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U.S House Passes Health Care Bill

November 12, 2009

In a rare Saturday session, the U.S. House of Representatives narrowly
passed the House Democrats version of health care reform by a vote of

SBAM opposes the House bill.  Among the reasons for our opposition are
that it does little to contain the costs of healthcare, it includes an
employer mandate and it places additional taxes on small businesses.

The Senate has yet to take up their plan but the goal of Senate Majority Leader Harry Reid is to do so before the end of the year.

Below is a synopsis of the current debate and the House and Senate bills.

Health Care Reform and Health Insurance Reform are both being discussed in Washington and while these two things are related, they are not interchangeable. 

Health Care Reform is reform of the delivery system and gets at things like the number of hospital borne infections, centers of excellence, the number of primary care doctors versus specialists, electronic medical records and e-prescribing.  It is reform of what is happening inside of the doctor’s office or hospital; this is where the debate started a few months back.

But today the debate seems to have shifted to Health Insurance Reform, which is reform of the financing system.  It is the conversation about who pays, what they pay for, individual and employer mandates, guarantee issue, pre-existing conditions, etc. 

In the House…

The U.S. House passed their version of health care/health insurance reform over the weekend.  The House Bill breaks down like this:

Cost:  According to the Congressional Budget Office, the 1,990 page bill would extend coverage to an additional 36 million people and has a price tag of $1.055 trillion over 10 years, with a net cost after tax increases and spending cuts of $894 billion. Remember, CBO estimates only the cost to the federal government, not what this new program may cost businesses, you and me – those of us that get to pay the bill.  Also, 10 years goes by in a flash, and many worry about the costs in the out years; there are no good cost estimates beyond 10 years. 

Public Option:  The bill calls for a new government run health insurance plan and CBO Director Douglas Elmendorf wrote that the plan “would typically have premiums that are somewhat higher than those private plans offered alongside of it.”  The bill goes on to prevent insurers from denying people with a pre-existing condition or dropping coverage when a subscriber gets sick.  So, assuming that you buy the argument that the biggest problem we face with health care is affordability, what does competition from a federal government health insurance plan with higher premiums actually get us?

Play or Pay:  For employers the bill requires that you “Play or Pay.” Employers that offer coverage are required to pay a minimum of 72.5% of the premium for individuals and 65% for families.  If an employer with payroll of $500,000 – $750,000 does not offer health insurance to his/her employees they face a fine of 2% of payroll (a fine of $10,000 to $15,000 a year).  For companies with payroll above $750,000 the fine increases to 8% of payroll.  This gets expensive in a hurry.  A company with a payroll of $800,000 would face a fine of $64,000 a year if they do not offer coverage to their employees. Assuming a small company can afford either, the big question will become, what is more expensive; health insurance premiums or paying the fine?  Companies with payroll below $500,000 would be exempt.

Individual Mandate:  For low income and middle income Americans the bill spends $605 billion to subsidize health insurance bought through a new government run health insurance exchange. Individuals are required to obtain health insurance coverage or pay a fee equal to the lower of 2.5 percent of their adjusted income above the filing threshold or the average premium on the Exchange (see below). Individuals and families below the income tax filing are exempt. Individuals may apply for a hardship waiver if coverage is unaffordable and selected exemptions from the mandate are provided in the statute.  So, not unlike the “Play or Pay” feature, the question becomes, “What will cost an individual more, paying the premium or paying a fine?” 

Remember too, the downside is pretty limited to the individual because pre-existing conditions are no longer a consideration.  Why would anyone buy insurance before they need it?  Take your chances, pay the fine and then if you need insurance for a “big ticket” expense, buy it then.

Exchange: The bill creates a new marketplace called the national “Health Insurance Exchange” with an option for states that agree to meet federal standards to run their own exchange. People are eligible to enter the Exchange and purchase health insurance on their own as long as they are not enrolled in employer sponsored insurance, Medicare or Medicaid. The Exchange is also open to businesses, starting with small firms and growing over time. Firms with twenty-five or fewer employees are permitted to buy into the Exchange in 2013, firms with fifty or fewer employees in 2014, and firms with
at least one hundred employees in 2015.  The Exchange would directly “compete” with the private market.

In the Senate…

Prior to the release of the House bill, most of the air in Washington had been consumed by the Senate plan and the inclusion in that plan of a Public Option.  Most observers considered the Public Option to be a dead issue in the Senate, but bowing to pressure from the more liberal faction of his party, Senate Majority Leader Harry Reid (D – Nevada) put the Public Option back in the bill.  Putting it back in means he lost the support of the only Republican that voted for the Senate Finance Committee’s version as Senator Olympia Snowe (R-Maine) withdrew her support.  Senator Joe Lieberman (I- Connecticut) has also indicated that he will not support this plan.  Last, several Blue Dogs – conservative, mostly southern Democrats have indicated that they are skeptical of this plan.  Why is that important?  Senate Majority Leader Reid needs 60 votes – first to get the bill to the floor for debate and 60 votes to pass anything out of the Senate (filibuster proof).  There are 58 Democrats, 2 Independents and 40 Republicans in the Senate.

What we Think

  • Affordability is the biggest problem with health care today.  Is the issue of the cost of coverage getting any real consideration in Washington?  Or is that just too big an issue for Washington to address?
  • Is enough being done to promote things that will actually help reduce costs?  Things like:
    • Tort/Medical Malpractice Reform and getting at defensive medicine.
    • Common Electronic Standards/Interoperability, Electronic Medical Records and common claim forms for providers regardless of what insurance company or federal program will pay the bill.
    • Providing comparative data on health costs, success rates, infection, morbidity and mortality rates inside facilities.
    • E-prescribing/Computer Physician Order Entry.
    • Reducing Waste Fraud and Abuse – and getting at it electronically.
    • Promoting Best Practices and/or Centers of Excellence for health care services and greatly reducing the rate of infection within our hospitals.
  • Compliance costs are also likely to be significant.  What new administrative burdens for employers come out of this and how much is that likely to cost a small business?

We are very skeptical that either of these bills will be in the best interests of small business.  As it stands today under these proposals:

  • Everyone has to purchase health insurance.  Either you get it through your employer or the individual market, via Medicare, Medicaid, the VA, etc. or through the new Public Option.
  • There would be Guaranteed Issue of insurance.
  • No or very limited pre-existing conditions.
  • If you are an employer, you are required to foot most of the bill or pay a fine.
  • For employers or individuals, in order to receive the subsidies outlined in this bill you must purchase the new Public Option (which CBO says will cost more than the private plans now available) and buy it through the new federally funded and administered health insurance exchange. 
  • The Federal Government has set itself up as both an insurance provider and insurance regulator. 
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