Your Questions Answered on Health Care Reform

10/19/2009 12:00 pm EST

Focus: MARKETS

Knight Kiplinger

Editor-in-Chief, The Kiplinger Letter, Kiplinger's Personal Finance, and Kiplinger.com

Knight Kiplinger, editor-in-chief of The Kiplinger Letter, breaks down the current health care reform plans in Congress, and tells what it means to business owners and individuals.

As Congress moves closer to a health bill—one that will affect the lives of almost all Americans and businesses—key questions come to the fore.

What are the key elements? A mandate forcing individuals to buy coverage or pay a penalty, an expansion of Medicaid, subsidies to help those who make too much to qualify for Medicaid plans but not enough to buy insurance, and rules requiring insurers to sell to all applicants, regardless of preexisting conditions.

Also in the bill: A new exchange or marketplace intended to make it easier for buyers to shop for coverage, thus fostering competition. That would mean 25 million uninsured in ten years, down from a projected 60 million.

Will it hike costs for employers that offer coverage now? It’s not designed to. If fewer people are uninsured, premiums will decline for others, because the cost of treating the uninsured won’t be as burdensome. And employers will greatly benefit if the overhaul reins in long-term costs.

But it may not work. Insurers say that if penalties for not buying coverage aren’t high enough to force young, healthy folks into plans, they won’t buy them. That’ll raise premiums, making a bad situation worse for companies and individuals.

What about small [companies]? Firms with fewer than 25 workers will get a tax credit if they offer plans, and they could use the exchanges to get more competitive rates. The exchanges would force insurers to compete with each other. They’d add options for individuals and firms, many of whom now have only limited and expensive choices.

Will the health bill raise the deficit? In theory, no, but we’re skeptical. Congress won’t pass a bill unless it’s officially certified as revenue neutral by the Congressional Budget Office. But the CBO can make only an educated guess based on a slew of assumptions that may or may not be right. There’s no guarantee.

How will the enhanced coverage be paid for? Tax hikes and Medicare cuts. What kinds of taxes? We don’t know yet. The House [of Representatives] wants a 5.4% surcharge on singles making over $500,000 a year and couples, over $1 million. The Senate prefers fees on the health care industry and a tax on high-priced health care plans.

Critics say fees would backfire, leading to higher medical costs and higher premiums, basically undercutting the bill’s goals. Because of the opposition to all these ideas, some lawmakers have gone back to the drawing board to come up with new ones.

What will be the impact on Medicare? Spending will rise more slowly, at about 5.9% annually instead of 6.6%,.with $500 billion sliced from projected costs. Providers will take the hit initially, but they’ll likely make it up by raising fees for other patients. More doctors may just decide to drop out of Medicare altogether.

In other ways, though, Medicare benefits will be expanded. For example, seniors will see enhanced prescription benefits and free access to many prevention services. If Congress passes a bill this year, it’ll likely be phased in beginning in 2013.

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