<nobr>Sep 21, 2009</nobr>

Baucus Releases Chairman's "Mark" for Health Care Reform Legislation

Following weeks of negotiations, Senate Finance Committee Chairman Max Baucus (D-MT) on September 16 released his long-awaited Chairman's "mark" for health care reform legislation, estimated to cost $856 billion over 10 years. The Committee plans to mark up the legislation starting on September 22.

While the new proposal is similar to the framework released the previous week, differences include the cost of the package and a "Sense of the Senate" provision that encourages the states to test pilot projects to reform the medical malpractice system. Moreover, additional changes are expected as Baucus seeks support, including more affordable plans and raising the limits on "Cadillac" plans.

In many respects, the outline of President Obama's reform principles, as outlined in his speech, bears a marked resemblance to the Finance Committee's framework, with a couple of exceptions. First, the President supported a pay-or-play employer mandate on non-small employers. Second, the President took a backdoor approach to the issue of whether or not to include a "public option" as part of health care reform. After reciting all the reasons why a public plan option should be included, the President went on to say that it was possible that other ways of achieving the same objective would be "worth exploring."

Chairman Baucus' Mark

Chairman Baucus' mark shares some common elements with the House reform bill. Thus, the bill would set up an exchange to act as a clearinghouse for the purchase of health insurance by individuals and small businesses. The ceiling for Medicaid eligibility would be raised to 133% of the federal poverty level, and a new category of "childless adults" would become eligible for benefits (133% of the FPL is $14,436 for one person, and $29,393 for a family of four for 2009.) Almost all individuals would be required to have health insurance, and those who did not would be penalized; subsidies would be given to those for whom insurance was not affordable.

Insurance sold in the individual and small group markets would be required to offer coverage on a guaranteed issue basis, and coverage could not be prohibited because of an individual's preexisting conditions. Health premiums could vary based only on tobacco use, age, and family composition, and these differentials would be limited. Plans sold in the exchanges would need to cover certain levels of specified benefits, and plans could not set annual or lifetime limits on benefits.

Three major differences between the House bill and Baucus' mark center on the public plan, what is required of employers, and the revenue offsets. The House bill imposes a "pay-or-play" mandate on employers. Baucus takes a different tack, pursuing a "free rider" penalty.

Free Rider Penalty: Under Baucus' proposal, employers with more than 50 employees who do not offer health coverage to their employees must pay a fee for each employee who receives a tax credit (i.e., a subsidy) for insurance through an exchange. In general, employees of employers who offer health insurance are not eligible to purchase insurance through the exchange unless their employer's insurance is deemed "unaffordable", defined in this case as exceeding 13% of the employee's income. In addition, an employee who is offered coverage that does not have an actuarial value of at least 65 percent would also be eligible for the tax credit. The free rider fee is based on the credit received by the employee, but is capped at $400 multiplied by the number of employees in the company.

Consumer Owned and Oriented Plans: Baucus' mark does not create a public plan option, but would provide authority for the formation of the Consumer Owned and Oriented Plans (COOP) that would operate at the state, regional or national level to serve as non-profit, member-run health plans to compete in the reformed non-group and small group markets. These plans would offer consumer-focused alternatives to existing insurance plans. Six billion dollars of federal seed money would be provided for start-up costs and to meet solvency requirements, according to a summary.

Excise Tax on "High-Cost" Insurance: The Finance Committee bill would be paid for, in part, by an excise tax on "high-cost" insurance. A 35% excise tax would be imposed on insured and self-funded plans with premiums exceeding $8,000 (for singles) and $21,000 (families) in the group market. The threshold would be indexed for inflation.

Additional revenue would be raised through the imposition of an annual "fee" of $2.3 billion on pharmaceutical manufacturing companies, a fee of $4 billion on medical device manufacturers, $6 billion on health insurance providers, and $750 million on clinical laboratories. All fees would be allocated based on market share.

Other elements of the Finance Committee bill include:

• Medicare coverage of a biennial health risk assessment and wellness visit;


• No Medicare cost-sharing for preventive services;


• Establishment of value-based purchasing programs for hospitals, physicians, home health agencies, and skilled nursing facilities, as well as several other initiatives to improve the quality of medical care in the Medicare and Medicaid programs;


• Development of "accountable care organizations," which would include groups of providers who work together to improve the quality of care to Medicare beneficiaries (and who would keep half of any resulting cost savings);


• Computation of Medicare Advantage benchmarks on the weighted average of plan bids;


• Establishment of an independent Medicare Commission to submit proposals to Congress regarding Medicare solvency and quality of care; if Congress did not adopt these proposals or an alternative to the Commission's proposals, the proposals would be required to be implemented;


• A requirement that employers annually report the value of an employee's employer-provided health benefits on the W-2;


• An increase in the penalty for non-medical withdrawals from health savings accounts from 10% to 20%; and


• Standardization of the definition of qualified medical expenses for health savings accounts, flexible spending accounts, and health reimbursement accounts.

Please address questions and comments on health reform to Gretchen Young (gyoung@eric.org) or Adam Solander (asolander@eric.org).

Senator Baucus' Release and Summary

Chairman Baucus' Mark

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