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July 2009 Feature: A Summary of President Obama's Healthcare Reform Initiative

Prepared on July 10, 2009

In light of recent reports regarding federal healthcare reform, we believe it will be useful to summarize the competing proposals to reform healthcare at the federal level.

As a candidate for President, Mr. Obama called for healthcare reform to ensure that more Americans have access to affordable coverage. Since taking office, President Obama has been strongly encouraging members of Congress to submit proposals to overhaul the healthcare system. Between the House and Senate, there are five committees with jurisdiction over healthcare reform. Each of these committees is expected to prepare a proposal to be voted upon. The President has made it clear that he expects to have proposed legislation on his desk ready to be signed by October 2009. 

Given what has transpired in recent weeks, it seems unlikely that the House and Senate can agree upon one bill to submit to the President by October.  Following is a summary of Congress's progress on healthcare reform according to recent news reports.

THE SENATE

The Senate HELP Committee, chaired by Senator Ted Kennedy (D-MA), and the Senate Finance Committee, chaired by Senator Max Baucus (D-MT), have jurisdiction over healthcare reform. 

HELP Committee

Senator Kennedy recently released his draft of legislation entitled The Affordable Health Choices Act (the Act).  Key components of this Act are as follows:

• The Act would establish insurance exchanges (called "gateways") through which individuals and families could purchase coverage. The federal government would provide grants to states to establish the exchanges and subsidize the cost of health insurance through the exchanges for individuals and families with incomes between 150 percent and 500 percent of the federal poverty level.  A publicly sponsored, guaranteed plan option (not yet defined) would be included in the exchanges.
• Employers would be required to offer coverage at mandated, yet undefined, levels.
• There would be financial penalties for most people who do not obtain insurance.
• Medicaid coverage would be substantially expanded. This expanded coverage has yet to be defined.

The Congressional Budget Office conducted a preliminary review of the Act and concluded that: 1) it would result in a net increase in federal budget deficits of about $1 trillion over the 2010-2019 period, and 2) while 39 million individuals would obtain coverage through the new insurance exchanges, approximately 23 million people would lose other coverage. This means that the net decrease in the number of uninsured people would be about 16 million, leaving nearly 30 million people still uninsured. This number is well short of the goal of universal coverage.

President Obama's recent public commentary suggests that he supports all of the principles in this Act. As of the date of this publication, there is no Republican support for this proposal. 

Senate Finance Committee

In light of the Congressional Budget Office's review of the HELP Committee's proposal, Senator Baucus has delayed release of the Finance Committee's proposal until after their July 4th recess. This delay will allow the Senate to re-evaluate the HELP Committee's proposal costs. However, Senator Baucus has reportedly stated that some version of a public plan will be included in his proposal, provided that the public plan option does not set prices or have a competitive advantage over private plans and that federal involvement be limited.

Senator Baucus has also expressed support for Senator Kent Conrad's (D-ND) proposal to create consumer cooperatives to compete with private plans. The cooperatives would be federally regulated, allowing for operation across state lines.

Senator Baucus has stated that it is his goal is to have bi-partisan support for any legislation submitted to the President, and he is looking for ways to mesh the Democratic desire for a "public option" with the Republican decree against it.
 
Senator Charles Schumer (D-NY), who serves on the Finance Committee, said he believes the public plan must:

• Follow all of the same regulations as private plans.
• Not use Medicare to force provider participation.
• Be self sustaining.
• Be administered by a different entity than the one running the exchange.

THE HOUSE

Three committees in the House have jurisdiction over healthcare reform: Ways and Means chaired by Rep. Rangel (D-NY), Energy and Commerce chaired by Rep. Waxman (D-CA) and Education and Labor chaired by Rep. Miller (D-CA).  On June 22, these committees released a joint proposal with the following key components:

• A public plan option would be created with private plans through state-based exchanges. The exchanges would initially only be open to small businesses, with large businesses to follow.
  • The public plan would have the same benefit requirements as private plans and must be financial self-sustaining (not yet defined).
  • Providers who participate in Medicare would also have to participate in the public plan option.
• Individual mandated coverage would be subsidized for low-income individuals. Individuals who do not obtain coverage would be taxed.
• Employers would be required to offer coverage or contribute to a fund on workers' behalf. A small business tax exemption would be available (not defined).
• Private insurance would be prohibited from including pre-existing condition exclusions and exclusions based on an individual's health status.
• Medicare reform would include:
  • Phased in reduction of Medicare Advantage payments to fee for service levels
  • Requirements for drug makers to provide prescription drug rebates.
  • Financial bonuses to primary care doctors.
  • Federal floor for eligibility raised to 133 percent of the federal poverty level beginning in 2013.

This proposal has yet to be scored by the Congressional Budget Office; however, because it is richer than the Kennedy proposal, it seems certain that costs would exceed the $1 trillion Kennedy proposal estimate. No clear proposals have been put forth by the House regarding how to how to pay for these costs.

The House's goal is to have a House-approved bill ready before the August break.

PROPOSED REPUBLICAN ALTERNATIVES

Various Republican members of the House and Senate have been crafting their own proposals in response to the Democrat sponsored proposals described above. The Republican proposals vary in detail, but each contains key ideas put forth by Senator John McCain during his Presidential campaign. A proposal introduced by Senator Judd Gregg (R-NH) on June 2nd includes the following components:

• Contributions above a certain amount made by employers and employees would be included in an employee's taxable income.
• Private insurers must offer coverage regardless of health status.
• Subsidies would be provided to low-income people for the purchase of a low-premium plan.
• States would be directed to create points of entry and state insurance exchanges for low-income families and individuals to enroll in health insurance plans and access the subsidies.
• Deductions would be available for the cost of premiums on health insurance purchased in the individual market.

CONCLUSION

The Congressional Budget Office's review of the HELP Committee's proposed Act, which would cost more than $1 trillion and not achieve universal health coverage, appears to have slowed momentum for proposals offered by Democrats.

None of the proposals discussed above contain any concrete answers on how these reforms would be financed. President Obama has stated that he has been searching for ways to pay for reform. The President has stated that he has "found" over $900 billion in Medicare/Medicaid savings/tax increases that will finance reform, but any reforms to the payment system are likely to meet with substantial resistance from Medicare providers. In any event, it should make for an interesting October on Capitol Hill.