12 Takeaways & Comments On "Baucus-care" Bill

The Senate "Gang of Six" is nearing a final draft of health care bill.   Though reports suggest there are still disagreements on mandates dealing with the private purchase of insurance, the Senate Finance Committee is getting closers and a final draft could be forthcoming at any time.

While there will certainly be changes and adjustments to the legislation, it is fair to say that the Senate version has a much better chance of passing, or at least containing more of its original provisions, than the more expensive House bill.

The framework of the Senate bill, nicknamed "Baucus-care" because of its primary sponsor Max Baucus, can be found here.

While it is difficult to know how any final bill may look, there are a few key aspects that merit highlighting and comments:

1. High Cost Insurance Excise Tax: An excise tax of 35% would be levied on insurance companies and insurance administrators for any health insurance plan that is above $8,000 for singles and $21,000 for family plans.  The threshold would be indexed for inflation.

Comment: A 'salary cap' for insurance plans.   Few insurers would want to pay a 35% tax so this is an aggressive move to eliminate the most expensive insurance plans and provide a ceiling on future cost increases.   May also provide new revenue sources by using the tax on those demanding such plans to fund the tax credits for others.

2. Health Care Cooperatives: Bill authorizes funding for the Consumer Operated and Oriented Plan (CO-OP) program to foster the creation of nonprofit, member-run health insurance companies.   Federal loans will be provided to assist with start-up costs and federal grants would be provided to meet state solvency requirements.

Comment: Co-ops have possibility of growing beyond control.   Bill should include membership size caps to ensure the co-ops do not evolve into a de facto national health plan.   Further, co-ops can and should be funded with private capital not Federal loans to help manage costs and ensure tighter management.

3. No Insurance Penalty: For taxpayers between 100-300% of poverty, the penalty for failing to obtain health coverage is $750 per year with a maximum penalty per family of $1500.

Comment:  Impossible to enforce.   Can anyone really envision the Federal government sending a bill to a poor family?   Would Uncle Sam hire bill collectors to get the money, or would it be added to taxes?  What about those who do not pay net income taxes?   More information is needed on exactly how money will be collected.

4. Small Business Tax Credit: Bill offers tax credits for firms with fewer than 25 employees and average wages below $40,000.

Comment: Why the 'average wage' provision?    While I know there is little support for any tax credits for higher income individuals, enforcing this arbitrary average income cap could actually encourage small companies to keep incomes lower to receive their tax benefits.    The owner would 'win' while the workers see less pay.   While I favor no caps generally, at the minimum the cap should be increased.

5. Premium Variance: The bill prevents insurance companies from denying coverage based on pre-existing conditions, save for a couple: tobacco use, age, family composition (kids or no kids) and geography.

Comment: As I've discussed extensively, obesity is the single biggest medical problem facing America.   The costs of obesity are equal or even greater than the costs of smoking.   This bill should allow some variance in premiums for those who are statistically more likely to cost the system, or as I've suggested, invert that and enable a tax credit for remaining in a healthy weight range.

6. Incentives For Healthy Lifestyles: Proposal would require the Secretary to establish a five-year initiative to explore providing incentives to Medicare beneficiaries who improve their health state and complete scientifically-based healthy lifestyle programs.   The programs would target specific risk factors including high blood pressure, high cholesterol, tobacco use, overweight or obesity, diabetes, and falls prevention.

Comment:  A good start but doesn't go far enough to point #4 above.  We are past the time for "exploration" and need action that would incentivize healthier behavior and lifestyles.   Five year programs in Washington often become ten year programs and then disappear.   The President has frequently called this the "new era of individual responsibility" and that must also extend to taxpayer funded health care.   Additionally this should be extended to Medicaid and children's programs.

7. State Health Insurance Exchanges: State-based 'exchanges' will be established to facilities enrollment for individuals and separately for small groups.

Comment: Insurance exchanges are one of the few points both sides can agree on.   Opening up competition and establishing more transparent pricing - like Progressive and other companies now do with auto insurance quotes - is a great way to bring down prices and pool risk.    That said, why only enable this for individuals and small groups?   Exchanges should be open for businesses of all sizes.

8. Health Affordability Tax Credits: Tax credits would be available on a sliding scale basis for individuals and families between 134-300% of poverty to help offset the cost of private health insurance premiums.    Individuals between 300-400% of poverty would be eligible for a premium credit at a flat percent of income.

Comment: While there are many families who need financial aid to obtain insurance, especially many of the 30-40 million who are currently uninsured, 400% of the poverty line means a 4 person family making $88,000 per year will still obtain tax credits.    As expensive as health insurance can be, $88,000 per year is too high to be receiving tax credits funded by other taxpayers.

9. Part D Drug Discount Program: Beginning in 2010, in order to have their drugs covered under Medicare, manufacturers must provide a 50% discount off the negotiated price for brand-name drugs covered on plan formularies when beneficiaries enter the coverage gap.

Comment: Good for Medicare recipients, bad for drug companies.   Few but the companies and their investors will care, but we must remember future drug development is based on past profits.   No profits, no new drugs.

10. Medicaid Drug Coverage: Prescription drugs would become a mandatory Medicaid benefit.   The status of drugs used to promote smoking cessation, barbiturates and benzodiazepines would be changed from "excludable" to "non-excludable."

Comment:  Potentially slippery slope of government sponsored funding of often addictive drugs.   Many drugs in these categories have valuable medical uses but some also come with heavy tolls, including addiction.   Medicaid examiners need to take great care when paying for prescriptions.   Perhaps this is a bone being thrown to placate big pharmaceutical companies over the 50% Medicare price reduction push mentioned above.

11. Employer Responsibility: Employers with more than 50 full-time employees (30 hours and above) that do not offer health coverage must pay a fee for each employee that receives the tax credit for health insurance through an exchange.

Comment: 30 hour per week rule may lead companies to hire more workers but keep hours per week below 30.    This should be reduced to 15 or even 20 hours per week.    Additionally, the bill gives a complex calculation for fees and penalties, adding to the need for more expensive accounting work.    Fee schedule should be simplified as many businesses are already overburdened by overly complex tax laws.

12. Limit Health Flexible Savings Account Contributions: Contributions to health Flexible Savings Accounts (FSAs) would be limited to $2,000 per year.

Comment:  Why?   While not as popular as health savings accounts (HSA) because the money resets every year, FSAs can encourage high deductible policies for families that can afford them.