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Miles Mogulescu Headshot

The Health Insurance and Drug Industry Profit Protection Act Sucks and Should be Killed

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For 60 years, progressives, liberals, and most Democrats have stood for universal health care, paid for by progressive taxes, and available to all Americans from birth 'till death. The Obama administration and Congressional Democrats have now stood that goal on its head with a bill that purports to provide health care to the uninsured by forcing them to buy defective and unaffordable insurance from unscrupulous private companies or be fined by the IRS, puts no limits on premiums, allows drug companies to charge whatever they want, and taxes the insurance policies of union workers and older Americans whose premiums are higher.

What's left of health care "reform" is little more than a massive taxpayer-financed subsidy to private insurance and drug companies. No wonder the insurance companies are blogging "we won!" This bill should be defeated.

I say this with no great joy. Although, as I've written extensively in these pages, I'm a long-time supporter of Medicare-For-All, there's a version of incremental reform which would still be worthy of support as a compromise--It would have included a robust public option with Medicare-based pricing available to a large number of Americans, regulation of private insurance premiums, negotiation of drug prices by the Federal government, an end to the insurance industry's exemption from anti-trust laws, a Medicare buy-in for 55-65 year-olds, among other things. But none of that is included in the current Insurance and Drug Industry Profit Protection Act now being proposed in Congress.

When single payer was taken off the table from day one, we were told "go along to get along; don't let the perfect be the enemy of the good." When proposals for a massive public option that could compete with private insurance and lower premiums was taken off the table and replaced with a neutered public option that would cover only a few million Americans at higher rates than private insurance, we were told "go along to get along; don't let the perfect be the enemy of the good". When the neutered public option was take off the table and replaced by a Medicare buy-in for 55-65 year-olds, we were told "go along to get along; don't let the perfect be the enemy of the good". Now, when even the Medicare buy-in is taken off the table, we're told "go along to get along; don't let the perfect be the enemy of the good."

Well boys and girls, this is where the rubber meets the road. With the exception of a few provisions (increases in Medicaid eligibility, elimination of pre-existing conditions) most of what's left of health care "reform" isn't perfect; it's not good. It downright sucks.

How does it suck? Let me count the ways:

• The worst part is the individual mandate coupled with no price regulation and no competition to private insurance from a robust public option. The Democrats' solution to 48 million uninsured is to use the coercive power of the Federal government to make uninsured Americans buy health insurance from private companies or be fined by the IRS, with no limits on what the insurance companies can charge, and with inadequate subsidies to make such insurance affordable to many middle class and working class Americans. This may be the first time in history that the Federal government will force American citizens to buy the products of a private industry.

Currently, health insurance policies for individuals average over $6,000 per year and policies for families average over $14,000 per year and are increasing annually at close to 10%. The subsidies in the bill are inadequate to make insurance affordable to middle class people mandated to buy it. For example, those making between 300%-400% of the Federal Poverty Level (i.e. between $32,490-$43,320 for individuals or between $66,140-$88,200 for a family of 4) will be required by the government to pay 10% of their income for a policy that covers only 70% of their health care costs. That means individuals in this income range would be forced to pay $3,249-$4,320 and families would be forced pay $6,614-$8,820 in premiums and they would then have to pay 30% of their actual health care costs on top of that, after deductibles, up to an additional $12,000 a year. This is junk insurance, since after paying the premiums, many of these people couldn't actually afford to go to the Doctor. (The subsidies are based on 70% co-pays, but the law would actually allow the insurance companies to sell super-junk policies with co-pays as high as 40%-50%.) People making over 400% of the Federal Poverty Level would be forced to pay 100% of the private insurance premiums. In addition, insurance companies could charge older Americans up to three times what they charge younger Americans.

When the American people realize how much they will have to pay for so little, they will blame the Democrats, with lots of encouragement from Republicans who will still claim this government subsidy to private businesses is "socialism". Rather than this being an incremental step which liberals hope will prove to people that the government can help them get access to health care, it's more likely to prove to them that the government is forcing them to buy a defective product which they can't afford. They won't be asking for improvements in the government system. They'll be demanding that the government--and the Democrats--get out of their lives. And rightfully so.

• Nothing in the bill limits how much insurance companies can charge for premiums. While the bill prevents insurance companies from rejecting people for pre-existing conditions, they will almost surely use the excuse that they are taking on additional risk to raise premiums. In addition, they will probably use the 4 years between the time the legislation passes and the time the mandates, subsidies, and insurance exchanges take effect in 2014 to raise premiums at an even faster rate, just as banks jacked up credit card rates between the time Congress passed credit card reform and the time it takes effect. This is especially true since in many states, insurance companies are oligopolies, with one or two companies controlling 75%-95% of the market and no price competition. Expect premiums at least 30%-40% higher than now by 2014. This will blow a hole in the pockets of the American people and the Federal budget.

There are only a couple of ways to control premiums, none of which are in the bill. The first might have been a robust public option tied to Medicare rates. This would have given people an alternative to private insurance if the private insurers raised their rates too much. But first the Blue Dogs in the House killed the Medicare rate tie-in and then the Senate caved into Joe Lieberman and killed the public option entirely. The other would be government price regulation. Most states, which require that car-owners carry liability insurance in exchange for the privilege of driving, have insurance rate regulation (although many state regulators are still overly sympathetic to the insurance companies.) No one has proposed that federal health insurance mandates include rate regulation--and the insurance companies would squawk like stuffed pigs if anyone did. With no robust public option, no rate regulation, and over 30 million mandated new customers, insurance companies can charge whatever they want.

