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The Baucus Plan
It compares favorably with the other health reform bills. But there are flaws.

Sunday, September 20, 2009

BY SEVERAL important measures -- most notably the way it is financed and the effect it could have on health-care costs -- the health reform package unveiled last week by Senate Finance Committee Chairman Max Baucus (D-Mont.) stacks up well. Its most valuable contribution is a tax on high-priced insurance policies, which would both generate revenue and restrain health-cost inflation. We would prefer a more straightforward limit on the amount of employer-sponsored insurance that can be provided tax free, but the proposed tax on insurance companies offering high-value plans can have the same salutary effects. The provision, along with some other taxes on providers, is estimated to bring in $215 billion in the first 10 years. More significant, estimates are that revenue from the tax would grow faster than the cost of the overall program in the subsequent decade.

The savings from changes to Medicare and Medicaid are projected to grow at a similar clip: 10 to 15 percent per year, in part on account of the expected impact of a quasi-independent board empowered to recommend changes. President Obama's budget director, Peter Orszag, told us, "Without endorsing the Baucus bill, the theory . . . that health reform can be deficit reducing" -- even as coverage expands -- "is now established."

Well, the theory will be established only when savings are realized. Still, the estimates are encouraging. And coverage would expand. By 2019, the share of non-elderly Americans and legal residents with insurance would grow to 94 percent of the population, from 83 percent now.

However, the $856 billion package achieves balance in its first 10 years only with sleight of hand -- omitting the so-called "doc fix." The official budget assumes every year that Congress will reduce Medicare payments to doctors, but every year Congress undoes those scheduled reductions. The House version of the legislation includes a permanent fix to this problem, at a 10-year cost of $230 billion. The Baucus proposal instead has a one-year patch, increasing physician reimbursement rates for 2010 but cutting payments by 25 percent the following year and leaving them at the lower level. No one expects that to happen, so more money will have to be found in future years to address that problem if it is not to add to the deficit.

There are other significant concerns about the proposal as well. Will the newly mandated insurance be affordable? The amounts provided to subsidize those at lower incomes who would be required to obtain insurance are skimpier than in the House version, $458 billion over 10 years to the House measure's $773 billion. The resulting, scaled-down subsidies may not be generous enough. Asking families earning $66,000 a year to devote 13 percent of their income to insurance premiums -- and more once deductibles and co-payments are involved -- is asking them to assume a heavy lift.

In addition, the proposal's version of an employer mandate -- a so-called "free rider" provision that would penalize employers not offering insurance only if their employees obtained government subsidies -- could have the perverse effect of discouraging employers from hiring workers from low-income families. A straightforward requirement that employers provide insurance or pay into the public fund would be far preferable.

Malpractice reform is missing from the 223-page blueprint. Legal fees, malpractice insurance and the defensive practice of medicine can drive up costs, without yielding a rational system of protection for patients. President Obama's move to launch demonstration projects on reform, outlined Thursday in a memorandum to Health and Human Services Secretary Kathleen Sebelius, is a nice step -- but Congress could address the issue more thoroughly. Also absent is some kind of trigger mechanism to contain costs if promised savings fail to materialize; Mr. Obama opened the door to this kind of approach in his address to Congress. The importance of such a fail-save device was underscored in the Congressional Budget Office's analysis of the package, which dryly notes that its "projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation."

So far none of Mr. Baucus's Republican colleagues support the measure. After months of negotiations, it seems hardly fair to complain, as did the panel's ranking member, Sen. Charles E. Grassley (R-Iowa), about artificial deadlines. Mr. Baucus made significant accommodations, most notably lowering the overall price tag and excluding a public option. It would be nice to see some signs of similar flexibility from the other party.

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