Snowe bails on “compromise” ObamaCare bill; Update: Baucus plan cuts Medicare

posted at 12:55 pm on September 16, 2009 by Ed Morrissey

Democrats in the Senate had hoped to get a fig leaf of bipartisanship from Olympia Snowe or Susan Collins (R-ME) once Max Baucus rolled out his supposedly moderate bill for overhauling the American health-care system.  Yesterday, Snowe rejected the bill, leaving Democrats isolated and divided on the bill, just days after Obama demanded action on the effort:

Senate Democrats are going to have to move forward on healthcare without a single Republican supporter after Sen. Olympia Snowe said Tuesday she could not back the Finance Committee’s bill.

Chairman Max Baucus (D-Mont.) failed to win any Republican backer despite weeks of intense negotiations behind closed doors to strike a deal.

Snowe (Maine), who was one of three Republicans who backed the $787 billion economic stimulus package, was being lobbied heavily by the White House, and some centrists view her refusal to strike a deal with Baucus as troubling. But concerns about how the plan would be paid for prompted her to back away in the hours before its release.

“I do have concerns and I’m not sure they can be addressed before he issues [legislation] tomorrow,” Snowe said.

This means that the Democrats will have to try reconciliation to get the bill through the Senate.  Snowe’s rejection, however, hides another unpleasant fact that would have been apparent, which is that Democrats don’t have all of the other 59 votes needed, either.  Other Democrats have already expressed unhappiness with individual mandates, IRS involvement, and the costs.

Baucus says he’s solved the funding problem, but his solution brings up another big problem.  He plans on taxing so-called Cadillac or gold-plated health insurance plans, but he defines that at $8,000 per year in premiums and above, as Jazz Shaw noted yesterday:

COST: Under $900 billion over 10 years.

HOW’S IT PAID FOR: Fees on insurance companies, drug makers, medical device manufacturers and insurers. Tax of 35 percent on insurance plans costing more than $8,000 for individuals and $21,000 for families, applied to premium amounts over the threshold. Cuts to Medicare and Medicaid. A fee on employers whose workers receive government subsidies to help them pay premiums. Fines on those who fail to get coverage.

Baucus wants to tax the overall cost of the plans, not the portion that employees pay through payroll contributions.  The average plan premium in the US is over $4800 per year for individuals and $13,300 for families.  The Kaiser Family Foundation report does not detail the distribution of plans over $5788/$16,000 respectively, but 18% of individuals and 20% of families have this more expensive coverage, which means that Baucus’ taxes will almost certainly hit more than the top 5% of families and individuals.

Does this mean Harry Reid will use the “reconciliation” process?  The Democrats are threatening it, but it’s a strategy fraught with risks.  All it takes is one Senator to go rogue on the floor and start withholding unanimous consent, and the Senate grinds to a halt.  Reid’s already complaining about Republicans slowing down the process, but he won’t be able to get anything done at all once a few Republicans begin demanding full bill readings, votes for process, and so on.

Expect the Democrats to go back to the drawing board in both chambers.  The longer these versions are on the table, the more unpopular they become.

Update: The Hill reports that the Baucus plan will cut Medicare:

Baucus’s measure would cost $856 billion over 10 years — far less than the $1 trillon-plus bills approved by four other congressional committees and less even than Baucus’s previous estimates. The price tag also falls below the $900 billion limit set by President Barack Obama.

The new costs would be fully offset by reductions in Medicare spending and by generating new revenue from an excise tax on health insurance companies that sell plans that cost more than $21,000 for families and more than $8,000 for individuals. Insurers, pharmaceutical companies, medical-device makers, clinical laboratories and hospitals would also pay fees.

Gee, didn’t Barack Obama claim that Medicare cuts were a “myth”?  Why, yes he did:

Robert Kocher of the National Economic Council debunks the myth that Health Insurance Reform would be financed by cutting Medicare benefits.

I wait with bated breath for Obama to denounce Baucus as a mythmaker, and for Jimmy Carter to denounce him as a racist.


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The nonpartisan Congressional Budget Office on Wednesday said that a health-care measure released by Senate Finance Chairman Max Baucus (D., Mont.) would reduce the deficit by $49 billion over 10 years.

Sen. Baucus touts his health-care bill. (Associated Press)
In a letter to Baucus, the CBO states the bill would cost a total of $774 billion, but would be offset by revenue-raising provisions, such as a 35% excise tax on high-cost health insurance plans, as well as spending reductions. The result, it said, would be a $49 billion reduction of federal deficits from 2010 to 2019.

