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Health and Healthcare

Medical Bills and Bankruptcy

The Physicians for a National Health Program (PNHP) highlights a 2007 Harvard study of bankruptcies as a need for national health insurance.  The study, published June 4 by the American Journal of Medicine, found that “half of U.S. bankruptcies, affecting 2 million people annually, were attributable to illness or medical bills.”  About 78% of those bankrupted by illness were insured when they became sick, but became bankrupt due to gaps in coverage (co-payments, deductibles, uncovered service.)  And 60% of those with insurance had private coverage, not Medicare or Medicaid.

PNHP says there are two main causes for medical bill bankruptcy among the insured.  Larger co-payments and deductibles by employers cut back on coverage.  Second, although the COBRA law allows people who have lost their jobs to keep their coverage, their premiums are often unaffordable.

A 2009 CNN article on the same study says that 60 percent of personal bankruptcies are a result of medical bills.  Steffie Woolhandler, M.D., of Harvard Medical School says “If an illness is long enough and expensive enough, private insurance offers very little protection against medical bankruptcy.”  The study deemed the bankruptcies “medically related” if the individuals had greater than $5,000 in medical bills, mortgaged their home to pay medical bills, or loss a significant amount of income because of illness.

This study is significant because medically related bankruptcies have been rising steadily, up from 8% in 1981.  The middle class is seeing most of this occurrence, as “two-thirds owned their home and three-fifths had gone to college” (Businessweek).

Peter Cunningham, Ph.D., a senior fellow at the Center for Studying Health System Chang, says “Medical bills and medical costs are an issue that can very easily and in pretty short order overwhelm a lot of families who are on otherwise solid financial ground, including those with private insurance.”

The PNHP says “while politicians acknowledge the need to cover the insured, they have ignored the worsening plight of those with coverage.”  Dr. Woolhandler says “Covering the uninsured isn’t enough.  Reform also needs to help families who already have insurance by upgrading their coverage and assuring that they never lose it.”

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Health and Healthcare

Overview on Long Term Care Insurance

Long-term care insurance, or LTC, is an issue that many aging, retirees, and families are concerned about.  Often the cost of nursing homes or home aids creates a financial strain on families.  A private room in a nursing home costs $219 a day ($79,935 a year).  Assisted living facilities cost $37,572 a year (AARP).  Long-term care insurance is a relatively new program that seems to be a valuable option for some.

Medicare doesn’t cover LTC.  Medicaid does cover LTC, but is only for individuals who have little money left.

A longitudinal study of policyholders who were receiving services found that most satisfied with their providers, and “nearly all reported having no disagreements with their insurance company.” (KFF).

The Kaiser Foundation, a non-partisan source, says “Middle-income individuals are among those who could most benefit” from long-term care insurance policies, since they are most at risk for having to rely on Medicaid if significant care is needed, and are more able to purchase policies than lower-income individuals.  However, most policyholders are currently above middle-income.

Purchasing a Policy

The Kaiser Commission on Medicaid and the Uninsured provides the following factors to consider when purchasing a policy.

  1. Daily Maximum Benefit Amount:  This amount represents the most amount of money insurance will pay for services on any day, and usually ranges from $100 to $200 a day.
  2. Benefit Period/lifetime Maximum Benefit:  This time represents the length of time benefits will be paid, or the total amount of money available for benefits.  Thus, if an individual receives services at $100 a day, their coverage may last fewer years than an individual receiving $80 a day.  Most purchasers choose a benefit period of 3 to 5 years.
  3. Covered Services:  Most policies cover a nursing homes, assisted living facilities, home care aids, and adult day care.  Most individuals choose a policy with a comprehensive set of benefits.
  4. Elimination Period:  Most policies require a specific amount of time elapse after the individual starts qualifying for long-term care before benefits are paid.  Most policies have elimination periods of 90 days.  Premiums are lower with longer elimination periods, however out-of-pocket expenses are higher when care is required.
  5. Inflation Protection:  There are many options for inflation protection.  A table explaining the options is found here.  Half of individuals choose 5 percent compound inflation protection.

The AARP also recommends that each policy:

  • Does not require hospital stays before receiving benefits.
  • Cannot be cancelled if premiums are continually being paid.
  • Allows you to stop paying premiums once you begin receiving benefits.
  • Has one deductible only.
  • Covers pre-existing conditions if you disclosed them during application.
  • Allows a downgrade in coverage if you cannot afford the premium.
  • Covers dementia.
  • Provides at least one year of nursing care and home health care coverage.

