Healthcare: Obama's big reform goes through
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Associate Editor
David Stevenson Mar 26, 2010
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After months of heated debate, President Obama has won over the majority in the biggest reform to US health policy for four decades. David Stevenson reports.
How significant is Obama's coup?
Very, claims the Obama camp. America is on the verge of the biggest reform of US health policy in four decades. The House of Representatives has approved legislation totally overhauling America's healthcare system. After months of heated debate, the Patient Protection and Affordable Care Act was passed by 219 votes to 212. The 2,400-page package now goes to the Senate, where Democrats hope it will be passed by a simple majority. As this is effectively simply a rubber stamp, President Obama has already been able to sign the bill into American law.
What will the reforms do?
Provide "Quality Health Insurance Coverage for All Americans". Healthcare cover will be extended to 32 million Americans who are now uninsured – typically because they can't afford rising premiums, or because insurers have already deemed them too ill to qualify for coverage. An estimated 24 million who don't have health cover will be able to get tax credits to buy it on new state-approved insurance 'exchanges'. An extra 16 million will become eligible for Medicaid, the government-funded health scheme for those on low incomes. Furthermore, the so-called 'doughnut hole' is addressed. This is a gap affecting millions of over-65s who get Medicare health cover and currently have to pay prescription expenses over $2,700: they only requalify for cover if their costs top $6,154. The new rules will give them flat rebates and discounts on brand-name drugs. In addition, insurance companies will face more controls on stopping coverage, for example for those who become sick.
What about work cover?
Many Americans obtain their health insurance through work via salary deductions. This will continue. But employers who have 50 or more workers could now face fines if they don't provide a health insurance plan. Also, where currently many insurance firms drop young adults from their parents' health plans once they turn 19 or finish college, this won't now happen until dependants turn 26.
How will the healthcare industry fare?
Although the insurance industry faces tighter rules, it will get millions of new customers. Premiums are likely to rise and one of the sector's first and worst fears – that a government-run scheme might become a direct competitor – has not materialised. Meanwhile, Morgan Stanley estimates that, due largely to price capping, pharmaceutical companies are likely to see an initial 6% hit to their US profits, starting from 2011. But, having hiked their prices last year and this year, many have already built in something of a buffer. And some say business will still do very well from the bill. "This lavishes hundreds of billions in government subsidies on insurance and drug companies," says Chris Hedges on Truthdig.com. "It's the healthcare industry's version of the Wall Street bail-out."
What will the reforms cost?
They'll cost $940bn over ten years, according to the non-partisan Congressional Budget Office (CBO). But they're also forecast to cut the federal deficit by $143bn during that time. This is partly because the bill includes some tax hikes and partly because without it, the cost of providing health insurance to the retired through Medicare would grow faster. But even this suggested deficit reduction is still "a drop in the ocean", says Paul Dales at Capital Economics. And not everyone's convinced. "Nobody knows how this bill will work out," says David Brooks in The New York Times. "Democrats utter words of fiscal restraint yet this bill is full of gimmicks designed to get a good score from the CBO but not really to balance the budget." Even the CBO is hedging its bets, saying the chances that its estimates are accurate are no more than 50/50.
So will this fix the American healthcare system?
Not entirely. "This doesn't represent radical change, but an expansion of coverage subsidised by the private sector," says John Bowler of Schroders. What's more, "it doesn't address the real issue: why healthcare is so expensive in the US", says Bowler. "There are no direct controls on price inflation (by doctors, hospitals, drug or device companies), and no change to how doctors are paid, which encourages over-use of health services." But "if this bill had failed, the President might have looked increasingly like a lame duck". Republican Senator Richard Durbin sums it up: "this is about politics".
Who wins?
The uninsured. But hospitals will also benefit as more people with health cover are able to pay for treatment, visits to doctors, and prescription drugs.
Who loses?
Wealthier Americans. They will have to fork out more tax. From 2013, families with an income above $250,000 will have to pay an extra 3.8% on their investment income and pay more to Medicare.
Who is in the middle?
Businesses. "There are few surprises here", says Bowler. "Each healthcare sub-industry – pharma, hospitals and health insurance – negotiated a mix of new taxes and higher rebates to the government to pay for this new benefit in exchange for increased volume". And as analysts chew through the bill's detail, the best investing opportunities will soon become clear.
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