U-Shaped Curve of Health Status and Coverage

Posted by on Tuesday, Oct 2, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Health Status, Health Insurance, and Medical Services Utilization: 2010

By Brett O’Hara and Kyle Caswell
United States Census Bureau: Current Population Reports, October 2012

There is a U-shaped relationship between health status and having any type of health insurance coverage. Among all people who reported excellent health, 85.0 percent were insured. For those who reported good health, 80.2 percent had health insurance coverage. Finally, 85.1 percent of people who reported poor health also had health insurance coverage.

This U-shaped relationship for the overall insurance rate is partially attributable to trends in the type of health insurance coverage. For example, 15.7 percent of people with excellent health reported having only public insurance, compared with 44.7 percent of people with poor health. On the other hand, the percentage of people with excellent health who had private health insurance was 69.3 percent, compared with 40.4 percent of people in poor health.


This seemingly mundane observation from this Census Bureau report provides great insight into the problems with health care financing in the United States.

It is astonishing that a country that spends so much on health care would have a U-shaped curve, or any curve for that matter, on the relationship between health status and whether or not one is insured.

Considering our financing system, the curve is easy to understand. People in excellent health also tend to have favorable socioeconomic circumstances that would result in higher enrollment in private insurance plans. Likewise, people in poor health tend to have less favorable socioeconomic circumstances that would result in higher enrollment in public insurance programs. People in good health would fall in between and thus would lie in the trough of the U-shaped curve, with lower rates of insurance than those well off and those benefiting from government programs.

If we had a decent health care financing system, wouldn’t those in good health be as well covered as those in excellent health and those with public programs? More importantly, shouldn’t either end of the U-shaped curve reach 100 percent coverage? And wouldn’t the trough be wiped out so everyone with good health were covered as well?

The Affordable Care Act might shift the entire curve up as more are covered, but the 30 million who will remain uninsured will perpetuate the bizarre U-shape of the curve. We need a flat line, at the top, with 100 percent coverage. That’s everyone, like we would have in an improved Medicare for all.

Small business owners under the Affordable Care Act

Posted by on Monday, Oct 1, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

How Small Business Owners Get Health Insurance

By Larry Levitt, Anthony Damico, and Gary Claxton
Kaiser Family Foundation, Health Insurance and Reform, September 28, 2012

As with any economic policy issue, there has been much discussion of how the Affordable Care Act (ACA) will affect small businesses. But, there’s been very little focus on how the health reform law will affect the owners of those businesses as people.

As our recently released Employer Health Benefits Survey shows, small businesses are much less likely than larger businesses to offer health benefits to their workers. Half of businesses with 3-9 workers and 73% of firms with 10-24 workers provide health insurance. That contrasts with 98% of firms with 200 or more workers that offer health coverage.

The workers in these firms that do not offer coverage must rely on employer-based insurance through a family member, buying insurance in the individual market (assuming they can afford the coverage and do not have a pre-existing health condition), or in many cases going uninsured.

But what about the owners of these small businesses? They’re pretty much in the same boat.

A few striking things emerge from this analysis:

• About one in four small business owners is uninsured, roughly the same as for non-elderly adults generally.

• Just 40% of small business owners get job-based insurance, either from their own job or through a family member. In contrast, almost six in ten non-elderly adults get their insurance through an employer.

• Small business owners rely heavily on the individual insurance market, with 30% of them buying “other private insurance” (the vast majority of which is coverage purchased in the individual market).

This suggests that the biggest effects the ACA will have on small business owners may not be changes in the rules for the small business insurance market, but rather the changes in the individual insurance market: guaranteed access to coverage and no premium surcharges for people with pre-existing health conditions, limits on how much premiums can vary by age, a requirement that all insurers cover a set of “essential” benefits, the creation of health insurance exchanges, the requirement to be insured, and tax credits to make premiums more affordable. In fact, an estimated 60% of small business owners now buying insurance in the individual market have incomes up to 400% of the poverty level and would be eligible for tax credits in exchanges or Medicaid, and 83% of owners who are now uninsured would be eligible for subsidized coverage (split about equally between tax credits and Medicaid).

