October 13, 2009

October 13, 2009 | Commentary on Health Care

The Baucus Bill Grows Big Government

The Senate Finance Committee will soon vote on the big Baucus Health Bill. Because there is still no legislative language, tt is a "conceptual" bill. The amendments to the bill, which made some headlines over the past two weeks, are likewise "conceptual" amendments. And, for all practical purposes the "preliminary" CBO score is a thus "conceptual" score.

Amidst slobbering press accounts that the Committee managed to reduce the deficit by $81 billion, according to this conceptual score, the deficit reduction has come at the cost of massive tax increases, violating President Obama's repeated promise not to raise taxes on Americans with family incomes less than $250,000.

The outline of the Senate Finance Committee product is pretty clear: massive spending, more taxes, more bureaucracy, and more federal rules, regulations, penalties and fines. In a word, less personal freedom and much smaller, independent private sector that is financing and delivering medical care. This is what many Democratic Senators are calling progress on health care reform.

Let's look at the emerging details.

  • At a ten year cost of $829 billion, it constitutes a dramatic growth in government. This is most evident in the massive subsidies and mandatory Medicaid expansions, which will dramatically increase the Medicaid rolls in most states. That means higher costs to the states, who are already struggling with budget-busting Medicaid costs. In Nevada, for example, Medicaid enrollment would increase by a breathtaking 85%, prompting Harry Reid to seek special treatment for Nevada. Americans can expect big long-term costs.
  • It is bad value for enormous amount of money it will cost. One of the key objectives of reform is to reduce the numbers of the uninsured. In fact, as CBO says, there would be just a nine percent increase in the total number of Americans covered. In ten years, there would still be 25 million Americans who would be uninsured. So, Americans are expected to shell out more than $800 billion for that relatively modest change in health insurance coverage. So much for the goal of securing good value for money, or a bigger bang for the buck.
  • It imposes major middle class tax increases. While the Baucus bill perhaps upholds the President's promise not to add a "dime to the deficit," it breaks the President's promise to refrain from imposing new taxes on the middle class. Over ten years, the bill would impose $201 billion in excise taxes on high cost health plans. But rich people are not the only folks who have high cost employer based health insurance. Millions of American households would be affected, and 94% of them would be paying a higher tax rate on their health insurance than they would on their income. The bill would also impose taxes on drugs, and medical devices, as well as new taxes on employers and excise taxes on individuals who don't buy insurance. The additional taxes on drugs and medical devices, just like taxes on health plans, are passed onto to consumers. Bottom line: Senate Finance is going to raise taxes on middle class Americans in the middle of a recession.
  • It increases the cost of health insurance coverage. In another direct repudiation of the President's promise that health care reform would result in a $2500 annual reduction in health insurance premiums, the Baucus bill's benefit mandates and new federal standards for coverage would result in an increase in the cost of health insurance coverage. For example, as Senator Tom Coburn (R-Ok) and others have pointed out, under the Baucus bill young Americans would see an estimated cost of health insurance in the range of 10 to 20 percent. In a normal market, younger people, with better health, would have lower health care costs.
  • It increases market instability. President Obama, who opposed an individual mandate for insurance during the 2008 presidential campaign, is now all for it. And the Senate Finance Committee bill, like the House bills, would impose an individual mandate on young Americans to buy a more expensive package of health care benefits or pay a fine of $200 in 2014, when the new fines go into effect, up to $750 in 2017. While the fines have been reduced and delayed, the proposed fine is small annoyance compared to the much higher costs of health insurance and related out of pocket costs guaranteed under the Senate Finance bill. Since the Senate Finance Committee would also require insurers to accept all enrollees, regardless of pre-existing conditions, it provides an excellent incentive for millions of Americans to forgo health insurance until they get sick. The plans would disproportionately attract sicker persons who need the coverage and the taxpayer subsidies, with a much heavier demand for medical services, thus driving up the health insurance costs for everyone. This would encourage younger and healthier people to drop out, knowing that they are always guaranteed re-enrollment. For young folks especially, it would make economic sense to just pay the cheaper fine and avoid paying for artificially higher federally mandated health insurance policies, taking advantage of the Senate's liberal insurance rules and sign up for coverage for health insurance when they get sick. This would add to the instability of the already unstable health insurance market, as persons go in and out of coverage, contributing to adverse selection and driving health insurance costs even higher.
  • Its financing relies on politically-unreliable savings. Medicare costs need to be controlled, but Medicare costs will not be controlled without a serious structural reform of the program itself, injecting market forces of real choice and powerful competition. The Baucus bill does no such thing. Over ten years, the bill is expected to generate $517 billion in Medicare and Medicaid savings over ten year from various changes in complex payment formulas and reductions in reimbursement to doctors, hospitals and health plans. In the case of the Medicare Advantage plans alone, payment reductions (amounting to $133 over ten years) will mean cuts in seniors' benefits, the White House talking points notwithstanding. Regardless, past history shows that Medicare cuts are routinely restored, especially cuts in payments to physicians. Politically, Medicare "savings" have not survived the frenzied lobbying of powerful special interests. If they survive over the next ten years, it would amount to a reversal of all previous political experience in Washington.

What is not at all clear is what the legislation will look like after Senate Majority Leader Harry Reid cuts and pastes the provisions of the Baucus bill with the provisions of the Kennedy-Dodd bill, reported out of the Senate Health Education and Labor Committee (HELP). That product will, for all intents and purposes, be transformed into the Harry Reid Bill. Depend on it to be a legislative monster, ready to be fast tracked for Senate floor action.

Meanwhile, House Speaker Nancy Pelosi and the House Rules Committee must meld together the disparate committee provisions of the massive $1.3 trillion House bill (H.R.3200), replete with a Medicare-style "public plan" to compete against private health plans. That big baby, by the way, adds $239 billion to the deficit.

So, yes, it could all get much worse.

Robert E. Moffit, Ph.D., is Director of the Center for Health Policy Studies at The Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care

First appeared in Human Events