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Health Care Reform 2009: The Senate Finance Committee Bill

Max Baucus and reporters

In the health care reform debate, lately all eyes have been on the Senate Finance Committee.  All of the other Congressional committees that cover health care voted on a version of the reform bill back in July, before the Congressional recess.  After months of deliberation, the Senate Finance Committee finally voted to move its health reform bill on to the floor of the Senate. 

What took it so long?
The short answer?  The Gang of Six.  The chairmen of the other four committees introduced bills themselves, and followed the typical committee procedure- all members debated, added amendments, and voted on the final bill.  Max Baucus (D-MT), chairman of the Finance Committee took a different approach.  He set up a panel of three Republicans (Charles Grassley of Iowa, Mike Enzi of Wyoming and Olympia Snowe of Maine) and three Democrats (Jeff Bingaman of New Mexico, Kent Conrad of North Dakota, and himself).  This so-called Gang of Six would craft the bill together, before offering it to the full finance committee for a vote.

No one seems to know why exactly this particular group of six Senators was chosen- they represent states whose population adds up to only 8.4 million people, less than 3% of the country’s total population.  (That would be like if only representatives from New York City or only reps from the Phoenix and Detroit metro areas got to write the health care bill.)  Apparently, Baucus felt that this group of Senators would be able to come to a bipartisan agreement.

The process seems to have broken down– at the same time that he was negotiating with the Gang of Six, Senator Grassley was sending out fundraising letters in Iowa attacking “Obamacare” and Senator Mike Enzi used the GOP’s weekly radio address to attack the Democrats’ health-care plan for promoting “the rationing of [America’s] health care.”  Baucus drafted a bill based on compromises made during the Gang of Six negotiations, but in the end Olympia Snowe was the only Republican to vote for it.

What’s in the bill?

Here are the basics:

Overview:  Same basic structure as the House bill and Senate HELP Committee Bill:

  • individuals have to buy insurance or face a tax penalty
  • large employers will have to provide insurance
  • subsidies for people who don’t get coverage through an employer and can’t afford coverage on their own
  • regulations, like guaranteed issue and community rating (which we discussed before) that would keep insurers from refusing coverage based on preexisting conditions
  • insurance exchanges, where individuals and small businesses can buy insurance

Community Rating Rules: We talked about community rating when we were discussing the House Bill- it just means that insurance companies wouldn’t be able to charge you higher rates if you have a preexisting condition.  In the house bill, the only factors an insurance company could base its premium on would be how many people it would cover, the geographic area you live in, and your age.  Those difference in rates are written as a ratio.  For example, in the House bill, older people could only be charged twice as much as younger people- so the age ratio would be two to one, or 2:1.  Here are the different rate ratios in the Finance Committee bill:

  • Tobacco use – 1.5:1
  • Age – 5:1
  • Family composition:
    • Single – 1:1
    • Adult with child – 1.8:1
    • Two adults – 2:1
    • Family – 3:1
  • Geographic areas- this would vary, and be set by each state
  • Taking into account all these variables, the most an insurance company could charge would be 7.5 times the cheapest rate they charged.

Notice that in the Finance Committee bill, insurers could charge older people five times as much as younger people, much more than in the House bill.  That could be a huge problem for older workers.  According to a New York Times article:

Proposed health care legislation would forbid insurers from charging sick people more or rejecting them outright. But by allowing insurers to charge so much more for older, often sicker people, “You’re just using age as a proxy for health status,” said Uwe Reinhardt, an economics professor at Princeton University.

The insurance industry disagrees, saying that older workers tend to have higher incomes, and those that don’t should be covered by government subsidies.  But this really amounts to an indirect giveaway to insurance companies.  Instead of a just telling insurance companies that they couldn’t charge older Americans higher rates, the government would let them charge more and then pay some of the difference using tax money.

Insurance Exchanges: In the House bill, there would be one National Insurance Exchange.  Under the Finance Committee Bill, every state would have its own exchange.  Also, the benefit levels for plans offered under the exchange are slightly different in the two versions.  In the House bill there are four categories:

  • Basic plan includes essential benefits package and covers 70% of the benefit costs of the plan;
  • Enhanced plan includes essential benefits package and covers 85% of benefit costs of the plan;
  • Premium plan includes essential benefits package and covers 95% of the benefit costs of the plan;
  • Premium plus plan is a premium plan that provides additional benefits, such as oral health and vision care.
  • Annual limit on total out-of-pocket expenses (deductibles, co-pays) would be $5,000 for an individual, $10,000 for a family, and no annual or lifetime limits on coverage

In the Finance Committee version, insurers wouldn’t have to cover as much:

