Wednesday, October 21, 2009

The Baucus Bill Decoded

This is a long one, but probably kind of important to you. During the Bronco/Charger game on Monday night, the Senate Finance Committee finally released its health care bill (S 1796 -- the “Baucus Bill”) for public review. It’s 1502 pages, but I reviewed it. . . every twisted, confused word. In all my years of reading legislation, I’ve never seen anything as hopelessly complex and bizarrely written as this little ditty. Nevertheless, I think I broke the code. Here’s what you need to know.

Before we begin, remember that this turdburger still needs to be merged with the Health Committee version, no doubt behind closed doors. That could change this bill significantly, particularly by adding more goodies for Harry Reid’s vassals in Nevada and for whoever else is up on their bribes. . . er, campaign contributions.

1. General Impressions

Here are some general impressions:
(1) MicroMax Baucus
First, like all good socialists, Max Baucus loves micromanagement. He dedicates page after page to mind-numbing minutia, everything from coding for wheel chairs to ordering studies of how much medication is given in long term care facilities.
(2) Non-Solution Solutions For Cost Control
Baucus has clearly been reading CommentarmaCare. Yep. He didn’t understand it, but he’s been reading it. At various points, Baucus mentions many of the thing that we pointed out as needing to be fixed to get costs under control. Sadly, rather than fixing them (or changing the incentives as we suggested), Baucus punts to the Comptroller General or the Secretary of Health and Human Services to study how to fix them.

Indeed, this bill is full of non-solution solutions. For example, it proposes:
• Implementing a “hospital value-based purchasing program,” once HHS figures out how to do that. (§ 3001)

• Improving the “physician quality reporting system,” once HHS figures out how to do that. (§ 3002)

• Creating “incentives for healthy lifestyles,” once HHS figures out how to do that. (§ 2103)

• Funding a childhood obesity demonstration project, presumably to figure out how to cut childhood obesity. (§ 2105)

• Studying “barriers to appropriate utilization of generic medicine,” with the idea of switching to generics some day. (§ 1654)
FYI, there’s not a peep about medical malpractice reform.

I am concerned that some of these reports require recommendations by the Comptroller General, which will be considered by the committee -- then acted upon outside the normal Senate rules, i.e. no filibuster.
(3) Harm To The Job Market: Temporary Workers
This bill has the potential to do some serious harm to the job market -- enter the law of unintended consequences. To avoid destroying small business, Baucus creates a scheme that allows employers to avoid the damaging consequences of his bill by eliminating permanent jobs and replacing them with temporary or part time positions. . . as they do in Europe. Moreover, the part time work will need to be cut off at less than 30 hours, as compared to less than 40 as is currently done.

Thus, it is likely that employers will replace permanent jobs with temporary jobs and reduce the number of hours given to part time workers.

FYI, in 1997, about 33% of workers in Spain and 37% in Denmark were temporary workers, compared to 2.2% in the USA. Companies in those countries did that to avoid the hassle of workplace laws. Expect that to happen here.
(4) This Bill Is Made For Sellin’
Baucus wrote this bill to reduce political resistance, not to be effective. He chose key constituencies and took out the things they might disagree with, e.g. no fine on small businesses, subsidies for “the poor” (67% of Americans), no illegal aliens, etc. However, by doing this, he’s set up the incentives just mentioned that will warp the job market and he’s jamming a time bomb into the heart of the federal budget.

Incidentally, nothing really applies until 2013, except for the taxes, which begin immediately. Maybe the Mayans were right?

2. Your Obligation To Get Coverage

Beginning on June 30, 2013, after Obama is safely re-elected, you will be required to obtain “essential health benefits coverage.” (§ 1301)

“Essential health benefits coverage” means (1) your current health insurance (“grandfathered health benefits”), (2) an employer sponsored plan, (3) a qualified health benefits plan, (4) Medicare/Medicaid or military coverage, or (5) federal employees coverage.

There does not appear to be any prohibition on you obtaining additional non-qualified coverage, but it will not count to satisfy your obligation under this bill.

(1) Existing Forms of Coverage
As noted, you can keep your current plan as a grandfathered plan. (§ 2221)

Federal employees also get to keep their plans. . . of course.

