The Chairman’s Mark – Good Ideas, Potentially Fatal Flaws

Roger Collier

So, at long last, Senator Max Baucus has released his Chairman’s Mark draft health care reform bill for discussion by the full Senate Finance Committee. The 223-page draft bill is generally consistent with the “Framework for a Plan” document that Senator Baucus issued last week. So, no big surprises. But can it make coverage more accessible and affordable? Can it put the brakes on skyrocketing health care costs? Is it likely to help or hurt the economic recovery?

Accessibility and affordability are the main thrusts of the draft. As with the other Senate and House bills, an individual mandate would be imposed and the insurance market would be reformed to assure coverage on a guaranteed issue basis. Also as with the other bills, Medicaid would be expanded to cover anyone below 133 percent of FPL (but with the federal government picking up more of the tab), while subsidies would be available to other lower-income individuals who buy coverage through an insurance exchange. Additionally, benefit standards would be set for the individual and small group markets, with limits on cost-sharing.

Overall health care costs are the focus of other provisions. The biggest target area is Medicare, where Medicare Advantage “excess payments” would be slashed, a variety of other cost containment measures would be implemented (but not a reduction in physician fees), and a new Medicare Commission would be charged with making cost control proposals to Congress that would be subject to straight-up-or-down votes. Other cost containment provisions are less direct: “overly generous” employee benefits would be subject to a tax to be paid by insurers, while the insurance exchanges are presumably intended to engender price competition.

In terms of the impact on the economy and on taxpayers, the draft is projected to have a ten-year cost of some $850 billion, less than other current reform bills, but with many of its costly provisions deferred until three or more years into the decade. The bill is, however, claimed to be “fully paid for,” with new revenues and savings balancing new expenditures. New revenues would come from insurers and from certain providers, and so would presumably result in higher premiums; others would come from small employers as a result of “free rider” penalties imposed when employees utilize exchange subsidies. The biggest savings would come from Medicare Advantage payment reductions. Large employers would be minimally affected, but some smaller employers would see increases in premiums as a result of new benefit standards—although in some cases these would be partially offset by tax credits.

The political reactions to the Chairman’s Mark have been predictable. Liberal Democrats are distressed that no public plan is included (even though such an option is more likely to increase costs than decrease them), while Republicans have either issued blanket condemnations of the increased federal expenditures (while also criticizing the Medicare Advantage cutbacks) or have focused on hot buttons like abortion and care for illegal immigrants.

A more balanced verdict is that the draft is an uneasy compromise between the political poles. It doesn’t do enough to slow the rate of increase of national health care costs because to do so would result in concerted opposition from both insurers and providers. It doesn’t shift more responsibility for obtaining optimal coverage onto most of the currently insured, because this would alienate employee unions. It doesn’t prevent insurers from cherry-picking the best risks, because this would contradict earlier political promises that “everyone can keep the insurance they have.”

In addition to these “big picture” criticisms, some features are reasonable in intent but seriously flawed as currently proposed.

The penalties to be imposed on those without coverage look to be a classic “gotcha” approach that will have lawyers rubbing their hands in glee as they visualize subsequent court fights. A better approach might be to incorporate coverage selection as part of annual tax filing, permitting a choice of employer coverage, individual exchange coverage, or Medicaid.

The subsidies for low-income individuals above the proposed 133 percent cutoff, combined with Medicaid expansion, are the major reason for the draft’s price tab. With subsidy costs in many cases above Medicaid costs-while still failing to cover total premiums– it would make sense to give lower-income individuals the option of buying into Medicaid.

The almost unlimited latitude for insurers to market directly to groups with the best risks will drive up costs for everyone else and potentially lead to the failure of the insurance exchanges. Instead, insurers should be required to offer their lowest rates to exchange participants, thereby essentially putting all non-ERISA groups and individuals in the same pool.

The multiple benefit options and wide rate range allowed between younger and older insureds seem likely to encourage risk manipulation by insurers and drive up costs for older individuals. Reducing the number of benefit options and shrinking the allowed rate range would simplify choice and enhance affordability.

Overall, the draft moves the debate forward, but perpetuates today’s ineffective and expensive combination of paternalism and the free market. Few employees have many coverage choices, but their “paternalistic” employers have limited interest in tight budget control because of the tax exemption and the assumption that reducing benefits leads to demands for increased pay. Meanwhile, the “free market” for insurers gives them enormous latitude to cherry pick risks and price selectively. Senator Baucus’ draft trims insurer sails somewhat and slightly reduces taxpayer-subsidized employer paternalism—but not enough.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE.

