Kennedy-Dodd Health Reform Bill: Mandates and Subsidies

Below I have shared a terrific outline of the Democratic health care reform package, which has been dubbed the Kennedy-Dodd Health Care Reform Bill, as it currently reads. The outline was written by Keith Hennessey and makes several very excellent points about the truly disruptive nature of this legislation, which is supported by the president, were it to pass in its current form. I have also embedded the full text of the bill as it exists today for those of you who are interested.

KeithHennessey.com » Understanding the Kennedy health care bill

Here are 15 things to know about the draft Kennedy-Dodd health bill.

1. The Kennedy-Dodd bill would create an individual mandate requiring
   you to buy a “qualified” health insurance plan, as defined by the
   government. If you don’t have “qualified” health insurance for a given
   month, you will pay a new Federal tax. Incredibly, the amount and
   structure of this new tax is left to the discretion of the Secretaries
   of Treasury and Health and Human Services (HHS), whose only guidance is
   “to establish the minimum practicable amount that can accomplish the
   goal of enhancing participation in qualifying coverage (as so defined).” The new Medical Advisory Council (see #3D) could exempt classes of people from this new tax. To avoid this tax, you would have to report your health insurance information for each month of the prior year to the Secretary of HHS, along with “any such other information as the Secretary may prescribe.”
2. The bill would also create an employer mandate. Employers would have to offer insurance to their employees. Employers would have to pay at least a certain percentage (TBD) of the premium, and at least a certain dollar amount (TBD). Any employer that did not would pay a new tax. Again, the amount and structure of the tax is left to the discretion of the Secretaries of Treasury and HHS. Small employers (TBD) would be exempt.
3. In the Kennedy-Dodd bill, the government would define a qualified plan:
   1. All health insurance would be required to have guaranteed issue and renewal, modified community rating, no exclusions for pre-existing conditions, no lifetime or annual limits on benefits, and family policies would have to cover “children” up to age 26.
   2. A qualified plan would have to meet one of three levels of standardized cost-sharing defined by the government, “gold, silver, and bronze.” Details TBD.
   3. Plans would be required to cover a list of preventive services approved by the Federal government.
   4. A qualified plan would have to cover “essential health benefits,” as defined by a new Medical Advisory Council (MAC), appointed by the Secretary of Health and Human Services. The MAC would determine what items and services are “essential benefits.” The MAC would have to include items and services in at least the following categories: ambulatory patient services, emergency services, hospitalization, maternity and new born care, medical and surgical, mental health, prescription drugs, rehab and lab services, preventive/wellness services, pediatric services, and anything else the MAC thought appropriate.
   5. The MAC would also define what “affordable and available coverage” is for different income levels, affecting who has to pay the tax if they don’t buy health insurance. The MAC’s rules would go into effect unless Congress passed a joint resolution (under a fast-track process) to turn them off.

4. Health insurance plans could not charge higher premiums for risky behaviors: “Such rate shall not vary by health status-related factors, … or any other factor not described in paragraph (1).” Smokers, drinkers, drug users, and those in terrible physical shape would all have their premiums subsidized by the healthy.
5. Guaranteed issue and renewal combined with modified community rating would dramatically increase premiums for the overwhelming majority of those Americans who now have private health insurance. New Jersey is the best example of health insurance mandates gone wild. In the name of protecting their citizens, premiums are extremely high to cover the cross-subsidization of those who are uninsurable.
6. The bill would expand Medicaid to cover everyone up to 150% of poverty, with the Federal government paying all incremental costs (no State share). This means adding childless adults with income below 150% of the poverty line.
7. People from 150% of poverty up to 500% (!!) would get their health insurance subsidized (on a sliding scale). If this were in effect in 2009, a family of four with income of $110,000 would get a small subsidy. The bill does not indicate the source of funds to finance these subsidies.
8. People in high cost areas (e.g., New York City, Boston, South Florida, Chicago, Los Angeles) would get much bigger subsidies than those in low cost areas (e.g., much of the rest of the country, especially in rural areas). The subsidies are calculated as a percentage of the “reference premium,” which is determined based on the cost of plans sold in that particular geographic area
9. There would be a “public plan option” of health insurance offered by the federal government. In this new government health plan, the federal government would pay health care providers Medicare rates + 10%. The +10% is clearly intended to attract short-term legislative support from medical providers. I hope they are not so naive that they think that differential would last.
10. Group health plans with 250 or fewer members would be prohibited from self-insuring. ERISA would only be for big businesses.
11. States would have to set up “gateways” (health insurance exchanges) to market only qualified health insurance plans. If they don’t, the Feds will set up a gateway for them.
12. Health insurance plans in existence before the law would not have to meet the new insurance standards. This creates a weird bifurcated system and means you would (probably) be subject to a different set of rules when you change jobs.
13. The bill does not specify what spending will be cut or what taxes will be raised to pay for the increased spending. That is presumably for the Finance Committee to determine, since it’s their jurisdiction.
14. The bill defines an “eligible individual” as “a citizen or national of the United States or an alien lawfully admitted to the United States for permanent residence or an alien lawfully present in the United States.”
15. The bill would create a new pot of money for state gateways to pay “navigators” to educate people about the new bill, distribute information about health plans, and help people enroll. Navigators receiving federal funds “may include … unions, …”

This would have severe effects on the more than 100 million Americans who have private health insurance today:

• The government would mandate not only that you must buy health insurance, but what health insurance counts as “qualifying.”
• Health insurance premiums would rise as a result of the law, meaning lower wages.
• A government-appointed board would determine what items and services are “essential benefits” that your qualifying plan must cover.
• You would find a tremendous new disincentive to switch jobs, because your new health insurance may be subject to the new rules and would therefore be significantly more expensive.
• Those who keep themselves healthy would be subsidizing premiums for those with risky or unhealthy behaviors.
• Far more than half of all Americans would be eligible for subsidies, but we have not yet been told who would pay the bill.
• The Secretaries of Treasury and HHS would have unlimited discretion to impose new taxes on individuals and employers who do not comply with the new mandates.
• The Secretary of HHS could mandate that you provide him or her with “any such other information as [he/she] may prescribe.”

Kennedy-Dodd Health Care Reform Bill (First Draft)

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