What health care reform will cost consumers

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If you’ve seen the news coverage lately on health care reform, you probably know that the recently passed Senate bill differs from the House bill on at least two hot-button issues: The Senate measure has been stripped of the controversial public option, and it has somewhat lower restrictions than the House version on abortion coverage.

While the White House and congressional Democrats are hewing more closely to the Senate version as they hammer out the differences, in many areas the bills basically agree.

“If you strip away a lot of the controversial stuff, I think the bills are 80 percent or so the same,” says Stuart Altman, professor of national health policy at Brandeis University.

For instance, both the House and Senate versions of the bill would prohibit exclusions for pre-existing conditions and lifetime limits on the dollar value of coverage. They also would create a new, more regulated marketplace called the Exchange, where individuals and small employers would shop for health insurance.

Like its House counterpart, the Senate bill requires nearly all U.S. citizens and legal residents to buy health insurance. Penalties would be phased in over three years starting in 2014, with steadily increasing amounts applied. For example, in 2014 it would be $95 or 0.5 percent of income, whichever is greater. By 2016, the penalty would be either $750 to $2,250 a year per family or 2 percent of household income, whichever is greater.

More exemptions, less affordability

The Senate bill echoes the House version in allowing exemptions for purchase of insurance due to financial hardship, religious objections and low income. But it also exempts American Indians, those who go without coverage for less than three months, people who are incarcerated and those with no available plans costing 8 percent of their income or less.

The Senate bill also follows the House version in subsidizing the cost of insurance premiums and benefits for low-income workers, while using slightly different formulas to determine who is eligible for help.

“The House has much stronger affordability protections for people who are low income, and the Senate does a little bit better for those who are more in the moderate income ranges,” says Jocelyn Guyer, co-executive director of the Center for Children and Families, part of the Health Policy Institute at Georgetown University.

Set on a sliding scale, the Senate’s premium subsidies would ensure that those earning 100 percent to 133 percent of the federal poverty level would pay no more than 2 percent of their income for health insurance premiums. The FPL is $10,830 for individuals; $22,050 for a family of four. People making 300 percent to 400 percent of FPL would pay no more than 9.8 percent of their income.

Federal cost-sharing subsidies — which go directly to insurers to pay consumers’ benefit costs — would cover 90 percent of a plan’s benefit costs for individuals and families earning 100 percent to 150 percent of FPL. Cost-sharing subsidies for those earning 150 percent to 200 percent of FPL would cover 80 percent of benefit costs. By contrast, the House bill provides cost-sharing subsidies for individuals and families earning up to 400 percent of FPL.

Consumers would get premium subsidies in the form of tax credits. Annual premium costs vary by age. As an example, a 40-year-old individual would pay the following amounts, assuming a $3,500 annual premium, according to the Kaiser Family Foundation:

Cost of $3,500 premium to consumer
If you earn: $20,000 $25,000 $30,000 $35,000
You would pay:

House version

$947 $1,739 $2,724 $3,500
You would pay:

Senate version

$1,153 $1,845 $2,699 $3,430

The above figures apply only to those without employer-based coverage. Under this scenario, the House bill would not subsidize premiums for individuals earning above $34,023; the Senate bill would pay nothing for those earning more than $35,709. Note that this information does not reflect federal cost-sharing subsidies or out-of-pocket expenses for deductibles and co-insurance.

Structure of exchanges

Both bills call for creating insurance exchanges, but the Senate bill would have them set up at the state level rather than by the federal government. Separate exchanges would be created for individual consumers and small businesses. Each exchange would be administered by a government agency or nonprofit organization, and at least one plan in the exchange would have to come from a nonprofit insurer.

Plans sold on the exchanges would fall under four benefit categories, from Bronze at the minimum level to Platinum at the highest. A separate catastrophic plan would be offered to those ages 30 and under and those exempt from the individual mandate. An optional state-run Basic Health Plan could be provided for uninsured people earning 133 percent to 200 percent of FPL who would otherwise qualify for premium subsidies. Those who purchased Basic Health Plans would not get the subsidies.

No employer mandates

Employers would not be required to provide insurance, but those with more than 50 employees would have to pay $750 per full-time employee if they don’t offer coverage and if they have at least one full-time employee who receives a premium subsidy through an exchange.

Employers that offer health care insurance would have to provide free-choice vouchers to employees who earn less than 400 percent of FPL, whose premium share is more than 8 percent but less than 9.8 percent of their income, and who opt to enroll in a plan in the exchange instead of the company’s plan. Guyer says one of the biggest challenges of this provision is figuring out exactly how it is meant to work.

“I’ve read it once or twice, and it’s still hard to understand,” she says. “From a consumer perspective, there are probably issues around the feasibility of making it accessible and something that people understand and can use.”

Cadillac plans

Another much-discussed aspect of the Senate bill is its tax on so-called Cadillac plans. Employer-sponsored plans valued at more than $8,500 for individual coverage and $23,000 for family coverage would be assessed a tax equal to 40 percent of the excess value amount. Designed to incentivize insurers to keep their costs down, the tax is a major part of the plan to pay for the bill, estimated at $871 billion over 10 years.

Whatever shape the final health care reform bill takes, Altman says its passage won’t be the end of the story.

“I don’t think health care reform is done,” he says. “We’re going to have Phase II, not only because not everyone will be covered but because not enough has been done to contain health care costs.”