Following the House of Representatives by a few weeks, the Senate is about to pass HR 3590, a 2074 page bill to enlarge access to health insurance for the vast majority of Americans. As previously discussed, the House bill wasn’t a revolution but evolution of the status quo. The Senate bill reflects an even slower evolution of the status quo, paring down several of initiatives pushed for in the House bill. The core elements are the same though, with Medicare set for covering more poor people, Employers being prodded into covering more employees, and individuals being nudged to buy insurance.The bill will cost $870 billion over the next ten years (as opposed to $1 trillion in the House version) and should reduce the deficit by $130 billion. 31 million people would gain coverage, leaving 23 million people without coverage (compared to 36 million gaining coverage in the House version).

So is this going to happen or what?

Assuming that the Senate bill passes on Tuesday, The House and Senate will attempt to iron out their differences in what I affectionately call the “mother of all conference committees” (twitter hash tag #moacc). After sorting through all of their differences the House and Senate will have to pass the measure again. Expect more bickering, compromises and noise for the next few months.  

Provisions:

Employers Must Provide Coverage: Companies with 50 or more employees must offer insurance coverage or pay a $750 per employee penalty. Employers can also offer a voucher to workers to buy their own insurance. Coverage can be a very subjective term, with the House defining coverage at about 70% of premiums while the Senate considers coverage 60%. This $750 penalty is much lower than the House version which would tax 8% of a company’s payroll. The Senate would offer subsidies to employers with less than 25 employees, covering up to 50% of premiums.

Tanning Tax: $2.7 Billion: A 10% tax on tanning salons.Some Final Tweaks:

Preexisting Conditions are Illegal: Like in the House version,  denying coverage for pre-existing conditions is banned.

Reducing Administrative costs: The bill would require insurance companies spend 80% of revenue on claims. Currently the most claim focused insurance company only spends 74%. 

Abortion: Insurance plans that cover abortion would require two payments. The first would cover the health insurance; the second would only cover abortion. Only the first payment would be eligible for federal subsidy.

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Overview and Pricetag:

The Bill will cost just north of $100 billion for the next 10 years, for a total of $1 trillion. In exchange the bill would guarantee access to health insurance for every American. 96% of Americans are expected to take advantage of it. Rather than overhauling the current system, the bill subsidizes and modifies the current employer sponsored model that most Americans currently use. The Bill is not a revolution, but evolution of the status quo.

Provisions:

Employers Must Provide Coverage: Most Americans get their health insurance through their employer. Some employers do not offer health insurance. The House bill would require all employers who pay more than $500K a year in payroll to offer insurance. The insurance offered must provide a minimum set of benefits and have 70% of the premium paid for by the employer. Companies with less than 25 employees will get a subsidy to help pay for the insurance. Companies that do not offer insurance will have to pay an 8% payroll penalty. If you get decent insurance through your employer today, this bill will keep that arrangement intact. Companies like Wal-Mart have come out in favor of these provisions because they want an even playing field between companies that offer health care benefits versus those that do not.

Individuals Must Buy Coverage: Individuals will be forced to buy health insurance, or pay a 2.5% income tax penalty. If you don’t have employer insurance, you will buy insurance from an insurance exchange, kind of like how we buy electricity in Texas. Families making less than $90K a year would get a subsidy to buy their insurance. The exchange would include a “Public Option” which would be an insurance plan offered by the federal government. The Public Option would appear next to private insurance plans on the exchange and would be required to compete by the same rules as the private plans. A good comparison is to think of how Texans were offered electricity from a regulated default provider when picking through private electricity plans from 2002 to 2007. The “Public Option” for Houstonians was Reliant Energy. Critics hate the public option. Others feel that the public option is critical for containing costs.

Medicaid for More People: Last, the bill will drastically increase the number of Americans eligible for Medicaid by about 8 million people [free Federal Insurance]. Eligibility for Medicaid is very complicated, but a family of four might be eligible if income falls below $20K a year. This bill would push that number up to $35K and reduce the number of cases where the family would not be eligible. Eligibility would be so broad, that the CHIP program (insurance for poor kids) would no longer be necessary, and be defacto abolished. Critics contend that the expansion of Medicaid coverage coupled with the “public option” will eventually lead to a Canadian style single payer health insurance system. Some see this as a good thing.

Funding:

So where do you get $1 trillion to pay for all of this? The House elected to use a combination of new taxes and program cuts.