It may be that we can gain more insight into the implications of policy issues like health reform for small business by focusing less on the businesses themselves and more on the people who own them.


Census tables on firm sizes, receipts and payrolls:

In both policy and political debates, small business owners have been separated out for special attention as “job creators” who should not have to pay higher marginal income tax rates on the portion of their incomes over $1 million. This deceptive framing that falsely suggests that they are the primary drivers of our economy masks the fact that most small business owners have very modest incomes and are heavily dependent on the dysfunctional individual insurance market, and one-fourth of them aren’t even insured.

Over three-fourths of firms have no payroll, so these represent self-employed business owners, presumably with very modest incomes on average (see Census link above). Of firms with payrolls, over half have total receipts of less than $100,000 which is used for payrolls, all other business expenses, and the net income of the business owner. Most small business owners do not fall into the prototype “job creators” that the politicians keep talking about.

They have a problem with health insurance. This Kaiser reports shows that many of them will benefit from the improvements in the individual insurance market that are required by the Affordable Care Act. But, as we have shown many times in the past, these plans will still have unaffordable premiums and unaffordable out-of-pocket costs, even with the subsidies to be provided by the Act. Many of them will remain in the ranks of the uninsured, estimated by the CBO to be 30 million people. The Affordable Care Act will not meet the health care needs of far too many small business owners.

Our small business owners deserve what all of us deserve: an affordable health care system that takes care of everyone – an improved Medicare for all.

Wealth redistribution for health care

Posted by on Friday, Sep 28, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Redistribution of Wealth in America

By Uwe E. Reinhardt
The New York Times, September 28, 2012

A recent article in The Washington Post and an audio clip accompanying it on the Web featured an excerpt from a speech in 1998 by Barack Obama, then an Illinois state senator, at Loyola University Chicago.

In that speech he remarked, “I actually believe in redistribution, at least at a certain level, to make sure that everybody’s got a shot.”

The article then quotes Mitt Romney: “I know there are some who believe that if you simply take from some and give to others then we’ll all be better off. It’s known as redistribution. It’s never been a characteristic of America.”


Aside from hard-core libertarians, who view the sanctity of justly begotten private property as the overarching social value and any form of coerced redistribution as unjust, how many Americans on the left and right of the political spectrum would disagree with Mr. Obama’s very general and cautiously phrased statement?

In fact, I wonder whether even Governor Romney actually disagrees with that general statement, aside from some dispute over “the certain level” at which redistribution takes place. After all, he has promised elderly voters to protect the highly redistributive Medicare program, which would remain highly redistributive, or become more so, under proposals by his running mate, Representative Paul D. Ryan, for restructuring Medicare.

The fact is that redistributive government policy — mainly through benefits-in-kind programs, agricultural policy and the like — has been very much a characteristic of American life, just as it has been in every economically developed nation, albeit at different levels.

At issue between the two political camps in this election season, then, is not redistribution per se, which is as American as apple pie. Rather, at issue is the “certain level” to which that redistribution is to be pushed. An honest and thoughtful debate on that would certainly be useful at this time. It would be useful at any time.

To be respectful to voters, such a debate should proceed at a level concrete enough to allow voters — or at least researchers and news organizations — to estimate fairly precisely how different families would fare under the different visions of that “certain level.”

It is the minimum voters ought to expect from political candidates.


Comment originally published on the New York Times Economix blog.

Even though Mitt Romney derides redistribution, he too actually supports it. “Romneycare” was prompted by an opportunity to use a larger share of federal Medicaid funds if they could design a program that would comply with federal requirements. Although Medicaid is a program with redistribution to the poor, in this instance it was also a redistribution to Massachusetts from the taxpayers of all other states, since Massachusetts would have had to forgo the funds had they not acted.

Romney is now taking pride in that transfer, but at the same time he rejects “Obamacare,” even though it is a program which ensures a similar redistribution as he supported in Massachusetts, but with a greater degree of fairness in the redistribution between states.

