4 “I’s” for Republicans in 2016

When you add up the exit polling from all the battleground states Mitt Romney got roughly:   7% of the Black vote;  29% of the Hispanic vote;  40% of the Under-30 vote; and, 35% of the single female vote.

There is no way you can expect to win 270 electoral votes with those kinds of stats. So the 2016 Republican Party should have to focus on the 4 “I’s” for the next Presidential election.

Inclusion: The GOP will have to change the perception that they are either racist or classist –no 47% comments. Many Blacks believed Republicans were the party of “No” purely for race and not for policy.

That’ll make an electorate mad which then makes them more passionate and loyal to their party and their candidate. Luckily for Republicans the next Democratic ticket most likely won’t have a Black candidate so Republicans can get at least 25% of the Black vote. In four years they should at least get 50% of the Black vote that earns more than $50k a year.

Immigration: President Obama did better with Hispanics in 2012 than he did in 2008. The party cannot support laws that allow police to stop you if you “look” like an illegal immigrant. What do illegal immigrants look like in the first place?

This type of rhetoric by Republicans alienated Hispanics that are here legally. Put that in juxtaposition to the Democrats that embraced this voting block with policy changes like the Dream Act.

Bush was able to win 45% of working class Hispanics by focusing on family and education and being a former Texas Governor gave him credibility. Texas will be a blue state by 2050 so Republicans need to prepare for those Hispanics, both young and old, now.

Innovation: Romney did better than McCain with the youth vote but still lost 60% of the vote. The party has to rejuvenate itself and be more assessable on social media. It needs to build enthusiasm and engagement among young conservatives.

Today, they feel alone and nervous to express their feelings in public. Its been unpopular since “Hope & Change”. Repealing Obamacare would kick off every 18-26 year old on their parents plan. That’s a hard message to sell to young voters then ask them to pull the lever for you.

Youth unemployment is over 12% with only a 50% labor force participation rate. Unfortunately the Republican message has been more socially conservative than fiscally conservative. Today, most young people have a gay friend, don’t want to go to war, are not overly religious, are not pro-life, and want to smoke pot.

If the Party could run on social tolerance and be able to offer a true job plan, they would get a bigger portion of the youth vote.

Invasion: Republicans lost the war on women by supporting policies that invade the privacy of women. Trying to defund Planned Parenthood is like 0.0001% of the deficit. It doesn’t make sense to bring it up if you are a deficit hawk. You lose credibility.

Also trying to place barriers in front of woman receiving contraception is a nice way to lose the women vote as well. Many women were turned off when the Republican House led a Congressional session on contraception with various leader and experts. Not only were none of them women, they invited Priests and Rabbis to speak about women and reproduction issues.

Also, answering the question about whether your Party supports equal pay for women should never be “Yes, but…”

1 Man 1 Mind

Health Exchanges – Part III

Understanding Your Operational Readiness

In Part I of Building a Health Exchange Strategy the discussion centered on how payers will have to be more consumer centric in their approaches to delivering health care. Part II focused on being aware of the political climate and how that will impact strategic decisions on whether to enter a Health Exchange market and upon entrance how to operate within one. Both dynamics, though critical, outlined external factors. Part III dives into internal factors; particularly around operational readiness.

It is clearly recognized that Health Exchanges offer up a tremendous opportunity for health insurance companies to broaden their consumer base and expand their market share. By making health coverage more affordable it is likely that 30 million of the 45 to 50 million uninsured Americans will enter the market and purchase coverage through a Health Exchange.  Despite this opportunity, there is a high degree of complexity behind implementing and operating a Health Exchange book of business. The work in 2012 and 2013 provides a barrier to entry for smaller firms who may not have the financial and human capital to build the necessary tools and operational foundation to effectively compete with the larger players. Additionally, there are many interdependencies that exist with heavy reliance on each individual state as well as select Federal agencies to coordinate the coverage and manage the financing of the Health Exchange. The three main areas of concern that health insurance companies are grappling with are (1) product and plan design, (2) subsidy calculations and premium collection, and (3) eligibility and enrollment. Today’s article, (Part III, Step 1) will focus specifically on products and plan designs.

Product and Plan Design

Health Exchanges require at a minimum four levels of benefit offerings; bronze, silver, gold, or platinum. The different metals denote the level of coverage each plan must provide. For example, a bronze plan must cover up to 58% and no more than 62% of the health care costs for the health benefits a state deems “essential “ for a health insurer to provide. Likewise, a platinum plan must cover up to 88% and no more than 92% of the health care costs. These plan designs may be dictated by the individual state depending on the type of Health Exchange the state decides to run. Active Purchaser states like New York would be more inclined to create standard plan designs while Facilitator state like Utah would allow health insurance companies to come up with products and plan designs independently.

Within the “Silver” metal plan offerings the Health Exchanges will require the reduction of cost-sharing levels such as deductibles, co-payments, coinsurance, and out of pocket maximums depending on the consumer’s federal poverty level (FPL). For example, a silver plan may have a $1,000 deductible before coverage from the health plan kicks in. However, if a consumer with a FPL below 250% purchases a silver plan, the $1,000 deductible would need to be lowered by up to $500. This provides a level of complexity for health plans that has not been seen before. Lowering the deductible actuarially increases the price of the plan since the plan will provide more coverage. However, that cost of lowering the deductible is returned back to the health plan by the Federal government and not the purchasing consumer.

Additionally, the silver plan created by a health plan will have to be replicated up to 4 times over to accommodate for the variations in cost-sharing reductions that change the plan design of the product for each FPL level. Operationally, this inevitable means multiple people can by the same exact silver plan. However based on their income level, they will have very different plans and very different utilization trends. Accumulator calculators that help health plans count up health care dollars will be imperative to ensure that physicians, hospitals, health plans, and most importantly health care consumers know when they have reached their deductibles and coinsurance maximums. The cost of administering such a complex set of plan designs are still unknown to many health plans; however this has not deterred them from pursuing the Health Exchange opportunity. However, the bigger impact to the cost of administration is how it will work in parallel with minimum loss ratio requirements that mandate the percentage of health care revenue that must be spent on providing health care as opposed to administrative costs; particularly if administrative costs increase due to the complexity of administering these plans.  This will undoubtedly eats away at the profit margins of health care plans that already operate with very low margins (2-4% on average).

Basic Health Option

In addition to the four metal plans a state may opt to offer a Basic Health Option. This basically extends the state’s current Medicaid plan eligibility from beyond the 133% FPL up to 200% FPL. It behooves a state to pursue such an option because the Federal government would reimburse 95% of the costs. Today, the Federal government only pays 50% of a state’s Medicaid costs. As a result, states could potentially realize huge savings by shifting a portion of its Medicaid population to this Basic Health Option.