Cost

LTC insurance is difficult for individuals who are 70 and older to obtain.  They are deemed high risk and may be denied or charged a very high premium.

A table of 2008 Annual Premiums for $150 per day, 3 years comprehensive coverage, 5 percent compound inflation protection, and a 90-day elimination period is found here.  The table compares costs for married and single people, the age (40, 50, 60, and 70), as well as the three most popular carriers (Genworth, Metlife, J.Hancock).  Premiums range from $1350-1700 for 40-year old singles, $1900-$2100 for 40-year old married couples, $1600-$1900 for 50-year old couples, $2200-$2500 for 50-year couples, $2,150- $2,500 for 60-year old singles, and $3,000- $3,300 for 60-year old married couples.

Regulation

States regulate long-term care insurance.  Most states have some consumer protection for purchasers.  For example, North Carolina requires that policies cover all pre-existing conditions after six months, offer a meaningful inflation period, and must be guaranteed renewable.

The National Association of Insurance Commissioners (NAIC) established the Long Term Care Model Act and Regulation.  In 2000 it drastically changed the model, adding rules that “place greater responsibility on insurers to make initial premiums adequate, rather than relying on experience after policies are sold to make corrections to the premiums.  A qualified actuary must certify that proposed premiums are sufficient to cover anticipated costs” (KFF).

In 2006, the NAIC added amendments to the Act, to “ensure that long-term care insurance policies would pay for services in facilities in other states, even if the facilities are licensed or registered in a different way from those in the state in which the policy was sold.”

CLASS Act

The Patient Protection and Affordable Care Act establishes a Federal insurance program for long-term care for individuals having difficulty with two or three activities of daily living, or for people with severe cognitive impairments.  The name of this program is the Community Living Assistance Services and Support (CLASS), and was originally sponsored by the late Senator Edward M. Kennedy. There is no Federal subsidy for the program, but rather individuals pay premiums to finance the program.  Participants must meet specific work requirements for 5 years before being eligible to receive benefits, which can be used to purchase long-term care assistance.  Premiums vary by year of enrollment and age at the time of enrollment.  The Secretary has set the premiums to ensure the program is solvent for 75 years.

Centers for Medicare & Medicaid Services

Robert Foster, Chief Actuary of the Medicare program estimates that the CLASS Act will provide Federal savings of $38 billion in the first 9 years.  This is attributed to the premiums paid by participants.  However, in 2015 when the five-year window allows some participants to start receiving benefits, “the net savings will decline.”  Furthermore, “In 2025 and later, projected benefits exceed premium revenues, resulting in a net Federal cost in the longer term.”  Expenditures will exceed premiums, making the program “unsustainable.”

Foster attributes the following factors as adversely affecting the CLASS program:  “the program’s voluntary nature, the lack of a Federal subsidy, a minimal premium for students and individuals with incomes under 100 percent of the FPL (initially $5 per month), a relatively high premium for all other participants as a result of adverse selection and the effect of subsidizing participants paying the $5 premium, a new and unfamiliar benefit, and the availability of lower-priced private long-term care insurance for many.”

Additionally, the premiums are a reflection of the costs necessary to take care of individuals with health problems and functional limitations.  This high rate may discourage the average healthy person from participating, which will further increase premiums.  Foster calls this “adverse selection by participants.”  Furthermore, participants are required to subsidize the $5 premiums for students and low-income participants.  Foster says “there is a very serious risk that the problem of adverse selection will make the CLASS program unstable.”

The Heritage Foundation

According to The Heritage Foundation, a think tank for conservative public policies, the CLASS Act insurance program is a “gimmick.” The CBO is estimating payments by participants to be about $70 billion over 10 years, which health law proponents are claiming as deficit reduction.  The Heritage Foundation cites the Chief Actuary, Foster’s, data and concern of adverse selection, saying, “The program will either need to dramatically cut benefits or get a major federal bailout.  Thus, not only is it inappropriate to claim the $70 billion in premiums as savings, but this program will almost certainly become a huge new unfinanced burden on future taxpayers.

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Health and Healthcare

The Future of Medicare

According to the Kaiser Family Foundation, “Financing care for future generations is perhaps the greatest challenge facing Medicare, due to sustained increases in health care costs, the aging of the U.S. population, and the declining ratio of workers to beneficiaries.”  From 2010 to 2030, the number of people on Medicare is projected to increase from 47 million to 78 million.  Additionally, Part A Medicare Hospital Insurance Fund will be unable to pay full benefits starting in 2019.

