More on the Baucus Plan

While some argue that we must have health care reform “Now,” others have argued that “doing it right” will take time.

In the white paper released today Senate Finance Committee chairman Max Baucus seems to take both sides of the argument. On the one hand: “Congressional leaders and the public must be realistic about the timeframe in which the fiscal success of reform is measured."

On the other hand:  “If we fail to act  we will double our current national expenditure on health care from $2 trillion to $4 trillion, continue to witness the plight of tens of millions of our citizens without health insurance cost shifting to those who do, continue to tolerate poor quality . . .  We must choose to invest now."

Is this simply political double-talk of the “Look Before You Leap”/“He Who Hesitates Is Lost” variety?

Not at all. Baucus’ multi-part plan would unroll over time “hopefully . . . in about three years.” (You can hear him offer this time-frame in his press conference on C-Span).  Over this period, he would create a Health Insurance Exchange that would insure that “affordable, high quality and meaningful health insurance options are available to all Americans.” The insurance offered through the exchange “would need to meet certain requirements established by a new Independent Health Coverage Council,” Baucus explains.

This suggests that insurers will be told what must be included, at a minimum, in any insurance plan sold through the Exchange. One hopes that “Swiss cheese” plans, filled with holes, would be eliminated, along with low-cost “high-deductible” plans that attract low-income families who then cannot afford to use them.  But Baucus is not trying to spell out details here. This white paper is, he emphasizes, “not a legislative proposal,” but  a “work in progress.”

As in Obama’s plan, the private sector plans in the Exchange would be competing with a public sector plan that is available to all. For that competition to work, private and public insurers will have to be playing on a level field. Again, this means creating new rules for the games insurers play.

In short, Baucus is talking about regulating the insurance industry. Most likely legislators will face a serious battle with insurers, and their lobbyists.

In addition, Congress will need to figure out how much employers who do not provide insurance must pay into a pool to provide subsidies. Only “small firms” are exempt. What counts as a “small firm”?  One can expect lengthy hearings and much debate. Finally, how large will the subsidies be for those living under four times the Federal Poverty Level?

Keep in mind: once the Insurance Exchange is set up and working efficiently, individuals earning more than four times the federal poverty level ($41,600 for a single person), would be required to purchase insurance—and will not receive a subsidy. One can be certain that many younger voters will be writing their Congressmen. Ultimately, reformers might compromise and settle on “modified community rating”—which would mean that younger customers would get some break on their premium. But they did that in Massachusetts—and now don’t have enough money in the pool to cover everyone.

Baucus acknowledges the obstacles: “Despite widespread agreement on the need for reform, this remains difficult because Americans do not necessarily agree on how to achieve it.” He cites a poll revealing that only 51 percent of those polled support an individual mandate. And only about half support universal coverage if it means higher taxes—or that the government would have more responsibility. More public education will be needed to reach a consensus on some of the most basic issues underlying healthcare reform.

Candor

What I like about Baucus’ paper is that it confronts the complexity of health care reform. And it is candid: “Creation of the Exchange [will] take time.”  At the same time, “more immediate steps could provide relief to Americans most in need of coverage.”

Over the short run (beginning next year) Baucus envisions expanding Medicaid and opening Medicare so that adults 55-64 can buy into the plan.  If Medicare is more affordable than private insurance (which is should be) many healthy 55-64-year olds might pick this option. This would bring much-needed revenue to Medicare from a younger population. (Alternatively, the worst case scenario: only very sick 55-64-year olds sign up for Medicare. Unless the cost of buying in is quite high, this could put further financial pressure on the program. )

Baucus also tells the truth about the quality of healthcare in America: “all patients are at risk for poor quality care—gender, age, race, income and insurance status do not provide any advantage.” In other words, insuring everyone will not answer all of your problems. Even affluent, well-insured Americans are vulnerable to hazardous over-treatment, medication mix-ups and potentially fatal hospital infections.

During the three years it takes to set up his Insurance Exchange and get it running, Baucus would attack fraud and waste in the system.