The CBO also anticipates that the bill would reduce deficits beyond the 10-year horizon, saying that the effect of the bill would “probably be continued reductions in federal budget deficits.”

Jimbo3 on September 16, 2009 at 5:21 PM

Jimbo3 on September 16, 2009 at 5:03 PM

You know, it would help out a lot here if you offered some support for this contention of yours that the excise tax is being given to insurance companies.

Insurance premia aren’t necessarily responsive to pool sizes across the full range of pool sizes, but it’s still possible that the incentive structure pointed out in the bill could cause those pools to shrink enough to raise premia for those people keeping their insurance year-round. This only makes the dynamic of buying insurance when you’re sick more pronounced, because it makes the mandate penalty relatively cheaper.

DrSteve on September 16, 2009 at 5:33 PM

At least five tax hikes in the bill violate Obama’s central campaign promise not to raise “any form” of taxes on families making less than $250,000

The healthcare reform plan unveiled today by Senate Finance Committee Chairman Max Baucus (D-Mont.) contains at least five tax increases on families making less than $250,000 per year. Each provision would violate President Obama’s central campaign promise not to raise “any form” of taxes on these Americans. The tax increases include:

1) Individual Mandate Tax (FINE): Those who do not enroll in a health insurance plan would have to pay a new tax in the following range:

100-300% FPL (federal poverty level)
Single
$750 Fine
Family
$1500 Fine

300+% FPL
Single
$900 Fine
Family
$3800 FIne

2) Medicine Cabinet Tax: Americans will no longer be able to purchase over-the-counter medicines with their FSA, HSA, or HRA.

3) Backdoor Death of HSAs: By requiring that all plans (besides the few that are grandfathered) provide first-dollar coverage for most services, there would be no HSA-qualifying plans available from the Massachusetts-style exchanges.

4) Increase in Non-Qualified HSA Distribution Tax Penalty from 10 percent to 20 percent: This makes HSAs less attractive, and paves the way for HSA pre-verification.

5) A Cap on FSA Contributions at $2000: Currently unlimited.

http://atr.org/baucus-healthcare-bill-violates-obama-tax-a3867#

elduende on September 16, 2009 at 5:34 PM

Jimbo3 on September 16, 2009 at 5:21 PM

Well, I’m glad it got a good CBO score, but I’m really concerned about the sensitivity of the revenue projections to threshold effects and the fairly significant growth-promoting incentives baked into the program. There’s some economically strange stuff in here. I plan to read the whole thing ASAP.

I think I understand what you’re saying about funneling the taxes, though — with no public option, all the new insured are with private entities (apart from whatever expansion in Medicaid might be planned). Some of these folks will be subsidized (with the subsidy paid to insurers), and the subsidy may in part be financed by the excise tax. That about right?

DrSteve on September 16, 2009 at 5:38 PM

Calling Dr Beck, Dr Beck

bluegrass on September 16, 2009 at 5:42 PM

I love my FSA and HRA, and I happen to know they’ve made it possible for my firm to save money as I’m on the committee that reviews our coverage every year (and the associated costs).

elduende, what’s the support offered for the first-dollar claim in (3)?

DrSteve on September 16, 2009 at 5:43 PM

Let me guess, this insurance tax will not be indexed to inflation:

This analysis of federal data finds that if premiums for employer-sponsored insurance grow in each state at the projected national rate of increase, then the average premium for family coverage would rise from $12,298 (the 2008 average) to $23,842 by 2020—a 94 percent increase. However, if health system reforms were able to slow premium growth by 1 percentage point in all states, by 2020 employers and families together would save $2,571 per premium for family coverage, compared with projected trends.

Taken from the CommonWealth Fund site. It looks like those wacky liberals are trying to create another AMT using the same argument of “It only impacts the wealthy!” sotto voce “for now.”

scrub_oak on September 16, 2009 at 5:44 PM

That’s what I was thinking, Steve, generally, in the case of people who are insured.

What I want to understand, though, is where the excise tax goes for the people who don’t buy insurance. I think the insurance companies need to be compensated for the risk in having to insure people with pre-existing conditions or this doesn’t work. I wouldn’t jump to the conclusion that the government doesn’t pass it on to the insurance companies.

