Congress moves closer to health care reform

By DON McINTOSH, Associate Editor

The Democratic-led U.S. Congress appears to be getting closer to passing far-reaching health care insurance reform legislation.

On Nov. 7, the U.S. House of Representatives passed the 1,990-page Affordable Health Care for America Act. And as of press time, the U.S. Senate had begun to discuss the 2,074-page Patient Protection and Affordable Care Act, introduced Nov. 21 by Senate Majority Leader Harry Reid. Each bill, put together by its chamber’s leadership, contained features of bills earlier passed in congressional committees.

AFL-CIO President Richard Trumka issued statements praising both bills: for including a public health insurance offering, increasing taxes on the wealthiest, and requiring some employers to contribute to employee health care — or pay into a public fund. Trumka criticized the Senate bill, however, for taxing employer-provided health insurance benefits above a certain level.

One likely scenario is that the Senate would pass an amended version of the Reid bill, and then House and Senate leaders would hash out a final unified bill to be sent back to each chamber for passage. If that’s the case, the two leadership bills could be an early glimpse of what the end product would look like.

The bills are a long way from the dream, voiced by thousands of union activists, of expanding Medicare — the government-run health care program for seniors — to the rest of Americans.

Under the House and Senate leadership bills, starting 2013 or 2014, otherwise uninsured individuals would be required to buy health insurance through a government-regulated “exchange.” Insurance sold on the exchange would come at four or five standardized coverage levels, with “actuarial values” ranging from 60 to 90 percent. In other words, the least expensive policies might pay for only 60 percent of a person’s health care expenses, leaving them substantially underinsured in a major health emergency. [The actuarial value of individual insurance policies sold on the open market has been shrinking for years, and currently averages 55 to 60 percent.]

In both bills, insurers would face new restrictions. They could no longer refuse to sell someone a policy, or terminate coverage. And they would have to charge the same premium to everyone in the same age group and geographic area, except smokers, who would pay a higher rate. The oldest could be charged no more than two or three times as much as the youngest.

To make this mandatory insurance more affordable, refundable tax credits would be available on a sliding scale for households earning up to 400 percent of the federal poverty level (currently $73,240 for a family of three). The poorest Americans would be enrolled in Medicaid, which would be expanded to cover all individuals under a certain income. Uninsured individuals who don’t buy health insurance would face a tax penalty, unless they applied for and received a hardship waiver.

Small businesses could also buy insurance for their employees on the exchange, and they would get some tax credit subsidy to do that, for the first few years of the program. Larger employers that did not provide insurance would have to pay into a public fund.

Neither version limits what insurance companies could charge in the captive market, though the House bill repeals the current insurance industry exemption from federal anti-trust laws.

The exchange is supposed to keep the price of private health insurance premiums in check by competition from a government-provided health insurance offering, the much-publicized “public option.” Because the public insurance program would pay no taxes or high CEO salaries, it would give the private insurers some real competition, according to theory. But that’s only if it’s not hobbled by numerous restrictions.

A basic principle of insurance is that you get the lowest administrative cost when you have the largest risk pool. The more people covered under a given set of rules, the cheaper it is for each.

The House bill sets up a single national exchange for individuals and small businesses, though it lets states form their own exchanges. And it sets up a public health insurance option, which would negotiate reimbursement rates with all hospitals and doctors that currently participate in Medicare, unless they opt out. The rates paid to providers by the public program could be no higher than the average rate paid by private insurance companies. So the House version sets up a relatively large and vigorous public option.

The Senate version, by contrast, seems designed to achieve maximum fragmentation of the risk pool. It sets up one insurance exchange in each state for individuals, and a second insurance exchange in each state for small businesses. States could choose to join together to form regional exchanges. Depending on the state, the exchange could be administered by a government agency or a non-profit organization. Depending on the state, the exchange would have a public option, or not. If a state did have a public option, it would have to negotiate payment rates with providers, and would be required to contract with non-profit entities to administer the plan. Each state would have to set up an advisory council to make recommendations on policies and procedures.

Both bills would subsidize and promote the creation of non-profit, member-run health insurance cooperatives in each state.

To pay for the health insurance subsidies, both bills raise new revenues.

The House plan would, starting in 2011, levy a tax of 5.4 percent on income above $500,000 for individuals and $1 million for couples. It would also tax the sale of medical devices at 2.5 percent.

The Senate plan would increase the Medicare tax half a percent (to 1.95 percent) on earnings over $200,000 for individuals and $250,000 for couples. It would tax elective cosmetic medical procedures at 5 percent. It would charge fees on the health care sector, allocated by market share: $2.3 billion a year on pharmaceutical manufacturers, $2 billion on medical device manufacturers, and $6.7 billion a year on health insurance companies. And it would put a slight brake on health insurance executive pay by limiting the deductibility of executive and employee compensation to $500,000 per individual.

The Senate bill also saves money by making cuts and changes to Medicare, including a $113 billion cut in subsidies to the privatized Medicare Advantage – in which seniors get coverage under private insurance plans paid for by Medicare; slowing increases in doctor and hospital reimbursement rates; and future cuts to more expensive procedures if they don’t get better results than less-expensive procedures. Medicare premiums would be raised for higher-income seniors.

And the Senate bill imposes a tax on so-called “Cadillac” health plans sponsored by employers: Plans that exceed $8,500 a year per individual and $23,000 per family would be taxed — at 40 percent of the value of the plan above that threshold. Coverage for retirees not yet on Medicare, for employees in high-risk professions, and in the 17 highest-cost states would have higher thresholds. This is the provision Trumka objected to.

Only one Republican voted for the House bill, and 39 Democrats voted against it, including Ohio congressman and former presidential candidate Dennis Kucinich, who explained his vote in a press statement: “In [this bill], the government is requiring at least 21 million Americans to buy private health insurance from the very industry that causes costs to be so high, which will result in at least $70 billion in new annual revenue, much of which is coming from taxpayers.”

In the bill that earlier passed the House Education and Labor Committee, Kucinich had succeeded in passing an amendment allowing states to set up single-payer health care systems. But that provision was not included in the bill the House leadership passed.

Washington Rep. Brian Baird was the only local Democrat to oppose the bill.

Official estimates are that in 10 years, the House plan would extend insurance coverage to 36 million people, while leaving 18 million uninsured; the Senate plan would insure 31 million, and leave 23 million still uninsured.

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