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Tuesday, October 23, 2012

Obamacare: what it does (or will) do, what it doesn't do, and why we shouldn't repeal it

Last night Mr. Romney proudly asserted that he would repeal the Affordable Care Act (Obamacare) if he were elected. To me, this would be a step backward for the United States when we really need to continue moving forward. 

Sure, there are many problems with the Affordable Care Act, but there are many solutions in that 2,000 page bill that will save the lives and finances of millions of Americans. This legislation is a step in the right direction, while it is imperfect, we should work on ways to improve the legislation instead of unraveling the work of the past four years.

So what is Obamacare exactly? I decided to write about what Obamacare actually does, simply because it is a very complicated bill and I think many people don't know whether they support it or not because they don't know what it does, or what it could do for them or their loved ones.

The current system:

In the United States, you either receive Medicare, Medicaid, VA benefits, insurance through your employer or privately purchased insurance policies. This system has serious disadvantages; the principal disadvantage being that it leaves 48 million Americans uninsured because they either have pre-existing conditions or they cannot afford the high premiums charged by insurance companies. (Many employers do not provide insurance, leaving their employees to the private insurance market.)

This employer based system also poses many problems for the private sector. This system is a cost to US businesses vying to compete in an hyper-competitive global market. Tying insurance to employment also keeps potential entrepreneurs from entering the market because they feel they cannot afford to leave their job and give up their health insurance.  According to the Commonwealth Fund, 7 million Americans lost their insurance in 2010 due to job loss.

Recently I sat down with my friend, an Emergency Room Dr. who also has a Master’s Degree in Public Health. He wrote this compelling piece, which brings perspective to the healthcare crisis faced by so many, not only the uninsured, but also the underinsured. The tragic plight of the patient in the story, and so many like him, is obviously one that Mr. Romney has not yet connected with as he stated last week, "“We don’t have people that become ill, who die in their apartment because they don’t have insurance.” In fact, an estimated 45,000 deaths occur each year due to a lack of insurance[1].

The average annual health insurance premiums for family coverage were $15,745 in 2012, a 97% total premium increase since 2002[2]. While the price of insurance has skyrocketed, wages have stagnated. For someone without health insurance, a broken arm can mean financial ruin; healthcare costs are the number one cause of bankruptcy in the United States.

You will hear many say that anyone can receive care in the ER. While that statement is true, the patient is still responsible for paying for any treatment received (which is usually more expensive in the ER, and often could have been prevented if the patient had coverage for preventive care).

Underinsurance is also a serious issue in the US. For example, high-deductable plans and high co-pays encourage many to avoid necessary care; serious illness could mean financial ruin. According to the Kaiser family foundation, 75 million people skipped necessary care in 2010 due to cost, 25% with chronic conditions skipped prescriptions due to cost and 29 million Americans used all their savings to pay medical bills.

So what exactly will the ACA do? In short, here are the key things the ACA will do:
· Ensures that people with pre-existing conditions cannot be denied healthcare (this portion of legislation is already in effect for children with pre-existing conditions)
· Employers with more than 50 people must provide healthcare for their employees; the bill requires that insurance packages include preventive care and access to birth control. Small businesses will be able to purchase packages through insurance exchanges, and tax credits will support small businesses in this purchase.
· The ACA caps the administration costs of private insurance companies at 20%. (Currently 31% of US healthcare costs go to administration costs)
· Requires everyone to buy health insurance or pay a fine-the rationale being that if everyone has insurance, the risk will be pooled and costs will eventually come down. (The fine to opt-out is very low initially and will gradually increase over time).
· Allows people to stay on their parents’ policy beyond age 26.
· Insures an additional 32 million Americans (still leaves 20 million left uninsured)
· Private insurance companies must spend 80% of premiums on health care (as opposed to shareholder profits, administration costs and huge CEO salaries).
What the ACA will not do:
  • It will not fund abortions. (For those of you that think Federal funding supports abortion through Planned Parenthood, it doesn't. In fact, abortions represent only 3% of Planned Parenthood's annual costs.)
  • It does not allow the government to negotiate the price of drugs with pharmaceutical companies; this is a portion of the legislation that I hope can be changed in the future as it is a huge healthcare expense.
  • It does not mean "socialized medicine". Healthcare will continue to be provided and delivered privately.
  • It will not "bankrupt" the country; the Congressional Budget Office estimates it will cost $938 billion over the next ten years, but will pay for itself and reduce the deficit by $124 billion over the same time period.
In closing, I think we should be proud that our legislators were able to pass this legislation despite the extreme partisanship that has defined recent political history. Out of 193 countries, the World Health Organization ranked the US 28th  in life expectancy, 41st in infant mortality and 37th overall in 2011.