However, this route is very complex. The nuances here are that the Basic Health Option must have the essential health benefits deemed by the state even though the current Medicaid plans do not. So the population over and above the 133% FPL level will have a similar product however the underlying benefits could be substantially different. This poses complexity to the providers with coding and claim submissions. The states will be free to choose the methodology for their essential health benefit package as long as it represents (1) the most popular small group health plan, (2) the most popular HMO health plan in the state, (3) the health plan offered by the State to its employees, or (4) the health plan offered by the Federal Government to its employees in that state. There is also added complexity to the Basic Health Option when it comes to cost sharing. Deductibles and coinsurance levels are regulated within the health care reform bill to be based on FPL as well. So a health plan would have to administer two different types of Basic Health Plans based on whether a consumer is 133% to 150% of the FPL or if they are 150% to 200% of the FPL. These intricacies cause added complexity when it comes to administering a health plan, accumulating consumers’ deductibles and out of pocket maximums, and ensuring the plan designs receive actuarially sound price increases and adjustments year to year.

Catastrophic Plan

Lastly, individual states will also have the ability to create catastrophic plans that can only be offered to health care consumers under the age of 30. Many industry insiders refer to this population as the “young invincibles”. These plans must also meet the essential health benefit requirements, however the deductibles and out of pocket maximums are allowed to be higher. As a safeguard against consumers forgoing care because of high out of pocket healthcare expense there are a number of protections put in place as well. For example, preventive care and particular routine care must be covered in full and not be subject to the deductible. Additionally, three to four primary care office visits must also be covered in full and not subject to the deductible as well. Pricing for these plans provides a unique opportunity for health insurers since the risk pool and experience of the population will reflect a younger demographic. This means that pricing should in theory be more affordable and subsidies from the Federal government potentially could go a longer way.

In the End

Health Exchanges presents standardization of plan designs to the health care consumer market with the potential of commoditization of health insurers as they compete for market share. As a result, the emphasis on products and plan designs becomes imperative. How an insurer operationally administers health care products in this space will be the differentiator to the consumer. Innovation in finding the ability to be unique in a very regulated space products an opportunity for insurers to make product development the focal point of their Health Exchange success strategy.

1 Man 1 Mind

Free Market Lessons from Sweden’s Single Payer System

With over 313 million people, the United States spends over 17% of its GDP on health expenditures while over 14% of its population lacks health insurance. This has led to runaway costs, access to care issues, and worries of severe physician shortages in 2014. On the contrary, Sweden, with a much smaller, homogenous population of 9.4 million people has been able to keep health expenditures less than 10% of its GDP while covering all of its population. If health dollar efficiency was the metric to compare health systems internationally, Sweden would lead the U.S. in this regard for over the last 30 years. Despite these successes, like all developed nations, Sweden faced threats of increasing costs in the 1990’s due to an economic downturn. Additionally, Sweden saw an aging population with a longer life expectancy from advancements in technology and modern medicine. When healthcare is government-run it inevitably will succumb to rationing of healthcare when tax dollars are scarce. However, Sweden has been able to meet sustainable results through policy and market reforms focused on (1) decentralized healthcare management, (2) cost containment measures, and (3) physician and hospital competition.

Decentralization of Healthcare Management

While Sweden is a model for a single payer system, many of their reforms are applicable to the United Stated. In Sweden the Health and Sickness Care Law of 1982 decentralized the Swedish government’s control of healthcare to keep it “accessible, efficient, and equitable.”  Counties within the country were given more autonomy to set up boards and administer health services. In turn, many of the national rules dissolved. This decentralization gave more power for regional decisions within the counties of Sweden. This is unlike America where the answer to the uninsured population in its most recent healthcare reform efforts was to use the national approach of health exchanges and essential health benefits and not delegating the particular solutions to states and localities. For example the Department of Health & Human Services mandated that every state have a health benefit exchange by 2014 or the Federal government would create one within the state.

Lesson Learned: Place the burden of the uninsured into the hands of local governments to formulate strategies to solve the issues that are sensitive to the local values.

For example, in the U.S. one-third of the uninsured find insurance within 6 months. In Sweden, many counties pay for insurance costs for citizens up to 6 months until they find a new job. This would cut 15 million of the 45 million uninsured. Additionally, 50% of the uninsured work part-time. A U.S. state resolution would be a sickness fund (similar to Medicaid) that caters to people who work less than 40 hours a week with multiple employers, which would lower the uninsured rates to ~20 million. Lastly, 43% of the uninsured live in 4 states (New York, Florida, Texas and California). A focus on local initiatives to answer a national problem similar to Sweden could have potentially been a better use of resources and national funds than a Federal law impacting all 50 states.

Cost Containment

In 1984, with the passage of the Dagmar Reform of 1984, national revenues were divvied up and doled out to counties as block grants based on population size. As a result, private providers could no longer directly bill the national healthcare system for medical services rendered. This is very similar to how physicians who treat Medicare enrollees operate today. From 1984 to 1985 the count of practicing physicians went from well over 5,000 to just over 2,000 greatly controlling costs. Block grants also declined the percentage of GDP in Sweden spent on health expenditures. Sweden is one of the few countries that have been able to lower the percentage of health expenditures.

Additionally, as the economy worsened in the early 1990’s, the Swedish government froze taxes from 1991 until 1994. During this time 22% of the country’s beds for acute bed care were eliminated. Also self referrals received a higher co-payment. This is very different in the U.S. where economic downturns cause private insurance enrollment decreases due to cost containment that occur in the private sector. However, since all health care cost controls are not vested in local state government, public spending and public health expenditures balloon during such times. For example, Medicaid spending increased by one-third from 2000 to 2003 during the U.S. economic down turn. It grew by 10% between 2010 and 2011 representing 25% of all expenditures for states. U.S. healthcare reform efforts plan to cut Medicare and Medicaid by 500 billion which is likely to get caught up in the same political stalemate as the Medicare “doc-fix” since these decisions have not been decentralized and delegated to local governments. Since Sweden represents close to 80% of all health expenditures compared to less than 50% in the U.S., they are more sensitive to cost containment measures which lead to quicker reaction and better results.

The Federal government in the U.S. has continued to push-off a fix to Medicare reimbursement reductions due to lobbying from physicians and trade groups. If decisions were local, States would control costs better. Additionally, 50% of the Medicaid spend is by the states. This allows the states conversely to only handle 50% of the costs.

Lesson Learned: Medicare and Medicaid should be handled purely at the state levels since many states have balance budget amendments, cannot run deficits, and it is very costly for states to borrow funds.

Lastly, in 2002, Sweden introduced reference pricing and generic substitution for pharmacy coverage. This meant that when a drug was purchased, the health system would pick up 110% of the lowest priced drug. If a brand name drug was requested over a generic, the consumer would be responsible for the difference. From 2002 through 2005 Sweden realized $7 billion in savings which was close to 10% of total drug spend.

Lesson Learned:Adopt reference pricing and generic substitution in both Medicare and Medicaid programs across the U.S. to sharply cut pharmacy growth rates.

