National Health Care Reform: Issues and Outlook

1. National Health Care Reform:Issues and Outlook Worldwide Employee Benefits Network Cleveland, OH April 16, 2009 James C. CaprettaFellow, Ethics and Public Policy Center email: jcapretta@eppc.org

2. Content • Issues driving reform agenda • Outline of the emerging Congressional plan • Issues for job-based coverage: • Potential “pay or play” dynamic • Minimum benefit structure • Potential changes in the federal tax preference • Issues to watch: • Paygo: support for offsets? • “Budget reconciliation”? • Sufficient cost-side agenda?

3. The Census Data Uninsured 45 million Military 11 million 4% 15% Employer-Sponsored 177 million Medicaid 40 million 13% 59% 14% Medicare 41 million 9% Other Private 27 million Source: Income, Poverty, and Health Insurance Coverage in the United States: 2007, Census Bureau, Table C-1. 3

4. Additional Data Sources Source: “A Primer on the CPS Estimate of America’s Uninsured,” National Institute for Health Care Management, August 2006. 4

5. Cost Pressure Sources: Income, Poverty, and Health Insurance Coverage in the United States: 2006, Census Bureau, Table A-1, and CMS National Health Expenditure Data (www.cms.gov). 5

6. Firm Size, Public Insurance, and the Uninsured Source: Notes, Employee Benefit Research Institute, Vol. 26, No. 10, October 2005, Figure 3. 6

7. Reform Prototype and Issues 7

8. The Massachusetts Connector Some Key Features • Merges individual and small group markets. • Takes premiums and pays insurers on behalf of eligible enrollees. • Full federal tax preference retained for workers in small businesses. • Annual open enrollment. • Will receive premium subsidies from state for 100%-300% of poverty enrollees. • Young enrollee products. Eligible Enrollees Insurers Non-Working Individuals BC/BS Harvard Pilgrim Sole Proprietors The Connector Small Business Employees (under 50) Tufts Fallon Non-Offered Individuals New Entrants, Others 8

9. Federal Tax Preference for Job-Based Plans 2007 Total = $246.1 (billions) Federal Payroll Taxes Federal Income Taxes Source: “Tax Expenditures for Health Care,” Joint Committee on Taxation, JCX-66-08, July 30, 2008. 9

10. The Income Distribution of the Tax Preference Source: Tax Expenditures for Health Care, Joint Committee on Taxation, JCX-66-08, July 30 2008, p. 5. 10

11. Potential “Pay or Play” Dynamic “Pay or Play” Employer Tax $ Spent on Health Coverage Per Worker Employer-Sponsored Insurance (ESI) Premium Per Worker Pay or Play Tax > ESI Cost Pay or Play Tax < ESI Cost Average Wage Per Employee

12. Budget Reconciliation • Process for “reconciling” program spending within a Committee’s jurisdiction with the spending allocation assumed in the budget resolution. • Typically, committees are given to a date certain to report legislation meeting their target • The “Byrd Rule” allows removal of “extraneous” provisions from a “reconciliation” measure. Can a coherent health-care reform bill work with the Byrd Rule in effect? Laws Enacted Via Reconciliation • 1981 spending reduction plan (Reagan). • 1993 tax and budget plan (Clinton) • 1997 Balanced Budget Act (Clinton-Gingrich) • 2001 tax cut (Bush) The bottom line: budget reconciliation process allows bills to pass in the U.S. Senate with 51, instead of 60, votes.

13. Pay-As-You-Go Entitlement Cuts + Tax Increases = > Entitlement Increases + Tax Cuts (Ten-Year Test)

14. Longer Range Federal Cost Projections Medicaid Medicare Source: The Long-Term Budget Outlook, CBO, December 2007 (extended baseline scenario).

15. The Cost-Side Agenda The Issue The Remedies “Engineering” a More Cost-Effective Delivery System: • Health Information Technology • Comparative Effectiveness Research • Reimbursement Reform (Pay for Performance, Value- Based Purchasing) Sufficient? *Excess Cost Growth is per capita spending growth rate in excess of per capita GDP growth. *Source: The Long-Term Outlook for Health Spending, CBO, November 2007. 15