We could dismiss this as the silliness typical of electoral politics, except that the politicians carry through with policy once they are in control. That has consequences. We have the most expensive health care system of all nations, yet also one of the most inequitable, partly because of our failure to adopt policies that would ensure the fairest redistribution through an efficient health care financing system.

The most efficient system that eventually would receive the support of the majority of U.S. citizens would be an improved Medicare program that served everyone. That would be the right way to redistribute our wealth to the benefit of our health, if only we citizens had the political wisdom to demand it.

Important! Large self-insured employers are bailing out

Posted by on Thursday, Sep 27, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Big Firms Overhaul Health Coverage

By Anna Wilde Mathews
The Wall Street Journal, September 26, 2012

Two big employers are planning a radical change in the way they provide health benefits to their workers, giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace.

Sears Holdings Corp. and Darden Restaurants Inc. say the change isn’t designed to make workers pay a higher share of health-coverage costs. Instead they say it is supposed to put more control over health benefits in the hands of employees.

The approach will be closely watched by firms around the U.S. If it eventually takes hold widely, it might parallel the transition from company-provided pensions to 401(k) retirement-savings plans controlled by workers and funded partly by employer contributions. For employees, the concern will be that they could end up more directly exposed to the upward march of health costs.

“It’s a fundamental change…the employer is saying, ‘Here’s a pot of money, go shop,’ ” said Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonprofit. The worry for employees is that “the money may not be sufficient and it may not keep up with premium inflation.”

Darden did say that employees will pay the same contribution out of their own pockets that they currently do for approximately the same level of coverage. Employees who pick more expensive coverage will pay more from their paychecks to make up the gap. Those who opt for cheaper insurance, which may involve bigger deductibles or more limited networks of doctors and hospitals, will pay less.

“It puts the choice in the employee’s hands to buy up or buy down,” said Danielle Kirgan, a senior vice president at Darden. The owner of chains including Olive Garden and Red Lobster will let its approximately 45,000 full-time employees choose the new coverage in November, to kick in Jan. 1. Darden says that employees with families to cover will be given more money to buy insurance than employees covering just themselves.

The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health-care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers.

Several big benefits consultants and health insurers are betting on the employee-choice model. Major consulting firm Aon Hewitt, a unit of Aon PLC, is behind the insurance exchange that Sears and Darden will use, while rival Towers Watson TW & Co. in May bought Extend Health Inc., an online marketplace used by employers to hook retirees up with Medicare coverage. It plans to expand the marketplace to include active workers buying individual plans, starting in 2014.

“Within the next two or three years, it’s going to be mainstream,” said Ken Goulet, executive vice president at WellPoint Inc. The insurer will roll out a product next year called Anthem Health Marketplace that lets employers offer a variety of its plans to workers, paired with a fixed contribution. Mr. Goulet said it is close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.

Exchange operators today say they offer employers more predictable costs, as well as potential savings gleaned from workers’ voluntary choice of skinnier coverage and competition among insurers offering plans on the exchanges.


Many larger employers have said that they do not want to be the first to initiate major structural reforms in their employee health benefit programs – reforms that would bring the employers relief but at a cost to their employees – but that they would quickly follow others out the door. It looks like the door has opened.

This is a very fundamental change in employee health benefit coverage. The Affordable Care Act relies heavily on self-insured large employers maintaining their coverage of a large percentage on America’s workforce, so that the Act can concentrate on lower-income and uninsured individuals. Under the radical change described in this WSJ article, employers will discontinue their self-insured programs and switch to a defined contribution – a specific dollar amount that employees will use to shop for health plans in these employer insurance exchanges.

There has been considerable discussion recently over converting Medicare to a defined contribution – premium support or voucher program – in which the costs to the government would be fixed to some index of inflation, whereas the greater increases in health care costs would be borne by the Medicare beneficiary. Thus health care would become less and less affordable, especially for those with greater health care needs.

