In all the hue and cry over the public plan, does anyone actually know what the plan is? It's become the progressive rallying cry, like "Remember the Maine" - but what exactly is the public plan? Okay, it's sorta like Medicare for everyone. Yep, that's the program with the doughnut hole, remember? And the government's going to pay subsidies so lower-income people can afford the public plan - or any other plan on the Exchange. But exactly how much do we pay - and what will we get? Before we "buy" into the public option, shouldn't we know what it is we are buying? And what will it cost? I mean what's it cost retail? I here the big numbers the government pays - wholesale. But I went looking for answers to this question of what it will cost retail. What if I told you that I found out the public option will be no bargain for many uninsured people. In fact it will cost more than a private plan will cost. Here's what I found when I looked closely at the details of the much beloved public plan (either co-op or government versions of a public plan.)
I started by just asking what's in House Bill 3200? This is the bill resulting from the three committees with jurisdiction over health care in the House.The Senate Bills are less than half done, so it's not fair to ask what they've cooked up - just yet. House Bill 3200 is also the one that the CBO scored, as it captures most all of the pieces of health reform under consideration. I have my own reservations about some of the underlying assumptions the CBO uses, but it is a useful starting point to see what the public plan does, and more importantly what it really cost an individual to buy. Remember, the individual mandate is going to force people to buy health coverage. Except those that earn too little, they either remain uninsured or can choose to purchase insurance and get a subsidy to make it affordable. But will it be affordable?
Under the House proposal, if I earn 250 % of the Federal Poverty Level ($10,830), I make $27,075 a year. And if the lowest average cost of three plans offered in the Exchange is more than 11 percent of my income, then bingo - I am eligible for a subsidy to make health coverage affordable. In this case the threshold for eligibility is $2,978. So when insurance cost more than $2,978, I get a subsidy. So how much will my subsidy be, and what will my share of the premium be? It's just like if I buy a car, I need to know if I can afford the monthly payment. Well, the answer is in House Bill 3200. Since I am at 250 % of FPL, the law will cap my premiums at 5 percent of my income. This would be $1,353 per year - or $113 per month. Like a car payment I now know what the monthly payment will be. You see, from the perspective of the consumer, it really doesn't matter what the cost of the public plan is, or whether it is in fact competitive with private plans. Only the monthly payment matters. The consumer with the subsidy has a premium cap that he pays - and the government will cover the remaining costs. So whether the public plan is a co-op or a government run plan, it matters little what the total cost of the plan is, because the person with a subsidy has a guaranteed cap on the cost.
So before I buy a car, I shop around. When I shopped around to compare the cost for the public plan to what a private plan cost, I became concerned about the bargain I was getting. What was intriguing was whether or not I'm actually paying less with a subsidy, than someone earning the same income as mine pays for a private plan. You see, the House Bill 3200 requires that employers who offer coverage to an individual pay 72.5% of the premium for the employee (65% for family policies). According to the Kaiser Family Foundation, the average cost of an individual health plan in 2008 was $4,704. So we can use this figure to see how the subsidy / public plan compares. In this case the employer is going to have to pay $3,410 (72.5 % of the premium.) That leaves the employee paying for $1,294 - or $108 per month. Whoa, that's less than what's offered under the public plan with a subsidy! Remember, the public plan costs $113 per month.
No big deal. Only a few dollars difference. Still, it isn't cheaper - and it is advertised to be competitive and cost less. CBO expects the public plan to cost as much as 10% less. But that's wholesale - not retail. Retail, what we pay, is actually more than the private plan. Here's how it works. If the private plan cost $4,704, on average, then a public plan costing 10% less would be $4,234( And even if it cost a whopping 30 percent less at $3,295, it wouldn't change what we pay retail.) The consumer pays a quirky retail price as a result of the formula in House bill 3200. Remember, the premium cap for the person's income sets the retail price. In this case, income is 250% FPL and retail is 5% of income - or $2,978. The public plan can be highly competitive based on wholesale price, but still cost more retail.
Somebody created two formulas that when worked in tandem, almost always favors the private plans. Only those with very low incomes actually benefit from this scheme. At the low end, a person earning 133% of FPL ($14,404) only has to pay 1.5 percent of income for his share of the cost. That is $216, or $18 per month. The subsidy pays everything above this premium cap. The same employee earning $14,404 from an employer that already offers coverage would have to pay $108 per month for the employer-sponsored plan. So it is indeed a bargain at 133% of FPL. Not so for the taxpayer, but great for the consumer (lest we forget, taxpayers are also employers and employees.)
