Health Care Reform Implementation Timeline

As everyone knows by now, sweeping health care reforms were approved by the House of Representatives Sunday night. President Obama signed the health care legislation this morning at The White House.

The Senate will now begin considering a package of House changes to the Senate measure in a process known as "reconciliation." The Senate needs a simple majority of 51 votes to approve the changes. Once this process is complete, President Obama will then sign the reconciliation bill and the changes will be incorporated into the measures listed below.

The health care reforms will unfold slowly. Below, I have provided a detailed timeline highlighting the major changes that would take place year-by-year.

Timeline for Implementation:

2010
Sets up a high-risk health insurance pool to provide affordable coverage for uninsured people with medical problems.

Requires all health insurance plans to maintain dependent coverage for children until they turn 26. Prohibits insurers from denying coverage to children because of pre-existing health conditions.

Prohibits insurance companies from imposing lifetime dollar limits on coverage and canceling policies, except in the case of fraud.

Provides tax credits to help small businesses with up to 25 employees obtain and keep coverage.

Begins narrowing the Medicare prescription coverage gap by providing a $250 rebate to seniors in the gap, which starts this year once they have spent $2,830. The gap would be fully closed by 2020.

Reduces projected Medicare payments to hospitals, home health agencies, nursing homes, hospices and other providers.

Bans health plans from dropping people from coverage when they get sick.

Imposes 10% sales tax on indoor tanning.

2011
Creates a voluntary long-term care insurance program to provide a modest cash benefit helping disabled people stay in their homes, or cover nursing home costs. Benefits can begin five years after people start paying a fee for the coverage.

Imposes a $2.3 billion annual fee on drug makers, increasing over time.

Requires employers to report the value of health care benefits on employees' W-2 tax statements.

Provides Medicare recipients in the prescription coverage gap with a 50 percent discount on brand-name drugs; begins phasing in additional drug discounts to close the gap by 2020.

Provides 10% Medicare bonus to primary care doctors and general surgeons practicing in underserved areas, such as inner cities and rural communities.

Freezes payments to Medicare Advantage Plans. The first step in reducing payments to the private insurers who serve about one-fourth of seniors. The reductions would be phased in over three to seven years.

2012
Sets up a program to create nonprofit insurance co-ops that would compete with commercial insurers.

Penalizes hospitals with high rates of preventable readmissions by reducing Medicare payments.

Initiates Medicare payment reforms by encouraging hospitals and doctors to band together in
"accountable care organizations" along the lines of the Mayo Clinic. Sets up a pilot program to test more efficient ways of paying hospitals, doctors, nursing homes and other providers who care for Medicare patients from admission through discharge. Successful experiments would be widely adopted.

2013
Standardizes insurance company paperwork, first in a series of steps to reduce administrative costs.

Limits medical expense contributions to tax-sheltered flexible spending accounts (FSA's) to $2,500 a year, indexed for inflation. Raises threshold for claiming itemized tax deduction for medical expenses from 7.5% of income to 10%. People over 65 can still deduct medical expenses above 7.5% of income through 2016.

Imposes a 2.3% sales tax on medical devices. Eyeglasses, contact lenses, hearing aids and many
everyday items bought at the drug store are exempt.

Increases Medicare payroll tax on couples making more than $250,000 and individuals making more than $200,000. The tax rate on wages above those thresholds would rise to 2.35% from the current 1.45%. Also adds a new tax of 3.8% on income from investments.

2014
Prohibits insurers from denying coverage to people with medical problems or refusing to renew their policy. Health plans cannot limit coverage based on pre-existing conditions or charge higher rates to those in poor health. Premiums can only vary by age, place of residence, family size and tobacco use.

Coverage expansion goes into high gear as states create new health insurance exchanges – supermarkets for individuals and small businesses to buy coverage.
Medicaid expanded to cover low- income people up to 133% of the federal poverty line, about $28,300 for a family of four. Low-income childless adults covered for the first time.

Requires citizens and legal residents to have health insurance, except in cases of financial hardship, or pay a fine to the IRS. Penalty starts at $95 per person in 2014, rising to $695 in 2016. Family penalty capped at $2,250. Penalties indexed for inflation after 2016.

