How Health Reform Really Works

I'm Ellen-Marie Whelan, Associate Director for Health Policy at the Center for American Progress, and this is how health reform really works.

The health care system builds on what works and fixes what doesn't. People will generally fall into three the categories. The first category is if you're covered by your job and this is the way the majority of Americans receive their health insurance. If you're covered by your job, you'll keep that insurance and it won't change. But, in fact, the health care bill does a few things that will actually make that health insurance even stronger. It will ban annual and lifetime caps. It will eliminate the ban on pre-existing conditions. It will require all preventive services to be paid for without a copay or a deductible. And it will allow young adults to be covered on their parents plan until they're 26 years old.

The second way individuals will be covered is under a government-sponsored plan such as Medicaid--the program for low-income or poor Americans--and Medicare--the program for senior citizens. The Medicaid program is now administered by the states. That will be strengthened by having every state administer it in a much more similar way. We will also expand that program to cover 16 million more Americans. The bill will strengthen the Medicare program by extending its solvency for about another nine years without cutting any benefits. And, also--very importantly--we'll begin to close the donut hole. The doughnut hole is the period of time that senior citizens have no coverage for their prescription drugs.

The third way that individuals will be covered by the health insurance bill is by a brand new system called the exchange. The exchange is a brand new marketplace where people now who don't have coverage by their employers or elsewhere will be able to join together to buy insurance. Currently, individuals, families, and small businesses who need to purchase health insurance coverage outside the bigger employer-sponsored insurance plans are forced to pay exorbitant prices since they cannot exert the purchasing power of a large group. But the new system puts into place a state-based health insurance exchange. These are basically new insurance marketplaces. In these new marketplaces, individuals, families, and small businesses can join together in larger risk pools to purchase private health insurance coverage at affordable prices. Private insurers will compete for business based on cost and quality and will be held to the same standards as large employers are right now.

So, the second major part of health care reform is why do we need to cover everyone with insurance? The current health insurance system allows insurers to deny coverage based on a pre-existing condition. So, if you have an illness an insurance company can say, "I'm not going to provide coverage to you anymore." The new system would require insurers to cover everyone, healthy or sick. If insurance companies are required to cover pre-existing conditions, but everyone is not required to have coverage, then healthy people could go without coverage and only sign up when they're sick. This would leave insurance companies with rosters of the sick. That's expensive, and premiums would skyrocket for everyone. Health insurance only works when lots of people pay into the system. The healthy help pay for the sick, and the risks and costs are shared by both the healthy and the sick.

But the system has to be affordable if we are going to make everyone pay into it. And, of course, this begs the last question: How are we going to pay for this?

The new system is expensive--it will cost about $940 billion over the next 10 years. But the bill also provides provisions to make sure it's fully paid for. Most of this money will be used for affordability credits--tax credits that will help individuals, small businesses, and families purchase insurance if they can't afford it. This health care reform legislation includes provisions that will help slow the growth of health care costs.

Overall, it will help reduce that nation's deficit by over $100 billion over the next ten years and cut the nation's deficit by over $1 trillion in the following decade. Much of the money we are using to pay for these changes will come from just paying closer attention to how we currently spend over $2 trillion in the nation's delivery of health care.

We will save money by eliminating waste, fraud, and abuse, as well as subsidies for health insurance and pharmaceutical companies. Better coordinating care to eliminate unnecessary hospitalizations and duplicate tests. Better utilizing electronic medical records. And paying for quality and not just quantity It also raises additional money by charging insurance companies a fee to help pay for the new reforms and making sure the wealthiest Americans pay their fair share of Medicare, while lower-income beneficiaries pay less.

And that's how health care reform can insure better care for all Americans while ultimately reducing the nation's deficit.