  • Bronze plan includes essential benefits package and would cover 65% of the benefit costs of the plan,
  • Silver plan includes essential benefits package, covers 70% of the benefit costs of the plan,
  • Gold plan includes essential benefits package, covers 80% of the benefit costs of the plan,
  • Platinum plan includes essential benefits package, covers 90% of the benefit costs of the plan,
  • Young Invincible plan available to those 25 years old and younger and provides catastrophic coverage only
  • Annual limit on total out-of-pocket expenses (deductibles, co-pays) would be $5950 for an individual, $11,900 for a family, and no annual or lifetime limits on coverage

Multistate Plans, National Plans, and Who Will Regulate Them
Right now, insurance is regulated by each state, which means that every insurer has to offer different plans in each state, to confirm with whatever a given states rules are.  Both parties want to change this inefficient system, but for different reasons.  Ezra Klein explains:

Republicans want insurance companies to be able to sell across state lines, using the regulations of the state where they’re based. This is pretty much what happens in the credit card industry, and it’s why most companies are headquartered in South Dakota: The regulations are virtually nonexistent, allowing for all manner of [bad behavior].  Democrats, conversely, want the regulations to be federal in nature. One single standard that all plans have to meet. Baucus’s bill allows for both.

Under the Finance Committee bill, states could voluntarily allow insurers to sell across state lines using the regulations of the state that they’re based in, through something called health care choice compacts. Klein again:

California, Nevada and Wyoming, for instance, could form a compact, and insurers based in Wyoming could sell a product conforming to Wyoming’s regulatory standards in all three states. The voluntary nature of the compacts is important here: California presumably wouldn’t want to partner with Alabama, as that would junk all the regulations they’ve built over the years.

The bill would also let insurance companies create national plans.  The plans would be regulated partly by state laws and partly by new national laws.

Immediate Relief: One of the nice things about the Finance Committee bill is that it provides immediate help for some people that can’t get insurance now.  The bill would create a temporary high-risk pool for uninsured people who have been denied health coverage due to a pre-existing medical condition.  They would receive subsidies for the premiums, and this pool would last until 2013 when the rest of the bill kicks in.

Subsidies: The Baucus bill is cheaper than the House bill ($900 billion over 10 years, versus a little over $1 trillion for the House bill) meaning that premiums will be higher and fewer people will get coverage.  Rather than go into the details of the different subsidies for different income levels in each bill, this graph gives a pretty good overview:

graph of premium levels

It looks at the monthly premiums for a family of four under

  • Massachusetts’ current plan
  • Baucus’s Finance Committee bill ($900 billion)
  • Baucus’s bill but with the amount of money from the House bill ($1 trillion), and all of that extra money going towards middle-income people
  • Baucus’s bill with the House level of funding, and more of the money going to lower income people
  • A fantasy world where they spent $1.2 trillion on subsidies for insurance
  • That same fantasy world, with more of the money going to lower income people

Employers buying into the exchanges: The finance committee bill lets larger employers buy into the exchanges than the House bill.  That sounds like a good thing, until you look into how they pay for it.

In the House bill only small businesses with fewer than 20 employees could buy into the exchange.  In the Finance Bill businesses with up to 200 employees could buy into the exchange.  Employees have more choices- sounds awesome right?  The problem is that employers with more than 50 employees, who let their workers buy coverage in the exchange instead of providing it themselves, would have to pay whatever subsidy their workers got.  So if the worker didn’t make much money and got, say, a $5000 subsidy from the government to pay for health insurance, then their employer would have to pay that $5000.

What is wrong with this?  It gives employers a huge incentive to hire people who are already covered, either by a spouse or by a parent.

So companies would:

  • hire a teenager looking for a job rather than a single mother,
  • hire a housewife looking for a second job rather than an unemployed breadwinner, or
  • hire illegal immigrants.

And who would be most screwed over by this provision?  Single parents.  Since the subsidies for insurance are higher for families than just for single individuals, companies would avoid hiring people with children who weren’t covered by their spouse’s insurance. Single mothers will get the worst deal, as they have lower incomes, and as you might expect, children who need health care.

To really appreciate how awful this provision would be, check out this post by Ezra Klein, titled “The Worst Policy in the Bill, Possibly the World.”

No public option:  Instead the bill would create state based nonprofit co-ops.  A little bit later we’ll get more into the public option, and why co-ops wouldn’t work as well.

[Note:  Most of the information in this post came from the text of the Finance Committee Bill and the Kaiser Family Foundation health reform site.  We also cited Ezra Klein a bunch- he did a series of posts on the Washington Post’s site, examining the Finance Bill in detail.  His blog is excellent, and you should check it out here.]

{ 1 comment… add one }
  • John Nagle October 15, 2009, 2:25 pm

    I thought the gang of six point was especially important. The other members of both the senate and the house should feel especially cheated and hopefully will take that into account in a reconciliation bill.

    I am so mad that I gave small campaign contributions to Baucus and Conrad many years ago when they were first elected. Now they don’t need contributions of the size disinterested citizens are likely to give because the insurance companies give them so much.

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