With this move by employers, they are putting in place the same perverse defined contribution approach which we have determined would be so destructive to our Medicare program. And, oh yes, the benefits consultants and health insurers are jumping in to draw off even more health care funds in administrative costs – already one of the greatest burdens in our health care system. The executive vice president of WellPoint says, “Within the next two or three years, it’s going to be mainstream.”

Further, as was reported in yesterday’s Quote of the Day, over 90 percent of individuals do not select the Medicare Part D drug plan that would be best in their individual circumstances. It shows that health insurance shoppers really do not know how to shop for health insurance. Obviously comprehensive health plans are much more complex, and it would be virtually impossible for individuals to select the best plan, even with the language of simplified plan descriptions called for in the Affordable Care Act.

In fact, several studies have shown that most individuals select plans based primarily on the lowest net premium, with very little attention paid to plan benefits and cost sharing. The most common strategy for insurers to keep premiums low is to use large deductibles and coinsurance, though they also manipulate benefits and provider networks to reduce costs. Besides the increasing deductibles, coinsurance is particularly a problem since it is a percentage of the charges rather than a dollar copayment which is usually much smaller. Low premium plans tend to set coinsurance rates at very high percentages. As this article states, the savings will be dependent upon “workers’ voluntary choice of skinnier coverage.” It’s all the workers’ fault!

It is likely that the initial defined contributions will be fairly close to the amounts that employers are currently paying for the health benefit programs, so the immediate impact will not be transparent. Only after many employees face bankrupting medical debt – a phenomenon that will increase as the employer contribution buys ever less insurance – will the implications be clear. It is tragic that so many will have to experience financial hardship before we are ready to get serious about fixing our system by enacting an improved Medicare for everyone.

Important! Over 90 percent fail choose the right Part D plan

Posted by on Wednesday, Sep 26, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Plan Selection in Medicare Part D: Evidence from Administrative Data

By Florian Heiss, Adam Leive, Daniel McFadden, Joachim Winter
The National Bureau of Economic Researchm June 2012

From the NBER Digest:

Fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans.

In Plan Selection in Medicare Part D: Evidence from Administrative Data (NBER Working Paper No. 18166), co-authors Florian Heiss, Adam Leive, Daniel McFadden, and Joachim Winter analyze data on medical claims in Medicare Part D drug insurance programs. They find that fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans. This is apparently because seniors pay more attention to their out-of-pocket premiums than to the overall benefits of the dozens of drug plans available to them. Equally significant, the researchers believe that how seniors decide whether to enroll in Medicare Part D, and what plans they select, is important not only for management of the Part D program, but also is indicative of how consumers behave in real-world decision situations with a complex, ambiguous structure and high stakes. The researchers add that their findings may yield predictions for how seniors will handle plan choices in the new general health insurance exchanges that will implement the Patient Protection and Affordable Care Act of 2010.


NBER Working Paper No. 18166 (47 pages):

If over 90 percent of purchasers of the Medicare Part D drug plans fail to choose the plans that are best for themselves, then how could we ever expect them to make wise decisions in selecting the best plans from the much more complex plans of the state health insurance exchanges, or, for that matter, from the choice of Medicare Advantage plans or the plan choices to be offered in the proposed premium support (voucher) markets?

The last sentence from “Conclusions” in their paper: “Our results then do not support the proposition that consumers can make and benefit from good choices in private health insurance markets, and direct health care resources to their best use.”

This is really important. Inserting very expensive, profoundly wasteful insurer administrative intermediaries into the system under the guise of choice – choices that cannot be made on a rational basis, choices that are all worse than a single, comprehensive publicly-administered plan would be – is the ultimate of reckless decisions made by the policy community and the politicians that they work for.

Let’s improve Medicare by eliminating the Part D and Medicare Advantage intermediaries and folding an improved version of those benefits into the traditional Medicare program, and then provide it to everyone. It would be cheaper overall and would open up our choices to the choices we really want – that of our health care professionals and institutions. That would be far better than this nonsense of choosing from all the wrong choices.

