I have been watching some of the “talking heads” from both political parties waxing philosophical about Healthcare Reform. On Sunday’s programs, there seemed to be a competition between “Medicare for All” (MFA (or Museum of Fine Arts?)) as seen at http://www.youtube.com/watch?v=f3BS4C9el98) and something I’ll call “Multi-State Health Insurance” (MUSHI or MUSH, for short) where federal law would trump state licensing of insurers operating within their borders.
Let’s dispense with Medicare for All (MFA). Readers of this BLOG will be familiar with Medicare as it is followed and reported on closely. Medicare Part A, which covers Hospital, Skilled Nursing Facilities (SNFs or Sniffs) and various other costs, is supposedly paid for out of the 2.90% payroll tax (charged on ALL payroll, irrespective of earnings), one-half of which is paid by the employer and one-half by the employee. These taxes go into a “Trust Fund”, which will be bankrupt by 2019 according to the Trustees 2009 Report (http://www.cms.hhs.gov/ReportsTrustFunds/) (it has long been actuarially bankrupt, much like the Retirement Plans of many “old economy” employers and airlines). Medicare Part B, which pays for Physicians Services, Outpatient Services etc. is in large part funded out of general tax revenues! You can see what is covered by Part A and Part B at
http://www.medicare.gov/Library/PDFNavigation/PDFInterim.asp?Language=English&Type=Pub&PubID=10116.
More importantly from the standpoint of the insured or Medicare Beneficiary, the co-insurance, co-pays and deductibles work like this: For Part A, Beneficiaries generally pay no monthly premium since the costs are to be paid from the (bankrupt) Trust Fund. The Deductible charged to the Beneficiary during the first 60 days of Hospitalization is $1,068; after 60 days and until 90 days it is $267 per day; after 90 days it is $534 per day. For Skilled Nursing Facilities the Coinsurance is $133.50 per day for days 21 through 100 of each benefit period.
http://www.mymedicaresupplementinsurance.com/2009_Medicare_Deductibles_Copays.html.
For “standard” beneficiaries, Part B insurance costs $96.40 per month; it can be as much as $308.30 if the Beneficiary is filing a joint return with more than $426,000 of Income. The costs in excess of the premium paid by Beneficiaries are paid from general tax revenues of the U.S. Treasury, or more accurately, by adding to the Deficit. The Part B deductible payable by each Beneficiary is $135. The co-insurance, however, is 20% of ALL Medicare Allowed Charges and there is no ceiling on this co-pay. There are also significant limitations on outpatient therapies (e.g., physical therapy) as well, for example.
http://www.cms.hhs.gov/apps/media/press/factsheet.asp?Counter=3272
It is not clear to me how attractive Medicare-style coverage would be to many employees of larger companies. I would encourage you to express your view to your Congress-folk. Speaking for myself, Medicare would be very unattractive as a coverage without Medicare Supplemental Insurance, which many Medicare beneficiaries pay a significant monthly premium for.
Onto MUSH. Speaking for myself, I would truly like to believe that if I lived in New York City I could buy health insurance at the same rate as folks living in rural Pennsylvania if only the licensing of insurance companies was a Federal Right and not a State Right, as one Congressman suggested Sunday. Constitutional limitations notwithstanding, I am disinclined to believe that residents of one of NYC’s Five Boroughs could buy Health Insurance at, say, Kutztown, PA rates, irrespective of insurance company licensing. It costs a lot more to live in Manhattan than Kutztown. Rent is higher, food is higher, wages are higher, and I recall that utilization of healthcare services is much higher. Therefore, the cost for a given diagnosis is much higher in NYC than in Kutztown. And, lo and behold, the cost of insurance reflects the higher costs (Duh). This is easily borne out by Medicare data (See my article Healthcare Market Structure and Its Implication for Valuation of Privately Held Provider Entities: An Empirical Analysis, Business Valuation Review, Volume 27, Number 2 (Summer 2008) where Kings County (Brooklyn), New York County (Manhattan), and Nassau County (part of Long Island) are among the 20 most expensive counties for healthcare costs in the nation. Or, you can read about different market areas in a report by the Government Accountability Office (GAO) at http://www.gao.gov/products/GAO-08-880.)
A quick and easy means of comparing cost differences is to look at Medicare Advantage rates by County.The 2009 Monthly Medicare Advantage rate for residents of Kutztown,which is part of Berks County,is $802. For a resident of New York, it is $1,127, which is 25% higher. This is not a perfect comparison as there are limitations built into the Advantage rates which would tend to understate New York cost in my experience. Medicare has a different benefit structure than commercial or HMO polices for the non-Medicare population – and those policies have numerous benefit structures themselves! If you have looked at the breakdown of insurance companies in a doctor’s medical billing system, you will often see dozens of different categories from the same insurance company reflecting different policies/benefits or the ASO policies described in the previous post below.
Upshot? Health insurance premiums are less in Pennsylvania because the cost of healthcare services is less. Changing insurance laws is not going to change that, even in the long-term – unless local economies collapse and cost of living differentials disappear.
Bottom line is that you should not hire an actor to repair a fighter plane, even if he/she played a mechanic on TV or flew first class to LA. You can fill empty space with noise, but the empty space will still be devoid of thought.
Other BLOG posts dealing with Healthcare Market structure implications are at http://cpanet.typepad.com/cpanet/market_approach/.