• The Obama administration made a deal with the drug companies and reneged on its campaign pledge to allow Medicare to use its purchasing power to negotiate lower drug prices and to allow people to buy cheaper drugs from Canada. This would have saved tens of billions of dollars a year, which could have been used to make health care more affordable. The House bill still contains the Medicare drug negotiating provision, but it's been stripped from the Senate bill and the Obama administration seems determined to force Congress to honor its backroom deal with the drug companies.

• The Senate pays for part of the cost of the subsidies by charging a 40% excise tax on employer-paid health insurance policies costing more than $8500 for individuals or $23,000 for families. This is called a "Cadillac tax" but it's really a "Chevy tax". It would fall on approximately 19% of policies in its first year. Many union-negotiated policies cost more than this, especially for workers in high risk jobs. In addition many older people pay more than this in premiums. This will encourage businesses, in order to avoid the tax, to provide less expensive policies which have higher deductibles and higher co-pays paid for by their employees. (So much for President Obama's promise that "if you like the health insurance you have, you can keep it".)

Economists (the same people who thought deregulation wouldn't lead to a financial melt-down) think this tax is a good thing since, if people have to pay more for their health care, they'll use less of it, which, economists says, will save money. In fact what it will do is discourage people from getting tested early for things like prostate or breast cancer or diabetes, or paying for drugs that can keep them healthier longer like cholesterol-lowering drugs, which will just lead to higher costs later if they get sick and need costly medical procedures. Other than that, the bill will have almost no effect on the majority of Americans who are insured through work.

• The Senate has stripped out a provision that would end the anti-trust exemption which makes insurance companies the only business--other than professional baseball--which is not subject to anti-trust laws. This means the Federal government can't do anything to prevent insurance companies from engaging in such monopoly practices as price fixing and divvying up markets.

• The Senate has stripped out provisions that prevent insurance companies from placing annual caps on the amount of benefits they pay out to individuals or families. This means that after paying premiums and co-pays, someone who gets really sick and needs expensive treatment like chemotherapy or organ transplants could end up exceeding the cap and having to pay the rest of their healthcare costs themselves, likely bankrupting them, if not denying them needed care.

• Congress gave drug companies a 12-year exclusivity period on biologic drugs, before such drugs can be sold at cheaper rates by generic manufacturers. In addition, by making small modifications (e.g creating a slow-release version), drug manufacturers can extend this exclusivity indefinitely. Many of these new drugs cost as much as $300,000 a year, which after paying premiums and co-pays and running up against annual caps, puts them out of reach of many the people who need them the most.

• While there's an individual mandate, the Senate has stripped away a mandate for employers to provide health insurance to their employees. In its place, the Senate has inserted a provision that would discourage employers from hiring low income people or those with children. The provision requires employers who hire people who receive government subsidies for buying individual insurance to pay substantial penalties. This would encourage employers to avoid hiring low and medium income people who qualify for subsidies and particularly discourage them from hiring people with children, since those people would get subsidies at higher income levels.

The laundry list of horrible goes on. This is essentially a health "reform" bill written by lobbyists and former lobbyists for insurance companies, drug companies, and for-profit medical providers.

The only argument left for supporting this bill is that Democrats needs to pass something, anything, called "health care reform" to prove they can accomplish something and not be punished by voters. This is in fact a dilemma. Since Democrats campaign on universal healthcare, voters may well be less likely to vote for them if they don't deliver. Unfortunately, this is a dilemma of Obama's and Congressional Democrat's own making. If Democrats pass a bad bill which makes people buy unaffordable junk insurance and taxes employees with good insurance, voters may be even more likely to punish them.

The best short-term solution may be to kill this terrible "comprehensive" health "reform" bill. Let it go down 41-59 in the Senate and then blame the Party of No and the Party of Joe. Then pass a series of individual bills which keep the best parts of the larger bill and incrementally improves things. Use reconciliation, where possible, and, where not possible, force Republicans to filibuster against popular provision live and in person. Among these individual fixes are:

• Pass the cost-savings reforms to Medicare. In particular, abolish the Medicare Advantage program which subsidizes private insurance companies to provide Medicare drug benefits at a 17% higher cost than the government-run Medicare plan.

• Use the Medicare savings to increase Medicaid eligibility to 150% of the Federal Poverty Level, and subsidize the states for the extra cost.

• Let Medicare use its negotiating power to lower drug costs and allow people to buy cheaper drugs in Canada.

• Revoke the insurance company's anti-trust exemption.

• Let uninsured individuals buy into the Federal Employee Health Plan available to government workers, without any restrictions on pre-existing conditions.

Then go back to the drawing boards, put together a truly progressive comprehensive health care reform bill, and organize a true grassroots movement to get it passed.

It's not the best outcome. It would have been better if the Obama administration and Congressional Democrats had stood up to the insurance and drug companies in the first place and fought hard for a good bill. But under the circumstances, it's better than passing The Health Insurance and Drug Industry Profit Protection Act that's currently on the floor of Congress.

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