Physician & Hospital Controls

The United States is quickly facing a physician shortage when 20 million or more Americans will enter the insurance market in 2014 through Health Benefit Exchanges. In 1993 Sweden passed a law called The Point of Service Primary Care Reform which answered concerns of primary care shortages. The law made counties responsible for making sure every Swede had access to primary care. Additionally, it capped the amount of specialty training that occurred outside general medicine. It set ceilings and floors for the amount of patients treated by a single practice (1-3k patients per year). It provided credits and loan forgiveness to primary care doctors who started a new practice. And finally, the law allowed pay for performance measures that reduced the reimbursement to physicians who underperformed. Such controls including other initiatives has led to the use of electronic medical records for 94% of Swedish primary care physicians as compared to only 45% in the U.S. Additionally, 49% of Swedish physician practices can use advanced electronic health information compared to only 26% in the U.S. Lastly, 54% of Swedish practices will see patients after hours as compared to 29% in the U.S.

Lesson Learned: Strong controls on physicians at the local government level can greatly stop the potential of primary care shortages and improve care.

Conclusion

There are possible lessons learned from recent healthcare reforms in Sweden particularly in the areas of decentralization, cost containment, and physician controls. In particular there are four lessons learned that are practical in the U.S. despite the current political climate and threat of the constitutionality of the Patient Protection and Affordable Care Act. Lesson 1: decentralize the burden of the uninsured to the states. Lesson 2: Allow states to budget for health care through block grants. Lesson 3: adopt reference pricing and generic alternative scripting. Lesson 4: place strong controls on physicians to end shortages and increase access to care.

Despite America’s strong dislike for government-run healthcare, roughly 40% of the population (125M Americans) particpates in a federally facilitated health program. Specifically, there are 44M Medicare recipients, 62M Medicaid recipients, 10M Tricare recipients (health insurance for the U.S. military) , and 8M Federal Employee Health Benefit recipients. Sweden has been able to use free market principles within a government-run system to manage care and cost. And yes, with any balance between quantity and quality, rationing of care does exist. But in a free market, when does rationing based on supply and demand not exist outside of anomalies like luxury and inferior goods?

Originally posted at NYU’s Health Policy Blog

1 Man 1 Mind

Health Exchanges – Part II

Understanding Your Political Climate

By 2014 there will potentially be a health benefit exchange in every state across the country. Like snowflakes no exchange will be alike and politics will play a pivotal role in the differences found between them. While the healthcare reform bill signed into law requires the establishment of exchanges, the details of operation have yet to be determined. In fact, in March 2012, the Department of Health and Human Services (HHS) provided 600 pages of additional guidance to the states. The guidance given was more of a framework while much of the particulars were purposefully left out. This has made the role of the individual State Governors ever important. They are now in a position of power and play a very integral role in bringing exchanges from a theoretical policy concept to a legislative and operational reality.

Right or Left At a high level, left leaning blue states will design their exchange to be an active purchaser. This will allow the Governor to take an active role in the day to day exchange operations. Under the direction of an exchange board, most likely selected by the Governor, these states would choose precisely which insurance companies participate, the types of policies sold, the rates of the selected products, and how enrollment and eligibility of those enrolled would work. In some more aggressive instances, states could even negotiate pricings with doctors, hospitals and pharmaceutical companies in the very same ways insurance companies do today in the private sector. This is obviously foreign territory to many of the states pursuing such a model. Nonetheless, proponents of the model see value in such an approach believing more oversight will lead to more affordability and better health outcomes in the long run.

Right leaning red states on the other hand will opt for a facilitator model. The state will merely be a marketplace for health benefit transactions between consumers and insurance companies to occur. They will set the high level guidelines and guardrails and merely outline the rules of engagement. Much of the market dynamics will be left up to private insurance and market forces to sort out. Benefit design, rate approval, distribution strategy, the “off-exchange” marketplace, and pricing will all be left up to “the invisible hand” of Adam Smith’s market forces. The idea of competition lowering healthcare costs has been refuted by the likes of many including Alain Enthoven – the father of managed competition – and Kenneth Arrow – the pioneer in research on asymmetric information as a market failure in healthcare. Nonetheless, American capitalism seems to have trumped over such doubts in these states. As a result, the role of government in these exchanges will be as minimal as the healthcare reform legislation will allow. There are already mandates that must be in place for each exchange. For example there must be four benefit categories ranked by actuarial values labeled bronze, silver, gold, and platinum for simplicity. The legislation also caps insurance company profit at 20% before operating costs are factored in. Lastly, the legislation requires health insurance companies to accept all enrollees and requires that the ratio between the pricing of the healthiest and the sickest consumer not exceed a 3 to 1 ratio. All in all, governors of these red states feel too much regulation stifles competition and the reform bill already has enough rules. As such, they are reluctant to add any further requirements on top of the federal ones. In this role the state will play referee rather than player/coach.

Politics at Play State by state, there will be different shades of blue as states consider the ramifications of building a health benefit exchange. Health insurers must be prepared to understand how these different shades will impact the development of health policy. Vermont, for example, will be one of those very bold blue states. On May 26, 2011, Governor Peter Shumlin signed into law a historic universal healthcare bill which would cover every citizen in the state under a single payer system called Green Mountain Care. It will be in place by 2017 and the state has been drawing down federal funds from the national health reform bill as it prepares.

Like blue states, there too will be shades of red. Arkansas is a perfect example of a bright red state. Legislative opposition to a state run exchange was so great, Jay Bradford, the State Insurance Commissioner, had to  start preparing for a federally run exchange. By law, when a state cannot come up with its own legislation to run an exchange, the federal government is required to step in and set one up. Ironically, legislators that are so vehemently against Obama’s healthcare reform legislation will end up with a federally run exchange led behind Kathleen Sebelius, the current Secretary of Health and Human Services and former democratic Governor of Kansas.

Understanding the political environment of your state of operation is paramount to assessing the viability of a successful exchange strategy for a private insurance company. An active purchaser model lends itself to be a market where the constraints may be too great to be successful and sustainable. If the market is too controlled, healthcare coverage quickly becomes a commodity and erodes the levers of differentiation used to be competitive. Health insurance companies could come to the conclusion that participating in such a state will not be viable and opt to stay on the sidelines. However, the state would technically have the right to mandate (either directly or indirectly) insurance company participation, which could turn the state into a defacto-single payer.

On the other hand, a facilitator model lends itself to be the more favorable for an insurance company to operate within. However, a state that has done everything to obstruct healthcare reform progress like Arkansas is just as dangerous. It most likely will end up with a federally run exchange which could potentially be more burdensome than a facilitated one a red state would have had the option to create.

Originally Posted at NYU’s Health Policy Blog

1 Man 1 Mind

It’s a Rotten Apple for NY’s Small Businesses

An indepth look at health care regulations that uniquely contribute to high health insurance costs in New York

Want to start a small business and help our staggering economy? Think twice about NY. Studies continue to show that affordable health coverage is the top concern for small businesses in this state. Contrary to popular belief health insurance profits and administrative costs barely contribute to the rising cost of coverage representing only 6% of total health spending. Despite this reality, this is exactly where policy makers have focused their time and energy with a desire to rein in costs. Profit margin in the NY small business insurance market is among the lowest in the country. In fact, many health insurance companies in NY are losing money, barely breaking even, or attaining modest 2-3% margins. Instead, we should focus on the big ticket items. That is, let’s focus on the factors that are unique to NY that contribute the most to higher costs. If modified to match national standards, these factors could substantially reduce insurance rates in this state making affordable health coverage available to more small businesses and in effect, more New Yorkers. After all, small businesses are the engine of the NY economy and the catalyst for NY job creation.

