Baucus to increase subsidies to sweeten his health-care bill

Senator Max Baucus (D-MT) made a lot less friends on Capitol Hill than he first presumed when he offered his bill to overhaul the American health-care system.  He dropped the public plan and lowered the subsidies, hoping to win Republican votes, but instead found himself castigated by fellow Democrats for “middle-class tax hikes.”  Now Baucus has reworked his proposal, and in doing so has made it even less likely to pay for itself while aggravating the growth of a dependent class in America:

Mr. Baucus said he believed that the changes would “help smooth the way for passage” of the bill through the Finance Committee, where it has been criticized from both the left and the right.

The changes could add $28 billion to the 10-year cost of his bill, which was originally estimated at $774 billion by the Congressional Budget Office. The revised bill, though, could still meet President Obama’s stipulation that health care legislation not add to the federal budget deficit.

Under Mr. Baucus’s original plan, the government would provide subsidies on a sliding scale to help people pay premiums. People with income at the poverty level ($22,050 for a family of four) would have been expected to pay 3 percent of their annual income on premiums before subsidies would begin. People with incomes of 300 percent to 400 percent of the poverty level would have been expected to pay 13 percent of their income for premiums before being eligible for subsidies.

It was not immediately clear how much Mr. Baucus would increase the proposed subsidies. He said he wanted to reduce the maximum amount that moderate-income Americans would have to pay in premiums, under the legislation, to less than 12 percent of income.

The subsidies “will clearly be more generous,” he said. However, it was not clear if they would be as generous as those called for under bills approved in July by the Senate health committee and by three House committees.

One of the more ludicrous aspects of Baucus’ plan was the expectation of $259 billion in revenue over the next decade from an excise tax on insurers and employers who offered plans that cost more than $8,000 per individual or $21,000 per family.  Colleagues such as Jay Rockefeller (D-WV) objected on the basis that some high-risk occupations require those kinds of policies.  Baucus has responded by tweaking the limits upward, saying, “there is less of an impact” in the new parameters.

However, that won’t solve the actual problem with this excise tax, which is that it won’t generate any substantial revenue at all.  Once insurers and self-insuring employers see a 35% excise tax for offering plans of any particular price point, those plans will get dumped in favor of plans that cost less, so that they fit under the cap.  That excise fee in Baucus’ original proposal funded at least a third of his program; even with his static tax analysis, he’ll get less by raising the limits and spend more by adding more subsidies.  Without that revenue, the Baucus plan is a deficit buster at a time when we can hardly afford it.

The existing subsidies in this plan, which stopped at an income level for a family of four at $66,000, would have made 62% of American households dependent on federal aid.  By expanding this to $88,000, the level which Democrats want to cap subsidies, 74% of American households will depend on federal aid.  Baucus wants to limit subsidies between those two levels by means-testing whether the household has to spend 13% or more of its income on health insurance, which would by $11,400 for a family plan, or just under $1000 per month of total cost, not just employee contributions.  That would include most plans in the market for comprehensive health insurance (medical and dental), which means that most of the people between 300% and 400% of poverty level would get those subsidies.

What happens when 74% of Americans winds up on the federal dole?  We eventually go bankrupt.  That creates a situation where 5.8 million households get taxed heavily enough to pay for subsidies to 87.3 million, which is impossible — which means that taxes will rise on all households eventually when the revenue doesn’t meet expectations.  It’s practically designed for disaster.

Blowback