Obama offers new health-care reform proposal

By Alec MacGillis and Amy Goldstein
Washington Post Staff Writer
Tuesday, February 23, 2010; A01

President Obama signaled his determination to forge ahead with a Democratic vision of comprehensive health-care reform as he unveiled on Monday an ambitious proposal that would extend coverage to 31 million people, raise taxes on the wealthy and ratchet up regulations on insurers.

The proposal is a carefully calibrated attempt to relaunch a nearly year-long effort that has stalled: It tries to combine the separate bills that narrowly passed the House and Senate into a final version that could pass muster in both chambers.

Like the Senate and House bills, the proposal would require almost everyone to obtain insurance or pay a fine and provide income-based subsidies to those who cannot afford it. It would expand Medicaid for the working poor and impose new requirements on insurers that sell policies in a new "exchange," or marketplace, where those without employer-based benefits could buy coverage.

Obama's proposal takes the more modest Senate bill as his basic framework. But, in what is perhaps his proposal's most notable feature, he scales back the Senate bill's main revenue source, a tax on high-cost insurance that he has strongly supported. Instead, he would impose a new tax on the unearned income of the wealthy.

He would expand subsidies to help working-class and middle-class families afford coverage. To win over some of the bill's strongest skeptics -- seniors and state officials -- he would expand the Medicare drug benefit for seniors and Medicaid assistance for budget-strapped states.

There is no independent cost estimate yet, but the proposal's additions drive its price tag higher than the Senate bill's $871 billion. White House health-care czar Nancy-Ann DeParle estimated the increase at $75 billion over 10 years, which she said would be offset by bigger cuts in subsidies for private insurers that offer Medicare Advantage plans and higher fees on drug companies, among other sources. By reining in Medicare, the proposal would still reduce the deficit by $100 billion over 10 years, the White House said.

The proposal arrives in advance of Obama's bipartisan health-care summit on Thursday. But his formal adoption of an approach so aligned with the efforts of congressional Democrats acknowledges that the overhaul will draw little to no Republican support, and that the main challenge lies in retaining the support of Democratic lawmakers.

"It doesn't strike you as a scaled- down thing that's not supposed to have enemies," said John Holahan of the Urban Institute, who is a proponent of comprehensive legislation. "They just went all out."

Because of the Democrats' loss of their 60th Senate seat, the overhaul's likeliest route is for the House to pass the Senate bill with the understanding that the Senate would pass agreed revisions using a maneuver that requires only 51 votes. But for that to work, House Speaker Nancy Pelosi (D-Calif.) would need to retain the Democrats who voted for the House bill, as well as replace those who are opposed to the abortion language in the Senate bill.

The imperative of corralling House Democrats is apparent in the president's decision to scale back the tax on high-cost insurance plans. The White House had championed the "Cadillac tax" as a cost-containment tool, but House Democrats and labor unions had opposed it, saying it would hit middle-class families and would be an easy political target for Republicans. Instead, the House bill raised income taxes on couples earning $1 million.

The president's proposal scales back the tax on high-cost plans by raising the threshold of plans that would be taxed from $23,000 to $27,500 for family plans, and by delaying the tax until 2018, an exemption previously given only to unions. The proposal makes up the revenue by extending the Medicare tax so that it applies, at a 2.9 percent rate, to wealthy taxpayers' income from sources other than wages, such as interest and dividends.

Reducing the tax on high-cost plans "is going to make it much easier to pass the bill in the House a second time," said Ron Pollack, director of Families USA, which advocates universal health care.

The proposal adopts, with tweaks, the Senate's more lenient approach to fining large employers that do not provide coverage. It slightly increases the penalty for people without coverage. It does not include a "public option," the government-run insurance plan included in the House bill that people could buy instead of private plans.

White House officials touted as the proposal's signature addition a new nationwide authority to review insurance rate increases. It is intended to prevent big rate hikes, such as the 39 percent increase that Anthem Blue Cross of California is seeking for many individual policies.

The proposed authority is slightly less than meets the eye. The existing bills contained provisions geared toward minimizing big rate increases: They would bring healthier people into the pool of the insured by requiring everyone to have coverage; they would require insurers to spend a minimum amount of premiums on medical care, not profit-taking; and they would require reviews of rate hikes on exchanges.

But the new authority could serve to limit big rate increases in the years before the legislation takes effect in 2014. And it could serve to reassure those who object to having to buy coverage from private insurers, in the absence of a public option.

Karen Ignagni, president of America's Health Insurance Plans, said the White House's focus on insurance rates instead of the underlying prices of doctors, hospitals and drug manufacturers is akin to saying that "we can only look at what the price of the car is at the dealer's lot," without considering the price of steel and other materials. "It doesn't make a whole lot of sense," she said.

In another bid at popular support, the proposal would go further than the Senate's legislation to fill the "doughnut hole" in the Medicare drug benefit, in which patients who reach a certain level of spending on drugs must pay for it unless they reach an extremely high amount, after which the insurance resumes. The Senate bill would fill the gap halfway, but under the White House proposal the hole in coverage would shrink over several years, disappearing in 2020 -- a year later than the House's version.

The proposal jettisons the special deal on Medicaid costs that Sen. Ben Nelson (D-Neb.) secured for his state. Instead, it seeks to address cash-strapped states' concerns about the cost of expanding Medicaid by increasing the federal share of covering newly eligible people, to 100 percent of the cost for the first four years, 95 percent for the next two, and 90 percent after 2020.

This could help win over governors and state legislators who have until now been ambivalent about the federal overhaul. But those who have been following the debate for the past year said the overhaul's prospects may depend more now on the White House's ability to rebuild momentum and nail down key votes in Congress rather than on the new proposal's details.

"At this point, if policy mattered, it would," said John Rother, AARP's executive vice president for policy and strategy. "The question is, does policy matter or has this become completely political? We'll see."

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