The primary driver of high insurance premiums in NY is the unusually high cost of health care delivery. NY is one of two states (California being the other) that lead the nation in spending at $163 billion per year. Each New Yorker makes up about $8,300 in annual health care costs per year; 22% higher than the national average. However, NY’s high spending rates have not translated into healthier New Yorkers. NY is only in the middle of the pack when it comes to quality (21nd out of 50 states). The state comes in dead last (50th out of 50 states) when it comes to avoidable hospital use. Statistics continue to show that hospital care is the #1 contributor to total health care spending in the America and this is exactly where NY has its problems. As health spending increases in this state, the price to insure New Yorkers increases as well.

Why is this happening?

Here are several regulatory factors unique to NY that exacerbates the high cost of coverage listed in order of magnitude:

High Medicaid Enrollment – A huge detriment to the affordability of small business health insurance rates is the number of New Yorkers enrolled in Medicaid. Of the 10 states that lead the nation in health insurance rates, high Medicaid enrollment is a reoccurring theme among them all. 1 out of every 4 New Yorkers receiving Medicaid benefits making it the 6th highest of any other state. Despite not leading the country in Medicaid enrollment, NY is the highest spending Medicaid state in the entire country. This means we are paying more per person without offering better care. In its meager attempts to rein in these high rates of spending, NY continually cuts the payments given to hospitals and doctors that provide care to NY Medicaid enrollees. These cuts set off a chain reaction causing hospitals and doctors to subsidize patient revenue losses with income from patients that have private insurance. This disproportionately impacts small businesses because there are fewer tools at their disposal to combat cost shifts. As a result, NY is the 2nd most expensive state for small business health insurance in the country averaging $554 a month for an individual and $1,455 a month for a family. How does that compare to the rest of the country? NY rates are 30% higher than the national average.

SOLUTION: NY should immediately implement the recommendations from the NY Medicaid Redesign Team formed under the leadership of Governor Cuomo. The #1 cost contributor to small business health insurance is its subsidization of Medicaid spending in the state. If NY wishes to attract and retain small businesses, it must enact legislation that stops it from being the highest spending Medicaid state in the nation.

Pure Community Rating – NY stands alone as the only state that requires health insurance companies to charge all small businesses purchasing the same plan in a similar region the same price regardless of business size, demographic makeup, industry type, or health history. The other 49 states allow pricing to differ on a variety of factors which provide lower rates for healthier, younger, and even larger small businesses encouraging enrollment. Enrollment from diverse companies balances the insurance risk pool making coverage affordable for all. Inherent to the smallest of companies are higher operating costs and more fluctuations in health status and demographics which cause pricing for this population to be higher than average. However, because of this law, NY must charge all small businesses the same price regardless of size. This has caused NY to be the highest priced state in the nation for companies with 11-50 employees, which becomes a huge disadvantage for the NY economy.  Small businesses in this segment size represent more than 60% of the total small business workforce in NY making neighboring states like CT, NJ, and PA more attractive to larger small businesses. When fewer small businesses opt to offer coverage and the ones that do are smaller in size, the cost of insurance drives up at even faster rates than the normal health trend.

SOLUTION:  Adopt “modified community rating” as outlined in the federal health care reform bill which allows small business rates to vary by age and  tobacco use. This will allow more favorable pricing that will attract a both larger small businesses that employ more people and attract younger/healthier New Yorkers into the insurance risk pool.

Hidden Taxes – The single largest small business tax in NY is on private health insurance coverage. NY collected over $4.1 billion in revenue through these various taxes, fees, and assessments in 2011. Private health insurance has historically been targeted for solving state budget deficits. As such, these taxes have increased year after year adding more than $500 million to insurance costs since 2007. No other state has such an onerous tax burden and it is only likely to get worse as Federal health care reform is implemented. Both Health Benefits Exchanges and Market share assessments will result in more taxes imposed on the privately insured).

SOLUTION: Make New Yorkers aware of the taxes, fees, assessments hidden in health insurance rates. New Yorkers have a right to know where tax revenue for the state is generated.

o   $2.33B was raised by surcharges placed on hospital and health services given to consumers of private insurance

o   $1.16B was raised by an assessment based on a health insurer’s enrollment

o   $353M was raised by taxes placed on the prices commercial insurance companies charge their customers

o   $270M was raised by assessments on health insurance companies to fund running the Department of Financial Services

o   $240M was raised by an assessment based on a health insurer’s enrollment to specifically fill NY State budget shortfalls.

Benefit Mandates – NY has a laundry list of over 40 specific conditions and treatments that all health insurance policies must cover by law, regardless of an employee’s health needs or preferences. Compared to states like Idaho (12 mandates) and Alabama (18 mandates), NY is one of the states that lead the nation in mandates. These mandates in many instances supersede Federal standards, increasing NY’s health care costs by more than a 12%. In fact depending on the mandate, insurance costs can increase between 1% and 5% for each additional mandate.

SOLUTION: Change the current set of benefit mandates that exceed the Federal standards to be “made available for purchase” rather than being mandated for inclusion in all small business plans offered.  This will allow employers to choose the plan that best suit their business needs. Larger employers that self-insure have been able to free themselves of many burdensome and costly mandates through ERISA rules which have not created a level playing field and disproportionately impacted smaller businesses.

Health Insurance Rate Review (Prior Approval Law) – In 2010, NY passed a law requiring all small business insurance rates to be approved by the Department of Financial Services. It also requires that $0.82 of every $1.00 in revenue be spent on medical care. As feared, this new rate approval process has become highly politicized rather than being a true actuarial exercise. First, $0.82 is higher than the federal requirement of $0.80 found in the recent health care reform legislation. Secondly, insurance companies in NY spend closer to $0.87 of ever $1.00 in the small business market and after operating costs, profit margins average only 2%. These actions create a hostile market place for competition and have led to fewer insurance companies offering coverage to small businesses in NY.

SOLUTION: Remove the onerous and political nature of rate increase reviews and improve the timeliness of state decisions

Individual Market Failures – Health insurance coverage for an individual in NY exceeds $1,000 a month in most cases. These rates are almost 60% higher than those for small businesses, causing some individuals who are priced out of the marketplace to form phony small businesses to avoid the high costs and market failures of the individual market.  As a result, insurance companies inadequately price small business insurance coverage to properly reflect the risk.