Penalizes employers with more than 50 employees if any of their workers get coverage through the exchange and receive a tax credit. The penalty is $2,000 times the total number of workers employed at the company. However, employers get to deduct the first 30 workers.

Provides income-based tax credits for most consumers in the exchanges, substantially reducing costs for many. Sliding-scale credits phase out completely for households above four times the federal poverty level, about $88,000 for a family of four.

2018
Imposes a tax on employer-sponsored health insurance worth more than $10,200 for individual
coverage, $27,500 for a family plan. The tax is 40% of the value of the plan above the thresholds, indexed for inflation.

2020
Coverage gap in Medicare prescription benefit is phased out. Seniors continue to pay the standard 25 percent of their drug costs until they reach the threshold for Medicare catastrophic coverage, when their co-payments drop to 5 percent.

A History of Medicare and Social Security Tax Increases

Medicare was legislated in 1965, and a new payroll tax was implemented in 1966 to cover the expense of the new entitlement program. The initial tax was 0.35%, payable by both the employee and employer on the first $6,600 of the employee's wages. The $6,600 upper wage limit rose by about 50% in total over the first 8 years, and then dramatically increased thereafter, until reaching $135,000 in 1993. That represents about an 11.40% annual increase between 1966 and 1993, whereas inflation increased at an annual rate of 5.38% during that time. The upper wage limit was eliminated in 1994, meaning that the tax began to be charged on all wages at that time.

While the Medicare wage limit was being increased, the tax rate was increased continuously as well. It approximately tripled in the first 8 years from 0.35% to 1.0%, and eventually hit the current level of 1.45% in 1986. In dollar terms, the amount collected on the wage limit maximum from both the employee and employer increased from $23.10 in 1966 to $1,957.50 on the $135,000 limit that was in place in 1993. That represents a 17.2% annual increase, whereas, as noted above, inflation increased at 5.38% over that period. Hence, the maximum tax was increased at over 3 times the rate of inflation, and again, there has been no maximum tax since 1994.

Changes in the Social Security tax are equally staggering. The tax was implemented in 1937 at 1.0% of the first $3,000 of wages. It stands today at 6.20% on the first $106,800 of wages. Inflation between 1937 and 2010 was 3.76% annually, whereas the wage limit has risen at 4.95%. Hence, even if the original 1.0% tax had remained constant, the amount collected on the limit would have increased substantially more than the rate of inflation due to the more rapidly increasing wage limit. However, with increases in both the limit and the rate, the tax in dollar terms has increased on the wage limit from $30 to $6,622, a 7.57% annual increase, which is double the rate of inflation between 1937 and 2010.

Under the proposed health care reform act, to pay for the changes, the legislation includes more than $400 billion in higher taxes over a decade, roughly half of it from a new Medicare payroll tax on individuals with incomes over $200,000 ($250,000 for couples). From an article on MSNBC, here's how the tax hike would work:

"Under Obama's plan, individuals with incomes of more than $200,000 — including both wages and investment returns -would pay a 2.9 percent tax on interest, dividends, royalties and other unearned income that exceeds that threshold. Couples with total incomes over $250,000 would face the tax, too.

The proposal would also increase the 1.45 percent Medicare payroll tax on workers' wages to 2.35 percent on earnings that exceed $200,000 for an individual and $250,000 for a couple. The portion of the Medicare payroll tax paid by the employer would remain at 1.45 percent.

Under this plan, a couple that earns $275,000 in salaries and $150,000 from investments would pay the normal 1.45 percent on the first $250,000 of their wages. They would pay 2.35 percent on the last $25,000 of wages. And, because their total income tops $250,000, they would face the 2.9 percent tax on all $150,000 of their investment income.

Right now, that couple would pay $3,987.50 in Medicare taxes each year. Under the proposal, they would pay $4,212 on their wages and $4,350 on their investment income, $8,562, assuming all of that income is taxable. Congressional estimators predict any final policy would include some exemptions, such as the costs of generating investment income."

Note that in addition to the above Medicare tax hike, the House's revisions to the Senate's bill also include a 0.5% Hospital tax on high-income individuals and couples; i.e., those with incomes over $200,000 and $250,000, respectively.

