How to Reduce Health Insurance Premiums

 

It’s no secret health insurance premiums are rising. What can be done about it?Reminds me of the old saying, “Everybody talks about the weather but nobody does anything about it!” But there actually is a way to lower health insurance premiums.

Avik Roy, healthcare economist writing in Forbes, says the answer is to eliminate the health insurance tax. Wouldn’t that be a nice Christmas present?

What is the health insurance tax?

A bit of history is needed here. When President Obama proposed the Affordable Care Act (ACA) in 2010, now known as ObamaCare, he insisted it be “budget neutral”, which means it would not increase the federal deficit. This made it politically acceptable – even if it required some subterfuge and “accounting creativity” to make it possible.

To make the $2 Trillion price tag for insurance subsidies possible, the ACA required huge cuts in Medicare spending ($716 Billion) and a long list of tax increases (21).

These tax increases harmed economic growth and contributed to the slow economic recovery after the 2008 recession. The Tax Foundation estimated the 3.8% net investment income tax alone cost the economy 133,000 jobs and restrained wage growth.

But Roy gives the blue ribbon for the Dumbest Tax in ObamaCare to the tax on health insurance premiums (HIT). The HIT is a tax assessed on every health insurance premium sold. The tax is assessed on the health insurance provider but the cost is paid by the one who purchased the policy since it is incorporated into the premium. The Joint Committee on Taxation estimates it will raise $161 billion in revenue between 2019 and 2028.

Actually, it’s worse than that – consultants have estimated that for every dollar the government raises in taxes, the premiums go up by around $1.27. If you do the math it translates into an annual premium increase in 2020 of $196 per person for buying coverage through ObamaCare; $458-$479 for those who obtain their coverage through their employer; $241 for enrollees in Medicare Advantage; and $147 for enrollees in Medicaid managed care plans.

Adverse Selection

The bad news is not over. Health insurance premiums go up even more for related other reasons.

First, as health insurance premiums get more expensive due to the tax, more healthy people drop out of the insurance market. As more healthy people drop out, premiums must increase even more to pay for the sick patients that remain.

Second, the federal government is subsidizing the cost of health insurance for nearly everyone. Premiums in Medicaid and Medicare Advantage are heavily subsidized by federal and state governments. The same is true for ObamaCare. Even employer-provided insurance is subsidized through the tax code (that doesn’t recognize this as income).

That leaves us with government at its worst: The federal government imposes a tax (HIT) that leads to higher premiums. Higher premiums lead to higher levels of subsidies of premiums paid by the same government.

The consulting firm Oliver Wyman believes the premium tax will result in $58 billion in additional spending on Medicaid premiums between 2020 and 2029. Premiums will rise $72 billion in Medicare Advantage, $103 billion for employer-sponsored coverage, $29 billion for individual –market coverage, $4.7 billion for Medicare drug plans, and $3.8 billion for federal employees.

That’s a grand total of $211 billion in premium hikes over ten years. Therefore, the HIT tax will raise $161 billion in revenue and cause premiums to go up $211 billion over the same ten years.

Roy says its time to repeal the HIT tax and there’s no better time than now during the “lame duck” session of Congress. It’s the perfect Christmas present for all Americans.

The Democratic Healthcare Plan

 

What is the Democratic healthcare plan? Democrats retook control of the House of Representatives in the recent mid-term elections largely based on their promises to improve your healthcare. They spent over $90 million on healthcare advertising alone. So what is their plan?

That’s the question John C. Goodman, healthcare economist writing in Forbes, asks in a recent post. What exactly do the Democrats plan to do?

Senate Democrats maintain a website called A Better Deal which purports to outline their plans. But here is what Goodman found when reviewing the site:

  • They have no plan to insure the 28 million Americans currently uninsured.
  • They have no plan to address the ObamaCare premiums that are 2 – 3 times higher than they used to be.
  • They have no plan to reduce the sky-high deductibles that cause people to avoid seeing their doctors.
  • They have no plan to address the narrow networks that exclude the best doctors and hospitals from these networks.
  • They have no plan to address the problem that half the counties in this country offer only on insurance provider.
  • They have no plan to address pre-existing conditions protections though most of their ads focused on this issue.
  • They do have a promise to stand up to pharmaceutical companies – whatever that means.

 

We have all heard that about half the Democrats in the House of Representatives, and many Democratic senators preening for a presidential run, have advocated “single-payer” healthcare, often referred to as Medicare For All. But the Democratic leadership in both chambers are avoiding this discussion and it is not mentioned on their website.

