What You Need to Know About the Baucus Proposal

Sen. Max Baucus's health-care reform proposal, released yesterday, will likely dominate the reform conversation for the next few days. At 220 pages, the chairman's mark, as it is called, is an easier read than H.R. 3200, the House bill. Still, it's a lot to get through. So I've put together this cheat sheet:

1.    Illegal immigrants: Baucus vowed to reexamine this issue following Rep. Joe Wilson's outburst last week. His bill goes further than the House's, which explicitly prohibits government subsidies for undocumented workers. Baucuscare will require a citizenship check for individuals wanting to purchase insurance through a health-insurance exchange, although parents in the country illegally who wish to buy insurance for lawfully present children will be permitted to do so. For more on the issue of illegals and insurance─and how denying them access will probably end up costing you more money─read Andrew Romano's insightful analysis.

2.    Co-ops: As expected, Baucus rejected the notion of a public option, instead calling for "co-ops." These are collectively owned, not-for-profit organizations that will compete with private insurers to provide coverage. He provides $6 billion to encourage their creation. As I wrote yesterday, their workability is dubious, particularly given the capital and membership they would need to be effective competitors. Additionally, Baucus has included some odd quirks. He would have co-ops operate on a state-by-state basis. He would let them band together across state lines to share costs, but these joined entities wouldn't be able to bargain collectively, thus minimizing their power in the market. Also, they would be barred from contracting with large employers. Instead they will be restricted to covering individuals and small businesses.

3.    Exchanges: Baucus will establish state insurance exchanges, where eligible individuals can shop for plans. It's similar to what H.R. 3200 does, but he expands the criteria for entry. Both plans enable employees of small businesses to participate, but where the House defines a small business as 20 or fewer employees, Baucus says 50 or fewer. He also gives states the power to decide whether businesses employing 100 or fewer workers are also eligible. Baucus also requires that by 2022, states will have developed mechanisms to open up the exchange to all businesses. That's a significant departure from the House bill.

4.    Mandates: There would be an employer mandate but there would be an individual mandate. Those going without insurance for three months in a year would be penalized with an excise tax. Individuals earning less than 300 percent of the federal poverty rate would be charged $750. All others would be charged $950. Families would top out at $3,800, even if they have octuplets. Employers would also be penalized for uninsured workers, but it's not exactly a mandate. See the next point.

5.    Free riders: For employers, the bill contains a free-rider provision that would penalize companies for employing individuals without insurance. Ezra Klein calls it possibly the worst policy in the world. He worries that it will create a disincentive for employing low-income people. Klein does a superb job explaining his objections, so I won't bother paraphrasing: "Rather than a simple employer mandate that forces every employer over a certain size to provide health-care insurance or pay a small fee, the free-rider approach penalizes employers for hiring low-income workers who are eligible for subsidies. That will create an incentive to do one of two things: Don't hire low-income workers (hire a teenager looking for a job rather than a single mother, or hire a housewife looking for a second job rather than an unemployed breadwinner), or hire illegal immigrants . . . The employer pays more if the low-income worker needs subsidies for his family as opposed to just himself. So it not only discriminates against low-income workers, but it particularly discriminates against low-income parents."
 
6.    Subsidies and Medicaid: Under Baucuscare, Medicaid will be expanded to include people earning up to 133 percent of the federal poverty line, which will likely translate to about 14 million people. It includes single, childless adults. Those earning between 133 percent and 300 percent  (about $66,000 for a family of four) of the poverty line will be eligible for subsidies to help them purchase insurance. The subsidies would be in the form of a refundable tax credit. The bill states that the credits will be "based on the percentage of income the cost of premiums [not including deductibles or copays] represents, rising from 3 percent of income for those at 100 percent of poverty to 13 percent of income for those at 300 percent of poverty."  People living on 300 percent to 400 percent of the poverty line would also receive a credit, capped at 13 percent of income. These provisions would take effect in 2013.

7.    Abortion: Because Baucus hasn't included a public option, the issue of the government directly sponsoring abortions isn't of concern. However, Baucus doesn't appear to deal with the second problem that pro-life advocates worry about: that federal subsidies will used to purchase insurance that covers abortions. The National Right to Life Association has already come out swinging against the bill as a result.

8.    Insurance regulation: The bill will mandate that plans provide comprehensive coverage, which means no rescissions and no exclusions on the basis of preexisting conditions. Preventive and emergency care must be covered. So too hospitalization, maternity care, diagnostic imaging, prescription drugs, mental health, etc. Limits on lifetime coverage limits and annual benefits would be banned, as would cost-sharing for preventive care, and out-of-pocket costs would be capped at about $6,000 for individuals and $12,000 for families. Insurers could vary premium rates to some degree based on age, tobacco use, and size of family. Baucuscare will levy a 35 percent excise tax on insurers for a "Cadillac" plan─that is, those costing more than $8,000 per annum ($21,000 for families).