Time for compromise on health reform

October 1, 2009

More modest legislative package would stand to gain bipartisan approval in light of Baucus plan reaction

Senate Finance Committee Chairman Max Baucus (D-Mont.) moved the debate forward last month by proposing what he called a balanced healthcare package that could pass the Senate. The chairman's plan reforms the insurance market, requires all individuals to obtain coverage and makes important changes in Medicare operations. There's no public plan option, but it offers strategies to expand coverage through Medicaid, state-based exchanges and employer coverage incentives.

Republicans and many liberal Democrats rejected the package, but there is some optimism that it could still provide the basis for consensus on reform. Baucus said that policy makers have a "moral obligation" to enact health reform this year, but that will require real compromise on both sides of the aisle.

The Congressional Budget Office (CBO) calculated that all credits, subsidies and programs in the Baucus plan will cost $774 billion over 10 years. That amount is partly offset by $349 billion in tax and fee revenues, primarily from an excise tax. Insurers would ante up $215 billion though a 35% tax on plans with premiums of more than $21,000 for a family plan or $8,000 for an individual.

Insurers also would have to fund a $20 billion reinsurance pool to support those plans covering more high-cost patients through insurance exchanges.

In addition, Baucus wants insurers to pay $6 billion in annual fees ($60 billion over 10 years), which would be allocated according to company market share. Similar fees would be levied on pharmaceutical companies, medical device makers and diagnostic laboratories.

The rationale is that these firms will gain some 30 million new customers through expanded coverage. But insurers and manufacturers are likely to pass the fees on to consumers in the form of higher premiums or more expensive medicines, which would only raise healthcare costs even more.

The Senate bill also maps out a big cut in payments to Medicare Advantage plans, which CBO says will reduce plan payments by $123 billion over 10 years. The policy revises methods for calculating payment benchmarks and eventually sets rates based on a competitive bidding system. Insurers oppose competitive bidding for the MA program, but this approach may be more attractive than the across-the-board cut in legislation before the House.

Another goal of the Baucus bill is to enact policies that will "keep insurers honest." Plan sponsors have to issue coverage to people with pre-existing conditions and can't cancel policies or refuse to renew them without a legitimate reason. There are curbs on policies with annual or lifetime limits and ceilings on out-of-pocket expenses.

Plans would have to cover a minimum set of benefits and clearly describe insurance products. Baucus also wants insurers to make public how much they spend on administrative expenses and to use electronic transaction standards to exchange payment and health information.

EXPANDING COVERAGE

Any reform legislation will seek to reduce the number of uninsured. Under the Baucus plan, CBO predicts that some 25 million adults would purchase coverage through new state-based insurance exchanges. These exchanges would provide online information to help individuals and small businesses assess coverage options and determine eligibility for subsidies and credits.

The legislation also would expand state Medicaid programs to provide more coverage for low-income adults and children.

Conventional wisdom says such a large, controversial bill has to be enacted this year before the legislators become engrossed in the 2010 Congressional elections. Most observers give reform legislation a 50-50 chance, and no one expects final action before December. To avoid an impasse and a collapse in the health reform campaign, Obama will have to tune up his political skills, and interest groups will have to accept some unattractive changes in how healthcare is marketed and delivered in the United States.