SOLUTION: Enact a “facilitated model” for health benefit exchanges as outlined in the health care reform legislation. This will increase competition and fix the individual market by removing the restrictions of plan options that must be sold in the state. Today, NY requires all health insurance companies to offer basic HMO and POS products that costs more than $1,000 a month for an individual. Fewer regulations in the pricing and the plans offered to individuals would unleash the creativity and innovation found in products health insurance companies sell to larger businesses.

SOLUTION: Modify the NY “Young Adult Option” law that allows unmarried young adults through age 29 to purchase health insurance through their parent’s plan. This law should be modified to lower the cost of insurance to adequately reflect the health status of an average 29-year-old. Today, the pricing reflect the health status of the current population, which is much older and less healthy, making it unaffordable for many young workers in NY.

The NY Dilemma

Based on a 2010 AHIP study below, NY health insurance pricing is more attractive to the very small businesses that cause rates to sky-rocket. This is an unsustainable state of affairs that only hampers NY’s ability to have a strong and fast economic recovery.

Premiums by State, 2010 (Top 5 Most Expensive States)
Small Employers w/ 26-50 employees Avg. Monthly Premium
State Single Family
1. New York $565 $1,485
2. New Hampshire $512 $1,345
3. Nebraska $443 $1,164
4. Illinois $435 $1,147
5. California $428 $1,125
Avg. United States $406 $1,065
Small Employers w/ 11-25 employees Avg. Monthly Premium
State Single Family
1. New York $577 $1,514
2. New Hampshire $523 $1,374
3. Nebraska $449 $1,179
4. Massachusetts $439 $1,153
5. Illinois $438 $1,151
Avg. United States $419 $1,100
Small Employers w/ 10 or fewer employees Avg. Monthly Premium
State Single Family
1. Nebraska $579 $1,519
2. Massachusetts $545 $1,430
3. New Hampshire $539 $1,415
4. New York $536 $1,408
5. Florida $489 $1,283
Avg. United States $446 $1,172

AHIP Small Group Health Insurance in 2010: A Comprehensive Survey of Premiums, Product Choices, and Benefits, July 2011

Originally posted at NYU’s Health Policy Blog

1 Man 1 Mind

SOTU: What Obama Didn’t Say

President Obama filled up close to 90 minutes of TV airtime giving his 3rd State of the Union Address last week. With 6,953 words (about 12 pages) to choose from political pundits filled the airwaves all across the country with animated reactions commenting on everything from the details of his plans to his tone, his demeanor, and overall performance. But all too often we forget that with great orators, it is more important to focus on the words that were not said than the ones that were….

Here are the facts:

– “Health” was used only 7 times during his speech (roughly 0.001% which takes up less than 1 line on a page).

– His comments regarding Healthcare made up only 332 words. That represented 4.7% of his speech (about a page and half). A little better but still severely lacking in substance.

How can that be?

– Health expenditures in this country represent more than 16% of our GDP while the average percentage among high income nations is roughly 10%.

– 13.1 million Americans lack a job but more than 50 million Americans in this country lack health insurance. Doesn’t healthcare deserve more attention?

– Since inauguration, he has spent 60% of his time in office getting what he called his #1 domestic policy agenda, healthcare reform, passed through Congress. If you recall, he entered office on January 20, 2010 and healthcare reform was passed on March 23, 2011. So 15 out of his now 25 months were dedicated to the pursuit of universal healthcare.

– Lastly, most of the popular provisions of the law have already been instituted. Millions of young adults in their twenties have been able to get insurance through their parents. And even more promising, no child under 18 can be denied coverage for pre-existing conditions.

So why were there so few words on healthcare? Discussing income inequality yet avoiding healthcare is not having an honest discussion about the problem. America spends more money on healthcare than any country on the planet. What is not widely known are the percentages spent by the government versus the private sector and how that impacts the American pocketbook. This country is actually on par with other high income nations spending 7.4% of their GDP on government health expenditures like Medicare, Medicaid, and Veteran healthcare. For a comparison, countries like France (8.7%) and Germany (8.1%) are at higher levels with government run universal healthcare. However, when it comes to expenditures from the private sector, America spends an additional 8.5% of its GDP representing almost half (52.2%) of total health costs for the entire country. That is 4 times higher than most like nations. In fact those private sector figures put us in 50th place between Rwanda (49th) and Gambia (51st) according to the World Health Organization.

WHY IT MATTERS

Most Americans get health insurance through their employer leaving American businesses on the hook for large portions of the country’s private health expenditures. It’s been the catalyst for corporations moving jobs overseas. It’s why the United States Postal Service is teetering on the edge of insolvency. It’s why America bailed out General Motors and restructured their Union contracts to be the #1 car company in the world again.

Most Americans work for businesses with 200 or more employees. According to the Kaiser Family Foundation, 99% of the time these businesses are offering health insurance to those employees. The foundation goes on to highlight that the cost of these employer health plans have gone up by 113% over the past 10 years with employers paying close to 73% of those costs on behalf of their employee population. As a result they have shielded much of the exorbitant healthcare increases from their employees. This has had grave repercussions to the average American salary. You cannot talk about income inequality and ignore non-salaried benefits like health insurance. These increases have poked huge holes in the bucket of funds that corporations use to payout employee compensation. You also cannot blame health insurance companies for these increases either. Their profit margins barely surpass 4% compared to pharmaceutical companies that enjoy 15% margins. The blame really goes to the actual cost of providing healthcare.

The U.S Social Security Administration has tracked the national average wages in this country since 1951. In 2001 it was $32,921. In 2010 it is $41,673. So despite the increases in health insurance costs, wages have still gone up 27% in the past 10 years. American employees however have seen 131% growth in the amount of money they must contribute to their health plan. It has gone from $1,787 in 2001 to $4,129 in 2010. So Americans have literally went from paying 5% of their salary on health insurance to 10% in 10 years not even accounting for the increase in co-payments, deductibles, and out of pocket costs.

If you truly want to tackle income inequality, look no further than tackling the increases in healthcare spending. Healthcare reform did not go far enough on this issue. It increased access via health exchanges, protected more patients via insurance regulations like profit ceilings and mandated benefits. But it did nothing to tackle costs. Even worse, our healthcare system will continue to shield costs from the consumer by giving subsidies to lower income Americans so that insurance can be more affordable. But these subsidies are paid for by taxes and fees levied on health insurance companies ($60 billion), on Americans with rich “Cadillac” type health plans ($32 billion), on pharmaceutical companies ($27 billion), and on high income earners use of hospitals ($210 billion). The only problem with these types of revenue streams are the laws of economics. Since individual Americans and large businesses will be required by law to purchase insurance by 2014, they as consumers will be more inelastic than their suppliers. In the end most of these taxes and fees will be passed on to the most vulnerable consumers further eating away at their hard earned income.

President Obama concluded his healthcare remarks conceding that he was “willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits.” The only problem is here is the sad reality. According to the Kaiser Family Foundation only 11,000 malpractice claims were paid in 2009 amounting to $3.6 billion. That sounds like a big number but it is only 0.2% of total U.S. health costs. So the only question left is how much medical malpractice reform could help to actually close the income inequality gap. Well, the average malpractice suit is only $11.99 per capita, putting $12 bucks back in everyone’s pocket. I guess the good news is this kind of policy change would help fight the common cold giving every American the extra disposable income to buy a bottle of Robitussin from CVS.

