The deal that won Sen. Harry Reid (we think) a filibuster-proof majority for health reform.

How to fix health policy.
Dec. 19 2009 3:40 PM

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The deal that won Sen. Harry Reid (we think) a filibuster-proof majority for health reform.

Click here for a guide to following the health care reform story online.

T hat sound you hear (assuming you're reading this during daylight hours on Dec. 19) is the compromise that Sen. Harry Reid worked out late Friday night with Sen. Ben Nelson, D.-Neb., securing what everybody assumes to be the 60th vote for health reform. * (Myself, I won't believe that Sen. Joe Lieberman, I.-Ct., is a "yes" until he casts his vote.)

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The Congressional Budget Office (analysis; blog summary) estimates that Reid's "manager's amendment" (text, brief summary) would add $2 billion in budget savings to the $130 billion it earlier projected over a 10-year period. (This estimate does not take into account the cost of other amendments added to the bill.) CBO says the manager's amendment's effect on average premiums should be "quite similar" to what it calculated earlier—i.e., virtually no impact on employer-provided health insurance and an increase in the cost of nongroup policies that's more than offset by new government subsidies for the majority of purchasers. The White House is pleased.

After the 383-page amendment is read in full on the Senate floor—GOP opponents blocked the (routinely granted) unanimous consent waiving that tedious formality—a series of parliamentary moves will begin leading to an expected first vote early Monday morning and vote for final passage on Christmas Eve.

Here are its most important provisions:

No public option. It's gone, replaced by a program of dubious value run by the federal Office of Personnel Management. OPM would contract with private insurers to offer two "multi-state" plans, one of which must be nonprofit. (This is a compromise of a compromise. Originally, Reid envisioned that both policies would be nonprofit. The term multi-state further suggests that the plans won't be national in the sense that states won't have to opt in.) The CBO analysis sounds deeply skeptical:

Whether insurers would be interested in offering such plans is unclear, and establishing a nationwide plan comprising only nonprofit insurers might be particularly difficult. Even if such plans were arranged, the insurers offering them would probably have participated in the insurance exchanges anyway, so the inclusion of this provision did not have a significant effect on the estimates of federal costs or enrollment in the exchanges.

CBO thinks the OPM plans would exert the same degree of downward pressure on private premiums that it previously estimated for the watered-down public option, i.e., none. This does make you wonder what the point of creating the OPM plans would be. In Reid's original compromise, failure on the part of OPM to gin up one (or possibly two) national (now "multi-state") nonprofit (now nonprofit and for-profit) plans would trigger creation of a public option. Now the trigger (which I considered a waste of time anyway) is dead.

Abortion opt-out. State legislatures may pass laws prohibiting their newly created health insurance exchanges from offering abortion coverage. In states where abortion coverage is permitted, no federal funds may be used to pay for abortions; instead, they must be paid for by specially segregated funds derived from private health insurance premiums. A similar accounting arrangement exists today in the 17 states that offer abortion coverage through the Medicaid program, which is prohibited by the Hyde amendment from paying for abortions with federal funds except in cases of rape, incest, or a threat to the life of the mother. (In this instance, the segregated funds are provided not through private premiums but through state expenditures.) The abortion opt-out was immediately declared unacceptable by the pro-choice National Organization for Women  and Planned Parenthood  on one side and by the pro-life National Right to Life Committee  and Rep. Bart Stupak, D.-Mich., author of the more restrictive language  in the House bill, on the other.

No lifetime limits on health spending. The original version of Reid's "blended" bill (text, summary) fudged on President Obama's promise to eliminate health insurers' lifetime limits on health expenditures by prohibiting only limits deemed "unreasonable." According to a study by Price Waterhouse Coopers on behalf of health advocacy groups, 55 percent of individuals with employer-provided coverage (the good kind!) have lifetime limits on health spending, typically set at $1 million to $2 million. Reid justified the fudge on the grounds that an outright ban would increase premiums. But the American Cancer Society went (rightly) berserk, the White House swung into action, and now the loophole-free prohibition has been restored.

Mandatory spending by insurers. Currently there is no federally imposed minimum on the percentage of premium dollars that insurers must spend on health care, a statistic known as a "medical loss ratio." States typically require only 55 percent to 60 percent. The House bill requires 80 percent. Reid modified that to 80 percent for family policies and 75 percent for individual policies, then bumped it up to 90 percent to compensate for the loss of a public option. The manager's amendment now sets it at 85 percent for large-employer-based policies and 80 percent in the nongroup and small-business markets. According to a little-noticed Dec. 13 CBO analysis, setting the medical loss ratio any higher would have compelled CBO to consider private insurers to be part of the federal government!

Vouchers.  If a person receives health insurance through his employer but its cost exceeds 8 percent of his income, and if his income doesn't exceed 400 percent of the federal poverty line (i.e., $88,000 for a family of four) he can trade the existing federal tax subsidy for that coverage for a "free choice voucher" allowing him to purchase health insurance on the newly established exchanges, which otherwise are open only to people who don't receive health insurance through their employers. This was inserted at the urging of Sen. Ron Wyden, D.-Ore., who favors elimination of the tax exclusion for health insurance and replacing it with vouchers for the purchase of private insurance.

Medicare payroll tax boosted .The "blended" bill raised the Medicare payroll tax, currently 1.45 percent, to 1.95 percent for individuals earning more than $200,000 and families earning more than $250,000. That's now been boosted to 2.35 percent. * Unfortunately, the progressivity of this change is limited by the fact that this surtax on high incomes would not be extended to investment income.

Bye-Bye Botax. Reid was going to slap a 5 percent tax on cosmetic surgery. Plastic surgeons  had fits. The manager's amendment eliminates the "Botax" and substitutes a 10 percent tax on indoor tanning salons.

There's more, but I don't wish to try your patience, and besides, I need to shovel the walk. This compromise was worked out during a major blizzard that has paralyzed the capital.

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Update, Dec. 21: Reid  got his 60 votes  (including Lieberman's!) early this morning for cloture on the manager's amendment. Click here for video of this, the first of four final votes.

*Correction, Dec. 19: An earlier version of this column stated, erroneously, that Nelson represents Montana. (Return to the corrected sentence.)

*Correction, Dec. 20: An earlier version of this column miscalculated the new Medicare payroll tax on high incomes at 1.99 percent. (Return to the corrected sentence.)

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