Clearly, the new taxes are intended to shift the burden to the supposed rich. However, after analyzing the government's past record for increasing the Medicare and Social Security taxes, how long can we honestly expect it to be before that $200,000 floor starts to creep down, or the tax rate starts to creep up, or both?


Sources:
Inflation data: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

Historical tax rates: http://www.ssa.gov/history/pdf/t2a3.pdf

MSNBC article on the new tax: http://www.msnbc.msn.com/id/35844649/ns/health-health_care/

The Whole Foods Health Care Flap

So, this is the article from Whole Foods' CEO that created the big flap. Three main themes: government frugality, individual responsibility, and personal choice. How controversial! In order to consider these ideas some kind of betrayal of Whole Foods' customers' values, it seems to me that those who have their undies in a twist are making some very thin connections: healthy eating = progressiveness = liberalism = blind agreement with Obama's agenda. None of those connections are 1:1 (exclusive). Obviously, Mackey's experience leads him to have a different opinion about how to create a healthier America. Why not respect that, and use it as an input when evaluating our options? At least his experience is based on real-world interactions with real people who have experience using both socialized and free market health care systems. I wish we could say that Obama and Congress have experience grounded in reality, but we know that simply isn't true.

Click here for Wall St. Journal article.

Daniel Hannan speaks about U.K. Health Care System

I love this guy. He's one of the most articulate and clearest-thinking politicians I know of. I wish he were American.

His cautionary tale about how Canada's "public option" morphed into a government-only program is very much in line with what I believe will happen here.

Health Care Reform: Rise up, Mr. Obama. This is your Man-on-the-Moon Moment.

Many reforms in health care are needed, but the proposed legislation doesn’t address them. For example, the argument that the so-called public option will increase competition is totally false. Employers are justifiably tired of paying ever-increasing insurance premiums for their employees. When the public option becomes available, many firms will simply decide to give their employees a raise to cover the cost of the public option, and then they’ll cancel their company-sponsored plans. That way, they can convert their medical benefits expense to salaries expense, which is much easier to control (i.e., salaries increase at about the rate of inflation, whereas medical premiums have been rising at two to three times that). Once that happens, you’ll then have most Americans on a bare-bones Medicare-type program, with no options and no industry competition. The insurance carriers currently battle it out against each other every day. They do what they can to keep costs down, but they can only do so much to control the medical and pharmaceutical industries. With whom do government agencies like the Social Security Administration, the IRS, and Veterans’ Affairs compete? No one, and they don’t exactly set any standards for efficiency and customer service, do they? It will be the same with whatever new agency ends up running health care.

The health care industry represents 16% of our economy. It employs millions, and it touches every one of us. There is no simple, quick fix for this problem. Bringing health care costs under control is going to take a tremendous amount of collaborative work by the insurance, medical, pharmaceutical, and technology industries. This undertaking is far bigger than the Apollo project, for example, and that project could have never been accomplished without industry doing most of the work. As it did with Apollo, government (NASA, in that case) should play a facilitation role in health care reform, but it should not attempt to become the industry itself. It doesn’t have the technical or managerial skill, nor could it ever put the incentives in place to ensure that the system would be able to actually improve service while also driving costs down, which should be the ultimate goal. The current dialogue in Washington never makes mention of that, which is frightening and disappointing in its lack of ambition. Our politicians are content with the notion of serving more people, but serving them poorly in order to do it (all but themselves, that is). Well, I’m not.

Mr. Obama should use his estimable leadership skills to unify the efforts of these various industries, rather than trying to put them out of business or under some type of Soviet-like control. A sharp bureaucrat can always muscle some kind of ineffective legislation into place (e.g., the stimulus bill), but a real leader inspires the public to raise its ambitions and strive to take on new challenges. President Kennedy inspired the nation to put a man on the moon within 10 years. I’d like to see President Obama do something similar with health care reform. He has the vision and the charisma. He just needs to do it. That's what voters really wanted from him anyway, not bureaucratic quick fixes.

Mr. Obama, don’t deny Americans the opportunity to be Americans. Tackling problems head-on and developing world-class solutions is what we do. Yes we can, remember?