Originally posted at NYU’s Health Policy Blog

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Health Exchanges – Part I

Changing Your Vantage Point

Health benefit exchanges are set to be fully operational by 2014. As part of the Patient Protection and Affordable Care Act (PPACA), these exchanges seek to be a marketplace for consumers to purchase affordable coverage. Subsidies to reduce both the cost of insurance and the out of pocket expenses from copayments and deductibles will be available to eligible consumers as well. Estimates suggest close to 30 million Americans will find coverage through this avenue lowering the uninsured rate to 3%.

These exchanges will revolutionize the way health insurance companies operate. Most Americans receive insurance through their employer. As such, insurance companies have built their world around marketing to them rather than directly to individual consumers. Over the years, insurance company processes, products, and strategies have all conformed to employer choice and preferences. Even the way customer service is organized and how information is shared caters to an employer-centric business model.  However, by 2014 health insurance companies will need to operate differently to capitalize on the million of new health consumers entering the market.

Consumers purchase products much differently than employers. Consumer motivation is largely based on personal preferences and emotions while companies make rational decisions based on economic value.  So business to consumer (B2C) marketing has been much more demanding and onerous than business to business (B2B) marketing. Health insurance companies as a result have gotten away with minimal efforts in advertising using business publications and newspaper ads that reach CEOs, CFOs, benefit consultants, and decision makers. Marketing campaigns targeting decisions makers has been an easier road to handle than attempting to market the average consumer.  In fact most of the insurance policies sold in the United States are through brokers or independent agents hired by a business that receives compensation from the company whose product gets sold. Consequently, the construct of this industry has kept marketing innovation and ingenuity at bay. For years the basic message segmentation for B2B advertisements has been limited to industry and firm size.

Not all insurance companies suffer from this lack of consumer centric segmentation however. The car insurance industry is a perfect example of what the health insurance industry will aspire to be by 2014. Geckos and cave men, made up stores with humorous sales representatives, over the top actors representing natural disasters and unfortunate accidents, and catchy jingles all represent the car insurance industry’s push for market share catering to consumer preferences. Geico, Progressive, Allstate, and State Farm have all used innovative TV, internet, and other media ads recently to differentiate themselves. One main reason is because car insurance is largely purchased at the consumer level. As such, the industry caters solely to the wants, needs, and desires of the personal shopper. They have developed enhanced customer service levels, easy to use online tools, and a wide array of products and services all with a focus on consumer appeal. The consumer is essentially the center of the strategy. After all, it is the consumer who has the power to terminate the policy at any time; not the consumer’s employer.

Health insurance companies have a tough road ahead if they wish to compete at the same level. Moving from an employer-centric model to a consumer-centric model is more than just a mission and a vision. It really is a shift in corporate culture. It starts from the top down as much as it does from the bottom up. The CEO must believe in the change as well as the customer service representative answering the phone. There must be a commitment to innovation, ease of use, positive public perception, and consumer preference. The products offered must allow for customization and flexibility. The policies for grievances, appeals, and complaints must be customer friendly and aimed at pleasing the client. Such attributes have unfortunately been foreign to the health insurance industry and they have less than 2 years to quickly figure it all out.

Originally Posted at NYU’s Health Policy Blog

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The Curious Case of Kansas

On April 28, 2009, Kathleen Sebelius joined the Obama Administration as the Secretary of the Department of Health and Human Services (HHS). It was one month and five days after the President signed his landmark healthcare legislation into law. Sebelius’ primary task would be to lead the massive implementation effort of a very complex bill with multiple phased in milestones that run through 2018. Throughout her first two and half years she has been vocal about her commitment to transparency and affordability for the American healthcare consumer. She is no stranger to the underlying issues in our system. In fact her dealings with healthcare started in America’s heartland way before this cabinet appointment. It started in Kansas; the Sunshine state. Ironically, the same state where President Obama’s mother grew up.

There’s No Place like Home
After receiving a Masters in Public Administration from the University of Kansas, Sebelius moved to Kansas and pursued politics. This led her to an eight year stint as the state’s Insurance Commission from 1995 to 2003. It was historic for Kansas. Sebelius was the first woman to ever hold the post. She was later profiled as a public official of the year in 2001 noted for her balance between tough regulations and her promotion of business. In full manifestation of her principles, she publically battled healthcare giant, BlueCross BlueShield of Kansas. She successfully blocked the sale of the company to an even larger out of state insurance conglomerate noting her determination to keep healthcare costs low for Kansans. The move was unprecedented and proved to be very timely. It happened one year before the Kansas gubernatorial election of 2002. Sebelius would win that election handedly with 53% of the vote. Despite her victory, she was a Democrat governing in a bright red Republican state. Nonetheless she reached across the aisle and signed several bipartisan healthcare reform bills in her first two terms. Her work increased the number of health professionals in underserved areas, expanded health coverage for children, and relaxed Medicaid eligibility rules covering more Kansan families. She also established the Kansas Business Health Policy Committee which found ways to the lower the number of the uninsured and increase the number of businesses that offered health benefits to their employees. The committee’s most important work however was the creation of a program that provided health premium assistance to low and modest waged employees ensuring affordability.

We’re not in Kansas Anymore
The Governor’s work on healthcare quickly caught national attention. She also publically supported Obama’s healthcare legislation prior to her cabinet post noting benefits the bill would have on her state. 13% of Kansas lacked health coverage but she believed those 360,000 Kansans could be covered through Obama’s bill. So it made perfect sense for Obama to have Sebelius continue her work on healthcare but on a much larger stage. Rather than worrying about the coverage of 2.8 million Kansans, as head of HHS, she now worried about 49 of the 308 million Americans that lacked insurance and the 40 or so insurance companies across the country she now had the power to regulate. Sebelius brought along her expertise. Kansas had the prelude to health exchanges – the staple of the healthcare reform legislation. Health exchanges create a marketplace where individuals and small businesses can shop for coverage similar to the way they purchase airplane tickets from online websites. Subsides are also made available through these exchanges to anyone who cannot afford coverage. Exchanges must be in place by 2014 and will be equipped with navigators and a toll-free support line to assist with enrollment questions. HHS recently launched a 50 state version of such a website on November 21st (www.HealthCare.gov). As a former Governor, Sebelius realized that execution of exchanges would be a huge undertaking for the states though. So to nudge tem along, her office provided grants to states that act early. More than $241 million was awarded to seven states that were called early innovators. Secretary Sebelius’ own home state of Kansas was one such recipient; winning a $31.5 million grant

Ding-Dong Reform is Dead
After Sebelius’ departure from Kansas though, things quickly began to change. Her successor, Mark Parkinson, indicated he would not run in 2010. Sam Brownback, a Kansas household name, won the election convincingly with 63% of the vote. As a Republican Senator for Kansas prior to winning, Brownback was one of the strongest challengers to federal healthcare reform not only voting against the bill but calling for its repeal.  One of his first acts as Governor was a very public and symbolic gesture. He returned the $31.5 million grant Kansas received from Sebelius’ office prior to his election.  It was a politicized move that reiterated his firm belief that healthcare reform placed a heavy financial burden on states just like Kansas. The reasons are surprising.