Medicaid coverage will be expanded to cover anyone with incomes as low as 133% of the poverty level. However, anyone between 100% and 133% of the poverty level can instead elect to get coverage from the “Exchange” (see below) rather than Medicaid.

(2) An Employer Sponsored Plan
Coverage can also come from an employer plan.

Baucus has dramatically changed the requirements on business from those in the House bill. Unlike the House bill, which requires all employers to provide health insurance, Baucus seems to have limited that requirement to any company with 50 or more full time employees. There is a $400 fine per employee if coverage is not offered. (§ 1306) (The employer must report your coverage to the IRS. (§ 1307)).

When it comes to small business, I cannot find a requirement that they provide you with health care, nor can I find a fine if they fail to provide such health care. Hence, you can see the incentive to reduce the number of full time employees. A small business has fewer than 50 full time employees. “Full time employees” includes any employee who works 30 or more hours per week, but does not include temporary workers or seasonal workers (which may include construction workers and farm workers).

For small businesses with fewer than 25 “full time equivalents” (any employee who works 30+ hours a week), there will be a subsidy to provide health insurance. (§ 1221) This subsidy will equal 50% of the employer’s contribution less (1) the amount of the credit multiplied by the number of full time equivalent employees above 10 divided by 15; and (2) the amount of the credit multiplied by the average annual wages of the employer above $20,000 divided by $20,000. Simple huh?

(3) A “Qualified Health Benefits Plan”
If you aren’t offered employer coverage, you can buy health care directly from an exchange.

The exchanges will be set up by the states, which remain responsible for regulating the insurance industry. (§ 2225) Exchanges can be set up within states or within regions by groups of states.

The exchanges must offer coverage in four levels. Each of these levels is designed to provide a level of benefits equal to a certain percentage of the actuarial value -- basically, the percent they intend to pay: Bronze (65% of actuarial value); Silver (70%), Gold (80%) and Platinum (90%). (§ 2241, § 2243)

There can also be a catastrophic plan, but only for people under the age of 26.

(4) Fines On You For Non-Compliance
If you fail to get the required coverage, you will owe a tax, which you must include with your income tax return. (FYI, you will also be fined for dependents and for spouses who file jointly.) Though, interestingly, the government cannot take collection action against you for not paying, except to offset tax overpayments or benefits payments. There can be no penalty or interest charged for non-payment.

This tax will be equal to $200 per person without insurance in 2014, but will rise to $750 per person who lacks insurance by 2017, and will thereafter increase using a cost-of-living adjustment. (§ 1301)

Thus, unlike the House version of this bill, the fine is significantly lower and there are no criminal penalties.

For those who can’t afford the premiums, there is a hardship exemption. If the premiums charged by your employer’s plan or the premiums charged by the cheapest plan in the state exchange exceed 8% of your income, then you are excused from the requirement to get health care. Of course, you won’t have coverage, but at least you can rest assured that your higher taxes are delivering health insurance to people who can afford to buy it now, but have refused to do so.

(5) Subsidies To You: “Premium Assistance”
There is also a subsidy (“premium assistance”) for people in certain income groups (§ 1205) -- this will be paid directly to the insurers (§ 2247).

The amount of the subsidy is determined using a ratio of the portion of your income that exceeds 100% of the poverty level divided by 200% of the poverty level. That is multiplied by 10% and added to 2% and then the whole thing dissolves into gibberish. If I read this correctly, the subsidy will cover most Americans, making it unsustainable. The amount of the subsidy seems to be capped at 10% of the cost of the policy.

Illegal aliens don’t qualify for the subsidy.

Low income persons (read: 67% of Americans) also can expect some reduction in their co-payments as follows 2/3 reduction for anyone at 100-200% of the poverty level; 1/2 reduction for anyone between 200-300% of the poverty level; and 1/3 reduction for anyone between 300-400% of the poverty level. (§ 2247)

3. Requirements To Be Considered “Qualified Health Benefits Plan”

To be considered a qualifying plan, the insurer/plan must agree to the following rate restrictions, must provide the following benefits, and must comply with certain restrictions/requirements.
(1) Rate Restrictions
The Baucus bill limits the factors that insurers may use to adjust the rates charged under the plan. Under Baucus, insurers can only adjust your rate for the following factors (§ 2204):
• Family size. Two adults may be charged twice what one adult can be charged. An adult with a child may be charged 1.8 times what a single adult may be charged. A family of any other size may be charged a maximum of three times what a single adult may be charged.

