Don't ask how much

Health reform in America

Don't ask how much

Oct 14th 2009 | NEW YORK
From Economist.com

The Senate Finance Committee passes a health-reform bill, at long last

AP

“WHEN history calls, history calls.” Those were the words uttered by Olympia Snowe just before she cast her vote in favour of a long-awaited health bill in the Senate’s Finance Committee on Tuesday October 13th. Ms Snowe apart, the committee voted strictly on party lines: 13 Democrats in favour and nine Republicans against. It was a closer-run battle than that tally suggests, as several Democrats wavered until the last moment, angry that the proposal does not contain a provision for a government-run insurer, or “public plan”.

 

In the end they voted for the proposal because it would advance, in imperfect fashion, several liberal goals. Over the coming decade it is supposed to increase the proportion of Americans with health insurance from 85% or so (over 46m now lack cover) to perhaps 94%. And it would forbid insurers from dropping sick customers for having “pre-existing conditions” or costly illnesses that blow through caps on lifetime costs.

 

The bill aims to accomplish all this through a tangle of new regulations, taxes, subsidies and bureaucratic creations. Individuals will be forced to get cover and new subsidies will be offered to the less well off. Insurance markets will be restructured so that the uninsured, small businesses and those buying pricey individual plans today can switch to affordable but adequate plans.

 

All this will cost $829 billion over the next decade, according to the Congressional Budget Office (CBO), a non-partisan agency. Crucially, that is below the $900 billion threshold set by Barack Obama. By imposing taxes on the most expensive insurance plans and planning swingeing cuts in Medicare, the state health scheme for the elderly, the CBO says the bill will not increase the government deficit.

 

The bill’s passage is certainly good news for Mr Obama. Max Baucus, the chair of the committee, not only won a veneer of bipartisanship with Ms Snowe’s vote, he also crafted a bill that is more moderate than the four other bills already passed (by the Senate’s Health Committee, and by three House committees). The two current Senate bills will be reconciled into a version for the upper chamber to vote on soon, and the outcome of that process will itself be reconciled with whatever merged bill passes the House. The Baucus bill may yet serve as the template for reform.

 

But challenges remain. one will come on the floor of the Senate from Oregon’s Ronald Wyden, whose laudable efforts to reform the tax distortion that favours employer-provided health insurance was not given a fair hearing by the Finance Committee. To secure Mr Wyden’s vote Mr Baucus promised to help him with an amendment from the floor.

 

Another potential snag is that the left will now try to tack-on the public option as an amendment on the Senate floor. A proposal that would let states decide whether they want such a scheme is gaining support among even moderate Democrats. Nancy Pelosi, the speaker of the House, has made it plain that some version of the public option is a must for her chamber. Horrified by the coming reconciliation process, Orrin Hatch, a Republican senator, declared after this week’s vote that “it’s going down from here.”

 

Not everyone accepts this view. Jonathan Gruber, an economist at the Massachusetts Institute of Technology, argues that the Finance Committee bill may benefit from the coming merger with the Senate Health Committee’s more generous bill. He thinks the Baucus bill is too stingy when it comes to subsidies and too lenient with the fines imposed on those who violate the individual mandate. This penny-pinching approach keeps the bill’s apparent cost under $900 billion this coming decade but risks undermining the effort to achieve universal coverage.

 

Insurers this week kicked up a fuss over the matter and Mr Gruber acknowledges that they have a legitimate grouse. The Baucus bill forces them to cover everyone but does not have enough carrots or sticks to enforce universal coverage. That leaves the industry exposed to adverse selection, whereby young and healthy (read: inexpensive) customers avoid buying cover until they are sick, at which point new regulations will force the industry to provide them with cover.

 

The biggest problems with this imperfect bill arise from cost. It does too little to tame health inflation, as Douglas Elmendorf, head of the CBO, hinted this week. And the bill is likely to cost far more than currently advertised, because of two wheezes. one is a lethargic implementation plan, which means that the full annual cost will not kick in for a few years yet (thus making the CBO’s mandatory ten-year cost estimate misleadingly low). The second is the assumption of heroic cost savings from Medicare and big cuts in payments. Stuart Butler of the Heritage Foundation, a conservative think-tank, scoffs that “this legislation is an example of the triumph of budgeting hope over experience.”

 

http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=14636213&source=features_box3