What is really bad about this formula is the way it works above 250% FPL. If you earn 300% FPL you make $32,490 per year. If insurance cost more than 11 percent of this income ($3,573), then you are eligible for a subsidy to purchase coverage from the public plan (or any other private plan offered on the Exchange!) This means you only have to pay your share, and the subsidy pays the rest. So what is your share at 300% FPL? Well, according the House Bill 3200, it will be 9% of your income. So, you pay $2,924 - or $244 per month. That's right - it's in the bill everyone says is going to make health care affordable. You pay $244 per month for the "affordable" public plan, and a person making the exact same income who has employer sponsored coverage in another company only pays $108 per month for the private plan.
It sounds impossible. But this is simple math. On the one side the costs for the public plan are determined according to income, on a sliding scale. This is the quirky retail formula for pricing the public plan. The more you make, the less subsidy you get - and more you pay. Across the street, the cost for employer-sponsored insurance through private plans is determined by another part of the law. In this case, the employee is limited to paying 27.5 percent of the premium, regardless of what he earns. Remember, the employer is now mandated to pay 72.5% (65% for families) of the premium costs when offering coverage. If he doesn't then there is a stiff fine to pay. It's a flat rate formula. So when you put these side-by-side, the consumer pays increasingly as income increases for the public plan. Conversely, those with private plans pay a flat rate. So we have a world in which someone earning 300% FPL will pay premiums capped at 9% of income. And a person with the exact same income purchasing employer based insurance pays premiums that are actually only 4% of income. Read that again - the public plan cost this person 9% of income, and a private plan cost 4% of income. That is in the bill. It is in the CBO scoring report to Rep. Rangle, Chairman of Ways and Means. they just aren't showing the dollar amounts related to the percentages in the proposed law. you gotta do the math yourself in this country. you see, the point of CBO scoring is to show what the law will cost the government - not us as consumers. What it cost us is up to us to figure out.
House bill 3200 will change the way people buy health care - that is for sure. But how is yet to be figured out. CBO thinks it will result in many uninsured people either buying coverage from their employer's plan, or, where eligible, buying from the public plan. CBO estimates that 11 million people will buy from the public plan when it is implemented in 2013. CBO figures that 10 million will sign up for employer coverage in 2013 because of the individual mandate. Medicaid will grow by 6 million as the eligibility criteria is expanded to take in people up to 133% FPL. CBO estimates that 3 million will drop their individually purchased coverage (like self-employed persons). The net change, according to CBO is 23 million fewer uninsured people.
When you do the math to see what health care will cost you, it depends now on how much you earn. In general, if you earn below 150% FPL, then the public plan is your best buy. If you earn north of 200% FPL, then a private plan sponsored by your employer is a much better deal (and this holds for families as well). So you begin to see the outlines of how this bill would change the pools. Lower income people will migrate to the public plan where the subsidy is a really great bargain. As you move up the income ladder, the migration is towards private plans where employers have to pay the long dollar.
Who would devise such a plan? Well we actually know who is credited with the plan, that would be members of three committees in the House. But you have to wonder if maybe they had some help here. What this looks like is a plan to steer people to private plans. First, the total number of people that are projected to buy private employer-based coverage will go up 10 million in 2013, thanks to the individual mandate. That's a great book of new businesses for the insurance industry. Second, the financial incentives are structured so as to encourage people with incomes above 250% FPL to purchase a private plan. Actually, it is the employer who gets the shaft here. The House bill requires he pay 72.5 percent of the premium. And none of his employees earning more than 250% FPL will want to leave his plan to pay more for a public plan. That's pretty evident.
So there you have it, the short version of what I discovered about the public plan when I went looking for it. There are other parts of the health reforms that are equally concerning. Most of the small businesses are being thrown under the bus, for example. They're exempt from the play-or-pay requirements, but will likely see the migration of their employees to larger firms where health coverage is now pretty much mandated. Employees in these firms do no better. They'll be exempt from the individual mandate, and if they earn more than 250% FPL, they won't be able to afford the public plan - or any other plan for that matter. It is very well established principle that low-income people have only up to 5% of disposable income to pay for health care. When you cross the 5% line, you lose this group. They remain uninsured because they simply do not have the disposable income to pay the premium. there is nothing elegant about this principle - it is the 5% rule that effects everyone up to 300% FPL. The House bill is blind to fact of life in the real world. So 10 million people working businesses that have fewer than 25 employees will likely remain uninsured.
I would only ask that everyone out there who has drawn a line in the sand over the public plan vs. co-ops or any other health care demons, that they do the math. If there's anyone out there that has, and finds different conclusions, I would really appreciate hearing from you. I am tired of all the battle cry slogans. Will you please read the bills and the analysis by CBO and then form opinions. If you think the public plan will be more affordable to low income uninsured people - you are likely very misinformed. And you may be very sorry if this actually ends up looking like the House bill. For that reason, you should now be paying a lot more attention to the Senate Finance Committee and asking them the questions I have raised here. They are they only ones still working to form a bill that works. And to their credit, they are trying to do this in the tempest of nonsense that we are all drowning in. Please turn the volume down on the wear crys and do some math before you decide who's right and who's wrong.