• Age. The highest-charged group may be charged as much as four times what the lowest-charged group gets charged.

• Tobacco use. Tobacco users may be charged up to 1.5 times what a non-user gets charged.
It is not clear if these can be cumulative, e.g. can you charge an old smoker four times as much as a young non-smoker or six times as much? In any event, these can still lead to significant differences in premiums.
(2) Required Benefits
The Baucus bill also requires that any qualifying plan provide the following “essential benefits package” (§ 2242):
• Hospitalization
• Outpatient clinics and emergency services
• Professional services (physicians and other health professionals)
• Surgical care
• Services, equipment, supplies incident to providing health care at hospitals, physicians offices, or patient homes
• Prescription drugs
• Rehabilitation services
• Mental health and substance use disorder services
• Preventative services, including vaccines
• Maternity benefits
• Well baby, well child, oral health, vision and hearing for children under 21
However, what this means is left up to the insurer, so don’t expect that there won’t be huge variances between policies or fights over what is and what isn’t covered.
(3) Limitations On Insurer
Insurers must also accept the following limits/requirements:
• There can be no co-pays or other “cost sharing” on preventative medicine.

• Deductibles will be limited to $2,000 per person and $4,000 per plan.

• Insurers may not impose annual coverage limits.

• Insurers may not impose lifetime coverage limits.

• Insurers may not impose pre-existing condition exclusions. (§ 2202)

• Insurers may not impose health status limits or terminate coverage because you get sick. (§ 2202)

• Insurers must accept all applicants, without discrimination, up to the capacity limits (i.e. the total number of people the insurer has offered to cover each year). (§ 2203)

• Insurers may not refuse to renew a policy or rescind a policy. (§ 2203)
None of these are particularly surprising.

4. Hot Button Issues

Next we come to the hot button issues. These are surprising.

Illegal Aliens. Baucus forbids covering illegal aliens. (§ 2232) BUT, he knows that they will continue to do what they do now, which is to appear at hospitals without coverage. Thus, the federal government will continue to reimburse those costs through other programs. Basically, this is misleading.

Abortion. (§ 2245). Oh boy. This one is confusingly written, I suspect intentionally so. Let’s cut to the chase. No insurer will be forced to provide abortion services, but they all can.

When it comes to funding, it appears that insurers will fall into one of two categories. In the first category, the use of any federal money for abortions will be prohibited. Thus, you will be able to join an insurer that is prohibited from using federal money to provide abortions. BUT, the insurers in the second category apparently will be allowed to use federal money to provide abortions.

HHS will be required to make sure that there is at least one of each plan available to everyone.

I suspect this is set up so that both groups can be told that they have won this debate.

Abstinence Education. (§ 1804) For reasons unknown, Baucus wades into the abstinence debate, restoring funds for abstinence education. Keep it in your pants kids. . . oh, and stay in school.

Assisted Suicide. (§ 1921) This one is confusing as well. Baucus very clearly states that no provider or insurer who receives funds under this act may participate in assisted suicide in any way. BUT then Baucus says that this prohibition doesn’t apply to withholding or withdrawing medical care, withholding or withdrawing nutrition or hydration. So I guess you can let people die from neglect, but you can’t kill-kill them.

5. No Public Option

There does not appear to be a public option in this bill. It does require HHS to establish co-op plans (of multiple insurers) to make sure that enough plans exist in each market to satisfy the obligations set forth within the bill, i.e. so that there are four levels of plans and/or plans that provide the required benefits. (§ 1401). But as currently written, this does not appear to be a public option.

FYI, Deranged Nancy Pelosi told CNBC today that, "according to the polls", support for the public option "continues to grow, into the 60%" range. Whether she's just lying or deluded, expect her to demand that a public option be added to the Baucus bill.

