Health-care legislation's insurance subsidies prompt questions of affordability

By Amy Goldstein
Washington Post Staff Writer
Saturday, March 20, 2010

The final health-care legislation that House Democrats are striving to pass this weekend would give about 19 million Americans subsidies averaging $6,000 to help pay premiums and other insurance charges, an unprecedented government investment in private health policies that leaves lingering questions about whether coverage would truly become affordable.

The details of the subsidies, which emerged in the past day, provide the clearest picture yet on a central question that has hovered over the health-care debate since it began a year ago: How much help would the government give people to cope with the expense of medical insurance?

In the final version Democrats produced, the subsidies would be part of a two-prong approach by the government to extend coverage to the vast majority of people who are uninsured. That effort is predicted to cost nearly $800 billion, more than $4 of every $5 of the legislation's total cost.

The private insurance subsidies would begin in 2014 and be intended for people eligible to buy coverage through insurance exchanges that would be created the same year.

The money the government spends to subsidize private policies would eclipse that devoted to a historic expansion of Medicaid, according to House aides and congressional budget analysts. And the subsidies are tilted more toward lower-income Americans than the measures in the Senate's version of health-care legislation.

The large infusion of federal money into insurance coverage would address one of the twin goals that have been at the heart of every attempt to redesign the nation's health-care system for decades: making health care more accessible and slowing medical costs. As Congress approaches what Democrats on Capitol Hill and in the White House are heralding as the finale of a year-long debate, policy experts across the ideological spectrum differ over how well the legislation would succeed at either goal.

Even some proponents of the subsidies say that, generous as they are, their buying power could erode over time in an era of rapid medical inflation. Some critics say the Democrats' approach of creating state insurance exchanges would help some Americans, those who now look for insurance policies individually or in small groups, but provide fewer new purchasing alternatives to most Americans, who rely on coverage through their jobs.

Still, liberal groups eager for the health-care legislation to pass are heaping praise on the final version of the subsidies, released Thursday among a set of changes to the Senate bill. "This is a huge step in the direction of making coverage and care affordable," said Ron Pollack, executive director of Families USA, a left-leaning consumer health lobby.

Specifically, the subsidies would come in two parts, both available on a sliding scale to Americans with incomes too high for Medicaid. That would span families of four with incomes from $29,000 to $88,000 and individuals with incomes from $14,000 to $43,000.

One part of the subsidies would consist of tax credits to help Americans afford insurance premiums, guaranteeing that they would not spend more than a specific portion of their income for them, ranging from 3 percent to 9.5 percent. Those subsidies, estimated to cost $40 billion over the next decade, would be less generous than envisioned by the House in the original health-care bill it adopted in the fall but more generous than the Senate version.

The second part of the subsidies, estimated to cost $466 billion during the next decade, would limit out-of-pocket expenses for deductibles and co-payments. This help, for individuals with salaries of $27,000 and families with income of $55,000, would be significantly more generous than any version of the legislation Congress has considered.

Although the financial help would be designed mainly for Americans who cannot get coverage through their employers, the legislation also would allow workers to buy policies through an insurance exchange -- and get the subsidies if they qualify -- if their employers compelled them to pay too much for premiums, more than 9.5 percent of their income.

Despite that feature, Douglas Holtz-Eakin, a Congressional Budget Office director under President George W. Bush, criticized the subsidies for what he called "the inequity thing." He said, "You are setting up a system where two people making the same [income] are treated very differently," depending on whether they work somewhere that offers insurance. He predicted that difference could eventually place pressure on Congress to subsidize more Americans.

Edward F. Howard, executive vice president of the Alliance for Health Reform, said the subsidies would help "as many people as you can for as long as you can." But he cautioned that, over time, if medical costs continue to rise at the rampant pace of recent years, the federal help would increasingly fall behind. The annual adjustment to the subsidies would start out slightly higher, but starting in 2019, would become tied to the inflation rate. "The screws will tighten," he said.

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