The Democrats’ market-friendly health care alternative

Posted by on Tuesday, Sep 25, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

The Democrats’ Market-Friendly Health-Care Alternative

By Ezekiel J. Emanuel, Neera Tanden and Donald Berwick
The Wall Street Journal, September 24, 2012

Conservative and liberal health-policy experts agree that the key to sustainable cost control lies in encouraging physicians and hospitals to focus on quality rather than quantity, and value rather than volume.

According to a study published in August in the New England Journal of Medicine, over the past decade per-person costs in Medicare have increased less than those of private insurance, and are projected to be 1.2 percentage points lower than those of private insurance per year over the next decade.

Why should anyone believe that the Affordable Care Act and our new proposals will actually control costs? After all, skeptics argue, Medicare costs have increased inexorably despite myriad policies designed to control them. But we propose a break from the past, which has largely relied on the government’s setting of payments. Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy. This is neither government nor insurer rationing. It is a market-friendly approach that empowers health providers to re-engineer how they care for patients.



Health Care Cost and Utilization Report:  2011

Health Care Cost Institute (HCCI)
September 2012

For 2011, HCCI found increases in prices were the primary cause of increased health care spending for the privately insured younger than 65 and covered by ESI (employer-sponsored insurance).

The rate of price growth for all major services outpaced changes in utilization. The primary cause of increased prices was growth in unit prices.


The authors of this Wall Street Journal opinion article have participated in the development and implementation of the Democrats’ Affordable Care Act. Increases in prices continue to be a primary cause of increases in health care spending, so what do these authors recommend? “Our alternative is to allow the market to set many prices for medical goods and then to change payment and reimbursement methods so that physicians and hospitals have the incentive to keep patients healthy.”

Health care prices remain a problem. The health care market, such as it is, always has set prices high and will continue to do so. Utilization is not excessive. It is comparable to other nations with far lower total spending. Incentives designed to reduce utilization risk impairing access to appropriate care, thereby impairing quality.

It is futile to continue to pretend that market approaches within our highly dysfunctional financing system – that perpetuated by the Affordable Care Act – will ever bring us quality health care at a reasonable cost. Allowing the market to set prices is utter nonsense. Our own public stewards, working with the health care delivery system, can price our health care services and products properly, providing that they are allowed to function as a single payer monopsony (not to mention all of the other benefits of single payer financing).

We don’t need more market-friendly Democrats. We need patient-friendly politicians, though they are a rare sighting these days.

So you want coverage as good as that of members of Congress?

Posted by on Monday, Sep 24, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Rep. Jesse Jackson, Jr. Forced To Sell Luxury Townhouse To Pay Medical Bills

Your Black World
September 20, 2012

In a statement released by Rep. Jesse Jackson, Jr.’s chief of staff, Rick Bryant, Rep. Jackson and his wife have made the decision to sell their townhouse in Washington D.C. to defray medical expenses Jackson has acquired for his depression and bipolar disorders. “Like millions of Americans, Congressman Jackson and Mrs. Jackson are grappling with soaring health care costs and are selling their residence to help defray costs of their obligations,” the statement read. “The congressman would like to personally thank everyone who has offered prayers on behalf of his family.” Jackson aides could not say how much, if any, of the expenses are covered under his health insurance plan.


Those who say repeatedly that everyone should have the same health care coverage as members of Congress should check with Rep. Jesse Jackson, Jr. He is losing his Washington, D.C. townhouse because of medical bills.

Other than the statement released by his chief of staff, we don’t know any of the details, and we shouldn’t since common decency dictates that we respect his privacy.

We could speculate on the great many potential factors that might be involved as to why a member of Congress faces a financial hardship due to medical bills, but we won’t, even though many come to mind. We’ll merely state that we need a health care financing system that removes financial barriers to care – for everyone. A properly designed single payer national health program would do that.

Anthem Blue Cross learns how to control costs

Posted by on Friday, Sep 21, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Cedars-Sinai and UCLA cut from Los Angeles health plan

By Chad Terhune
Los Angeles Times, September 21, 2012

Two of the most prestigious names in Southern California healthcare — Cedars-Sinai and UCLA — are getting shut out of a major insurance plan for being too expensive.

