Five questions (and answers) on the healthcare reform law

A friend writes with five questions on the new healthcare reform law:

first question: one of the criticisms i hear is that with the reduced premiums that medicare will be paying to hospitals for procedures, the cost will be pushed back on to hospitals, some of which may stop participating in the program. how is the funding gap made up by hospitals? why won't they jump ship?

First off, any payment cuts are only on medicare - not medicaid, not private insurance, not the new subsidized individual insurance via state exchanges. Second, the main pressure is going to be on incentivizing medicare-receiving institutions to streamline care and eliminate unnecessary procedures - for instance, it will be less "we used to pay $60,000 for open heart surgery, now we'll pay $50,000", and more, say, switching from paying $60k for the heart surgery, $10k for the 2 weeks in the hospital, and $5k for each of the 5 tests that are used to paying a flat $70,000 for the entire treatment of a heart attack - so that if hospitals can treat the heart attack more efficiently, they can keep the difference.

Also, much of the medicare cuts are eliminating or scaling back the Medicare Advantage program, which basically privatized a portion of Medicare, at a 5-10% markup. The markup allowed the Medicare Advantage providers to give some extra frills, but nothing particularly necessary will be cut if it's gone.

Finally, American medical providers charge a lot more than providers anywhere else in the world. Politicians talk about fraud, waste, abuse, administrative overhead, etc., but the main driver of rising healthcare costs is the amount charged by providers (doctors and hospitals). For Medicare to continue to be viable, that's going to have to be reined in a little bit. In some major cities, top of the line providers may decline to accept Medicare, because they have enough independently insured patients. However, Medicare payments are still giong to be calibrated to allow providers to make a living, and the sheer number of people on medicare means that most providers are going to want to be able to tap into that customer base.

second question: are parents required to pay for their children's healthcare until they are 26, or do they just have the option to if the child does not wish to secure their own plan

My understanding is that the law merely forces insurance companies to allow parents who wish to do so to keep their kids on their insurance until they're 26. Parents who don't want to do so can stop covering their children at 18 or 21, depending on state law

third question: it seems like it would have been better to frame the "fine" for not obtaining coverage as a tax, which, while accompanied by its own onerous baggage, is less a pejorative term. it would also have avoided the legal challenges, which the proponents must have anticipated. although they don't stand a chance of achieving anything, a protracted p.r. battle in the press is not what either the bill or obama need. instead, why not: impose a healthcare tax that everyone is required to pay, but if you get healthcare, you get a credit equal to the amount of tax you would have to pay. if you don't get coverage, then you don't get the credit and have to pay the tax. why wasn't this done?

The "fine" actually is legally structured as a tax as you suggest, and had to be done that way to survive constitutional challenges (the Federal government has the power to tax, it's less clear whether they have the power to implement a fine without having to give the person being fined a hearing). I'm not sure why it wasn't sold that way - probably because Dems didn't want to have to deal with the claim that they were raising taxes, as "tax" is such a poison term in politics these days. You see a preference in all levels of government for using the term "fee" over "tax" - states love to add on fees for drivers, boaters, hunters, bars, etc. so that they can raise revenue but safely say they never raised taxes.

fourth question: i like the bill because it allows some of those who couldn't otherwise afford it access to decent healthcare, and as i'm not a greedy prick i don't mind if it costs me a couple thousand dollars over my lifetime, or even quite a bit more if i get rich. i understand it does have flaws but i am hard pressed to say what the really significant ones are. what do you think? what are strong suits i might be missing?

You can come at flaws from a couple of angles. From the left, there's the argument that the bill doesn't go far enough - it doesn't create a true public option that would compete with insurers to drive down rates. The exchanges are set up on a state level and consequently, in small states, won't be big enough to drive costs down. Above all, it doesn't either expand Medicare to everyone or create a single-payer system.

From the (reasonable) right, you could say that the bill is flawed because it still insulates consumers from the true cost of their healthcare, and consequently they can't become informed consumers and thus act to drive down costs. For instance, most people don't even realize that 80-90% of their insurance tab is picked up by their employer (and which is tax-deductible and thus government subsidized), and thus costs way more than the couple thousand a year that comes out of their paychecks. The only people outside government that ever worry about health care costs under the current system continue to be corporate HR people who pick the plans. The Wyden-Bennett bill, which had some support, would have set up a national exchange of health insurance plans. Employees who now have insurance provided by their employers would instead get an "insurance credit" that they could use to go into the exchange and buy any plan that they want - with varying levels of deductibles, coverage, etc, and could pocket the savings if they pick a cheaper plan. The govt would then provide subsidies to people who can't afford to buy on the exchange, and would regulate the exchange to make sure that every plan on it met basic criteria. This is the similar to the way we buy auto or home insurance (without the nationally regulated exchange), and it forces the price down.

I personally think that this probably would have been the best way to go, short of single payer, because it would make consumers more active participants and would make them aware of what their health insurance and their healthcare costs. Because the insurance companies would be vying for customers based on price, they would have an incentive to find creative ways to work with providers to bring costs down. Also, because consumers could stay with a company for a long time (unlike now, where, whenever you change jobs you change insurance, and sometimes HR changes your insurance every year even if you stay at a job) the insurance companies would have an incentive to do a better job incentivizing people to stop smoking, go to the gym, get checkups, etc, because they would realize the savings as their customers got older. Obama made the call that most who have insurance are fairly happy with it, and it would be too radical a change to go in this direction. The new law (state exchanges and subsidies for the poor to buy into them, prohibiting denying coverage for preexisting conditions, etc.) is a good basis for switching over to a Wyden-Bennet type plan in the future.

The other main flaw of the plan comes in the form of a trade-off. Part of the reform bill is paid for by the expected savings in medicare discussed above. These savings are the "low hanging fruit" that can be cut from Medicare fairly easily. The worry is, Medicare is still projected to be in the red as the baby-boomers retire. Because the easiest cuts have already been made, and used to pay for this new program, it's going to be even harder to make cuts to Medicare in the future when those cuts become necessary. The counterargument to this, of course, is that Medicare won't have to be cut in the future if we're just willing to raise more revenue, and if the current changes help to "bend the curve" of Medicare cost increases, future cuts won't need to be as severe.

fifth question: i keep hearing that the plan is modeled on massachusetts's program, and everyone keeps telling me that the massachusetts program sucks and that everyone there hates it. i don't know anything about healthcare in massachusetts, so i have no idea if any of this is true.

There are definitely some flaws in the Mass plan, but my understanding is that people are pretty happy with it. Best indication? Republicans in Massachusetts don't oppose it or try to repeal it. When Scott Brown was running in the special Senate election, he said that Mass residents like their healthcare, and have it already, and don't want to pay extra taxes to the feds for something they already have.