THE SENATE FINANCE CHAIRMAN’S MARK – GOOD IDEAS AND POTENTIALLY FATAL FLAWS

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.

UPDATE 9/13: ANOTHER PROMISE FROM MAX BAUCUS

Politico reports that Senate Finance Committee chair Max Baucus is now promising that his committee’s reform bill will be released on Tuesday September 15.

Since Senator Baucus previously promised, prior to the summer recess, that the “Gang of Six” was already at the point of agreement and would be releasing a bipartisan bill imminently, some caution is indicated about this latest date.

Even more caution is indicated about the level of bipartisan support for the promised bill. On the positive side, the Gang of Six are still meeting and seem to be close to agreement on three sticky issues: malpractice suits, abortion funding (or not), and coverage of both legal and illegal immigrants (or not). On the negative side, at least two of the three Republican members of the Gang of Six (Senators Grassley and Enzi) may have made such intransigent statements during the summer recess that they now cannot support any compromise reform bill without losing political face, while the third Republican member (Senator Snowe) is clearly still undecided.

UPDATE 9/9: THE BAUCUS COMPROMISE

Senate Finance Committee Chair Max Baucus has returned from his summer break with a new proposal for his Gang of Six—the three Democrats and three Republicans charged with negotiating details of the Committee’s reform bill.

Baucus has tried to craft a compromise that will attract at least a handful of Republican votes without alienating his own fellow Democrats. Accordingly, the 18-page proposal, described as “a framework of a plan” excludes the controversial public option and also any direct employer mandate. Instead, it proposes a network of insurance cooperatives, with federal start-up money, and a “free rider” levy on employers whose workers purchase government-subsidized coverage through an insurance exchange.

Other details that reflect Baucus’ attempt to walk the political tightrope include a levy on health insurer revenues and requirements for transparency of insurer costs as a condition of exchange participation, but also more limited Medicaid expansion and less generous subsidies for other lower-income individuals. In addition, a low-cost catastrophic coverage plan would be incorporated, available to those under 25 years old. Together, these provisions are expected to reduce somewhat the total reform cost from earlier estimates.

The Capitol Hill reaction so far seems to be closer to yawns than enthusiasm, with Baucus’ Democratic colleague Ron Wyden quick to point out any final Committee bill would depend on other members also.

HAPPY TRAILS, TRIGGER?

Okay, my apologies to Roy Rogers, but I was pleased to see in the New York Times that the idea of a public plan trigger is finally getting serious consideration by the White House and by Senate Finance Committee members.

I proposed the trigger concept in a piece that ran in The Health Care Blog back in March. It was clear then that a nationwide public plan faced very considerable political obstacles, and I suggested that a more acceptable approach might be to establish a public plan option that would be implemented only where and when private plans failed to meet predetermined cost control targets.

Senator Olympia Snowe proposed the trigger approach to fellow members of Senate Finance some weeks ago, and the NYT reports that the White House—desperate for at least one Republican vote in the Senate—is now analyzing its political feasibility and practicality.

Senator Snowe’s approach, reflecting the situation in her home state of Maine, where the market is dominated by a single insurer, would tie the trigger to affordability, rather than to cost control. This approach has political advantages, but could be labeled as unfair, since it includes a factor that private plans cannot control—individual incomes—in the trigger comparison. It also has the disadvantage of focusing on individuals who are just above the Medicaid income threshold. To achieve affordability for this lower-income group could mean a public plan network virtually identical to that of Medicaid, raising the question: why not just allow this group to buy-in to Medicaid?

However, any trigger is probably better than the nationwide public plan option. It’s also more realistic than Senator Conrad’s proposal for health cooperatives, a concept that has never been successfully implemented (Seattle’s Group Health Cooperative, despite its name, is a Kaiser-type HMO). The experience of Medicare Advantage, in which the private plans with most enrollees cover the basic benefits at lower cost than the government-administered FFS plan, suggests that a trigger approach could provide the best of both worlds. In most areas, especially with real price competition through an exchange, the private plans would compete only with each other, while in those areas in which private plans failed to meet established benchmarks, the trigger would result in public plans being created to provide additional competition.

There is a precedent for a trigger approach. As the NYT points out, the legislation creating the Medicare drug program included a provision for establishing a government drug plan in any area with fewer than two private plans. This hasn’t happened, of course, because competition for Medicare D business has been fierce—and has probably contributed to program costs far below the projections of CMS actuaries.