Goodman also examined the writing of economist Paul Krugman, a reliable apologist for Democratic thinking. He found an editorial entitled How Democrats Can Deliver on Health Care, which proposed two ideas the federal government should implement:

  • Allow individuals under age 65 to buy into Medicare
  • Allow Medicaid to be a public option competing in the exchanges

 

Goodman thinks Krugman, and most Democrats, believe Medicare and Medicaid are government programs that are fundamentally different from private insurance. In fact, both programs have been so extensively privatized that these “reforms” might not involve much change at all. Here’s why:

Conventional Medicare today is less attractive than most people think. Although the government pays for Part A (hospital coverage), the individual must purchase Part B (doctor coverage), Part D (drug coverage) and Medigap insurance (supplemental to cover what Medicare doesn’t cover). It is hardly a government give-away. Even after all that there is no catastrophic coverage.

As a result of all that, Medicare Advantage is growing in popularity. More than one-third of all seniors choose Medicare Advantage plans which are offered by private companies such as Humana, Cigna, and United Healthcare. These plans are less expensive and offer broader coverage. Their only real drawback is a limited choice of primary care physicians.

If Medicare were offered to younger people, it is likely most would choose a Medicare Advantage plan. But private plans like these are already available. The difference is seniors are heavily subsidized. They pay only about 20 percent of the cost of their insurance out of their own pocket. But if we’re going to subsidize young people we don’t need Medicare. We could just subsidize private insurance directly.

Goodman says no one in Congress is advocating spending more money to subsidize insurance that people already have access to. Yet a Medicare buy-in would amount to little more than that.

The same problems exist in extending Medicaid availability. About two-thirds of Medicaid enrollees nationwide are in private-sector health plans. The private insurance providers who operate these plans have been more successful than others in the ObamaCare exchanges. Centene, one of these, covers about one-fifth of all ObamaCare enrollees in the country.

However, quality has been a problem. The plan Centene offers in the exchanges is little more than Medicaid with a high deductible. There have been numerous complaints of patient abuse in the Texas Medicaid program and Centene was the contractor with the most complaints.

Goodman says these cheap, low-quality plans on the exchanges essentially are already a “public option.” But they don’t solve real healthcare problems. Democrats may be making promises to solve your healthcare issues but they don’t have any meaningful plans yet to do so.

 

More Generic Drugs – More Savings

 

Here’s some good news for a change – Americans are saving money on drugs. The Trump Administration has saved Americans $26 Billion over the last 20 months.

The reason is more approval of generic drugs. In the last 20 months the Trump FDA, under the leadership of Commissioner Scott Gottlieb, has approved an astounding 1,617 generic drugs. These generic drugs are identical to branded versions but sold at commodity prices after patents expire. That’s an incredible 81 generic drugs approved every month on average – a 17% increase over the preceding 20 months.

The Wall Street Journal says the Council on Economic Advisers has calculated the savings from these new generics at $26 Billion. Dr. Gottlieb deserves the credit for this incredible performance. He has put a priority on clearing out an application backlog, raising the priority on drugs where competition is limited, and more. The market for generics can respond to policy changes with some speed because copying a drug is much less onerous than new drug discovery and approval.

America takes a lot of flack for high drug prices but the American generics system is the envy of the world. Nine in 10 prescriptions in the U.S. are cheaper generics, which saved $265 Billion last year. Compare that with 70% generics in Canada and less than half in many European countries.

The U.S. drug industry carries the load for the world when it comes to R & D on developing new drugs. These new drugs are expensive while under patent protection. But eventually prices fall as competition arrives when patents expire. Europe enjoys less price discipline.

The White House notes that “as of August 2018 the relative price of prescription drugs was lower than in December 2016,” which is a dose of reality to anecdotes about skyrocketing costs. Important, too, is the point that patients also “save” from expensive new therapies in the form of extended and improved lives. Affordability is an issue only if a drug exists.

WSJ says no past Administration can boast this record of lowering prices without disrupting medical innovation. Yet President Trump is threatening to blow up this progress with his fixation on importing European price controls. (Trump’s Radical Plan to Lower Medicare Drug Prices)

WSJ concludes, “Naturally, Democrats want to set up a “price gouging” agency that would have roving authority to investigate and fine drug companies that are behaving in ways Democrats don’t like. Their model is the Consumer Financial Protection Bureau. Then again, Mr. Trump has rolled out his own demagoguery at pharma executives. The Administration’s record reveals that the better treatment is more competition.”

As I write this on Thanksgiving weekend, I am thankful for Dr. Gottlieb and his agency’s efforts to increase the number of approved generic drugs and the resulting savings for all Americans.