Obama's health plan takes cues from Congress, but it's his own

McClatchy NewspapersFebruary 24, 2010 

WASHINGTON — The sell job begins in earnest Thursday for President Barack Obama's health care overhaul package, and congressional tire kickers on both sides of the aisle are already wary as they prepare for his sales pitch at his health care summit.

The president's $950 billion proposal, which provides health coverage to 31 million uninsured Americans, doesn't stray far from its roots in the tortured reform bills that polarized both the House of Representatives and the Senate for most of last year.

Obama's proposal adds just enough bold new flourishes, however, to make it uniquely his own.

Whether these changes make for substantive improvement, however, depends on who's making the assessment.

Dr. Kenneth Thorpe, a health policy professor at Emory University in Atlanta, said Obama's proposal is largely a political calculation.

The bill provides more assistance and relief to middle-class and working families, like the $1 trillion-plus House version. It's also less expensive and more moderate, however, in the mold of the $872 billion Senate health bill.

In fact, the Obama plan closely resembles the Senate's health bill and uses much the same funding roadmap. Ultimately, though, it takes a different route altogether.

The Senate proposal draws most of its funding from an excise tax on high-cost, "Cadillac" insurance plans. Obama's bill retains the tax, but drastically cuts it, in an apparent nod to House Democrats who felt the measure was too much of a burden for middle-class families.

Like the Senate bill, Obama's plan also increases Medicare tax rates for the affluent, but at a higher rate.

Obama also seeks deeper cuts than the Senate plan does in subsidies for insurers that provide Medicare Advantage plans. Medicare now overpays those insurers by an average of 14 percent for services.

Where the Senate bill calls for $23 billion in fees from prescription drug companies — in return for increased sales resulting from more Americans with coverage — Obama calls for $33 billion.

Individuals who don't buy health coverage also would pay a slightly higher tax penalty under the Obama plan — a maximum of 2.5 percent of household income in 2016 compared with 2 percent in the Senate bill. Those who can't afford insurance in 2014, when the coverage mandate kicks in, would get assistance to help cover the cost.

The Congressional Budget Office doesn't have enough specifics to estimate the cost of Obama's proposal, but Paul Ginsburg, president of the nonpartisan Center for Studying Health System Change, said the administration's $950 billion price tag over 10 years, sounds about right.

Most of the plan's additional cost — in comparison to the Senate's $872 billion proposal — comes from increased tax credits and subsidies to help poor and middle-class families buy health coverage and from more funding to help cash-strapped states expand Medicaid coverage for the poor.

The president's plan also steers tax credits to small employers to expand employee coverage and it requires states to maintain their Children's Health Insurance Programs at current levels, while boosting the program's funding through 2016.

By 2020, Obama's plan would also close the gap in prescription drug coverage for Medicare recipients, known as the "doughnut hole" by increasing rebates to recipients and reducing co-insurance payments.

Obama's proposal cuts the Senate bill's tax on high-cost health insurance plans by increasing the amounts at which premium costs are first taxed — from $8,500 to $10,200 for individuals and from $23,000 to $27,500 for families. Doing so cuts tax revenue from the measure from $150 billion to about $30 billion through the end of the decade.

Obama's plan also would move the implementation date for the tax from 2013 to 2018, giving high-cost plans extra time to become more efficient. Ginsburg said the 2018 start-up date not only delays a major cost containment mechanism, but also "undermines the credibility that it will ever happen because Congress has such a history of putting things into law and not letting them go into effect later," he said.

Thorpe of Emory University agreed. "There's no question, that's a possibility. Eight years is an eternity in politics."

Obama's bill does retain a Senate proposal to increase the Medicare hospital insurance tax rate on wages from 1.45 percent to 2.35 percent for individuals who make more than $200,000 a year and married couples who earn more than $250,000. For these higher-income taxpayers, however, Obama applies a 2.9 percent tax on non-wage income — such as interest, dividends, annuities and royalties. This money would help offset the lost revenue from the scaled-down tax on high-cost insurance plans.

Ginsburg cautioned that increasing taxes on these people leaves one less income source to fight mounting budget deficits in the future. However, the White House said the Medicare proposals provide $100 billion in program savings over 10 years between efforts to fight waste and fraud and new tax revenue. "So, there is deficit reduction in this," Thorpe said.

Obama's biggest new proposal may also be the most mysterious. States currently regulate insurance companies, but the House and Senate health bills call for a federal system to review premium increases. The Senate bill also requires health plans to justify rate increases.

Obama's plan echoes the Senate bill in calling for state-run insurance "exchanges," which are marketplaces that set industry standards and allow people without job-based coverage to buy policies. Obama's plan goes much further, requiring insurers to lower premiums, provide rebates and take other cost-cutting measures if rate increases are found to be unreasonable.

More importantly, the president's proposal establishes a new federal Health Insurance Rate Authority to assist states in reviewing rate increases and monitoring how the insurance market behaves.

It's unclear how the authority would operate and how it would work with state regulators, but the National Association of Insurance Commissioners has expressed some trepidation about the proposal.

"It's the word authority that scares us," said Kansas Insurance Commissioner Sandy Praeger, a past president of the NAIC.

Praeger said that 28 states already have a prior-approval process for insurance rate increases and she's worried that a new federal authority could limit a state's ability to objectively evaluate increases or even cap them, which could put insurance companies in financial jeopardy.

Thorpe said the authority could provide an important deterrent against large premium increases, especially in states that have lax rate approval systems.

"In those states, this could have a very positive impact," Thorpe said. "Some of these rate increases we're seeing of 30-, 40-, and 50-percent, certainly somebody needs to go in there and really take a close look at what's going on."

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Compare Obama's health care proposal with the Senate and the House version

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