Jimbo3 on September 16, 2009 at 5:49 PM

DrSteve on September 16, 2009 at 5:43 PM

Not sure Doc. I tried looking for verification of the claim made by the Fair Tax folks but there is none. I have to read the Bill to see where it comes from.

elduende on September 16, 2009 at 5:56 PM

Jimbo3 on September 16, 2009 at 5:49 PM

Well… looked really quickly but I did not see any such reimbursment in the bill…

Excise tax just goes straight to the General Fund.

I’m also trying to figure out how the “spending reductions” work.

Currently, Medicare pays LESS for services than everyone else. Those costs are passed on to other customers, which when paid for by their insurance companies, have to be passed on in higher insurance rates.

Decreasing Medicare payouts even farther? as this bill seems to do? Just passes those onto other customers…

Saves the Government money, but its nothing more than a hidden tax.

TANSTAAFL… There aint no such thing as a free lunch.

Romeo13 on September 16, 2009 at 5:58 PM

I wouldn’t jump to the conclusion that the government doesn’t pass it on to the insurance companies.

Jimbo3 on September 16, 2009 at 5:49 PM

Respectfully, I can’t imagine they’re anywhere near the head of the line.

I think this is going to be pretty hard on the supplemental insurance business, at least at first blush. Nearly any dollar in the way of employer-provided supplemental insurance is going to be closer to the thresholds for taxation than any dollar of vanilla employer-provided coverage.

DrSteve on September 16, 2009 at 6:00 PM

Here is an updated page of the tax hikes in the bill
http://www.atr.org/alert-list-all-tax-hikes-baucus-a3865#

Individual Mandate Tax. If you don’t sign up for health insurance, you will have to pay a tax in the following range:
Single Family
100-300% FPL $750 $1500
300% FPL < $900 $3800

* Employer Mandate Tax. $400 per employee if health coverage is not offered. Note: this is a huge incentive to drop coverage, as $400 is much less than the average plan cost of $11,000 for families or $5000 for singles (Source: AHIP)

* Backdoor Death of HSAs. By requiring that all plans (besides the few that are grandfathered) provided first-dollar coverage for most services, there would be no HSA-qualifying plans available from the Massachusetts-like exchanges

* Excise Tax on High-Cost Health Plans. New 35% excise tax on health insurance plans to the extent they exceed $21000 in cost ($8000 single)

* Report Employer Health Spending on W-2. This is clearly a setup for the easy individual taxation of employer-provided health insurance down the road.

* Cap Flex-Spending Account (FSA) Contributions at $2000. Currently unlimited.

* Eliminate tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D

* Medicine Cabinet Tax. Americans would no longer be able to purchase over-the-counter medicines with their FSA, HSA, or HRA

* Increase Non-Qualified HSA Distribution Penalty from 10% to 20%. This makes HSAs less attractive, and paves the way for HSA pre-verification

* Corporate 1099-MISC Information Reporting. Currently, only non-corporations providing property or services for a business must be issued at 1099-MISC. This would expand the requirement to corporations doing business with other businesses. The amount of reporting needed for an average business would be huge. Paves the way for full information reporting to the IRS.

* Various industry tax grabs based on market share. $2.3 billion PhRMA; $6 billion health insurance providers; $750 million clinical labs; $4 billion medical device manufacturers

elduende on September 16, 2009 at 6:01 PM

Employer Mandate Tax. $400 per employee if health coverage is not offered. Note: this is a huge incentive to drop coverage, as $400 is much less than the average plan cost of $11,000 for families or $5000 for singles (Source: AHIP)
–Right now there is no requirement for employers to provide coverage yet most employers do. How is this an incentive to drop coverage?

Report Employer Health Spending on W-2. This is clearly a setup for the easy individual taxation of employer-provided health insurance down the road.
–This is somthing the Republicans included in their bill (HR 4200, I think) so employees know the full price of their health insurance.

* Various industry tax grabs based on market share. $2.3 billion PhRMA; $6 billion health insurance providers; $750 million clinical labs; $4 billion medical device manufacturers

–I don’t see them complaining, do you?

Jimbo3 on September 16, 2009 at 6:08 PM

Could it be that the Arctic Fox paid a visit to Maine, bagged a Moose and its head ended up in Snowe’s bed?

OK, tinfoil off again.

:)

Sapwolf on September 16, 2009 at 6:15 PM

Does anybody think that with Cap&Tax and healthcare proposals out there that business is gonna make a whole lotta employees into contractors?

I think so.

Schedule C anybody?

