Senate Finance Committee Health Care Bill Better and Worse

October 21, 2009

The Senate Finance Committee worked hard, if not collaboratively, on the health care bill introduced by its chairman, Senator Baucus. A whopping 564 amendments considered. What it’s come up with has something for everyone to dislike. And I’m no exception.

Set aside the hot button issues like the lack of a public option and prospective cutbacks in Medicare. The committee failed to resolve two major problems in the Baucus bill that would adversely affect low-income people. In fact, it made at least one of them worse.

One big problem is affordability. The Finance Committee bill made some improvements here. However, both premiums and out-of-pocket expenses for low and moderate income households would still be much higher than under either the main bill pending in the House of Representatives or the bill passed by the Senate Health, Education, Labor, and Pensions Committee.

The Center on Budget and Policy Priorities has again crunched the numbers. As its new brief shows, for people below 200% of the federal poverty line, premiums would be two to four times greater.

If the bill were effective now, deductibles and co-pays for families at 250% of the FPL could be as high as $5,800 a year. For a family of three, this would be on top of an initial $4,349 premium–9.5% of its total income. And, for reasons explained in my earlier posting, premiums would eat up an increasing percentage of income over time.

The Finance Committee apparently recognized that health care would still be hard for many people to afford. But rather than adopt a different cost-sharing scheme, it waived the penalty for not having insurance for households whose premium costs for the lowest-cost plan in the insurance exchange would exceed 8% of their income.

CBPP says the waiver would apply to people with incomes between about 220% and 400% of the FPL. Given the costs of the insurance, many might decide to remain uninsured. Others might opt for the expanded “young invincible plan,” which isn’t just for young people any more. Under this plan, coverage would kick in only after people have met a high deductible–$5,800 for individuals and $11,600 for families.

One way or the other, a lot of low to moderate income people would still not have insurance that enables them to get the health care they need. Those most likely to opt out would be the healthiest–those who feel they’re invincible. But of course they’re not. Major illnesses and injuries can happen to anyone. And if the healthiest opt out, the risk pool would include mostly people with higher health costs. Up go the premiums. Up go the number of people who can opt out.

Another big problem in the Baucus bill was the “free rider” provision, i.e., the requirement that employers who don’t offer health insurance with benefits up to a minimum standard pay a fixed amount only for employees who are eligible for subsidies and work at least 30 hours. The fee would also apply if the insurance they offered was unaffordable for these employees.

Needless to say, this provision give employers a strong incentive to hire only people who don’t qualify for subsidies. It could also prompt them to convert current full-time, low-wage employees to part-time. Hardest hit would be near-poor single parents with dependent children because fees for them will be highest.

The Finance Committee bill strengthens this perverse incentive in two ways. First, it denies employers the right to deduct the costs of the fees as a business expense, even though health insurance is deductible. Second, it changes the formula for calculating the fees in such as way as to make them more costly.

The Finance Committee was trying to reduce the impacts of health care reform on the federal budget. Impacts on low-income people seem to have been of less concern. It could have done a better job if it had adopted a standard pay-or-play option for employers and tapped revenue sources outside the health care system, as the Coalition on Human Needs has recommended.

Senate Majority Leader Harry Reid has the thankless task of reconciling the Finance Committee bill with the Senate HELP Committee bill–and with an eye toward getting the 60 votes needed to get his version passed. It’s bound to have something that everyone–not just the all-but-solid Republican opposition–dislikes.

But will so many Senators, organized interest groups and we grassroots Americans dislike so much of it so much that it fails?

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Baucus Health Care Reform Bill Needs Reform

September 22, 2009

I told myself I was going to leave health care reform to more expert bloggers. But I’ve changed my mind because the bill Senator Baucus has introduced would compromise away vital interests of poor and near-poor individuals and families. Several provisions are at issue here.

One is the scheme for subsidizing the health insurance premiums they’d pay. It’s pretty complicated, but essentially involves a sliding scale for offsetting the costs of premiums for individuals and families up to 400% of the federal poverty line.

The Center on Budget and Policy Priorities has crunched the numbers. Its analysis shows that the required premium contributions would be more than many low-income people could afford–and much greater than the contributions that would be required under either the bill pending in the House of Representatives or the bill produced by the Senate Health, Education, Labor, and Pensions Committee.

But that’s only part of it. At the end of the first year, the caps on contributions would shift from a fixed percent of income to a fixed percent of the cost of the insurance premium. So low-income people would wind up paying an ever-greater share of their income for insurance because premiums will almost certainly rise faster than incomes.

And that’s still only part of it. The Baucus bill would mean high out-of-pocket costs for low-income people. Essentially, this has to do with the actuarial values the bill assigns to the various levels of insurance that would be available. The higher the actuarial value, the lower the deductibles and co-pays. People in the lowest income bracket would be entitled to the plan with the highest actuarial value, people in the next-lowest bracket to the plan with the next-highest actuarial value, etc.

So far, so good. But the Baucus bill sets actuarial values lower than either the House or the Senate HELP Committee bill. This translates into higher out-of-pockets. According to CBPP, if the plan were in effect now, a family of three at 250% of the federal poverty line would have to pay 12.6% of its income for deductibles and co-pays before assistance kicked in. And that’s in addition to the 10.5% of its income it would have to pay for the insurance premium. Affordable health care this ain’t.

Last, but far from least, the Baucus bill egregiously limits the “pay or play” scheme that’s a standard element in many health care reform proposals, including the House bill and the HELP Committee bill. Washington Post blogger Ezra Klein calls this “the worst policy in the bill, and perhaps in the world.” Here’s why.

Under the Baucus bill, employers that don’t provide health insurance would have to cover the costs of the subsidies that most of their eligible workers would receive when they purchased health insurance. Employers that do provide health insurance would also have to cover the costs of subsidies for those of their workers who had to pay more than 13% of their income for the premiums in the employer-sponsored plan. But employers would get a “free rider,” i.e., incur no cost at all, for the rest of their workers.

So there’s an incentive here to hire workers whose family income puts them above the subsidy level and workers covered under a family’s insurance plan. And there’s a big disincentive to hire low-income workers entitled to subsidized family plans since these, of course, cost more than individual plans.

Why hire a single mother who’s struggling to support her children when it’s cheaper to hire a well-off teenager–or one of those illegal immigrants who’ve become a favorite talking point for the Republican opposition?

As New York Times columnist Paul Krugman says, we’ve known for a long time that any health care bill that Congress produces will fall short of reformers’ hopes. The question is how bad does a bill have to be to make it too bad to vote for.

The Baucus bill is right on the threshold. It would be a dreadful shame to wind up with a plan that left low-income individuals and families with unaffordable health care costs–plus new challenges to employment. But would it be better to scrap the whole thing if that would leave us with the grossly inequitable, unsustainable system we’ve got?

Perhaps there’s still hope for a bill that won’t force this choice.