We have many huge political battles we must face; why not improve the legislation we have in place rather than go backwards.

For more on the economics beyond this issue, you can read my previous post here.

Please do read Dave's piece linked above, just in case you missed that link, I'll post it again right here!

[1] Wilper, et al., AM J Public Health, 2009, 99:12.
[2] Kaiser/HRET Survey of Employer-Sponsered Health Benefits, 2002-2012.

Sunday, October 7, 2012

What tax reform in MN should look like

Mark Dayton plans to unveil a budget in January 2013; tax reform will be a major piece of the proposal. The Commissioner of Revenue, Myron Frans, has been traveling the state to garner ideas for tax reform from cities, counties, businesses, taxpayers and legislators.

On Monday, the Commissioner gave a presentation at the Humphrey School at the University of Minnesota.  After his presentation, he sat on a panel with Bill Blazar, Senior Vice President of the Minnesota Chamber of Commerce, and Laura Kalambokidis, Associate Professor and Extension Economist in the Applied Economics Department at the University of MN.

If you’d like to watch his presentation outlining the many reasons we need tax reform, you can view the presentation here.  I’d like to sum it up quickly for you as well because tax reform is crucial for both the State and Federal Budgets- it would be nice to see MN at the forefront of tax reform.

Prominent Minnesotans like Tom Stinson, Art Rolnick and Myron Frans often tell a similar story about Minnesota. In 1950 MN was ranked 26th in per-capita income. At that time, agriculture provided a major source of employment for Minnesotans. Over the past fifty years, the state invested heavily in education and infrastructure. The State’s investments in education paid off; in 2004 MN was ranked 7th in per-capita income. MN is also home to the most Fortune 500 companies on a per-capita basis. Why? Because businesses have access to a highly educated work force and adequate infrastructure thanks to the many investments Minnesota made over the past 60 years.

However, in order to continue spending on education and infrastructure, the state needs to address a structural problem in the budget. The state of MN has run a deficit 8 out of the last 11 years; addressing this structural deficit problem is of growing concern as Minnesota’s population ages. Baby boomers are reaching retirement age, and family sizes have grown smaller, leaving a disparity between the number of Minnesotans in the workforce (and paying into the system) and growing numbers those at retirement age (pulling money out of the system). The Minnesota State Demographer predicts that by 2035 Minnesota will have 850,000 or more people age 60+ and only 60,000 ages 35-59.

Many people will say the state has a spending problem rather than a revenue problem; however, the facts tell a different story. For example, Minnesota is one of only five states that enjoys a tax exemption on clothing[1].  This exemption leaves a gaping hole in sales tax revenue. Similarly, approximately $400 million dollars in sales tax revenue is lost to remote sales and e-commerce sales (unfortunately, taxation of e-commerce is a very complicated issue for a later post). Sales tax currently only accounts for 27% of the annual revenue; a much smaller share than it has accounted for in the past.

Another problem is that the composition of the economy is changing; in the past, goods comprised a greater portion of retail sales than services, but in 2011 services accounted for 67% of sales in MN and goods accounted for 33%. Minnesotans and Americans are spending a much larger share on services than we have in the past, and these services are not tangible, and as such, typically not covered by sales tax. 

Our income tax forms are confusing. In 1950 you chose from 6 possible forms for an initial return, now you have to choose from 18. The number of adjustments and credits has risen from 9 to 50. In 1913 there were 6 property classes and tiers, now there are 55.

Obviously we need tax reform. We need simplicity (eliminate tax expenditures[2] where possible, simplify tax forms) and we need equity (a popular proposal includes graduated sales tax on items like clothing and certain foods).  

It will be interesting to see how tax reform in MN plays out!