Sapwolf on September 16, 2009 at 6:16 PM

Jimbo3 on September 16, 2009 at 6:08 PM

Problem is that ALL of these, are nothing more than hidden taxes. They WILL be passed onto the customer in the form of higher prices… or less coverage.

This is nothing more than a Government Money grab, and then reapportionment to cover a few more people…

And, IMO, it won’t work.

With no coverage for Illegals, no tort reform, Lower Medicare payments (meaning higher prices for everyone else), the LOW penalty for non coverage combined with the forced coverage of preexisting conditions?

And the 35% Tax on Cadilac plans (which will not give as much money as they think, because people will not be willing to pay the extra cost for the limited benefits, thus less people with those plans, those nothing to tax)…

Non workable…

Romeo13 on September 16, 2009 at 6:18 PM

elduende on September 16, 2009 at 6:01 PM

My God.

OK. Enough celebrations about the 9/12 March.

Let’s kill it for good.

Sapwolf on September 16, 2009 at 6:19 PM

We’ll see….

Jimbo3 on September 16, 2009 at 6:22 PM

Sapwolf on September 16, 2009 at 6:19 PM

Kill the Bill. There is no trust anymore. There is no credibility. We can’t afford to let these socialist criminals or their enablers any foothold. Kill the Bill.

elduende on September 16, 2009 at 6:32 PM

Jimbo3 on September 16, 2009 at 6:08 PM

Stop being deliberately dense.

– Those that do provide coverage will be further disincentiveized from doing so.

– Just because the republicans provided it does not make it a good idea or shield it from criticism. Furthermore, it will do exactly what the tax reform folks claim it does. It is a prelude to individual taxation of healthcare benefits.

– The industry tax grabs are not being opposed by industry because they will do what all industries do when faced with a new tax they will pass those increased costs to us.

elduende on September 16, 2009 at 6:40 PM

Max don’t know jack about health care or insurance. At one time he was a rancher, but has been in the senate for so long, he probably doesn’t remember one end of the cow from the other. One thing he does know how to do is raise taxes.

Kissmygrits on September 16, 2009 at 7:16 PM

I wait with bated breath for Obama to denounce Baucus as a mythmaker, and for Jimmy Carter to denounce him as a racist.

Heh!!

Baxter Greene on September 16, 2009 at 8:07 PM

I don’t know what benefits you have, bopbottle. I know the unsubsidized COBRA cost for a pretty good Aetna plan for a family (2 adults-one in his 50s, 2 kids) was about $1400/month two years ago and it’s my understanding that COBRA charges are a little more than the employer’s actual costs.

Jimbo3 on September 16, 2009 at 1:43 PM

I’m not sure you understand what COBRA is:

Continuation of benefits under a previous employer’s plan after an employee leaves.

There no specific COBRA plan, it all depends on what you prior employer cost were plus 1 or 2 percent and is only required for 18 months. It’s only the plan your previous employer had. It could be a good deal or very bad deal depending on the previous employers plan and there is usally little or no choice for the employee and of course you no longer have a job with that employer which in most cases is not a good thing.

whbates on September 16, 2009 at 8:15 PM

I understand what COBRA is. My old employer’s plan was a pretty good plan offered by Aetna. I had two months before I was covered under another (somewhat equivalent, but not as good) Aetna plan where I now work.

My point was that I payed my full (old) employer’s cost plus a few percent for the old plan, so I should have a good idea of the employer’s cost for that plan, whbates.

Jimbo3 on September 16, 2009 at 10:04 PM

As our leaders debate healthcare, they might want to read the results of a study that (among others) Senator Edward Kennedy commissioned. Teddy funded the RAND Corporation to do a healthcare study to determine the effects of varying amounts of co-payment, from zero to “very high”, had on the utilization of healthplans and the resultant overall health of the individual. Here’s some text from the flycover of the book Free for All? Lessons from the RAND Health Insurance Experiment by Joseph P. Newhouse and the Insurance Experiment Group:

The researchers found that in plans that reimbursed a higher percentage of the bill, patients used substantially more services — indeed, those who paid nothing used 40 percent more services than those required to pay a high deductible — but the effect on the health of the average person was negligible. In addition, participants who were assigned at random to a well-established health maintenance organization used hospitals substantially less than those in the fee-for-service system, again with no measurable effect on the health of the average person.

The book has sat for a decade on my bookshelf and I’m now reading it cover to cover.

unclesmrgol on September 17, 2009 at 10:55 AM