What's in the health care reform bill's final draft.

How to fix health policy.
March 18 2010 11:29 PM

Health Reform 3.0

What's in the health care reform bill's final draft.

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

A friend of mine wrote the original script for a Hollywood movie I prefer not to name. The script was full of wonderful stuff, but the director gave it to another writer who crapped it up. So far, a familiar story. What happened next, though, was a little unusual. The director recognized the error of his ways—not completely enough to return to the original version, but enough to get my friend to put some of his wonderful stuff back in. The movie, although no masterpiece, ended up being a huge hit.

This is more or less the pattern health care reform has followed. The House passed a bill full of wonderful stuff, the Senate crapped it up (mainly by tossing out the public option), and now the House, with a strong assist from the Obama White House, has restored some of the House's wonderful stuff (though not, alas, the public option, whose inclusion in this round would doom the bill—not necessarily in the Senate, ironically enough, but in the House, where the Democratic leadership is still short a half-dozen or so votes). What we're left with falls short of what health care reform could have been—it's no masterpiece—but it's better than it almost was, and it lays a workable and long-overdue foundation for health policy in the United States that, I predict, will eventually win support even from the Republican Party. In spite of the dark threats we've been hearing. (Fred Barnes: "The Health Care Wars Are Only Beginning." Booga-booga!) Assuming the damn thing passes.

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Cost.All right-thinking people said the Senate-passed bill did a better job at reducing the deficit than the House-passed bill. As is often the case, all right-thinking people were wrong. The Congressional Budget Office scored the House-passed bill as saving $138 billion over 10 years and the Senate-passed bill as saving $132 billion over 10 years, an estimate recently lowered to $118 billion. The House reconciliation bill restores the 10-year savings to $138 billion. House Speaker Nancy Pelosi has added $20 billion in deficit savings to Senate Majority Leader Harry Reid's bill.

How many insured? Thirty-six million of the 45 million people who currently lack health insurance would become newly insured under the House-passed bill. The Senate knocked that down to 31 million. The reconciliation bill inches it up to 32 million.

Affordability. If you're going to compel people to purchase health insurance, you have to make sure lower-income people can afford it. We won't really know how well Congress achieved that goal until the bill is implemented. (That's one of the more nerve-racking aspects of this legislation.) Subsidies in the form of refundable tax credits totaled $602 billion in the House-passed bill and $436 billion in the Senate-passed bill. In the reconciliation bill they total $466 billion. (That's $55 billion more than President Obama had in his Feb. 22 proposal, according to the RAND Corp.) The subsidies ought to be higher than that, but at least they're higher than they are in the Senate bill. Another difference between the House-passed and Senate-passed bills was that the House focused more of its subisidies on people at lower income levels. The reconciliation bill tugs the distribution back a bit in that direction. One slightly worrying change is that starting in 2019 the reconciliation bill would impose limits on increases in tax credits if premiums increase faster than the consumer price index, as they almost certainly will. But 2019 is a long way off.

What if you don't buy health insurance? Under the House-passed bill, if you failed to meet the "individual mandate," you were assessed a fine equal to 2.5 percent of your income. The Senate lowered that to 2 percent of your income or $750 (whichever is higher). The reconciliation bill maintains the Senate configuration but bumps 2 percent up to the House's 2.5 percent and lowers the $750 fine to $695. I'm a little unclear on which approach is the best one, but as Timothy S. Jost, a law professor at Washington and Lee who supports the bill, has pointed out, if you don't pay the fine, the IRS can't really collect it except perhaps through petty harrassment.

What about those price controls Obama promised on health insurance premiums?These were in neither the House-passed nor the Senate-passed bill. They aren't in the reconciliation bill, either, apparently because the Senate parliamentarian said they were at odds with reconciliation rules. No great loss; as I wrote on Feb. 22, it was never really clear this proposal was meant to be more than a decoy, and it would have been very difficult to administer.

Is there a "Cadillac" tax?The House-passed bill very sensibly levied a 5.4 percent surcharge on family incomes above $1 million, which would raise an estimated $460 billion over 10 years. The Senate-passed bill very foolishly substituted a 40 percent tax on high-cost "Cadillac" health plans, which would raise an estimated $149 billion over 10 years. Can you guess which tax won more favor from serious-minded deficit hawks? Naturally, it was the one that raised less money.

The Cadillac tax is valued by ill-informed policy wonks on the theory that it will exert downward pressure on medical inflation, at least as reflected in the cost of health insurance. But it's based on economists' false belief that employer generosity is what drives up the cost of health insurance, when in fact there is very little such generosity in evidence here on planet Earth. In fact, the demographic characteristics of the group covered have been shown to be the true determinant of cost. I've explained this at length elsewhere (here and here) and so won't belabor the point. The reconciliation bill does not reinstate the millionaire surtax, alas, but it does eliminate about 80 percent of the Cadillac tax. David Brooks of the New York Times will weep copious tears and lament that this recapitulates the fall of Rome. In fact, it's a good first step toward eliminating the damned thing altogether.

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