Affordable Care Act

The March 2010 health care reform law, the Patient Protection and Affordable Care Act, “expands prescription drug and prevention benefits covered under Medicare and introduces new programs designed to improve the quality and delivery of care to people covered by Medicare… and includes other provisions designed to slow the growth of Medicare spending and strengthen the solvency of the Medicare Hospital insurance Trust Fund.” (KFF).

The law is said to reduce the average annual growth rate of Medicare spending from 6.8 percent to 5.5 percent from 2010 to 2019.  This reduced spending is said to result from three provisions.  The first provision will stop Medicare from paying substantially more to Medicare Advantage beneficiaries than to traditional fee-for-service beneficiaries.  The second provision will reduce the annual payment increases to health providers.  The third provision will attempt to reform the healthcare delivery system, such as reducing unnecessary hospital readmissions and hospital-acquired infections.  Additionally, an Independent Payment Advisory Board was established to recommend methods to reduce Medicare spending. (KFF).

The whitehouse.gov blog posted answers to Medicare questions on June 11, 2010.  As a response to questions of Medicare’s solvency, the writers point to the Affordable Care Act and its role in strengthening Medicare financially.  “Over the next 20 years, Medicare spending will grow at a slower rate as a result of rooting out waste, fraud, and abuse.  This will extend the life of the Medicare Trust Fund by 12 years and provide cost savings to Medicare beneficiaries.”  The Affordable Care Act will allegedly be paid fully by reducing waste, fraud, and abuse, and with health care reforms.  The White House says that this law will reduce the deficit by $100 billion over the next ten years.

The blog continues by saying that the Affordable Care Act “builds upon our existing system” of health care.  It also allows States “the option of pursuing their own reform plans, including running exchanges, adopting delivery system reform in Medicaid, and working with local providers to test innovative ideas through the Medicare and Medicaid Center for Innovation.”

The Office of Management and Budget (OMB) is largely in favor of the Affordable Care Act.  They say “there should be no ambiguity about whether we face unsustainably large deficits over the medium- and long-term.  We do.”  The Affordable Care Act, they argue, will “reduce the deficit by more than $100 billion over the next ten years and more than $1 trillion in the ten years after that.” However, they say the “CBO produces its estimates based on what has happened in the past, and we have never enacted such a fundamental transformation.”  Whether or not more action will need to be taken to lessen the deficit after this Act is debated.

AARP

The AARP supports the Affordable Care Act and “can say with confidence that it meets [the twin goals of making coverage affordable to younger members and protecting Medicare for seniors] with improved benefits for people in Medicare and needed health insurance market reforms to help ensure every American can purchase affordable health coverage.”

American Medical Association

AMA President J. James Rohack, M.D. wrote a letter to the Senate on March 5, 2010 to permanently repeal the broken Medicare physician payment formula.  He says the AMA “cannot support proposals that aim to address only the most imminent threat to payment levels and patient access, with no regard for the future of the Medicare and TRICARE programs.  We are opposed to further short-term patches of any duration.”  He continues by saying “the proposed 21 percent cut and the continued instability in the system will force [physicians] to limit the number of Medicare patients they can treat, reduce staff and make other tough practice decisions.”

The Heritage Foundation

James Capretta, former OMB Associate Director and current writer at The Heritage Foundation, warns of lower quality and higher costing healthcare with this new law, along with the impact on future generations.  The law is expected to bring 34 million people onto the federal entitlement rolls by 2017, and the Congressional Budget Office says by 2019 “the cost of these ‘coverage’ provisions is likely to escalate very rapidly and in line with the rising costs of existing health entitlement programs, including Medicare.”

Capretta cautions that the CBO’s estimates of national debt are inaccurate.  He names Medicare cuts as one of the reasons for increased spending.  He says “CBO and the Chief Actuary for the Medicare program have both stated that Medicare spending cuts cannot be counted twice—to pay for a new entitlement expansion and to claim that Medicare’s financial outlook has improved.  But that is exactly what the proponents of the new legislation do.  If Medicare cuts and tax hikes for the hospital trust fund (about $400 billion over 10 years, according to CBO) are used solely to improve the capacity of the government to pay future Medicare claims, then the health law becomes a massive exercise in deficit spending.”

Cost

As for the real cost of this Medicare, no one can say with certainty what it will be.  The CBO’s initial Medicare prediction in 1965 was $9 billion.  In reality it was more than 10 times that amount.  The government’s predictions cannot necessarily be trusted because no one can predict the extent of Medicare.  Healthy people live longer, thus requiring more years of Medicare.  The only thing that can be said for certain is that it will be limited by money:  there is only so much money to go around, so Medicare will be “rationed” in some way.