In a bold cost-cutting move, Anthem Blue Cross has eliminated doctors affiliated with the hospitals from a health plan offered to about 60,000 employees and dependents at the cash-strapped city of Los Angeles.

The city opted for Anthem’s plan because it will save $7.6 million in annual premiums next year by excluding physicians from the two institutions known for tending to the Southland’s rich and famous.

“Purchasers are sending a signal that certain prices are just unaffordable,” said David Lansky, chief executive of the Pacific Business Group on Health, which represents large companies such as Walt Disney Co. “We want great teaching and medical research institutions to survive. Whether that should happen by charging everyone in society a higher rate for routine services is more debatable.”

“Implementation of the narrow network was a difficult choice, but one made necessary by the city’s fiscal constraints,” a city spokesman said. Los Angeles is expected to be the biggest employer to offer Anthem’s Select plan.

Officials at Cedars-Sinai and UCLA criticized the rationale for the move, saying the increased costs are tied to their world-class medical research and cutting-edge treatments in areas such as cancer or organ transplants that benefit the entire community.

Thomas Priselac, chief executive of Cedars-Sinai Medical Center, said these exclusions offer a “false economy” because they don’t reduce costs in the healthcare system overall.

“It just pushes the cost onto those who continue getting care at those facilities,” Priselac said. “Secondly, it doesn’t recognize the reason why places like Cedars and UCLA are more expensive than the typical community hospital.”

For its part, UCLA said its hospitals treat a large number of patients in Medi-Cal, the government program for the poor and disabled.

“Other providers don’t have to deal with the expenses UCLA has to deal with,” said Santiago Muñoz, chief strategy officer for the UCLA Health System.

Anthem isn’t alone in pursuing this strategy. Many insurers are aggressively pitching these sharply limited networks, which offer fewer choices and lower-priced doctors and hospitals, as a cost-cutting tool at a time when U.S. health insurance premiums have climbed three times as fast as inflation and wages over the last decade.

Industry giant WellPoint Inc., which owns Anthem Blue Cross in California, offers plans that include as few as 30% of the company’s full list of providers.


The explosion in limited-network private insurance plans is taking choice away from more and more patients. The business tools that  private insurers use to control costs are very different from the patient-service tools of a single payer national health program. Not only do the private insurers’ tools restrict patients’ care, but they are also quite ineffective in controlling overall spending, as is demonstrated by the fact that our health care costs are about twice the average of other nations.

Under a single payer system, all legitimate costs are paid by the government and are not linked to specific health plans assigned to different individuals – a very inefficient and fragmented method of financing health care. Using the example of UCLA, there would be no tiers of private coverage and no problem with an underfunded Medicaid program. The hospital costs would be globally budgeted, just as are police and fire departments. Separate, extraordinary costs of research functions would be funded through our National Institutes of Health. Education grants can be provided through the global budgeting process since house staff members are, from a financing perspective, really just low-paid hospital employees.

We need to get WellPoint/Anthem Blue Cross and their ilk out of our health care and out of our lives. Let’s improve our own Medicare program and then provide it for everyone.

Six million will face penalties under the Affordable Care Act

Posted by on Thursday, Sep 20, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Payments of Penalties for Being Uninsured Under the Affordable Care Act

Congressional Budget Office
September 19, 2012

Beginning in 2014, the Affordable Care Act (comprising Public Law 111-148 and the health care provisions of P.L. 111-152) requires most legal residents of the United States to either obtain health insurance or pay a penalty tax. That penalty will be the greater of: a flat dollar amount per person that rises to $695 in 2016 and is indexed by inflation thereafter (the penalty for children will be half that amount and an overall cap will apply to family payments); or a percentage of the household’s income that rises to 2.5 percent for 2016 and subsequent years (also subject to a cap).

