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Health care reform does next to nothing to reduce the cost of health care

January 5, 2010

Analysis by SBAM health insurance expert Scott Lyon.

(We want to hear how this measure affects you! Leave a comment below or get involved in the conversations in our Forum.)

As most of you have probably know, late on Sunday evening the U.S. House of Representatives passed the Senate health reform bill, as well as the reconciliation language making changes to that bill. The vote was close with 38 Democrats voting “no” along with every Republican on the Senate bill and 33 Democrats voting “no” on the reconciliation bill. All of Michigan’s U.S. House of Representative members voted along party lines (Democrats “yes” and Republicans ‘no”).

Within the legislation, the root cause of the nation’s issue with health care – cost – was almost completely ignored. As far as SBAM is concerned, the issue of cost containment is critical, and the reality is that this bill does next to nothing to reduce the cost of health care, which is, of course, the driver of health insurance costs.

The next step will be for the Senate to take up the reconciliation language, which is expected to begin on Tuesday. So what we have right now is:

The Senate bill has now been passed by both the House and Senate, which means it will become law as soon as it is signed by President Obama.

The Senate is working on the Reconciliation Bill and that could be completed this week. That is, if no changes are made to the House language. If there are changes it could stretch on for weeks because then it must go back to the House for a final vote.

To best of our ability, SBAM will keep you informed of what is going on or changing along with some analysis on how this will impact our small businesses members and their employees.

In broad strokes, here is what is in this monster:

For small businesses and individuals:

  • Individual Mandate that requires most U.S. citizens and legal residents to purchase insurance. There are subsidies for low income people and penalties if you don’t purchase.
  • Employer Mandate for any employer with more than 49 employees with penalties if the employer does not offer coverage
  • Health Insurance Exchange portal where individual and small employers can review and purchase insurance.
  • Expansion of Medicaid and CHIP.
  • Small business tax credits for companies with fewer than 25 employees and average annual wages of less that $50,000 if employer pays more than 50% of the premium – note that it phases out for companies above 10 employees and as the average wage increases.

New fees that will impact premiums:

  • New fees on pharmaceutical companies of $16 billion between 2011 and 2019, then $2.8 billion a year thereafter.
  • New annual fees on health insurance companies of $47.5 billion between 2014 and 2018 and then indexed by the previous year’s fee increased by premium growth.
  • New fees on taxable medical devises of 2.9%.
  • Exclusion of the cost of over-the-counter medication from your HSA or FSA effective 2011.
  • Increases the threshold to itemized deductions for medical costs from 7.5% to 10% in 2013.
  • Limits the amount of contribution to a FSA to $2,500 effective 2013.
  • Increases the Medicare Part A tax from 1.45% to 2.35% for individuals making over $200,000 and families above $250,000 – so look out if your business is a pass through.
  • “Cadillac Tax” starting in 2018.

Insurance carrier related changes:

  • Co-Op Plan in each state – non-profit member-run health insurance plans – I think they are recreating BCBS plans.
  • Mandating Purchase – 4 basis benefit tiers Bronze – Platinum along with an Essential Benefits Package (what must be covered and how they must be covered)
  • Guarantee Issue and Renewal
  • Dependent coverage to age 26
  • Eliminates lifetime limits on claims
  • Rating rules – essentially modified community rating
  • Exchanges – portals and purchase options beginning in 2014
  • New medical loss ratios for carriers – 80% in individual and small group market and 85% in large group market
  • New “sheriff” to review health insurance plan increases and justify the increase
  • Limits deductibles to $2,000/$4,000
  • Limits waiting period to 90 days

Cost containment is pretty weak:

  • Enhanced oversight of new providers of DME into Medicare and Medicaid
  • Establish a Research Institute to study comparative effectiveness of treatments
  • Better coordination between the benefits of Medicare and Medicaid
  • A National Wellness Council
  • Grants to support delivery of evidence-based medicine and wellness services

Of course in a 2,000 page bill there is much more – especially as it relates to Medicare, SBAM will continue our analysis of this legislation and of course keep you as up to speed as possible as things change and as they become clearer over the next days/weeks/months.

If you have any questions or concerns, please feel free to give us a call at (800) 362-5461 or email

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