6. How Do We Pay For This?

Finally, how do we pay for this plan? Baucus imposes a number of taxes that will increase all aspects of the costs of health care:
• A yearly tax on manufactures and importers of branded prescription pharmaceuticals. (§ 6008)

• A yearly tax on manufacturers and importers of medical devices. (§ 6009)

• An annual fee on health insurance providers. (§ 6010)

• Health care providers may no longer deduct certain high salaries. (§ 6014)
Every one of these taxes will be added to the price of the product, which means that most of this tax (at least half) will be charged right back to the government. Stupid huh? The other half will be paid by . . . you.

There are also tax changes aimed at individuals:
• A 40% tax on any “excess benefits” you get from your employer. Excess benefits are benefits that cost your employer more than $8,000 for an individual plan or $21,000 for family coverage (these amounts go up to $9,850 and $25,000 in certain blue states. . . er, high cost states, and for certain “high risk professions” including emergency responders, construction workers, miners, farmers, forestry workers and fishing industry workers ). (§ 6001)

• An increase in the tax penalty on unqualified distributions from your HSAS from 10% to 20%. (§ 6004)

• Further limits on the deductibility of unreimbursed health care expenses when you itemize. You must now exceed 10% of gross income rather than 7.5% to deduct. (§ 6013)
Right now, I can’t price how much these taxes will bring in or what the bill will actually cost. But it's clear that the figures are so false that Baucus should be charged with fraud. My guess is that these taxes will cover the cost of the program until the bill actually kicks in four years later, then all hell will break loose in the budget.

That’s it for now. Go forth and medicate.


LawHawkSF said...

Andrew: Very enlightening. Your analysis is very complete. Now when we have a few hours to spare, I'm going to have you explain the explanation. At least you understand it. With forty years of dealing with complicated legislation under my belt, I'm still completely lost. If the economic health of the republic and the physical health of its citizens weren't at stake, I would think that this is just the biggest political practical joke in history.

98ZJUSMC said...

Thanks Andrew. That's a lot to condense into Reader's Digest form. The first paragraph explains it all for me. The propensity these people have for micromanagement is mindboggling really. The absolute worst "leaders" we have/had in the military are the same way. It never works out well. Well done analysis. I do love the bullet points under how they intend to pay for this. Ever increasing burdens taxed out of the ever expanding "rich" and "evil" corporations. Perhaps by 2010, I will qualify as a rich and evil element by their ever decreasing definition. Funny. I sure don't feel rich. Don't feel very well off, either.

AndrewPrice said...

98ZJUSMC, Thanks! It was a LOT to condesence, especially since it was put together so confusingly. Yuck.

At times I thought they were hiding the meaning, at other times I realized they just don't know what they want and they are hoping someone else figures it out after this gets passed.

This thing is a mess, and I think it's going to create havoc if it passes -- that's why it waits until 2013 to kick in, so that they won't have to face the blame.

Ironically, you might qualify both as rich and eligible for a subsidy. How's that for funny/tragic!

AndrewPrice said...

Lawhawk, I've read more than my share of legislation and regulation, but this was something else. There is little that is firm or settled. Most of it relies on HHS figuring it out later and making the numbers balance. Total disaster.

This thing is either going to change nothing at all, or it will destroy the whole system and the budget. I'm not 100% sure which yet.

98ZJUSMC said...

Hawk, I could not be more lost trying to discren how their math figures up. Everything appears open-ended and subject to massive increases in the tax burden, should some kleptocrat decide we are not paying our fair share. But, in the world of rainbow unicorns, collective well being and pastoral manufactured reality, I am sure that the figures come out just fine,..... every time.

*ow* I bit down on that tongue firmly implanted in my cheek. Sorry.

Why is "Over the Rainbow" playing in my head..........

AndrewPrice said...

98ZJUSMC, I suspect you're hearing "Somewhere Over The Rainbow" because your mind is searching for something with a firmer grasp in reality than Congressional action.

98ZJUSMC said...


This thing is a mess, and I think it's going to create havoc if it passes --
that's why it waits until 2013 to kick in, so that they won't have to face the blame.


Edit for comment above:

discren = discern

and I thought I had that dislexia thing all whipped. Rats.......

LawHawkSF said...

