Final legislation tough to hammer out

November 1, 2009

Congress is hard at work blending multiple bills while most believe reform will be enacted this year

WASHINGTON–Five committees in the House and Senate have approved major health reform legislation this year. Leaders have struggled to blend the committee proposals into legislation that all Democrats will vote for, and possibly some Republicans.

Washington pundits have upped predictions from a 40% chance of enactment to 60%-plus. Most observers expect legislation that stays below the $900 billion-over-10-years limit set by President Barack Obama will gain approval on Capitol Hill this year.

Making major changes in the nation's healthcare system clearly is not easy, and the outcome is sure to disappoint almost everyone. Insurers sent out a strong signal last month that they are not pleased with the bills moving through Congress and want the legislators to do more to "bend the cost curve" on healthcare spending. Obama shot back saying that insurers just want to preserve profits through deceptive lobbying tactics.

Topic number-one, of course, is whether to establish a public, government-run health plan that would offer coverage to individuals and small companies unable to obtain affordable insurance in the market. Liberal Democrats and organized labor insist that competition from a public plan is necessary, and they won't support a bill without it. Conservatives, insurers and employers counter that they won't vote for legislation with a public plan because that entity would compete unfairly with insurers.

While the House is expected to authorize a public plan, the Senate might opt for some kind of fall-back compromise, such as nonprofit cooperatives, state-run plans, or a trigger mechanism that would start a public plan only if private insurers don't meet targets.

Coverage mandates are almost as contentious. There is broad support for a requirement that everyone obtain coverage, but disagreement over how stiff a penalty to impose on those who choose not to play. Insurers claim that the $750 fee (after 10 years) in the Senate plan is too low to obtain anything close to universal coverage and will prompt too many "young invincibles" to opt out. With Congress sure to enact insurance market reforms that require guaranteed issue and community rating, with limited adjustment based on age or health status, the result could be hyperinflation of premiums and a death spiral in the private insurance market.

More controversial is a mandate on employer coverage. To soften the impact, small companies with fewer than 50 workers would be exempt, but all others must play or pay. The fee is stiffer in the House than the Senate, but probably not high enough to seriously shape coverage decisions.

FEES AND FUNDING

A big revenue-raiser in the Senate Finance Committee bill is a tax on "Cadillac" health plans, those valued at more than $21,000 for a family or $8,000 for an individual. Supporters of the measure say it will raise some $200 billion over 10 years. Insurers complain that this approach does little to curb spending, while House liberals, labor unions and employers object that it will impose a tax on millions of middle-income consumers.

House Democrats prefer to raise money through a "millionaire's tax" on high-income individuals. The Senate proposes additional fees on insurers and drug and medical device companies, who oppose the levies bitterly.

The final tradeoff will balance the cost of expanding Medicaid and subsidizing premiums for low-income consumers against revenue-raising fees and taxes. Also in the mix will be Medicare payment cuts to hospitals and doctors and Medicare Advantage plans, plus increased reliance on states to pick up more of the cost of expanding Medicaid. There is opposition to just about every proposal on the table, and a winning compromise will be difficult, although not impossible, to achieve.