Health care reform legislation has passed, and yet the debate is far from over. After months of hearing rhetoric related to (first) the health care crisis, and (finally) the new health care legislation, we as Americans are ultimately left with two daunting tasks. First, to look beyond the rhetoric to discern the true impact of how this massive piece of legislation will affect us over the next several years; and, second, to figure out how we are going to be able to foot the enormous bill. President Obama may have accomplished a huge part of his domestic agenda but when it comes to the rest of the nation, our work is far from over.
As we consider the cost and impact of the new legislation, it is important to take a closer look at some of the truths (and potential consequences) behind the political sound bytes that propelled this bill to victory.
Myth I: Only the rich will pay for this bill.
No one doubted that any effort toward health care reform would be expensive. But, promised Obama, only the very richest Americans would pay for this bill! Harking back to promises he made while on the campaign trail, Obama reiterated that only individuals making more than $200,000 (or families making more than $250,000) would see a tax increase. Over the course of 10 years, the bill would pay for reform with (among other things) an increase in tax rates and a new 3.8 percent "Medicare tax" on dividend and capital gains income for this top segment of the population.
Even if we were to assume that the estimated revenue from these taxes would be sufficient to cover the costs of the bill (which is unlikely, given what many experts are predicting in terms of growth of subsidies and Medicaid enrollees under the new legislation), we must consider how the finer points of health care reform will financially affect all Americans, regardless of their tax bracket.
First, of course, there is the mandate, which, while not officially referred to as a "tax" in the language of the bill, will nevertheless be enforced by the IRS and impose a new financial obligation on businesses and individuals. Second, there are the new limits and penalties that the bill places on health spending accounts. These include a cap on flexible spending account contributions, an increase in the penalty for non-qualified withdrawals from a health savings account, and a removal of the provision allowing for the purchase of over-the-counter medications with tax-advantaged FSA, HSA or HRA funds (unless one has a doctor's prescription). The bill also raises the threshold for deductions for individuals with high medical costs from 7.5 percent to 10 percent of adjusted gross income. Finally, the bill imposes various new taxes on insurance companies, drug manufacturers, and medical device manufacturers.
So who will really pay for this bill? Not just the ultra-wealthy, as proponents of the legislation would have you believe. Rather, it will hurt some segments of the population who can least afford it in our current economic environment: small business owners, individuals and families who rely upon health spending accounts to pay for out-of-pocket medical costs (oftentimes associated with chronic illnesses), and a wide cross-section of middle class Americans who will feel the indirect impact of the taxes levied on insurers and drug companies.
Myth II: This bill will provide greater access to health care for all Americans.
Before discussing the issue of access, it is important to distinguish between access to health care and access to health insurance. Throughout the debate, the two vastly different concepts became somewhat intertwined. Health care, of course, is just that: the care given by a medical provider to a patient. Health insurance, on the other hand, is how patients manage the cost of their care and protect themselves against risk from a financial standpoint.
Ostensibly, the health care reform bill seeks to give all Americans access to health care by mandating that they obtain and maintain health insurance coverage (and by mandating that employers provide coverage to employees or pay a fine). The consequence of this flawed logic is evident when one looks at other governments that have enacted health insurance mandates in an effort to expand access to care; most notably, Massachusetts. Hailed as the "template" for national health care reform, Massachusetts has succeeded in reducing the number of uninsured, but this expansion of coverage has not appeared to have a correlating effect on access to care.
Among the problems revealed through various surveys conducted since Massachusetts passed its new law in 2006 is an inadequate supply of physicians resulting from the increase in demand; longer waiting periods to see a health care provider; and disproportionately high rejection rates for low-income patients. The lesson to be learned here is that, despite the enormous amount of money that has been spent on reform in Massachusetts, and despite an increase in the number of insured, the core problem of access still persists. If we do not address this problem, inefficient utilization will continue to drive up health care costs and millions of Americans will still not be getting the care they need.
Myth III: This bill will control health care costs and address the fundamental ills of the nation's health care system.
One of the biggest downfalls of this bill is that it fails to address the central cause of rising health care costs: misaligned stakeholder incentives within a grossly inefficient payment system. As it stands, the average health care consumer covers only $1 of every $6 of total health care spending. One or more third parties (including insurance companies and employers) pick up the rest of the tab. Given this scary statistic, it's no wonder insurance premiums continue to rise--and no wonder consumers have no idea how much care actually costs.
The new health care reform legislation does more than simply omit any financial incentives for consumers to make cost-conscious decisions about their health care--it effectively discourages responsible spending behavior by making it more difficult and more costly for consumers to pay for everyday health care expenses (for instance, by forcing consumers to visit a physician if they want to pay for over-the-counter medication with FSA funds).
Any attempt to truly control health care costs must necessarily involve incentives for more cost-conscious consumer behavior, as well as mechanisms to improve efficiencies within the health care payments process. Without these solutions, costs will rise at an accelerating pace, and any effort to pay for reform through taxes will be an exercise in futility.
Myth IV: It's time for employers to throw in the towel.
Health care reform presents a whole new set of challenges within the benefits industry, but, as is the case with any change of this magnitude, it also presents great opportunity for those who are able to take advantage of the current environment by building new solutions tailored to a whole new set of emerging needs and government mandates.
Contrary to what many would have you believe, consumer-driven benefits will continue to play a crucial role as employers and individuals who now face coverage mandates seek more affordable and flexible health benefit options. Consumer-driven benefits that offer the greatest flexibility, and which can be adapted to fit into the new environment created by health care reform, will likely prove exceedingly popular in the coming years. Health reimbursement accounts, for instance, are one example of a more flexible CDHC vehicle through which employers can continue to deliver competitive benefits, remain in compliance with future employer mandates, and better manage their benefits expense line.
For this reason, it would be a dangerous mistake for employers (or indeed, brokers) to throw in the towel in the aftermath of health care reform. While the environment in which we operate is undoubtedly on the brink of a historic transformation, the same demands and pressures that drive our business and encourage innovation in our industry--the needs of consumers and employers, the desire to reduce costs, and the ongoing pursuit of a functional, sustainable health care system--will remain unchanged.