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have estimated that about 30 million nonelderly residents will be uninsured in 2016, but the majority of them will not be subject to the penalty tax. Unauthorized immigrants, for example, who are prohibited from receiving almost all Medicaid benefits and all subsidies through the insurance exchanges, are exempted from the mandate to obtain health insurance. Others will be subject to the mandate but exempted from the penalty tax—for example, because they will have income low enough that they are not required to file an income tax return, because they are members of Indian tribes, or because the premium they would have to pay would exceed a specified share of their income (initially 8 percent in 2014 and indexed over time). CBO and JCT estimate that between 18 million and 19 million uninsured people in 2016 will qualify for one or more of those exemptions. Of the remaining 11 million to 12 million uninsured people, some individuals will be granted exemptions from the penalty because of hardship, and others will be exempted from the requirement on the basis of their religious beliefs.

After accounting for those who will not be subject to the penalty tax, CBO and JCT now estimate that about 6 million people will pay a penalty because they are uninsured in 2016 (a figure that includes uninsured dependents who have the penalty paid on their behalf) and that total collections will be about $7 billion in 2016 and average about $8 billion per year over the 2017–2022 period. Those estimates differ from projections that CBO and JCT made in April 2010: About two million more uninsured people are now projected to pay the penalty each year, and collections are now expected to be about $3 billion more per year.

Most of the increase—about 85 percent—in the number of people who are expected to pay the penalty tax stems from changes in CBO and JCT’s baseline projections since April 2010, including the effects of legislation enacted since that time, changes in the economic outlook (primarily a higher unemployment rate and lower wages and salaries), and other technical updates. A small share—about 15 percent—of the increase in the number of uninsured people expected to pay the penalty results from the recent Supreme Court decision. As a result of that decision, CBO and JCT now anticipate that some states will not expand their Medicaid programs at all or will not expand coverage to the full extent authorized by the ACA. Such state decisions are projected to increase the number of uninsured, a small percentage of whom will be subject to the penalty tax.

Among the uninsured individuals subject to the penalty tax, many are expected to voluntarily report on their tax returns that they are uninsured and pay the amount owed. However, other individuals will try to avoid payments. Therefore, the estimates presented here account for likely compliance rates, as well as the ability of the Internal Revenue Service (IRS) to administer and collect the penalty.

CBO and JCT have also updated their estimates of the distribution of those penalty tax payments by income category. Table 1 (in PDF available at link) shows how much of those payments are projected to be made by or on behalf of people who are uninsured in 2016 (which the IRS will collect in 2017) in each of several income categories, measured as percentages of the federal poverty level (FPL). In general, households with lower income will be subject to the flat dollar penalty (with adjustments to account for the lower penalty for children and an overall cap on family payments), and households with higher income will owe a percentage of their income. In 2016, households with income that exceeds 400 percent of the FPL are estimated to constitute about one-third of people paying penalties and to account for about two-thirds of the receipts from those penalties.


When it was decided to use the purchase of private plans as the model for insuring everyone, it was clear that the law must include a requirement to purchase plans and that the threat of assessing a penalty would have to be included to ensure compliance, otherwise adverse selection would have driven insurance premiums up even higher than their current intolerable levels. It was also clear that this still wouldn’t ensure universality because of various exceptions and non-compliance.

We now have a reasonably reliable estimate from the Congressional Budget Office that tells us that 30 million people will remain uninsured and that 6 million of them will be assessed penalties. That is a terrible outcome when considering that a single payer system would have covered everyone automatically, obviating the need for penalties.

Some will note that the penalty is not as onerous as it might have been since two-thirds of the total amount will be paid by households with incomes over 400 percent of the federal poverty level. The fact that more lower income households will be exempt from the penalty is hardly a reason to celebrate when considering that the price they do pay is remaining uninsured.

Medicare’s failure to protect personal finances

Posted by on Wednesday, Sep 19, 2012

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Out-of-Pocket Spending in the Last Five Years of Life

By Amy S. Kelley, Kathleen McGarry, Sean Fahle, Samuel M. Marshall, Qingling Du and Jonathan S. Skinner
Journal of General Internal Medicine, September 5, 2012



A key objective of the Medicare program is to reduce risk of financial catastrophe due to out-of-pocket healthcare expenditures. Yet little is known about cumulative financial risks arising from out-of-pocket healthcare expenditures faced by older adults, particularly near the end of life.


