Major Health-Care Reform Challenge Is Affordability

Sen. Charles E. Grassley (R-Iowa) is suggesting government assistance to insurance companies to help them control premium costs. (By Melina Mara -- The Washington Post)

The Baucus plan attempts to make insurance more affordable through a variety of mechanisms, including lowering premiums for everyone who purchases coverage directly from an insurer rather than through their employer.

For low- and middle-income workers without access to employer-sponsored coverage, it also would create "exchanges" where people could shop for insurance at rates heavily subsidized by the government. The level of subsidy -- and therefore the amount a person would have to pay -- would vary by income.

In 2013, for example, people making 133 percent of the federal poverty level would have to pay no more than 3 percent of their income for premiums, while people earning 300 percent to 400 percent of the poverty level would have their premiums limited to 13 percent of earnings. Those caps would rise as the cost of insurance increased, however, climbing rapidly into a range that many lawmakers in both parties consider unaffordable.

In 2016, for example, the range would extend from 3.2 percent to 13.9 percent of income, pushing annual premiums to about $4,100 for an individual earning $32,400 a year, according to a preliminary estimate by the CBO. Add deductibles and co-payments, and that person could be spending $5,600 a year on health care, or 17.3 percent of his or her annual income.

For families buying insurance through the exchanges, the expenses are likely to mount even more rapidly, the CBO said. For example, a family of four making $78,000 would face insurance premiums of 13.9 percent of income, or $10,800, in 2016. Add deductibles and co-payments, the cost could rise to $15,300 -- just under 20 percent of income.

Because the CBO estimate was completed early this month, before the plan was finalized, Baucus has made changes aimed at lowering the costs of some premiums, aides said.

The senator said the "most obvious" option would be to increase tax credits to households earning between 300 percent and 400 percent of the federal poverty level so their premium costs would be capped at a lower level. Some Democrats and Republicans have advocated scaling back the amount of coverage people would be required to buy, but Baucus noted, "I don't think that would be wise," because it would expose people to higher out-of-pocket costs.

The approach Grassley is recommending would create a reinsurance system under which the federal government would cover some of the claims filed by high-cost individuals. That would permit insurance companies to offer lower rates, according to Grassley, the senior Republican member of the bipartisan "Gang of Six" that had sought a consensus Finance Committee deal for months. And it could permit lawmakers to weaken the controversial mandate that requires everyone -- even the young and healthy -- to buy insurance.

All of the mechanisms under consideration, however, are likely to increase the overall price of the bill. "The numbers start to add up pretty quickly," Baucus said.

Another flashpoint among Democrats is the proposal to tax the insurance policies that cost more than $8,000 a year for individuals and $21,000 a year for families. Though the tax would affect only about 15 percent of policies, many of the beneficiaries are union workers who have bargained away wages in exchange for generous health plans.

House Speaker Nancy Pelosi (D-Calif.) said she is concerned that the cost of any excise tax would be passed on to consumers and would harm many middle-class households. But she did not reject the idea.

"I think if that is to be the model, we have to see at what cost to the person who is insured," she said.

While quibbling with some of Baucus's provisions, liberal Democrats acknowledged that his plan offers fiscal balance and comprehensive scope. Sen. Charles E. Schumer (N.Y.), a finance panel member, declined to comment on the Baucus bill, but he emerged from a meeting of Senate Democrats declaring that members were "really upbeat." He said: "We know we have to pull together. And we're feeling good."

"They're legitimate issues to talk about," Sen. Ben Cardin (D-Md.) said of the subsidies and the government-funded plan. "But quite frankly they're details to an overall plan that needs to pass."

Staff writer Anne E. Kornblut contributed to this report.