Not only Republicans but also some liberal Democrat interest groups and bloggers are angry with the Senate Democrats, but for different reasons of course. For example, see NY Rep. Louise Slaughter’s December 23rd article on the CNN web site “The Senate Bill Is Not Reform” (click here). These liberals are upset at two issues in particular: the failure to include a public option in the Senate bill (forcing people to buy insurance company products) and the fact that it does include a tax on “high cost” health plans provided by employers.

The House bill still has a public option in it, available only to those having to get coverage from an exchange (non-employed individuals under age 65 and those working for small employers). But as noted, the fear is that it will be “compromised” out of the final bill, as some House Democratic leaders are admitting.

We’ve discussed the public option and its potential advantages ad nauseam. But to throw in the towel in hopes of getting a future bill with the public option or getting to a single payer system in the foreseeable future in our culture is not very realistic. Those liberals who want to start over because the final bill might lack a public option or has other annoying provisions had better read Nate Silver’s “20 Questions for Bill Killers” on his well-respected politics web site, FiveThirtyEight: (click here)

Here are two of his questions specific to the public option:

Even Yale professor Jacob Hacker, who first promoted the idea of a public option, says that we need to pass a bill, even if the public option is dropped. In his December 20th article in The New Republic (click here) he says the final bill will still contain three critical reforms: the exchange(s) for individuals and small employers to compare and purchase coverage, subsidies to make coverage more affordable, and insurance reforms. We would add a fourth: health delivery system reforms, which perhaps need to be made stronger and implemented more quickly than the current provisions allow for, but which still finally put us on track to save long term dollars.

If a public option is omitted from the final bill, Hacker urges that it at least include a national health exchange, rather than the state-based ones provided for in the Senate bill, since a national exchange will give government more influence in regulating the insurance companies, and requiring financial transparency and reports.

Another and broader take on the need to pass a final bill with all its faults is found in Jonathan Chait’s December 24th article in the New Republic, “And the Rest Is Just Noise” (click here). Chait concludes:

Regarding the tax on “high cost” or “Cadillac” health plans, the debate rages on. The CNN News web site has a good article summarizing the different tax approaches that the House and Senate bills take: (click here). The Senate bill would impose a 40% excise tax on insurance companies or self-insured employers (which most large employers are) to the extent a plan’s value exceeds $8,500 annually for single coverage and $23,000 for family coverage. This value includes dental and vision coverage and reimbursements from flexible spending accounts or health reimbursement accounts, and employer contributions to health savings accounts (yes, these are three different types of accounts with varying tax rules). For example, a plan with a total value of $10,000 for single coverage would incur a tax of 40% x (10,000 - 8,300), or $680. If the insurance company had to pay it, they likely would spread it into the cost of all plans. If a large self-insured employer had to pay it, it would likely drop the plan or increase the cost-sharing provisions (co-pays, deductible, etc.) to lower the value.

The Senate bill does have provisions to increase the dollar threshold annually, but only at the rate of general inflation plus 1%. The bill also makes exceptions for high risk industries, higher costs regions, and employees over age 55. But as we all know, specific thresholds and exception rules tend to have sharp edges. Some survive and some are cut.

It is often reported that most economists don’t like the income tax exclusion given to employer-paid health coverage that is not given to others having to get coverage themselves. It’s inequitable, encourages providing rich benefits in lieu of pay, hides the real cost of these benefits, and locks them to employers rather than to individuals. But rather than start to take away this $250 billion annual tax loss, Senate Democrats tried the indirect trick of taxing the insurance companies or self-insured employers for “excessive” benefits.

Nevertheless, this approach is supported by some, like Washington Post columnist Ezra Klein and MIT health economist Jonathan Gruber, since it seems to partly redress the above problems and provides some revenue to help fund the health bill.

Gruber wrote a guest editorial in the December 28th Washington Post in support of this tax (click here). The tax is an important revenue source for helping to fund the overall bill, supposedly by bringing in about $150 billion over the next 10 years through either the excise tax itself or the higher wages that employers supposedly will offer in place of reduced health care benefits.

But New York Times columnist Bob Herbert said that’s hogwash, according to his December 29th column (click here). Employers may reduce the health benefits (or direct their insurance carriers to do so) in order to avoid the excise tax. But what’s the likelihood they will convert that to higher salaries, especially in an economy projected to have employees begging for work? Herbert cites a recent survey by the human resources consulting firm Mercer, in which only 16% of the surveyed employers said they would convert the savings from reduced health care costs into higher pay.

Health care reporter Maggie Mahar backs up Herbert in her Dec. 31st Heath Beat blog (click here). She makes a further argument that we will not save costs by increasing out-of-pocket cost sharing provisions:

Many of the individuals cannot afford high deductibles, etc. to begin with (also the reason why high deductible plan are not a good solution).
Patients generally rely on their doctors for advise on what to do, especially when it comes to deciding on further tests or procedures.
Higher cost-sharing only tends to reduce utilization in terms of filling or refilling prescriptions or going to the doctor-all of which we want to encourage, especially since most of our costs are from chronic conditions that need to be monitored and controlled.

Mahar makes a strong case that the best hope for cost control is not taxing health benefits but letting “an Independent Medicare Advisory Commission (IMAC) that uses medical evidence …encourage effective care… If Medicare follows IMAC’s recommendations, Medicare has the clout to change the way it pays for care, saving money and lifting quality by rewarding value rather than volume. Other insurers might then follow Medicare’s example.” This was the hope for the public option. Mahar sees it as also possible through Medicare itself, if empowered to change provider behavior. And to get the needed revenue, she backs the House bill’s approach of increasing taxes on high incomes, since they have made out the best with previous tax cuts and income gains over the last decade.

Finally, law professor Timothy Jost and health policy professor Joseph White echo Mahar’s ideas and suggest that if Congress wants to limit rich benefits, then they should do that by specifically defining them, rather than using a blunt instrument, like the dollar threshold (click here).

Tags: Bob Herbert, Ezra Klein, Jacob Hacker, Jonathan Chait, Jonathan Gruber, Joseph White, Maggie Mahar, Nate Silver, Rep. Louise Slaugher, Timothy Jost

This entry was posted on Wednesday, January 6th, 2010 at 10:19 am and is filed under Health Care. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.