Commentary

Grading the Baucus Health Plan

Sen. Baucus and his fellow “Gang of Six” negotiators have labored mightily and brought forth a mouse — a steroid-enhanced, misshapen mouse, but a mouse nonetheless. In fact, despite months of work, Senator Baucus has not actually produced a bill, but a 223-page summary of what he hopes a bill will contain. Unfortunately, without seeing actual legislative language, many questions still remain.

Here is some of what we know and don’t know:

The Good:

— The plan drops the idea of a government-run “public option” in favor of co-ops. Government involvement with these co-ops would essentially be limited to providing start-up grants. The co-ops are unlikely to have much, if any, impact on the cost or availability of health insurance, but are far preferable to a government run plan.

— The plan takes the first tentative steps toward allowing people to purchase health insurance across state lines. It would allow states to establish interstate compacts for insurance purchasing beginning in 2015. It would also allow insurers to develop national products that could be sold in any state. National plans would be exempt from state mandated benefits. This doesn’t go far enough, and risks simply transferring regulation and mandates from the state to the regional or national level, but a first read suggests it is a step in the right direction.

The Bad:

— The plan would force states to increase Medicaid eligibility to individuals at 133 percent of the poverty level, and to enroll single, childless adults. While the federal government would pick up some of the increased cost, states would be responsible for at least some of the increase, a provision that will undoubtedly strain already tight state budgets.

— While the employer mandate is much watered-down, it is still there. The Baucus plan has no specific requirement for employers to provide insurance. But any employer who fails to do so would have to pay the cost of all subsidies that the government provides his or her workers to help them pay for insurance on their own, up to $400 per worker. Since it will ultimately be the worker who pays the mandate’s cost, through reduced compensation or reduced employment, the government will be giving the worker a subsidy with one hand, and taking it back with the other.

— The bill would cut payments to the Medicare Advantage program. In response, many insurers may stop participating in the program, while others could increase the premiums they charge seniors. Millions of seniors will likely be forced off their current plan and back into traditional Medicare.

The Ugly:

—The Baucus plan contains a heavily punitive individual mandate, a requirement that every American purchase a government-designed minimum insurance package. Failure to comply would result in a fine that could run as high as $3,800 for a family of four. Moreover, the mandate may not apply just to those without insurance today. While the summary says that those with “grandfathered” plans would not have to change their current plan to satisfy the mandate, it is vague about what qualifies as “grandfathered.” The summary also says that employer-provided plans would have to be changed within five years to comply with new insurance regulations, and that “grandfathered” plans would not be eligible for any subsidies. It is unclear, therefore, whether people will be able to keep their current plans.

— The Baucus plan imposes a 35 percent excise tax on health insurance plans that offer benefits in excess of $8,000. Insurers would almost certainly pass this tax on to consumers in the form of higher premiums. Roughly half of Americans, mostly middle-class, would be affected. There are also “fees” on prescription drug companies, medical device manufacturers, and clinical laboratories. This is simply a way of hiding taxes, and will result in higher health care costs that will be passed on to consumers.

Michael D. Tanner is a senior fellow at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.