Friday, January 8, 2010

Issues to Be Resolved Between Pelosi and Reid Health Care Bills

The New Year has seen Democrats once again retreat behind closed doors to finalize a single version of their government takeover of health care (H.R. 3962; H.R. 3590). The Republican Conference has compiled background on several of the major issues that must be reconciled between the two versions.

Taxes: The Pelosi bill includes over $700 billion in job-killing tax increases, including nearly half a trillion dollars from a surtax on high-income filers—many of whom are small businesses—that would, according to a model developed by Christina Romer, the Chair of President Obama’s Council of Economic Advisers, demolish or destroy up to 5 million jobs. Conversely, the Reid bill is funded largely through an increase in the Medicare payroll tax on individuals with incomes over $200,000 and couples with incomes over $250,000—a “marriage penalty” that could prove cumbersome to administer—and taxes imposed on the health sector, most notably a 40 percent tax on “high-cost” health plans (those above $8,500 for an individual and $23,000 for a family). The Administration has expressed support for the Senate approach, even though the excise tax would break two central Obama campaign promises—not to raise taxes on those with incomes under $250,000, and not to tax employer-provided health insurance policies.

Government-Run Health Plan: The Pelosi bill includes a government-run health plan that independent actuaries at the Lewin Group found could cause as many as 114 million individuals to lose their current coverage, as many employers would drop their current plan offerings. On the other hand, the Reid bill contains $6 billion in federal funding for new co-op insurance plans, and requires the Office of Personnel Management (OPM) to “offer at least two multi-State qualified plans” in each State. Despite press reports implying that “moderate” Democrats managed to eliminate a government-run health plan from the Senate bill, many may be concerned that both the OPM federally sanctioned plans and cooperatives funded through federal start-up grants would in time require ongoing federal subsidies, and that a “Fannie Med” co-op would do for health care what Fannie Mae and Freddie Mac have done for the housing sector.

Abortion Coverage: Thanks to an amendment adopted on the House floor by the strong bipartisan vote of 240-194, the Pelosi bill would not allow federal funds to flow to private insurance plans that cover elective abortion, nor fund elective abortion in the proposed new government-run health plan. However, provisions in the Reid bill would undermine both protections inserted into the House bill—the Senate measure would permit funds to flow to private plans that cover elective abortion, and create new national health plans administered by the Office of Personnel Management (OPM) that would cover elective abortions. Such provisions violate the long-standing policy of the insurance coverage offered to Members of Congress—which provides a choice of private plans, none of which may cover elective abortions.

Undocumented Immigrants: The Pelosi bill would permit undocumented immigrants to buy health coverage through the insurance Exchange; such individuals may not receive federal insurance subsidies, but would purchase their policies through a federally-funded Exchange mechanism. The Reid bill includes a nominal prohibition on the undocumented accessing the Exchanges. However, as both the Pelosi and Reid bills do not require applicants to verify their identity when confirming eligibility for subsidies, some may be concerned that both bill’s inadequate verification provisions could result in the undocumented accessing taxpayer-subsidized benefits, regardless of the specific provisions.

Affordability: In exchange for removing the government-run health plan, House Democrats have discussed further increasing subsidies above the levels in the Senate bill, particularly for those just above the threshold for Medicaid eligibility. These rises would come after changes made during Senate consideration that increased the level of subsidies provided from $93 billion in 2019 under the original Finance Committee mark to $109 billion under the Reid bill—an increase of more than 17 percent.

Exchanges/Insurance Regulations: The Reid bill would force States to establish insurance Exchanges, and includes a variety of new mandates on health plans—that will according to CBO raise the cost of individual health insurance by up to $2,100 per year. The Pelosi bill would go even further, creating a single, national, government-run Exchange that eliminates State flexibility—and abolishing the private market for individual health insurance entirely. Regardless of the specific details adopted, many may view these provisions—along with myriad other federal regulations, bureaucracies, and price controls included in both bills—as indicative of the true nature of the government takeover of health care proposed in the legislation.

Medicare Advantage Cuts: Both bills would cut well over $100 billion from Medicare Advantage (MA) plans; however, the two bills would impose those cuts in significantly different ways. The Pelosi bill would reduce MA benchmarks to traditional Medicare fee-for-service levels over a three year period; MA plans in rural areas with low Medicare costs would be most affected by this change, whereas plans in urban areas like New York and Miami would be somewhat less impacted. Conversely, the Reid bill would phase in over three years a new system whereby MA plans would bid against each other—but not against government-run Medicare—to offer services to seniors; this change would have less of an impact on rural areas than it would in urban centers with many MA plans and higher costs. (Florida seniors would be exempt from many of the changes under an agreement Sen. Bill Nelson (D-FL) negotiated with Reid.)

Federal Health Board: The Reid bill, unlike the Pelosi bill, contains provisions to create a new board of unelected bureaucrats required to submit recommendations to Congress to keep Medicare spending below targeted levels—and such recommendations would be legally binding absent legislative action by Congress. The White House has expressed support for this concept. However, several senior House Democrats have expressed concerns about unelected bureaucrats deciding Medicare policy; Ways and Means Health Subcommittee Chairman Pete Stark called the concept “stupid at best, childish, unworkable, idiotic.” Moreover, many may be concerned the commission could lead to government-imposed rationing of life-saving treatments solely on cost grounds.

Medicaid and Related Earmarks: Democrats will work to determine whether to shackle States with more than $20 billion in unfunded mandates associated with the Medicaid expansion—or to preserve or expand the special earmark provided to Nebraska under the Senate bill, which exempts that State alone from any increased Medicaid costs in perpetuity.

Medicare Prescription Drugs: Despite protestations by industry leaders to the contrary, multiple press reports indicate that the “rock-solid deal” negotiated by the pharmaceutical industry this summer will be changed, so that the industry can “voluntarily” contribute more towards the cost of lowering the Medicare prescription drug doughnut hole—a change which the Congressional Budget Office previously estimated could raise seniors’ Part D premiums by 50 percent.

Effective Date: While the Congressional Budget Office estimated that the coverage provisions of the Reid bill spent “only” $871 billion within the 10-year budget window, this score was only achieved by delaying the implementation date to January 2014. By contrast, the Pelosi bill—which according to CBO spent $1.055 trillion on coverage expansions, and nearly $1.3 trillion overall—would begin imposing government-run health care one year earlier, in January 2013. Given this dynamic, any bill starting “only” three years from now would cost over $1 trillion—well above the President’s promised price tag of $900 billion, despite the various budgetary gimmicks deployed in both bills to minimize the bill’s true costs.