Monday, September 21, 2009

Baucus' ugly bill

The health plan from Sen. Max Baucus (D Mont) is about as bad as such a plan could be without being the product of a Republican. In particular, there are two aspects which are particularly egregious.

I. The "free ride" provision determines what happens to those business which don't provide health care. Instead of levying a fee on them proportional to their salary pool (about 8% under the House plan), the Baucus proposal exacts a paltry fee computed in the following way. It is the lesser of (a) $400 times the total number employees, or (b) the average subsidy of the subsidized workers (those whose incomes don't exceed 300% of the "poverty level") times the number of such workers.

Simple calculations show that this heavily discourages businesses from hiring subsidized -- low-income -- workers, especially those with children. On his blog, Ezra Klein of the Washington Post has some illustrative examples of how this works; go to: http://voices.washingtonpost.com/ezra-klein/2009/09/the_baucus_bill_the_worst_poli.html.

Furthermore, the amount of revenue that this provision would generate is so low, especially in comparison with the House bill, that it won't generate much revenue and, more importantly, won't encourage businesses to pay for health care for their employees. In fact, it will force the federal government -- viz. the taxpayers -- to cough up more money. This is something that Obama should nix from the get-go, but so far he has remained silent. Let's hope this provision is dead in the water.

II. The disparity in premiums that insurance companies are allowed to charge under the Baucus plan is excessive. Under the House plan, for example, insurers can charge older workers, who on average consume more health care benefits, only up to twice what younger workers pay. Under Baucus' plan this multiple could be as much as five times. Coincidentally, this is the recommendation of the insurance companies' propaganda group America's Health Insurance Plans. Charging huge premium differentials to higher risk groups is good for profits, but defeats the whole purpose of insurance, which is to spread the risk. If insurance companies could predict the future and determine exactly who would have an auto accident or need medical attention, and only charge those people premiums, it would save everyone else lots of money but it wouldn't be insurance.

This is exactly typical of the extreme anti-cooperative, anti-help-your-neighbor attitude of faceless corporatism. It is anti-human nature as well. Poll after poll and survey after survey show that we want to help our neighbors and share the risk. Corporations are designed to limit liability of, and make profits for, their shareholders; they collude but they don't cooperate. This is another good reason why corporations should not be considered individuals and granted the rights that human beings have under our constitution. Unfortunately, the Roberts court is in the process of doing just that in the context of testing the limits imposed on corporate political spending.

Finally: Baucus of course rejects the "public option," replacing it with the plan to allow independent "co-ops" -- the weakest alternative to nothing. The point here is that, if all insurance is sold through the private sector, it is necessary to be able to negotiate low prices with insurance companies. Without being in a group plan through a large employer, a consumer has little bargaining power -- the insurance companies will "skim off" the healthiest of such applicants. What's needed is a group once again large enough to spread the risk, so that there will be a statistical mix of consumers of various likelihoods of medical need. Many small co-ops will play into industry hands. Absent the public option, the best way to gain statistical bargaining power is by having negotiating pools of at least the size of a state; however, a national purchasing co-op is even better; Jay Rockefeller's Amendment #5 (also known as Rockefeller 185) to the Baucus' bill creates such an entity. It is available, along with all current amendments, on the Senate web page (http://finance.senate.gov/sitepages/leg/LEG%202009/091909%20AHFA%20Coverage%20Amendments.pdf). Here is a description of Rockefeller's provision:

This amendment would strike the provisions to establish state exchanges, multiple competing exchanges, and regional exchanges, and create one national exchange implemented and regulated by the U.S. Secretary of Health and Human Services (HHS). One, single exchange would minimize insurance enrollment churning, lower administrative costs, and improve the value of benefits and coverage while lowering premiums by creating a larger risk pool.

This, and Rockefeller's other amendments, are all good and deserve support.

For another list of amendments, see Igor Volsky's summary at:

http://wonkroom.thinkprogress.org/2009/09/20/amendments-baucus/



1 comment:

  1. Big Boy Klein won't approve my comment on his article...wonder why? Here it is:

    Actually, Mickey Kaus has it right.

    According to Ezra, each of the low-income employees in Example 1 is costing Baucus Corp $1,333 more than an employee who didn't need subsidies.

    "Equilibrium" - How does a subsidied employee cost more when a constant ($400) is used to calculate the penalty? Irrespective of the mix, 100 X $400 is $40000. It is not until the ratio of subsidied employees to total employees is less than the ratio of $400 (or whatever the Calc B constant is) to $5000 (or whatever the average exchange subsidy is) that Calculation A will be used. It is at this point that having fewer subsidied employees could become more beneficial to Baucus Corp. (Of course, it's extremely silly to discuss this without consideration of employee income.)

    With that said, Baucus Corp could have a mix of 8 subsidied employees to 92 non-subsidied employees and still pay $40000. Does this mean that it is now costing Baucus Corp $5,000 MORE than an employee who didn't need subsidies? Absolutely not! The penalty cost to Baucus Corp remains the same with regards to the penalty: $400 per employee.

    Additionaly, if Baucus Corp has a mix of 1 subsidied employee to 99 non-subsidied employees, he doesn't care if his per subsidied employee cost is $5000, his per employee cost just went down to $50!

    At this point, the absurdity of isolating penalty costs independent of income and other factors becomes apparent. Given an income rate of $25,000 as the threshhold between subsidied and non-subsidied (only for simplistic calculation purposes), consider the following three examples:

    Example 1: Baucus Corp has 30 employees who make $20,000 and 70 employees who make $30,000. His total payroll is $2.7M annually. His penalty (Calc B) is $40,000. His simple cost is $2.74M.

    Example 2: Baucus Corp has 5 employees who make $20,000 and 70 employees who make $30,000. His total payroll is $2.95M annually. His penalty (Calc A) is $25,000. His simple cost is $2.975M.

    Example 3: Baucus Corp has 70 employees who make $20,000 and 30 employees who make $30,000. His total payroll is $2.3 annually. His penalty (Calc B) is $40,000. His simple cost is $2.34M.

    The point here is that the penalty will have little influence on hiring or firing an employee that receives a subsidy at the exchange. In addition, the penalty will have little to no influence on income rates. Of the three examples above, Baucus Corp is better off having more employees eligible for the exchange subsidy. Why? Because the of the massive payroll savings. Whether or not this is a good business decision would be up to Baucus Corp.

    Let's be honest. These plans aren't designed for anything more than an attractive means by which an employee can shift employees to the exchange rather than providing insurance for employees. This also means that the more subsidied employees company hires, the larger the premium deficit will be in the exchange.

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