The Perils of BaucusCare

Discussion in 'Economics' started by Tom B, Sep 9, 2009.

  1. Tom B

    Tom B

    The Perils of BaucusCare
    More government-run health care, but on the installment plan.

    No doubt President Obama will tell Congress this evening that we're on the cusp of an historic moment in the history of American health care, and it's hard to disagree. Namely, ObamaCare may finally finish the work of converting health care into a largely government responsibility.

    At least that's the conclusion from reading the supposedly moderate health overhaul laid out over the weekend by Max Baucus, the Senate Finance Chairman. Washington is heralding the $880 billion plan as a compromise and political breakthrough, because it dumps the public-option insurance entitlement for the middle class. But according to the Baucus "framework," it still keeps all the other cogs of ObamaCare in place. In other words, Congress—and therefore politics—will dictate the decisions of insurance companies, doctors, hospitals and others, while also increasing the government's share of the nation's medical spending as it adds hundreds of billions in new health-care liabilities to the federal balance sheet.

    Insurers will become government contractors, essentially in the business of carrying out political demands. The Baucus framework explicitly standardizes benefits and then decides how those benefits should be paid for, including curbs on cost-sharing and premium variation. In the individual and small-business markets, only four tiers of plans will be legal, despite consumers with vastly different needs and preferences, while "No health insurance policies could be issued (other than grandfathered plans) that do not meet the actuarial standards set for these plans."

    Under an "individual mandate," everyone who isn't covered by an employer will be required to buy this government-approved coverage. Refundable, advanceable tax credits—basically upfront cash payments—will flow on a sliding scale to those earning up to 300% of the poverty line, or about $66,000 for a family of four. Businesses, which will also face restrictions on the types of policies they are allowed to offer, will have to pay a tax equal to the value of these subsidies if they don't offer coverage to their employees.

    The Baucus plan turns around and foots the bill for these subsidies by imposing a 35% excise tax on any insurance company offering plans that cost more than $8,000 for singles and $21,000 for families. This Rube Goldberg proposal is in play because Democrats don't want to touch the open-ended tax exclusion that allows business to offer insurance coverage tax-free but also has the effect of insulating consumers from costs and benefits.

    Organized labor has ruled out any changes on this front, given that many of the most generous policies come through union-negotiated contracts. So instead of tailoring reform to encourage more cost-conscious individual choices, Mr. Baucus instead imposes an across-the-board tax that will be passed down to all consumers and thus drive insurance costs higher for everyone. This tax will be levied on top of a separate, annual $6 billion assessment on insurers, $4 billion on medical device makers, and $2.3 billion on the pharmaceutical industry.

    Government will also determine what counts as value and quality care among providers, for instance, by "penalizing physicians who utilize significantly more resources than their peers" and establishing a commission "to identify physician services that are overvalued in the Medicare physician fee schedule." So Congress—already by far the largest U.S. health-care purchaser—will change its price controls and payment policies to weight the practice of medicine in directions it finds amenable or politically convenient, even if it harms innovation or ends up restricting useful treatments to manage the inevitable cost overruns.

    Over the weekend Mr. Obama claimed that opposition to his health plan was nothing more than "lies." But the reality is that even under the Baucus framework the government, which created or exacerbated most of the problems that Mr. Obama says government must rectify, will soon control the entire health-care market. This has been the liberal ambition for decades, and BaucusCare would take another giant leap in that unaffordable direction.