The chairman of the Senate Finance Committee unveiled a much-anticipated health reform plan Wednesday, September 16, that has allayed some employer concerns while introducing a controversial tax on high-cost health plans.
Gone from the proposal released by Sen. Max Baucus, D-Montana, is a public plan option. Many in the business community believed such a plan—essentially a Medicare-like publicly run insurance plan—would shift more health care costs to employers. Instead, it calls for the creation of nonprofit, member-run health cooperatives that would operate in the individual and small-group markets.
Baucus said the committee also removed an employer mandate. In its place is what critics call a “backdoor mandate”—a requirement that employers pay for subsidies provided by the federal government to help employees purchase their own health insurance.
The America’s Healthy Future Act of 2009, released as a “chairman’s markup” because it does not yet have the full support of Republicans on the committee, would cost an estimated $774 billion over 10 years, which is less than the $1 trillion price tag of proposals in the House and the Senate’s Health, Education, Labor and Pensions Committee.
“It ain’t perfect, but it is certainly a vast improvement over the other bills we’ve seen so far,” said James Gelfand, senior manager for health policy at the U.S. Chamber of Commerce. “This is a much better place to start the conversation.”
To pay for health care reform, the finance committee is proposing a 35 percent excise tax on insurers for employer-sponsored health plans that exceed $8,000 for individuals and $21,000 for families in 2013.
A family health plan is expected to cost $16,949 annually by 2013, according to research published Tuesday, September 15, by the Kaiser Family Foundation and the Health Research & Educational Trust. In the case of self-insured employer health plans, the tax is applied to the plan’s administrator.
“For example,” the chairman’s draft states, “for an employee who elects family coverage under a fully insured health care policy covering major medical and dental with a value of $28,000, the amount subject to the excise tax is $7,000 ($28,000 less the threshold of $21,000). The employer reports $7,000 as taxable to the insurer, which calculates and remits the excise tax to the IRS.”
Gelfand said the chamber would prefer the tax be applied to individuals rather than the insurance industry, which he believes will pass the cost on to consumers.
The tax would generate $215 billion over 10 years, according to a preliminary review of the plan by the Congressional Budget Office. Over time, what constitutes a high-cost health plan would grow with inflation, a point that employers say is a problem because medical costs have been rising at least two times faster than inflation.
“Considering the cost of health insurance has doubled over the last 10 years, this [tax] could very quickly hit everyone,” Gelfand said.
The health insurance industry group America’s Health Insurance Plans applauded the committee’s proposal but reiterated its opposition to a public plan in the form of health cooperatives.
The 223-page plan from Baucus shares basic elements with proposed legislation in the House and in the Senate HELP Committee, including a requirement that all individuals purchase insurance or face a penalty of up to $3,800 a year for families. The bill would also create a national health insurance exchange where consumers and small employers could purchase health plans.
Like other proposals, it would reform insurance regulations to prevent insurers from denying coverage to people with pre-existing conditions or based on annual or lifetime limits. It states that insurance companies could rate individuals and small group plans based only on age, tobacco use and family size, though insurers would be limited in how much they could raise premiums. Insurers would also have to provide tobacco cessation programs if they raised rates on people who smoke.
While many of the reforms would not take effect until 2013, consumers who have been denied coverage based on pre-existing conditions would have immediate access to a high-risk insurance pool created by the federal government.
Despite forgoing an employer mandate, the bill could hit companies that employ more than 50 people with penalties if they do not provide insurance deemed acceptable or affordable.
A plan would meet the “minimum creditable coverage” requirement if it offers benefits on par with high-deductible health plans with health savings accounts. It would be considered affordable if the plan’s cost to employees does not 13 percent of their gross adjusted income.
If employers’ plans are neither affordable nor acceptable, employees would be eligible to opt out of employer-sponsored health insurance and buy coverage through a health insurance exchange, where they could be eligible for federal subsidies. In such cases, an employer would be required to reimburse the government for any federal subsidies given to its employees.
This provision has brought opposition from retailers and other employers that hire low-wage workers.
Neil Trautwein, vice president of the National Retail Federation, called it a “backdoor mandate,” though he praised the decision to drop an earlier “free rider” proposal that would have required employers to pay for the cost of providing Medicaid to employees.
“We’re never going to support an employer mandate because we are such a labor-intensive industry and we have little room to pass costs on to customers,” he said.
Another change allows individuals 25 or younger to purchase a “young invincible” policy that would only provide catastrophic coverage.
Thomas D. Snook, an analyst at actuarial firm Milliman, said allowing young people to purchase catastrophic plans would make it more likely they could comply with an individual mandate. It could, however, increase costs for older, sicker individuals, since the young invincibles would contribute less to the overall risk pool.
The finance committee plan also introduces new provisions that could make insurance more affordable for individuals and small employers. Under the plan, insurers would be allowed to create multi-state plans for small groups and allow them to circumvent state insurance mandates unless such a requirement exists in 26 or more states.
Individuals would also be allowed to use pretax dollars to purchase health insurance.
The bill, while appealing to employers, must be approved by the Senate Finance Committee before being introduced as legislation.
—Jeremy Smerd
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