98ZJUSMC: I'm with you. Andrew did a great job of pointing out that this whole thing is like warm, moist air. You can't see it. You can't grab it. We just have to rely on the warm moist air experts to fill us in on the details some time in the future, after we've already been scammed into accepting their "good intentions" socialist legislation. The legislation is just like an Obama speech--lots of words that don't really tell us much of anything, and concludes with the thought "trust us." That'll be the day. I wouldn't leave these thieves in my dining room for five minutes alone with the silverware.

Writer X said...

Is it April Fool's? Please say yes.

Any bill that's 1500 pages long can't be good for people. It fixes none of the problems and makes new ones. Brilliant.

What I find the most interesting/troubling is how the bill deals with illegal aliens and those who supposedly can't afford insurance. Nothing changes for them; in fact, obtaining insurance just becomes more complicated while making it even more complicated and costly for those who were satisfied with their health insurance to begin with. Is that what reform looks like?

I'd have more respect for the Obama administration and the clowns cobbling these bills together if they just came out and said: Look, we want the government to run health care and we'll stop at nothing to get it, even if it means ruining the greatest healthcare system in the world. This Baucus Bill is an exercise in futility.

Andrew, thanks for dissecting this Bill for us. Let the self-medicating begin! I'm sending you a virtual adult beverage of your choice!

AndrewPrice said...

Writer X, Sadly, it's not April Fools.

I kept having the exact same thought you did about this "reform." This does nothing to help the very people it was supposed to help (will probably make things worse for them in fact) and it harms all of the rest of us, the medical profession, and the economy.

In many, many ways, they would have been better off simply creating socialized medicine and running with it -- except that would have led to a revolt (and it's just not affordable).

What I think they are really trying to do, is to pass a framework that lets HHS start making changes sight-unseen by the public rather than going through Congress. That's what this does.

If this passes, you will start hearing about new rules being issued by HHS that can't be challenged and don't need to be voted on, but that dramatically change the system. You probably won't even hear about most of them until your doctor tells you "we can't do that anymore."

On the plus side, we should be able to repeal this thing in one shot, because it doesn't really do much restructuring that can't be undone.

98ZJUSMC said...

"trust us."

Gawd.....that's even worse than "I'm from the government and I'm here to help!'

This is a bit of a tangent to this discussion but, it struck me when I read it over at Hot Air. There is some "person" who insists that he will, turn people, in when/if this person finds out that they are not
buying Health Care, should this thing become law. He/She stated that there are groups that probably would do this. When called on it, this individual finally stated that it was a personal thing. Long story short, it would seem a previous skin cancer episode disqualified him from coverage through his new employer. So now, this/these individual(s) are going to go fascist on people, .... for personal reasons?


The absurdity and utter lack of conscience of that left me stunned. I had to relate that if you guys missed it.

98ZJUSMC said...


Any bill that's 1500 pages long can't be good for people. It fixes none of the problems and makes new ones. Brilliant.

If you can't dazzle them with your brilliance, baffle them.........

Writer X said...

Andrew, your last point about repealing due to lack of restructuring is somewhat comforting. I suppose, though, if they cobble other pieces of the other bills into the Baucus bill then this might not be possible? Or, too soon to tell? It would be like unraveling a bitter divorce: not fun, but possible.

Writer X said...

98ZJUSMC, good point! :-) I'm still waiting to see any sort of brilliance from anyone in Congress, though. It seems as though they know only incompetence and greed.

AndrewPrice said...

Writer X, This is still speculation as we haven't seen the finished product, but the mistake they are making is in leaving all the programs (Medicare/Medicaid/military/etc.) separate. Since they aren't interwined to the point where they are sharing resources and becoming dependent on each other, you can basically eliminate this by just repealing it.

If they started mixing it all together, then it gets really tricky to undo without causing chaos and bringing out vast numbers of scared voters.

Also, since they are putting the pain in place before the benefits start (and since most people will never see a benefit under this plan), there won't be much support to keep it -- if the Republicans attack this correctly.

(I should outline a repeal strategy in a future post.)

StanH said...

