Thursday, September 17, 2009

What about the Baucus bill?

Several thoughts about the Baucus bill. First, the fact that there was a bit of grumbling on both sides is the best signal yet that this bill may be the vehicle for a compromise. In general, I think the structure of the exchanges seem reasonable, but the bill may be underfunded (meaning the major question is whether insurance is affordable for persons between 133%-300% of poverty give the subsidy levels). At the same time, the tax on high value insurance plans both raises money to offset the expansions while also serving to add a cost control pressure into the system because some will likely be less overinsured due to the tax on high cost insurance plans.

Also, CBO says that the bill will reduce the deficit by $49 Billion over 10 years...and that the cost saving provisions of the bill ACCELERATE in the next 10 years. They are saying the cost of the subsidies will grow by about 7%, but that the money raised by the tax on high value insurance plans will go up around double that because the limit for the tax to apply ($21,000 family; $8,000 individual--about the 75th percentile) will be indexed for inflation, while health insurance premiums are likely to grow much faster. Hence, more policies will incur the tax over time....or the rate of cost inflation in health care will have slowed. Sort of a self correcting mechanism (note the same would be true for what I propose instead of this tax below).

The biggest problem is the lack of competition amongst private insurers that will likely exist in many places. As has been said, Blue Cross/Blue Shield of NC wrote 96.8% of individual market policies sold in NC last year (they have 72.5% of group sales). With no public option, who will enter? The co-ops are a waste of time.....if someone can convince me otherwise then fine.....but most successful co-ops (electricity, agriculture) serve as monopolies or distribution mechanisms for things like fuel. No way they will get up and running and competitive.

Here are 3 changes that would improve the Baucus bill.

1. Cap the tax exclusion of employer paid premiums instead of the tax on high value insurance plans. I would cap the exclusion at the mean value of plans nationally ($13,000 family; $5,000 indivdiual). This would reduce federal spending by about $500 Billion over 10 years, as compared to the high value tax which raises $215 Billion over 10. I would use the extra money saved to increase the subsidy amount available to persons between 133% of poverty and 400%.

These two taxes (cap tax exclusion and tax high cost plans) do the same thing in a slightly different way, but I would prefer to say we now have an unfair subsidy for private health insurance. The uninsured get none, and others get unlimited simply because of the employer they work for. This is unfair, and it leads to some persons being overinsured, not facing the true cost of their care, and therefore more likely to overuse care. Capping the tax exclusion at the mean national value should have a substantial impact on health care costs, and is the most certain means to slow the rate of health care cost growth in the non-elderly market. It is more straightforward that the high value tax and also places the cultural conversation on the fact that we have over-insured folks in addition to un- and under-insured people.

2. Get rid of the free rider provision that penalizes an employer who doesn't offer health insurance, and whose employee then ends up getting a federal subsidy to purchase health insurance. This incentivizes employers to NOT hire low income workers. Stick with the individual mandate, realizing that you will not get all people to comply. If you wnat to cover everyone, you have to cover everyone....and we are saying we don't want to do that, but to work within the current system. Also, this is said to be a pet issue of Sen. Snowe....definitely get rid of it if she won't come on board. Another option is to create an auto-enroll absolute bare bones policy for persons less than 30...that is more fruitful than these sorts of free rider penalties.

3. Pass the Wyden 'Free Choice' amendment. This amendment would open up the exchanges to persons with employer provided insurance if they didn't like the insurance options being provided by their employer. The general approach to reform being taken is that we need to give consumers options and to have insurance companies compete for their business...therefore bidding down premiums and costs. I don't think this is the easiest way to expand coverage or reduce costs...but it is the way we seem to be going. If we are going down the choice route, then lets do it--give more people access to the exchanges more quickly, and give more folks choice. This would have the possibility of a 'spillover' effect from the exchanges actually re-energizing the market for group insurance. The main reason the insurers are going along is that they are getting more customers in the individual sales market where they sell very little....while getting no change in group sales market. This should be changed to allow more folks access to the exchanges, sooner (Baucus envisions states being able to allow all employers/persons into the exchanges by 2022 already).

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