Medicare Advantage Funding Eliminated: $200 billion comes from ending subsidies to the Medicare Advantage program. These subsidies were meant to encourage private insurers to offer alternatives to Medicare. 8.2 million people signed up for these private plans. It is unclear how many will remain after the subsidies disappear.

Negotiating Drug Prices: Another $200 billion will be saved by removing the ban on drug price negotiation from Medicare. When President Bush pushed for the establishment of Medicare Part D in 2003, drug companies successfully lobbied to forbid the program from negotiating its drug prices. As a result, Medicare currently pays $1,485 for the drug Zocor, while the VA (which is not banned) only pays $127.

Tax the Rich: Close to $500 billion will come from a tax on the rich. Those making $500K ($1 million for couples) will pay a special 5.4% surtax. Critics contend that this tax targets small businesses because S-Corporations are considered ‘individuals’.

Other Stuff: The remainder will come from capping the allocation someone can make to tax free medical savings accounts (which aren’t particularly necessary if you buy health insurance that meets the new federal guidelines), and ending a tax subsidy for retiree benefits.

Some Final Tweaks:

During the debate, a few special items came up that got roped into the reform. They are significant and worth mentioning.

Preexisting Conditions are Illegal: Denying coverage for pre-existing conditions is banned. If everyone already has insurance, pre-existing conditions shouldn’t be an issue anyway, but the bill makes those provisions illegal just in case. No more denying coverage just because you had acne.

Increasing Dependent Age Coverage: The bill Increases the age of dependent coverage from 19 in most cases, to 26. That means that a child can remain on their parents’ insurance policy through grad school, instead of having to buy their own coverage in college.

Abortions are Excluded: The Catholic Church successfully pushed for a ban on Federal subsidies for insurance plans that cover abortions. Private unsubsidized plans are free to pay for abortions.

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I couldn’t get my memberships down because I use them for different purposes. Picking facebook over myspace and friendster was easy, but picking between linkedin and facebook is like picking between apples and coke. They are fundamentally different services. I use facebook to keep up with my friends from school. I use linkedin for my colleagues at work. I broadcast with my twitter account, and exchange knowledge with my twine account.

Although my social networks have aspirations of becoming my one stop on the internet, they never will. Facebook (general friends) will never be able to replace my steam account (gaming). The things that make facebook attractive for general interaction are the exact reasons why I can’t use it for smack talk. Likewise I will never post my political stuff on twitter because it’s too open, but it’s ideal for my favorite tech articles and memes. Long story short, I am complicated, and my social networks reflect that.

Maybe that’s why the influence of social networks varies so widely. Tim Schigel from ShareThis (one of our portfolio companies) says that articles posted to a twitter stream are read 18 times. Linkedin posts are read 8 times, while email and facebook are read much less. The more open a network is, the more influential its posts are. The drawback is that the links people post are probably a lot less focused. Moving forward, it’s not the social network that is important, but you and your relationships. Tim really nails it on the head when he points out that the power of influence is landing right in your hands. In a world where people are constantly complaining about the distance of our relationships, I find that idea very reassuring.

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But wait, can’t you make money off of targeted advertising? Well, maybe. The same report listed Premium CPMs at $15. But to earn those higher CPMs you have to do one of two things

1.       Get enough impressions to justify joining a specialized ad network / yield builder. Pubmatic won’t talk to you unless you generate at least 100 million impressions a month. On the other extreme TribalFusion requires just 5000 uniques a day [but good luck trying to get a $15 CPM].

2.       Hire your own ad sales rep. Assuming that you earn the $15, and pay the rep around $80K (+ 50% for benefits), you have to be sell around 670K units a month to break even on the rep.

Scarily, that premium CPM has been dropping like a rock, and will be even lower next year, making this an even harder business to play in. You can compensate for the lower CPMs by adding even more advertising to your site like TechCrunch which crams 20 ads into a single story.

So what is a website owner to do? In my view you have a few choices to get out of this brutal game:

·         Charge for access to your content. The WSJ has been doing it for years and openly encourages everyone else to do so.

·         Make your content a lot cheaper, and by cheaper I mean practically free. YouTube does it splendidly.

·         Stop charging CPMs and start earning CPAs. Zynga makes a lot of money doing just that. Just be sure to be ethical and transparent about it.

Some folks will make a lot of money with advertising on their pages, and my hat goes off to them. It’s just a very tough business to succeed at.

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