Using the nationally representative Health and Retirement Study (HRS) cohort, we conducted retrospective analyses of Medicare beneficiaries’ total out-of-pocket healthcare expenditures over the last 5 years of life.


We identified HRS decedents between 2002 and 2008; defined a 5 year study period using each subject’s date of death; and excluded those without Medicare coverage at the beginning of this period (n = 3,209).

Main Measures

We examined total out-of-pocket healthcare expenditures in the last 5 years of life and expenditures as a percentage of baseline household assets. We then stratified results by marital status and cause of death. All measurements were adjusted for inflation to 2008 US dollars.


Average out-of-pocket expenditures in the 5 years prior to death were $38,688 for individuals and $51,030 for couples in which one spouse dies. Spending was highly skewed, with the median and 90th percentile equal to $22,885 and $89,106, respectively, for individuals, and $39,759 and $94,823, respectively, for couples. Overall, 25% of subjects’ expenditures exceeded baseline total household assets, and 43% of subjects’ spending surpassed their non-housing assets. Among those survived by a spouse, 10% exceeded total baseline assets and 24% exceeded non-housing assets. By cause of death, average spending ranged from $31,069 for gastrointestinal disease and $66,155 for Alzheimer’s disease.


Despite Medicare coverage, elderly households face considerable financial risk from out-of-pocket healthcare expenses at the end of life. Disease-related differences in this risk complicate efforts to anticipate or plan for health-related expenditures in the last 5 years of life.



Grappling With Details of Medicare Proposals

By Roni Caryn Rabin
The New York Times, September 17, 2012

The (Medicare reform) proposals keep changing, and some are short on details. No one is certain what health care costs will be in the coming years.

Still, it’s clear the proposed changes would shift costs from the federal government to retirees. “All scenarios will require seniors to pay more,” said Robert Moffit, senior fellow at the Heritage Foundation, a conservative research organization in Washington. To think otherwise, he said, “is a fantasy.”


In spite of having Medicare coverage, out-of-pocket health care expenditures can be devastating for seniors. Current proposals to reduce government entitlement spending on Medicare would shift even more costs to our seniors.

Premium support voucher proposals for Medicare would create a defined contribution which would shift more costs to all Medicare beneficiaries, when only the wealthier could afford the increase. That won’t work.

Since many already can’t pay their current out-of-pocket costs, proposals have been advanced to index costs to income by charging higher premiums, higher cost sharing and/or reducing benefits for the wealthier. That process has already begun with Part B and Part D premiums now based on income. That risks reducing support by the politically connected affluent, which could clear the way for enactment of destructive government policies, especially if the conservatives gained control. The threat from the liberals is bad enough.

On the other hand, lower income individuals could be given support beyond that of Medicare. Again, that is already happening through the dual-eligible program for both Medicare and Medicaid. The risk is that the dual-eligible program would be considered a welfare program for the poor, and would be budgeted accordingly. That is already happening as the federal and state governments are well along in the process of herding these victims into underfunded, low quality, private Medicaid managed care programs (see http://www.pnhp.org/news/2012/september/herding-dual-eligibles-into-low-…).

Obviously Medicare needs a lot of improvement before we convert it into a single payer national health program. We need to go in the opposite direction from where the politicians currently are headed. Instead of slashing it under the budget hawks’ call for cutting back on entitlements, we need to expand its coverage so that it doesn’t leave anyone with the devastating out-of-pocket expenses associated with complex and prolonged medical care.

Even though more would be spent through the Medicare program (i.e., through the tax system), the efficiencies of single payer would not increase our total health care costs, and, more importantly, would slow future health care cost increases to sustainable levels. It’s not that we can’t afford to expand Medicare; it’s that we can’t afford not to.

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