Health Care Reform and Costs and Savings

There are several proposals in congress in the area of health care reform which would raise costs to the insurers including the Schumer plan which would add $10b in fees per year to insurers and requiring insurers not to charge more for policy holders with pre-existing conditions. Any reform which raises costs to insurers without capping premium prices or reducing costs will just result in the insurers passing on the increased costs to policy holders and increasing the cost of medical coverage. I see only two ways to make sure that premiums do not rise to offset the additional costs which are:
1 - A public plan similar to medicare. Competition with the public plan would prevent insurers from continuing the double digit annual premium price increases.
2 - Price controls. Capping the premium charges at there current level and only permitting annual premium increases in an amount equal to the annual increase cost of health care as measured by the Bureau of Labor Statistics (BLS). The BLS currently collects health care pricing by region and metro area for a range of health care services. Per the BLS, health care costs have been rising by about 8% per year by premium charges have been increasing at double digit rates.

As far as how to pay for health care reform, following are some options with the annual potential savings.

1. $10.0 b - Negotiate Medicare Part D pricing. The US House Oversight committee estimates the 10 year savings at $156b.
2. $0.5 b - VA pension decrease resulting from universal coverage. The VA provides pensions to certain groups of veterans or surviving spouses based on income and health care premiums are subtracted from income so a reduction in premium costs would reduce the pension amount paid.
3. $7.1 b - Per the IRS, in 2006, federal tax revenues were reduced by $14.3 b due to deductions from income for medical expenses. Keep in mind that only those medical expenses that exceed 7.5% of adjusted gross income are deductible. If everyone had insurance then medical deductions would decline significantly. I also think that some thought should be given to removing the deductibility for elective procedures such as plastic surgery.
4. $17.0 b - Per the American Hospital Association, uncompensated costs in 2007 for US hospitals was $34 b. These costs for services rendered but not paid for, typically for services provided to the uninsured, are shifted to paying patients. If everyone had insurance then uncompensated costs should decline dramatically. I expect that other health care providers such as labs and doctors also have significant uncompensated costs which are also passed on to paying patients.
5. $30.0 b - Tax 20% of the value of employer provided health care benefits. Per the Heritage Foundation, $150b per year is lost in federal tax revenues by not taxing health insurance benefits. All other employer provided benefits such as day care credits or 401K contributions have an annual limit of the amount that is deductible. Also, in terms of fairness, it doesn't seem fair that 100% of health care premiums paid by an employer are tax deductible while, for someone who pays for their own health care premiums in an individual plan, only the costs which exceed 7.5% of adjusted gross income are deductible. Employees, especially unions, too frequently are against this because they think that they will lose benefits. What they don't understand is that higher health care costs incurred by their employers causes the employer to cut other benefits and reduce wages and to use more part-time and contract employees for whom the employer typically does not provide benefits.
   
6. $2.2 b - Require a $2 co-pay for prescriptions covered by Medicare Part D. I found it amazing that each year there are 1.1 billion prescriptions filled by medicare recipients. I think it only fair that everyone share in cost of health care reform that will benefit everyone.
7. $20 b - More actively fight medicare and medicaid fraud. US Attorney General Eric Holder estimates that the annual cost of Medicare and Medicaid fraud to the taxpayer is at least $60b.
8. $10.9 b - More actively fight Social Security Disability fraud. Keep in mind that most people who are awarded Social Security Disability are also able to use Medicare. Social Security Disability payments are $109b per year and rising fast. At a minimum, the Feds should more frequently review medical conditions of recipients to ensure that disability awards are still warranted. To get an idea of how much waste and fraud there is in the system, see the NY Times article or an article on Medicare fraud in Miami.
9. $ ? - When a chemically identical generic is available, require Medicare & Medicaid recipients to use the generic. Most private insurers such as Blue Cross will only pay for generics in this case so why not the government? As an example, a 30 day supply of the brand name drug Zocor for cholesterol is about $150 while a 30 day supply of the chemically identical simvastatin is about $6. Also, Medicare and Medicaid could reduce costs by not paying for prescriptions which are available over the counter such as high dose Tylenol.
10. $ ? - In 18 states, personal injury protection (PIP) coverage on auto insurance policies is mandatory. PIP pays for up to $10K for medical expenses for people involved in auto accidents who do not have private medical insurance. If everyone had medical insurance, I don't see why PIP would continue to be included on auto insurance policies. In Florida, I pay about $250 per year in auto insurance for PIP even though I have medical insurance because I might be in an accident with someone who doesn't have medical insurance. In Florida, there are about $1b per year in claims on PIP coverage so I woud assume that the auto insurers are collecting in excess of $1b per year in PIP premium charges.

The savings identified above amount to about $100b per year and I'm sure that an expert in the field could identify other savings.