Healthcare Reform’s Act

The bitterest national debate in years is over. Before President Obama signed the Patient Protection and Affordable Care Act (PPACA) of 2010, wild claims filled the air like spooked bats. Healthcare reform would be a calamity. It would be a panacea. We were stepping off the brink or away from the brink, and commentators on all sides seemed utterly sure of themselves.

Now that the bill is law, some — hardly all — of the rhetoric has died
out and it is clear that neither side was 100% correct.

The reform will not give us death panels, socialism, or the hiring of thousands of additional IRS agents. The nightmare claims of opponents were illusion. At the same time, the bill will not resolve all inequities or bring us a system as efficient and popular as those in every other industrialized nation — or as Medicare itself. Moreover, provisions may prove unable to meet their goals, and even if they do, the courts may overrule them.

The good news is that the law brings significant, concrete improvements and both sides will now have to measure their rhetoric against an actual statute.

We may see some uncertainties over the next 30 to 60 days, since the Secretary of Health and Human Services is about to issue new regulations on the reforms. In addition, states will receive grants from HHS to set up information centers for consumers.

Meanwhile, I’d like to point out both some of the benefits and limitations I see in the reform.

First, small businesses will get more oxygen. Notably, under the reform they can collaborate in buying health insurance for their employees. They can thus gain the bargaining power of much larger companies and drive prices down. Overall, these pools will likely cut costs for small businesses while increasing coverage.

In addition, firms can cut their costs through substantial tax credits:

  • Companies with 10 or fewer full-time employees earning an average of less than $25,000 per year will receive a 35% tax credit on health insurance costs.
  • Companies with 25 or fewer employees and an average salary of $50,000 qualify for partial credits.
  • Companies buying coverage through a state exchange can get their tax credit increased to 50% over the course of two years after entering the program.

Which firms qualify for the pools? There are two dimensions here: size and state. First, the law applies to businesses with fewer than 100 employees. However, states can restrict the pools to firms with no more than 50 employees. It will be interesting to see how many states act to increase the burden on their small businesses and weaken their economies overall, but a great deal of untethered passion is circulating around these issues. Some clarity should emerge over the next few months, as the new law mandates that each state create a web site describing insurance options. Within six months, reform will bring new restrictions to health insurers. For instance, it will:

  • Eliminate lifetime dollar limits on benefits.
  • Ban discrimination against lower-wage workers.
  • Permit unmarried dependents under 26 to remain on their parents’ insurance.
  • Forbid insurers from denying coverage to children with preexisting conditions. The more sweeping ban on denying coverage to anyone with pre-existing conditions does not kick in until 2014.

States will play a role beyond the small business issues. On the one hand, they can form compacts across boundary lines to sell insurance together by 2016. Some states have indicated a willingness to act quickly here and this could be good news for everyone. Other states such as Florida and Virginia are hoping to opt out of the reform and have threatened lawsuits challenging the constitutionality of the requirement that most individuals obtain health insurance starting in 2014 or face penalties. The impact of these moves remains unclear.

Another uncertainty is its impact of the bill on insurance companies, whose behavior in recent months — including the decision by Anthem Blue Cross of California to raise individual rates by 39 percent — helped reformers get the votes to pass the bill. As it happens, insurance companies may benefit considerably from reform. Mandated coverage could bring in over 30 million new customers and hence an inflow of new cash. Insurance companies, I believe, will begin to see opportunities in reform that they simply didn’t want to acknowledge before. It will be interesting to see if they start attacking states like Florida seeking to prevent mandatory coverage.

I am very much for healthcare reform and the recent bill is a start. But we need to do much more. Insurance will likely still cost far more than it does in the other industrialized nations, and the average person will likely still get worse medical care. We can go farther and do better, and I hope that improvements continue to streamline the system and control costs.

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