Health insurance: The new pill to swallow

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Wal-Mart’s interest in expanding in-store health clinics is just one example of how health care reform is changing the ways Americans with insurance take their medicine. In this interview, professor Marjorie Baldwin, Ph.D., of the W. P. Carey School of Business at Arizona State University tells readers about how the Affordable Care Act is affecting Americans, retirement planning, the Class program and more.

What are some of the changes that have already taken place under the Affordable Care Act introduced by the Obama administration?

The changes that are already effective focus primarily on expanding health insurance coverage to groups that typically have high rates of uninsured (e.g., employees working for small businesses), controlling the costs of health insurance, generating revenues (e.g., taxing indoor tanning services), and making adjustments to Medicare and Medicaid. Additionally, funding is provided for comparative effectiveness research, medical malpractice reform, prevention and wellness initiatives, and to expand the health care workforce.


  • Tax credits for small businesses (fewer than 25 full-time equivalent employees and less than $50,000 average annual wage) that offer health insurance to their employees.
  • Temporary reinsurance program for businesses offering health insurance to their retirees who are over age 55 but not yet eligible for Medicare. The program pays 80 percent of retiree medical claims between $15,000 and $90,000.
  • Extend health insurance coverage to dependent children of covered individuals up to age 26.
  • Establish website to help consumers identify health coverage options.
  • Funding provided to establish community consortiums to coordinate care for low-income and uninsured populations.

Health insurance

  • Some restrictions on eligible expenditures and tax deductibility for HRSA (Health Resources and Services Administration).
  • Require minimum of 80 percent to 85 percent of premium dollars be spent on medical services or rebated to consumers.
  • Require insurers to submit increases in health insurance premiums for review and justify such increases.

Tax changes

  • Add a 10 percent excise tax on indoor tanning services.
  • Limits on deductibility of compensation to executives and employees for health insurance providers.

Medicare and Medicaid

  • Reduce premium subsidy for Part D for high-income individuals and families.
  • Eliminate Medicare Improvement Fund — create Innovation Center within CMS (Centers for Medicare & Medicaid Services) to test and reform payment methods.
  • Eliminate Medicaid payments to states for health care acquired conditions.
  • Allow Medicaid enrollees with two or more chronic conditions to designate a medical home.
  • Increase coverage of preventive services in Medicare and Medicaid.
  • Changes to Part D Medicare to reduce impact of donut hole.

How does the Affordable Care Act affect retirement planning?

The act limits some options for retirement planning, for example, by placing restrictions on HRSAs. It also begins to shift more costs to high-income Medicare enrollees, so individuals should prepare to be responsible for more up-front costs of medical care in retirement than in the past.

What is the downside to this new health care bill? What groups are affected negatively with the passing of this bill?

Any health care system attempts to achieve three goals: (1) broad access to (2) high-quality medical care at (3) reasonable costs. Unfortunately, there are trade-offs between the three goals, and it is difficult to achieve all three at the same time. The Affordable Care Act is fundamentally about increasing access to medical care — primarily through expanded health insurance coverage. The downside is that costs of health care will increase for everyone, and the federal government and states, already facing huge budget deficits, will face increased pressure from health care costs.

What is the Class program, and how does it differ from Medicare?

According to the Kaiser Foundation, the Class Act (community living assistance services and supports), is a national, voluntary insurance program. Following a five-year vesting period, the program will provide individuals with functional limitations, a cash benefit of not less than an average of $50 per day to purchase nonmedical services and supports necessary to maintain community residence. The program is financed through voluntary payroll deductions. All working adults will be automatically enrolled in the program unless they choose to opt out. Class differs from Medicare in that: There is no age restriction on participation, and it provides payments for long-term, in-home, nonmedical services.

The problem with the Class program is adverse selection. Although all working adults will be “automatically enrolled unless they opt out,” the rational strategy is for all healthy adults to opt out until they are close to retirement age when they will more likely use the services. Therefore, the only people likely to enroll are those who will actually impose costs on the system, which is the reason HHS (Department of Health and Human Services) could not create a viable plan for the program. Unfortunately, the first five years of revenues from Class (with no expenditures because everyone is being vested) were critical to the CBO’s (Congressional Budget Office) conclusion that the Affordable Care Act would reduce the deficit in its first 10 years. With the demise of Class, the financial outlook is much more grim — as it always was as soon as the Class program started to incur costs.

With the Federal deficit, would the health care bill further increase government’s inadequate coverage of individuals with no insurance?

As noted above, the act focuses on increasing health insurance coverage, so we should see the rates of uninsured decline. The increased coverage will, however, impose additional costs on consumers, taxpayers, and state and federal governments.

We would like to thank professor Marjorie Baldwin, Ph.D., of the W. P. Carey School of Business at Arizona State University for participating in this interview.