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  1. 2009 and 2010 $120,000 from your tax dollars.
    Philadelphia PA Mayor Nutter received two years in a row $60,000 checks to help keep open and operate the city swimming pools.
    These checks came from AmeriChoice Health and on the surface seems like fine gifts.
    Yet, they are Bribes non the less, these checks come from a company who receives all its money from the Federal Government as a vendor for Medicare Medicaid services is not allowed to offer bribes kickbacks and money gifts of any kind in order to promote its share of the market place.
    This is not allowed as a use of your taxpayers dollars yet it happens.What does it really cost the City of Philadelphia to receive this money?
    Americhoice Health has a long history of corruption over the years yet seems to be protected by those who are responsible to over see their actions why is that?

  2. Who does Senator Baucus represent?
    Insurance companies?
    The Insurance industry has given Max Baucus $1,196,463
    The HMO’s gave Max Baucus $466,350 and Blue Cross/Blue Shield alone has given him $67,949 with 60% ($41,100) just in his current term (2005-2010). I wonder what they expect in return for their money?
    Wall Street Banking and Finance?
    TARP beneficiary AIG gave Max Baucus $91,000, other TARP beneficiaries and counter parties Goldman Sachs gave him $87,900, JP Morgan Chase gave him $77,402, Citigroup $72,000, Morgan Stanley $66,500, Wells Fargo $65,700, American Express $55,950 and Bank of America $50,250.
    Layers and Law Firms have given Max Baucus $1,603,523
    Wall Street stock brokers gave Max Baucus $1,478,035.
    How much money have you given Max Baucus? Do you have a half million dollars or more to pay him to represent you?
    If his position is that the health care program he is participating is not good for America then perhaps he should introduce legislation to end the same program he has so he and the other Congresspersons and Senators can have the same options we have.
    In 2009-2010 Max Baucus received 90% of his money from out of state corporations only 10% of his campaign contributions came from residents of Montana or companies in Montana. Most of his money is coming from Washington DC, Maryland, Virginia, Connecticut, Florida, Texas, New York, New Jersey, Pennsylvania, Washington, California, Massachusetts, Nevada, Arizona, Colorado, Iowa, Nebraska, Alabama, Mississippi, North Carolina and Tennessee.
    2009-10
    In State $598,118 (10%)
    Out of State $5,194,866 (90%)
    No State $8,000 (0%)
    http://www.opensecrets.org/politicians/geog.php?cycle=2010&cid=N00004643&type=I
    Here are his Top 20 Contributors:
    American International Group (AIG) $91,000
    Goldman Sachs $87,900
    New York Life Insurance $87,425
    Schering-Plough Corp $85,200
    JPMorgan Chase & Co $77,402
    Citigroup Inc $72,000
    Blue Cross/Blue Shield $67,949
    Morgan Stanley $66,500
    Wells Fargo $65,700
    Ernst & Young $63,511
    General Electric $61,400
    American Express $59,550
    Akin, Gump et al $58,862
    UST Inc $54,950
    Verizon Communications $54,701
    American Assn for Justice $51,000
    Amgen Inc $50,750
    DaVita Inc $50,350
    Time Warner $50,266
    Aetna Inc $50,250
    Bank of America $50,250
    Top 20 Industries
    Lawyers/Law Firms $1,603,523
    Securities & Investment $1,478,035
    Insurance $1,196,463
    Health Professionals $1,039,276
    Pharmaceuticals/Health Products $756,205
    Lobbyists $745,184
    Real Estate $692,417
    Hospitals/Nursing Homes $570,491
    Pro-Israel $550,589
    Commercial Banks $518,807
    Electric Utilities $476,643
    Health Services/HMOs $466,350
    TV/Movies/Music $417,067
    Misc Finance $391,965
    Retail Sales $367,943
    Business Services $320,054
    Beer, Wine & Liquor $319,043
    Retired $316,492
    Misc Manufacturing & Distributing $310,575
    Transportation Unions $305,925

  3. We will not fix this problem until politicians stop attempting to give everyone what they want and then use tax subsidies to cover their financial loyalty to the corporate healthcare lobby. Whose loosing in healthcare, it’s patients, premium payers and taxpayers, whose winning, it’s providers (PCPs excepted) and corporate lobbyists along with compliant politicians. Don’t give me a plan that costs me more than I have to pay now then force me to play the game.
    “(even though such an option is more likely to increase costs than decrease them),”
    Roger, it will only cost more because politicians will design it to mirror private insurance and give it no financial clout to affect the market, then engage in, “I told you it would fail” politics. I think the public plan should role Medicaid into Medicare and give everyone the ability to use it instead of private insurance. But that will only work if we start with a foundation that premiums (costs) need to be half what they are now. That will have the system changing effect that is needed. But as long as we continue to legalize political bribery we will not get to a solution for patients or taxpayers.

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