Ouch Andrew! …that hurt just reading your synopsis. Ambiguity is an ancient political maneuver, like was said up thread “If you can’t dazzle them with brains… The leftist have had this in the can for decades, and be certain that this is the most important leg of the coming Marxist utopia. Get the populace depending on Uncle Sammy for healthcare, and they’ve got you by the short hairs. This as you said “turdburger,” …perfect description by the way, is so completely un-American I find it hard to believe that this is being proposed by an American, …sheesh! Insurance needs reform, the Commentarama Plan is a good one, but this is nothing but naked aggression against productive America, a power grab by a bunch of Wesley Mouch wannabes, a Washington politicians wet dream, …the power…the power... Just remember the Marxist mantra “inch by inch, everything’s a cinch!” We must repulse this monstrosity, and other Barry initiatives, with every ounce of our being, or in two, four or eight years we wont recognize our great country. This is a challenge that the Founders warned us of so many years ago, do we deserve this Republic?

98ZJUSMC said...

Hey Andrew. Is it your contention that this bill could be repealed in the future? I am curious as I have read repeatedly that once enacted, we'll be stuck with it due to the political fallout of trying to repeal. I would like to think that we could or at least have the SCOTUS strike it down as unconstitutional.

AndrewPrice said...

Stan, If you think it was painful reading the summary, try reading the full bill! And you're right, this is a challenge that we need to overcome -- this bill could easily remake American society by getting all but a handful of people hooked on government benefits. Though, the numbers tell me the thing would collapse before that could happen. Still, we should be worried.

AndrewPrice said...

98ZJUSMC, I do think this bill could be repealed. The Democrats have done the politics all wrong on this.

Give me a day or so to come up with a post on that, it's a little long to outline here (and off the cuff).

The short answer, though, is that they have failed through this bill to create a sizable constituency that will be better off with the bill, and there will be vast numbers who are worse off. Combined with Obama's other failures, that makes this bill vulnerable -- even before it collapses the budget and needs to be repealed.

Tennessee Jed said...

It is to depressing to do anything more than offer my thanks for taking on the responsibility of this review. O.K., at the very least, I suppose I can at least mention how Orwellian all this seems. How have we gotten to a point where politicians can tell such egregious lies and not get universally called on it (see Pelosi comment in your review.)

MegaTroll said...

Great job! I haven't seen this anywhere. Can you talk about what is likely to happen to average people?

AndrewPrice said...

Thanks Mega, I will do two follow ups -- what I think the practicle effects will be and then whether it will pass/how to repeal it.

AndrewPrice said...

Jed, It's completely Orwellian. Sorry to depress you. . . blame Baucus and Pelosi.

patti said...

i'm linking this tomorrow so it can be up thru the weekend. by wading thru this monstrosity with a legal eye, you have given us all a better understanding (i put that funny in for lawhawk ;). just after reading for a few mere seconds, my ball of knuckles (as husband calls it) can't seem to unclench...

AndrewPrice said...

Patti, Thanks for the link. :-)

I encourage everyone to pass along this article so that people know what this bill is about!

Dan La. said...

Andrew - I appreciate your analysis and believe you are spot on. My only question is why cant congress read it and see the same disaster looming? It is because this isnt about health care at all? Isnt it because it is just a means for them to redistribute wealth and also ultimately impose a single payer plan... this is just the first step down that slippery slope?

Dan L. said...

They still leave the broken elements of the health care system completely in place. Why not allow for interstate insurance instead of leaving the state by state plans in place which only enrichen corrupt state congressional delegations and the insurance agencies. Why no tort reform? Same answer. About the only value in this may be the prohibition against insurance companies to force out plan holders or not accept them due to pre-existing conditions... but I bet they have somehow provided a back door for those as well.

AndrewPrice said...

Dan, Thanks, and welcome!

You're absolutely right that this leaves all of the bad elements of our current system in place, while adding more bad on top. If they had acted rationally, they would have either reformed the entire system or been much more careful in terms of what they were trying to do -- like direct subsidies to the 5-7 million real uninsured.

Why they can't see this is the really the big question. I suspect that many of them simply want to help people but (honestly) are not smart enough to see what is really going to happen. They are simply relying on their leadership (or their lobbyist friends) to "do the right thing" and they don't understand what will happen if this thing passes.

I suspect others (particularly someone like a Pelosi) are looking to grab control over the health care system because they want a socialist system to fit their ideology. And this is the best they could do for now. If I were cynical, I would further suggest that she knows this won't work and she's relying on that as a means to justify additional future intervention.

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