Mandates Are Costly – Kansas already requires thirty seven different health benefits be added to every health plan sold in the state regardless if the consumer wants it or will use it. Mandates like the coverage for Alzheimer’s disease regardless of a person’s age, or the coverage of child annual check up’s for policy holders without children, increase the cost of healthcare for everyone. Additionally, in 2014 when exchanges are implemented; Kansas will not receive federal funds for any mandated benefits that exceed the federal ones. This could potentially be a budget crisis for Kansas if not managed properly. Brownback would prefer to have consumers build their own health plans allowing the free market to dictate what sells and what does not.

Subsidies Shift Costs to the States
Brownback also fears that exchange subsidies will spur employer ‘dumping’. There are about 70,000 businesses in Kansas but the healthcare reform law only requires that roughly 7,800 of them offer health coverage because they are considered large employer. The remaining smaller employers representing close to half a million Kansas workers will not have to offer coverage even though their employees will face financial penalties if they are uninsured. Since these employees will receive lower prices through exchanges, the incentive for small employers to offer insurance in the state will naturally decline, a worry for the Governor. Kansas already has one of the lowest unemployment rates in the nation at 6.2%. Yet the uninsured rate in the state is more than double that.  Kansans are already working for employers that do not offer insurance and exchanges have the potential to widen that gap.

As a result of these issues, Brownback has yet to introduce a health exchange bill for his state; but he’s not alone. Only 14 states currently have legislation passed. However inaction by a state could prove to be costly. Kansas runs the risk of defaulting to federally facilitated exchange which would essentially give power to Sebelius to create an exchange in his state. Brownback acknowledges this ironic twist of events in a letter sent to Sebelius’ office with signatures from 19 other governors stating that unless he receives complete flexibility in handling healthcare reform, he vows to not to act at all. Brownback has even questioned whether the healthcare bill infringes on the rights of the people of Kansas. In another letter signed by 27 other governors, Brownback strongly requested President Obama to speed up the ruling from the Supreme Court on the constitutionality of the healthcare reform law. The court is due to make its ruling by next summer, but in the meantime the Governor has has taken matters into his own hands. On May 26, 2011, he signed bill HB 2182 into law. The bill created the Kansas Health Care Freedom Act which sets out to protect the rights of Kansas citizens to either participate (or not participate) in any healthcare system freely. It is clearly a preemptive move attempting to block the portion of the healthcare reform law that would require citizens of his state to purchase health coverage from a private insurance company.  Despite all these actions, Kansas has made some progress with regard to healthcare reform. A sanctioned work group of leaders from government and the private sector discuss the implementation of several provisions of the reform bill monthly.  Their work thus far can be view at http://www.ksinsurance.org/consumers/healthreform/hcr.htm.

Originally posted at NYU’s Health Policy Blog

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7 Billionth Birthday Raises Concerns

The world reached an important milestone on Monday, October 31st. The UN reported that there are now 7 billion people on the planet. Marking such a milestone was no easy task. Every second approximately 4 births and 2 deaths occur worldwide. That makes it nearly impossible to zero in on the exact number of people at any given time. Nonetheless in a symbolic gesture the UN celebrated this achievement with a press conference held by Secretary-General Ban Ki-Moon. There were also several coordinated festivals around the world celebrating the births of children on Monday in a sign of solidarity.

Danica May Camacho of Manila, Philippines was one such birth. She was born minutes before Monday but close enough to be bestowed the wonderful honor of being a ‘7 billionth baby’.  Her celebration was joined with fanfare from news cameras, photographers, and well wishers but other concerns lingered in the delivery room. Danica May was born premature. At 5 pounds and 8 ounce, she joined the other 13 million babies worldwide that are born too soon every year. Obstetrician & Gynecologist know all too well that premature birth is the leading cause of newborn deaths in the world.  Ironically, November 17th marks World Prematurity Day. So in just a few short weeks, March of Dimes and other organizations will participate in a robust international awareness campaign about Danica May’s plight.

There have been strides over the years to lower infant mortality but the averages are still too high. A 2011 report from the UN listed the worldwide infant mortality rate at 42 deaths for every 1,000 births. Luckily for Danica May, rates vary wildly and differ by country and region. The Philippines is well below this average with only 21 deaths per 1,000 births. However that is still 700% higher than countries like France, Germany, Japan, and Israel, which have some of the lowest rates in the world hovering around just 3 deaths per 1,000 live births.

And this is only half of the problem. About 40% of infant mortality can be attributed to premature births. The remaining 60% are caused by many other risk factors and socioeconomic conditions. Danica May has a 44% chance of growing up in poverty being born in the Philippines increasing the likelihood that she will have issues with access to food, shelter, education, clean water and healthcare. Higher income countries fair better but wide disparities within those countries still exist. Say Danica May were born in the United States for example. Her chances of growing up in poverty decrease in half to 22%. However, if she were Black or Hispanic, those chances only decrease by a quarter to about 35%. Understandably, money is a factor. The Philippines only spends 4% of its GDP on healthcare compared to the United States which spends closer to 17%.  But more money does not always correlate to more quality. Every single country in the world with a lower infant mortality rate than the United States actually spends less money as a percentage of GDP on healthcare.

These issues point to a much larger concern about our planet and its readiness to handle 7 billion people; let alone more. We are on pace to celebrate the 8 billionth baby by 2025. Public policy and health professionals dare to wonder if the world can accommodate the needs of so many humans. On Monday, Nozipho Goqo gave birth in Johannesburg, South Africa to a child which joined Danica May in recognition from the UN as another ‘7 billionth baby’. She named her child, Gwakwanele, which in Zulu means “enough”. Goqu might be right.

Originally posted at NYU’s Health Policy Blog

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Debt Ceiling And Obama’s Big Elephant In The Room

Have you ever had those annoying debt collectors call your house over and over and over again? They can be relentless calling at all times of the night leaving disparaging messages about a debt they are attempting to collect.

Now imagine for a just a minute being able to call up your local newspaper and convene a press conference. You would give details on the meeting you held amongst the members of your household discussing whether or not Mastercard should increase your credit limit in order to help you pay your bills. You would explain that your family came to a unanimous consensus that Mastercard in light of your situation should indeed increase your credit limits even though you and members of your household are spending more money on groceries, cable television, clothes, DVDs, and Xbox 360 video games than you are collectively earning through employment checks and other revenue streams. After all, you would challenge, the increased credit limit is imperative to you making good on your outstanding financial obligations.

