurance companies could be exempt from the taxes if they spent a percentage of revenue on medical claims. In practice the tax is designed to force ‘non-profit’ insurance companies to reduce executive compensation and administrative costs. 

Kill Medicare Advantage: $200 billion: Like the House bill, The Senate would kill the federal subsidies to private insurers through the Medicare Advantage program.

Medicare Savings: $283 billion: Unlike the House bill, Medicare would not negotiate drug prices with pharma companies, but take advantage of a voluntary $80 billion reduction in drug prices.  Additionally the increase of payments to Hospitals and Doctors would be reduced. It is worth noting that despite the lower payments, the American Medical Association and American Hospital Association have  endorsed the bill.

Increasing Medicare Taxes: $87 billion: Currently Medicare is taxed at 1.45%. People making more than $200K (Families making $250K) would see that amount increased to 2.35%.

Tanning Tax: $2.7 Billion: A 10% tax on tanning salons.Some Final Tweaks:

Preexisting Conditions are Illegal: Like in the House version,  denying coverage for pre-existing conditions is banned.

Reducing Administrative costs: The bill would require insurance companies spend 80% of revenue on claims. Currently the most claim focused insurance company only spends 74%. 

Abortion: Insurance plans that cover abortion would require two payments. The first would cover the health insurance; the second would only cover abortion. Only the first payment would be eligible for federal subsidy.

Tags: Venture Capital

4 responses so far ↓

  • 1 Eric // Dec 23, 2009 at 9:19 am

    I’m not too familiar with the bill, but from reading your post it looks like the majority of the bill is new laws (required coverage) and new taxes (penalties for no coverage or excessive coverage). It looks like the only real service being provided is an expansion of Medicaid. Is it right to say that we would be paying $870 billion and the only real return is an expansion of Medicaid?

  • 2 Aziz Gilani // Dec 23, 2009 at 3:25 pm

    I don’t think Eric’s assessment is fair. Although $360B of the $870B is being used to expand Medicaid, the bulk of costs is being allocated to Families making between $90K and $30K along with companies with <25 employees to subsidize private insurance.

  • 3 Eric // Jan 6, 2010 at 4:32 pm

    Was more of a question than assessment. So $360B for medicaid, $461B for insurance subsidies (had to find that number on another site) comes to $821B. Where is the other $49B going?

  • 4 Greedradio // Jan 27, 2010 at 10:11 am

    Thanks, best summary I’ve seen — you are an enjoyable writer.

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