Better Without Baucus

On the eve of the senate finance committee markup of the Obamacare bill developed by Chairman Sen. Max Baucus (D-Mont) a new report says that health insurance will cost voters 50% more if the bill passes than if congress does nothing at all.

Both Baucus and the White House are crying “foul” because the report was issued the day before the bill is scheduled for a Finance Committee vote.  

But neither is answering the question of how else could it have been done?  The Finance Committee’s bill – like the other Obamacare bills – have been changed so many times and so substantially that any report that actually analyzed the bill couldn’t have been done sooner.

The Congressional Budget Office may be acting like the Nobel Committee, offering a remarkably generous assessment of Senator Max Baucus’s outline for health care reform, legislation that hasn’t actually been written yet.  

Baucus claims that his bill “will lower costs and provide quality, affordable health care coverage”, but a new report by PriceWaterhouseCoopers puts the lie to that assertion, and simultaneously to the CBO’s gentle treatment of the Baucus disaster-in-waiting.

A key finding of the report is that over any given time period, the cost of private health insurance is likely to increase about 50% more than it otherwise would if the Baucus almost-bill passes.  For example, PWC concludes that private insurance will increase “79 percent between 2009 and 2019 under the current system and by 111 percent during this same period if these four provisions are implemented.”

Putting more specific numbers to it, PWC says:

This analysis shows that the cost of the average family coverage is approximately $12,300 today and could be expected to increase to approximately: 

•     $15,500 in 2013 under current law and to $17,200 if these provisions are implemented.

•     $18,400 in 2016 under current law and to $21,300 if these provisions are implemented.
•     $21,900 in 2019 under current law and to $25,900 if these provisions are implemented.

 For the more visually inclined:


But even this 18 percent average additional increase in insurance premiums due to the Baucus almost-bill masks a much worse true effect on the health insurance market, with PWC expecting health insurance premiums for small employers (fewer than 50 employees…and the source of most of America’s employment growth) to rise by 28% and premiums for individuals to rise an astonishing 49 percent.

So, for a family buying insurance outside a group, the Baucus plan damage looks more like this:  

PWC then analyzes the effect of the “four provisions” mentioned above: Insurance market reforms”, a tax on “Cadillac” health care plans, cost-shifting as a result of cuts to Medicare, and a range of new health-care related taxes. Each area will increase, rather than decrease, health insurance costs.

The proposed insurance market structure reforms will require companies to issue policies regardless of pre-existing conditions and without the ability to charge more for people with health problems, thus increasing what insurers will have to charge healthy people. It limits how much more insurance companies can charge older people versus younger people, resulting in forcing younger people to subsidize older people’s coverage. It mandates benefits including drug abuse counseling and mental health coverage which will make future government-approved insurance policies more expensive than many existing policies, which will of course eventually be made illegal.

And all of these problems will be made worse by the bill’s lack of a strong “coverage requirement”. In other words, supporters of this type of reform generally rely on forcing young, healthy to get insurance they don’t want in order to lower the average health risk in the insured pool.  Since the measure does not force people to get coverage in the bill’s first year, and only gradually after that, PWC “anticipate(s) significant adverse selection to occur in the existing market, increasing premiums for those who have coverage today.”  Since the bill “compresses age bands”, effectively raising the cost of insurance for young people, it makes it all the more likely that young, healthy people will avoid buying increasingly expensive coverage and all the more likely that the CBO’s budgetary estimates of the average subsidy per insured will be far too low.

The CBO estimates a remarkable “$201 billion in revenues from the excise tax on high-premium insurance plans”, representing more than 100% of the total “savings” the CBO says the Baucus almost-bill will achieve due to provisions affecting revenues.  Leave it to Democrats to assume that companies won’t change their policies to avoid a 40% tax on health insurance premiums.  PWC rightly “expect(s) employers to respond to the tax by restructuring their benefits to avoid it.”  If PWC is correct, then the CBO’s claim that the Baucus almost-bill will lower the deficit is wildly wrong.  If PWC is incorrect, then the tax is estimated to increase health insurance premiums by roughly 1% a year in perpetuity.

Another interesting note: While everyone expects health insurance costs to rise much faster than overall inflation, the Baucus almost-bill only increases the threshold for “Cadillac” plan taxation by the Consumer Price Index (CPI + 1%), meaning that the insurance equivalent of “bracket creep” could soon have even the government’s lowest level of approved plan (“bronze”) subject to the 40% tax. Indeed, PWC expects this to be the case in 24 of 50 states by 2019. Given the political realities that such a situation would create, it is impossible that the CBO’s optimistic take on the Baucus almost-bill can be correct. Indeed, certain Senators are already angling to minimize the “Cadillac” plan tax for their states, for union workers, for the elderly, and for any other group of votes they want to buy.

Speaking of political realities, Congress has been required to constrain the growth of Medicare every year since 2003.  And every year since 2003, they have refused to do so.  Yet the Baucus almost-bill assumes savings of $162 billion between 2010 and 2019 from “permanent reductions in the annual updates to Medicare’s payment rates for most services…”, another $117 billion in savings from lowering Medicare Advantage payment rates, and $45 billion more from cutting payments to hospitals “that serve a large number of low-income patients.”

Several outcomes of these provisions are obvious: First, almost none of the proposed cuts to Medicare payments to doctors will happen. Second, since Medicare already reimburses less than the cost of services, every payment cut will result in a corresponding increase in charges to non-Medicare patients and thus in the price of health insurance. And third, the measures will force states to increase Medicaid spending at a time when state budgets are already stretched to the breaking point.  Indeed, we can already see how politics will make a bad plan even worse: At the urging of Senate Majority Leader Harry Reid (D-NV), the Baucus almost-bill makes a special provision for the federal government to cover Nevada’s Medicaid expansion which the bill would require.

Perhaps the most disturbing provision of the Baucus almost-bill is its new taxes on “health sector entities”, including annual fees of $6.7 billion on health insurers, $2.3 billion on pharmaceutical manufacturers, and a remarkable $4 billion annual fee on medical device makers.  If you’re wondering why the medical device industry, which has about one third the annual revenue of the pharmaceutical industry, is the target of such a high tax, remember they didn’t reach an “agreement” with the White House and spend over $100 million supporting socialized medicine the way the drug makers did.  The President of the Medical Device Manufacturers Association, Mark Leahey, has said that “There can be little doubt — the proposed tax will have a cascading effect upon innovation, access to technology and employment in the industry.”  

Again, it’s only Democrats who don’t seem to understand that taxes on corporations are always passed along to consumers as price increases. In this case, PWC estimates the effects of these provisions to add nearly $500 to the annual cost of family health insurance premiums. But even that understates the damage to America from these taxes, particularly the tax on medical devices, an industry in which America is currently the world’s leader and which provides high-quality, high-wage employment for tens of thousands of Americans…for now.

The left and their media allies are already criticizing the PWC report as a “hatchet job”, saying it doesn’t properly account for “cost savings in the bill”.  If they could point to one instance in which the government actually achieved cost savings within a government-run health program, their arguments might be a little more convincing. In the real world, the Baucus almost-bill’s front-loaded taxes will certainly happen and their much later cost savings almost certainly won’t. In the meantime, the US will lose doctors, health-related jobs, quality of care, and what little health care choice we have left.