Does this sound like a dream world or maybe a Saturday Night Live comedy sketch? To any family in the United States regardless of our differences and despite our diversity, it definitely would be. The most logical solution would be to tighten the collective family “belt”. You would realize very quickly the most important thing to do would be to cut spending. First, you might break out the family spending into needs versus wants.

Second, maybe prioritize the list of needs like electricity and gas while sacrificing the list of wants like cable TV and summer vacations.
Third, you would look for ways to spend less money on the important necessities like foregoing brand name groceries for the store brands. And lastly, forth you would focus on areas where money is being wasted, like turning off the air conditioner in  the empty rooms.

Well, the United States of America under the Obama administration will default on its debt for the first time in its 235 year history if Democrats and Republicans do not come to an agreement by August 2, 2011. Technically, it has really only been 94 years since the first debt limit was put into place in 1917 during Woodrow Wilson’s 2nd term. The history of the debt ceiling was explained in a nonpartisan 2008 Congressional Research Service report stating, “The debt limit imposes a form of fiscal accountability, which compels Congress and the President to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues”.

So in actuality, the debt limit has been successful in its aim. Our national debt has finally become a serious conversation. It’s become so serious Fitch, S&P, and Moody’s have issued warnings to the United States in recent weeks about downgrading their credit rating. After all, our debt represents a whopping 98.6% of our GDP as of June 2011.

Bargaining Table
Democrats want a resolution that includes a tax increase for individuals that earn $200,000 a year or more and for families that earn $250,000 a year or more. This increase would match the tax rates under the Clinton administration. Additionally, they are reluctant to cut spending in any meaningful way to Medicare, Medicaid, or Social Security programs.
Conversely, Republicans have drawn a line in the sand with approving any tax increases and they refuse to negotiate without substantial cuts to the same exact social welfare programs Democrats refuse to touch. Many have characterized the Republican stance as cold-hearted and capitalistic with a focus on big business rather than regular Americans.
Republicans in response answer with facts about the severity of America’s financial problem.

The Debt Debacle
America owes approximately $14 Trillion dollars and counting. This equates to roughly $45,000 per American citizen including children and non-working Americans. Additionally, only 53% of all citizens actually paid federal income tax –down from 62% in years prior– last year.
So the amount of debt per tax payer is actually much higher. While American citizens are tightening their belts, the Obama Administration is spending about $120 billion more than it earns in revenues each month. There’s no need for a calculator to understand that statistic. And about 50% of this overspending is divided up between Medicare and Medicaid programs (23%), Social Security (20%), and the interest on our debt (6%).

The big question that arises next is who we owe this money to. The majority of the foreign debt is owed to China. Not only is this a country that undermines the American economy and our 9% unemployment rate with cheaper goods and outsourcing labor services, it’s a country with a starkly different view on human and civil rights than us. The atrocities in human rights violations in China were so acute, Secretary Hilary Clinton of the State Department issued an April 21, 2011 press release stating, “Discussions [with China] will focus on human rights developments, including the recent negative trend of forced disappearances, extralegal detentions, and arrests and convictions, as well as rule of law, freedom of religion, freedom of expression, labor rights, minority rights and other human rights issues of concern”.

Outside of being the biggest owner of our debt, would America work with a country with such vastly different values? Moreover, the United States Department of Treasury lists 14 countries and regions including the Ivory Coast, Cuba, Congo, Iran, Libya, North Korea, Sudan, Syria, and Zimbabwe that are currently in the midst of tough sanctions; many of which derived in part by human rights violations that can be closely compared to actions by China. Our debt crisis is increasing impacting our national moral compass.

The Big Elephant in the Room
Obama, a President who had promoted transparency as a stark difference between his immediate predecessor, has unfortunately negotiating debt ceiling deals behind closed doors. Inside his oval office instead of in front of the American people. However, despite these efforts, a resolution has not been finalized due to “the big elephant in the room.” That elephant  more specifically has been the GOP (Grand Old Party).
Speaker Boehner on the heels of a Golf Summit with both the President and the Vice-President has held steadfast to any increase in tax rates being non-negotiable. House Majority Leader Eric Cantor has solidified his stance as well explaining any deal must not include any “net new revenues, period.”

Much of the strong tone from the Republican Party leadership can be attributed to a brand new class of conservatives that were elected in droves during the last mid-term election…Tea Party candidates.

Ron Johnson of Wisconsin, a tea party candidate that toppled the 18 year career politician, Russ Feingold, last fall has stated that the Obama Administration has been irresponsible in handling the debt crisis. He called the process “disgusting” since it has been behind closed doors and away from the American public. He has also called for a process that would (1) cut the federal budget, (2) cap spending, and (3) balance the budget with a constitutional amendment. Such an amendment is similar to what many State governments and governors have instituted.

Tim Scott of South Carolina, an African-American Tea Party freshman Congressman explained, “There is not a revenue problem in Washington D.C., there is a spending problem.  Let’s talk about spending cuts that save America and our future.” He has also called for the impeachment of President Obama if the debt ceiling is raised without a vote from Congress.
Senator Schumer of New York had outlined a process by which the debt ceiling could potentially be raised without a single vote from Congress. Section 4 of the 14th Amendment states, “The validity of the public debt of the United States, authorized by law… shall not be questioned.” However, Congressman Scott invoking Section 8 of Article 1 outlines the powers of Congress explaining only “Congress shall have power to borrow money on the credit of the United States.”

At the end of the day, American still wants to know why Republicans are so hell-bent on preventing tax increases on top American earners. This appears to be the one issue that is stopping a debt ceiling resolution.
First, Republicans agree with statements Obama said in 2009. In a visit to the small town of Elkhart in Indiana, the President told a reporter, “You don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes.”

Secondly, many small business owners chose to file taxes as individuals and families rather than a corporation. As a corporation they face a 35% corporate tax rate, thus the $200,000 limit impacts small business owners.

Thirdly, the National Federation of Independent Business (NFIB) released a survey explaining employers that employ over 60 million Americans would be impacted by a tax increase on higher earnings. Basically, 15% of all businesses in America earned $200,000 or more a year. While 15% sounds low, when you drill down into the numbers you realize more than 50% of the businesses with 20 to 249 employees earn more than $200,000 a year.

Businesses with that many employees represent over 39 million Americans; roughly 10% of the US population. Only 11% of firms with 1 to 9 employees earn more than $200,000 a year however those firms represent about 20 million Americans.
Lastly, the 60 million Americans that could be affected represent more than the current uninsured population and the unemployed population. Thus, an increase in tax rates could jeopardize any improvement in lowering both the uninsured rates and the unemployment rates. Businesses have stated in the face of a tax increase, they would be reluctant to hire or continue offering health insurance benefits.

Republicans believe private sector job growth is reliant on a thriving small business marketplace. That is why they are calling for a reduction in spending without an increase in tax rates on top earners in order to even consider a vote on an increased debt ceiling. They are looking to avoid a destabilized economy. On the heels of a historical tea party election win, they believe the American people are behind them and will continue to be Obama’s Big Elephant in the Room.

Originally Posted at Blackstarnews.com

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