Montana Senator Max Baucus has finally revealed his compromise healthcare reform plan, a bill designed to expand coverage in a way that’s just moderate enough to get all Democrats and one maybe one or two Republicans on board.
But what is The Baucus Plan? How is it different than what’s been proposed so far?
Basically, forget about the public option. Instead, every state will move more towards the Massachussets model, whereby everyone will be required to buy health insurance. This has the effect of diversifying the risk pool. In exchange, insurance companies must accept all comers — so no excluding anyone on pre-existing conditions.
The first thing to understand is that there's no public option in this bill.
There will be no government-sponsored healthcare, which detractors claim would be wildly costly and personally intrusive. By dropping this aspect of the bill, some conservative Democrats and liberal Republicans might be able to go for it. Critics say that without a public option, there's no mechanism to force the insurance costs down.
So without a public option, how do you extend coverage to all Americans?
You force all Americans to buy it for themselves. It becomes like car insurance, in this respect. You can't drive without it.
The idea is that this solves the self-selection problem, whereby the healthy and the young opt-out, and the sick and the old opt-in. With everyone in, you get a diversified risk pool, which is necessary for insurance to work as a financial notion. Critics see this as a subsidy to the insurance industry -- and it is.
The obvious corrolary to mandatory health insurance is the elimination of exclusions for pre-existing conditions.
If you're making someone buy health insurance, you can't turn around and jack the prices up or deny them because they once had a heart attack. Insurers will still be able to charge different amounts based on age, smoking, and family size, but that's it. Even if you currently are fighting cancer, you should still be able to get health insurance, since again, your counterracted by all the young, healthy people that are forced to join along with you.
This is a crucial aspect of the Baucus Plan. Since insurance coverage is mandatory, the law requires states to basically create a standardized marketplace for buying insurance.
Anyone that's tried to navigate the current system of buying insurance for oneself or one's family knows how much of a mess it is. Baucus hopes to emulate (somewhat) the Massachussets model, whereby there's a simple place to find and apply for healthcare.
Getting this right is crucial, and it's one of the most detailed parts of the bill. At first, each state would be required to just have one exchange, but after three years, other third-party exchanges would launch. Eventually, clusters of states could agree to regional exchanges, but that's down the road.
Ok, so the plan doesn't work if everyone doesn't participate. And there are exchanges being set up to buy health insurance. But what if you simply can't afford to buy the health insurance -- even with pricing regulations and protection for people with pre-existing conditions?
For these people, the government will help subsidise their purchases through the HCTC (Healthcare Tax Credit). The means-tested HCTC will refund eligible buyers 80% of their insurance costs.
This one is for Congressman Joe Wilson. To buy into the exchange, purchasers will have to provide evidence of US citizenship or legal residence.
To be politically palatable, any scheme has to be 'deficit neutral' these days. Convincing politicians that a giant new healthcare scheme could possibly be deficit neutral is a longshot, so the Baucus plan calls for a big, 35% tax on high-dollar insurance programs, as well other taxes levied elsewhere on the health industry.
Don't expect the healthcare industry to complain too loudly about the new taxes. They just got 46 million new, insured customers eager to snap up their products. The bill also anticipates Medicare cost savings (incentives to be healthy, new pricing based on actual results, etc.) so that also helps the bill be deficit neutral. Good luck getting senior citizens on board with that.
As part of an effort to further stabilise pricing, all insurance companies would be required to contribute to a nationwide, non-profit reinsurance pool. Again, the idea here is to maximise diversification of the risk pool, so that all statewide insurers are sharing risk with each other.
The Baucus plan basically preserves the state-by-state system of providing health insurance, and it would keep the existence of state insurance commissioners intact.
But their role would change. Basically, they'd each be responsible for ensuring that providers in the state were complying with the new Federal regulations. Critics have slammed the preservation of the state-by-state scheme, saying such a system preserved oligopolistic pricing power.
The Baucus Plan does leave the door open for states to, on their own timeline, open the door to state by state competition starting in 2015, but we suspect that politicall captured insurance regulators will be unlikely to push very hard on this.
The Baucus plan would still allow for varying degrees of healthcare coverage. Policies will be categorized into bronze, silver, gold, and platinum plans, with each successive level providing better, fuller coverage than the last.
Says Baucus: 'All plans must provide preventive and primary care, emergency services, hospitalization,
physician services, outpatient services, day surgery and related anesthesia, diagnostic imaging
and screenings (including x-rays), maternity and newborn care, pediatric services (including
dental and vision), medical/surgical care, prescription drugs, radiation and chemotherapy, and
mental health and substance abuse services that at least meet minimum standards set by Federal
and state laws. '
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