When it comes to containing costs, and funding the plan, he acknowledges that it will not be easy.  For example, despite what advocates of consumer-driven healthcare say, “transparent pricing” is not going to have a major effect on spending. “ At the state level, recent legislation has required public reporting of hospital retail charges,” Baucus notes.

"Most experts agree, however, that this information is too detailed and not meaningful, because it contains unit prices rather than episodes of care." Trying to estimate a hospital stay based on charge data is “like shopping for a car by adding up the prices suppliers charge for all the nuts and bolts that go into one.”

The value and usefulness of cost and quality information may be limited by practical factors,” Baucus adds. Moreover, “decisions about health care are often involuntary — made under emergency conditions.” So, no, we cannot count on a combination of transparency and smart shoppers to drive down prices.

Baucus also observes that “reducing malpractice premiums alone would not have a substantial effect on overall health spending. The Congressional Budget Office estimates that a 25 to 30 percent reduction in malpractice costs ‘would lower health care costs by only about 0.4 to 0.5 percent, and the likely effect on health insurance premiums would be comparably small.’” But, like HealthBeat,Baucus does support “helping patients and providers to cooperate rather than participate in time-consuming and expensive legal battles.” This, he writes “ may help to shift America’s health care system away from the costly practice of defensive medicine and toward the best quality care and adherence to standards of care.”

Taxing Employer-Based Insurance Benefits

Just how would he pay for the plan he envisions? Here Baucus, like Obama and others, hopes that using comparative effectiveness information and Health IT, while putting a new emphasis on preventive care and managing chronic diseases will, over time, bringing down spending. He specifically mentions “smoking cessation clinics” as an important and often overlooked part of preventive medicine: “An estimated 80 percent of heart disease, stroke and type-2 diabetes and 40 percent of cancers, could be prevented if Americans stopped smoking, adopted healthy diets and became more physically active. . . Instead our health system continues to emphasize expensive treatments.”

Still, Baucus knows that healthcare will continue to be costly. Even if his ideas are enacted, he writes that, in 2018, he expects us to be spending as much as currently projected: that’s $4.6 trillion, up from $2.3 trillion today. Since virtually no one expects wages to double over the next ten years, it seems clear that wealthier taxpayers will have to subsidize low-income and many middle-income Americans.

Finally, near the end of his report, Baucus suggests one major way to raise revenues to fund health care for all. Begin taxing the employer-based insurance benefits that employees now receive tax-free. In 2007, the government went without some $300 billion in revenues that it would have received if it taxed those benefits.

Baucus wouldn’t try to capture the full $300 billion. But he points out that this is a tax break that provides the greatest benefit to wealthy Americans who are in the highest tax bracket-- and receive the most generous benefits from their employer. He suggests “capping the amount of health care benefits that can be excluded from workers’ taxable income. This could be done,” he suggests, “by limiting or capping the tax exclusion based on the value of the benefits, or as an alternative, based on a person’s income—or both.”

I give Baucus high marks for laying the issues out on the table in a detailed, comprehensive way.  Will this lead to legislation next year?

This afternoon, Carol Guthrie, spokesperson for the Democratic staff at the Finance Committee, told TNR’s Jon Cohn:

“Senator Baucus would like to move a comprehensive reform bill in 2009. He’ll work with his colleagues on a precise timeline, however, for movement of legislation and implementation of reform. In the 'Call to Action,' the reforms he envisions would be phased in over a period of years--some immediate, to help many uninsured Americans get some coverage right away, and some over two or three years, as insurance market reforms take effect and a marketplace can be created where folks can easily compare and buy a plan that works for them.”

Given the number of controversial ideas in this "work in progress", I have a hard time imagining Congress reaching a consensus on legislation next year. Conceivably legislators could pass a very, very vague bill that skirts issues like “individual mandates” or taxing employer-based insurance, and contains absolutely no numbers on how much employers will be required to contribute if they don’t provide benefits, what counts as a "small firm," how high the subsidies will be, and how exactly the whole program will be funded.

If that happens, President Obama will be left signing legislation that promises a great deal, in very hazy terms. Everyone will assume that, in the end, they will get what they want—at no cost. If I were President Obama, I would not be thrilled.