What Will Kill Health-Care Reform

Liberals were expected to be disappointed by the health-care plan unveiled by Senator Max Baucus of Montana, the centrist Democrat and longtime ally of the health-insurance industry who chairs the crucial Finance Committee. And, indeed, disappointed they were when the details emerged last week. Particularly outraged were activist progressive bloggers who’ve been organizing around the idea of including a “public option” in a health-reform package.

The fact that a universal health-care plan would not, in fact, achieve universal health care counts as a significant flaw and Baucus’ bill really does deserve pretty harsh criticism on this score.

Marcy Wheeler from FireDogLake described it as “an attempt to turn the middle class into serfs to the health-care industry.”

There are very real shortcomings with the Baucus approach, but that kind of rhetoric arguably obscures the real biggest obstacle to the mainstream Democratic approach to health care—the basic reality that to really deliver on the promise of affordable comprehensive insurance for all will cost a lot of money. Thus, the biggest obstacle to progressive dreams may not be the insurance industry, but simply politicians' aversion to the kind of tax increases that could really make reform work.

The crux of the matter is that to make the health-insurance system work requires a three-legged stool. First, you need to stop insurance companies from refusing to cover pre-existing conditions or people who seem to be at risk for getting sick. After all, providing coverage for sick people is the point of the health-care system. But in order to do that, you need to make sure that everyone buys insurance. Otherwise nobody will bother to pay premiums until they get sick and anyone offering insurance will lose money and go out of business. But in order to make everyone buy insurance, you need to make sure that everyone has enough money to afford it.

Thus, the health plans reported out by the relatively liberal committees in the House of Representatives and the Senate Health, Education, Labor, and Pensions panel all included regulations on insurers, a mandate to purchase insurance, and a sliding-scale of subsidies that would go to families earning up to four times the federal poverty line. That’s $88,200 for a family of four, meaning that families into solidly middle-class territory who don’t get health insurance from their employers would be getting at least some direct financial assistance to buy coverage.

The trouble is that all that help costs a lot of money, on the order of $1.4 trillion over 10 years. Baucus wanted a cheaper plan, more like $900 billion. And that meant basically dropping the subsidies for people earning between three to four times the poverty line, or between $66,000 and $88,000 for a family of four. Instead, Baucus simply guarantees that nobody in that range would need to spend more than 13 percent of his or her income on insurance premiums. But there’s no guarantee that will actually get you much in the way of insurance. As Jonathan Cohn points out “your insurance wouldn't cover everything. There'd be deductibles, co-payments, and so on. If you bought the minimum-level plan, you'd be on the hook for as much as $12,000 in out-of-pocket expenses—a level you could hit pretty easily if you had a serious illness or injury.”

Or as Wheeler put it, the plan “would basically institutionalize a condition in which the middle class continues to fall further and further behind, paying far too much for health care and/or avoiding necessary treatment.”

The reality’s not quite that bad. In practice, Baucus’ mandate would include a loophole allowing anyone whose premium costs would be more than 10 percent of their income to get an affordability exemption. Thus, at worst a family in the relevant income range would be left in just the same position they are today. Still, the fact that a universal health-care plan would not, in fact, achieve universal health care counts as a significant flaw and Baucus’ bill really does deserve pretty harsh criticism on this score.

That said, the problem with the left’s critique of Baucuscare is that their main remedy—the inclusion of a public option—doesn’t actually solve the problem. It’s important to understand that the public option being envisioned in current legislation isn’t a taxpayer-financed government program along the lines of Medicare. It would be administered by the government (or possibly the government would contract with a private company to administer it) but it would have to be fully financed out of premiums just like a for-profit plan or a co-op or anything else. Consequently, it would still be the case that many families wouldn’t be able to afford a decent insurance plan without substantial additional subsidies from the government. And that’s precisely why the House bill not only includes a public option, it also includes hundreds of billions of dollars in additional spending to insure the affordability of comprehensive coverage.

The public option doesn’t do nothing. It saves about $150 billion over 10 years, which could free up additional funds for subsidies but not nearly enough to make up the gap. And while Barack Obama largely did what liberals wanted in last week’s health-care address, he sided firmly with Baucus on the overall cost of the bill. And with left-wing House members organizing around the public-option issue but seemingly silent on the subsidy question, Baucus’ number is more likely to go down than up. Already, Olympia Snowe is talking about trying to slice the cost down to less than $800 billion, which would require the coverage to become even more inadequate.

The good news is that the details of subsidy levels, rather than the existence or non-existence of a public option, is the kind of thing future Congresses are likely to be willing to revisit. But the bad news, little noticed on the left, is that whether or not the public option fight is won, moderates’ cost-cutting zeal makes it all but certain that health reform won’t truly deliver affordable comprehensive coverage to all Americans.

Matthew Yglesias is a fellow at the Center for American Progress Action Fund. He is the author of Heads in the Sand: How the Republicans Screw Up Foreign Policy and Foreign Policy Screws Up the Democrats.