April 2010

Rejuvenating US Healthcare System – President Obama Creates History

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Through the recently passed Senate bill, President Barack Obama has taken the first step towards achieving his vision of extending affordable and quality healthcare to all citizens of America. eHEALTH brings you an overview of the current challenges in the US healthcare system and the key provisions laid down in the Senate bill, through which President Barack Obama plans to overcome these challenges.

As per current estimates, the United States spends almost 16 percent of its GDP on healthcare; which is a huge amount compared to most of the other United Nations member states. Until recently, the United States was the only wealthy, industrialised nation that did not ensure insurance cover for all its citizens, according to the Institute of Medicine of the United States National Academies. In 62 percent of all personal bankruptcy cases in the country, the major reason had been medical debts. Owing to many such issues, the healthcare system of the country was at the receiving end of much criticism for not being efficient enough to provide adequate health services to its citizens. The stupendous costs of healthcare services in the US, coupled with an unorganised health insurance sector created a huge gap between the health services available and health services availed by the citizens.

Focussing on universal healthcare, President Barack Obama proposed different healthcare reforms to improve the US healthcare system. The key factors outlined by the Obama administration, to improve healthcare services, included electronic record keeping, preventing expensive conditions, reducing obesity, refocussing doctors’ incentives from quantity to quality of care, payments for treatment of conditions rather than specific services, offering the most cost-effective treatment and reducing defensive medicine. He further planned his strategy to include deficit neutrality, minimising out-of-pocket expenses, restricting insurance companies to discriminate on the basis of pre-existing conditions, creating an insurance exchange for individuals and small businesses, tax credits for individuals and small companies; independent commissions to identify fraud, waste and abuse; and malpractice reform projects, among other topics.

The recent healthcare reforms under President Barack Obama focuses on the Patient Protection and Affordable Act, which was finally passed on March 25, 2010. Obama termed it as a historic move in the history of US healthcare, as after almost 100 years of debate, Americans will finally have the assurance of universal health cover through this bill. Under the revolutionary bill, health insurance will be extended to nearly all Americans, new taxes will be imposed on the wealthy, and restrictive insurance practices will be outlawed.

The House was, also, set to vote on a series of proposed changes to the Senate-passed measures. If the changes are approved by the House, they would require a final approval by the senators, before they could be signed into law by Obama. The legislation majorly requires substantial insurance market reforms to bar insurers from excluding people because of pre-existing medical conditions and preventing them from dropping policy holders. Further, insurance exchanges would be created through which small businesses and individuals, who do not have an employer-sponsored coverage would be able to buy insurance for themselves. The plans offered on the exchange would have to meet the minimum benefit requirements. Under a major move, the planned coverage would also allow children of insured parents to remain to their parents’ health policies, until they turn 26. As required by the Senate, the insurers will have to spend at least 85 cents of every premium dollar on medical care in small group markets and 80 cents in large group markets. In addition, the Medicare Advantage insurers would have to spend at least 85 percent of their revenues on medical care.

The Senate bill would make it mandatory for individuals to avail some form of health insurance, failing which, they would be fined up to 2.5 percent of their incomes by 2016. Firms with more than 50 workers, who do not offer medical coverage to their clients would have to face fines up to USD 2000 per full-time employee. Federal subsidies would be provided to help people with incomes up to 400 percent of the poverty level to purchase coverage on the exchange.

The bill would also have a Medicaid, a Government health insurance programme for the poor. This would be offered to everyone with incomes up to 133 percent of the poverty line. This will amount to approximately USD 10,830 for an individual and USD 22,050 for a family of four members. Many states also have eligibility requirements below these levels.

In terms of the revenue measures, the final proposal makes some amendments in the Senate-passed bill. As per the Senate bill, 40 percent excise tax would be levied on the high cost health insurance plans. The proposed changes would delay the implementation of this tax up to 2018, instead of 2013. This would in turn have an affect on plans of providing insurance coverage of USD 10,830 for individuals and USD 22,050 for a family of four members. It further suggests that a higher threshold is allowed for plans covering mostly women, older workers and retirees as well as those in high-risk professions. The bill also calls for raising the payroll taxes for Medicare from 1.45 percent to 2.35 percent for individuals earning more than USD 200,000 and couples earning more than USD 250,000. The proposed changes would apply the tax to some investment income as well for those high-income groups. As per the bill, fees would be imposed on medical device manufacturers, insurance providers and brand name pharmaceuticals. Again, the proposed changes would delay the implementation of this fees.

Key Elements of President Obama’s Planned Healthcare Reforms

  • Policies to improve the affordability and accountability
  • Policies to crack down on waste, fraud and abuse
  • Policies to contain costs and ensure fiscal sustainabilityHealth Insurance Reforms

As per the legislation, payments to insurers that provide coverage to Medicare patients in 2011 and begin reducing the subsidy in 2012 would be frozen. It would also gradually close the gap in drug coverage for Medicare beneficiaries by 2020. Those entering the coverage gap in 2010 will get a USD 250 rebate. In 2011 they would get a 50 percent discount on brand-name drugs.

In the first year (2010-2011), the key provisions of the healthcare legislation passed would bar insurance companies from dropping people from coverage, when they get sick. Lifetime coverage limits would be completely eliminated, while annual limits would be restricted. Currently, many of the health plans drop dependents from coverage when they turn 19 or join college; with the newly proposed bill, dependents would be covered under their parents’ policies until they turn 26. Also, uninsured adults with a pre-existing conditions will be able to obtain health coverage through a new program that will expire once new insurance exchanges begin operating in 2014. To help companies maintain health coverage for early retirees between age 55 and 64, a temporary insurance programme will be created , which will expire in 2014. As mentioned above, Medicare drug beneficiaries falling in the coverage gap will get a USD 250 rebate. The bill eventually closes that gap which currently begins after USD 2,700 is spent on drugs and coverage starts again after USD 6,154 is spent. Also, to help small businesses provide coverage for workers, a tax credit will be available.

The Senate bill’s final approval received a stunning turnaround from January, when it was considered dead after the Democrats lost their 60 seat majority. According to the Congressional Budget Office, the Senate bill will cost approximately USD 940 billion over 10 years, and will cut the Federal deficit by USD 143 billion over the same time period. Although, republicans have vowed to continue to challenge it, yet the democrats have been able to hail the approval of the legislation to the Senate bill. 

The Patient Protection and Affordable Care Act (Senate Bill): Key Proposals

  • Raising the payroll taxes for Medicare from 1.45 percent to 2.35 percent for individuals earning more than USD 200,000 and couples earning more than USD 250,000
  • Insurance plans participating in newly created exchanges permitted to include abortion coverage, but a separate payment should be made for the portion of the premium attributable to abortion coverage.
  • There would be no public option; instead the Federal government will mandate that the newly-created state insurance exchanges include at least two national plans that are created by the Office of Personnel Management.
  •  Each state will create its own insurance exchange under federal guidelines.
  • Medicaid eligibility expanded to 133 percent of the federal poverty level.
  • Illegal immigrants cannot participate in the exchange or receive subsidies.
  • Deficit would be reduced a total of USD 132 billion 2010-2019 after tax receipts and cost reductions.

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