Senator Baucus Health Care Reform Bill: Q&A

The Senate Finance Committee will be taking up the Chairman’s Mark of America’s Health Future Act of 2009 this week. Several readers have asked questions about the Senator Baucus’ proposal and thought I’d try to address them.

Two caveats before we start, however. First, while I’ve done my best to answer the questions accurately I may have missed the mark. I hope folks who disagree with my analysis will post comments and I urge everyone to read those comments. Second, the Senate Finance Committee will begin marking up the legislation on Tuesday (to “mark-up” a bill is simply to amend it). So what emerges after the Committee’s deliberations is likely to be significantly different than the version we have today. Consequently, some of what’s provided here may be out-of-date in a few days.

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1. Will the federal government define what plan designs are available?

The Baucus Proposal requires all policies issued in the individual or small group market (other than grandfathered plans) to fall into one of five benefit categories. (These benefit designs are defined on page 21 of the Chairman’s mark). The four general categories are:

  • Bronze: 65% actuarial value
  • Silver: 70% actuarial value
  • Gold: 80% actuarial value
  • Platinum: 90% actuarial value

The fifth option is available only to those 25 years or younger. This catastrophic plan would “be set at the HSA current law limit, but prevention benefits would be exempt from the deductible.”

The proposal limits out-of-pocket expenses to that permitted for HSAs ($5, 950 for individuals and $11,900 for family coverage in 2010) indexed to the “per capita growth in premiums for the insured market.” There are some other restrictions, but within these out-of-pocket guidelines, any plan design is permitted so long as it’s actuarial value is at least 65 percent.

Which begs the question: what does Senator Baucus mean by “actuarial value.” His Chairman’s Mark doesn’t define the term. However, the Congressional Budget Office describes actuarial value as a statistic that “measures the share of health care spending for a given population that would be covered by each plan and thus reflects both covered services and cost-sharing requirements.” The CBO notes, however, there are two ways of calculating this statistic. Again, it is unclear from his document which approach is proposed by Senator Baucus.

2. Underwriterguy asked what the impact would be on high deductible plans.

As noted above, HSA out-of-pocket limits are permitted by the Senator Baucus’ proposal. So HSAs should continue to be available. Further, high deductible plans, even if they are not HSA eligible, will be permitted up to the HSA out-of-pocket maximum.

3. Michael Flynn asked if the insurance exchanges will compete with private insurance brokers or eliminate them.

There is nothing in the Chairman’s Mark that prohibits exchanges from using independent brokers. Better still, the system envisioned by the proposal contemplates a role for brokers. Under the Baucus Plan, exchanges would be created on a state or regional basis. The administrators of each exchange would make the decision whether or not to use brokers.  As I’ve written before, I believe the exchanges contemplated by the Senate Finance Committee will be likely to use brokers.

4. Nosedoc asked which health insurance plans will be taxed as so-called “Cadillac Plans.”

Senator Baucus is proposing an excise tax on insurers “if the aggregate value of employer-sponsored health coverage for an employee exceeds a threshold amount. The tax is equal to 35 percent of the aggregate value that exceeds a threshold amount.” In 2013, the threshold amount would be $8,000 for individual coverage and $21,000 for family coverage. So if the annual insurance premium for employer-sponsored coverage was $10,000, the insurance company would pay a tax of $700 ($10,000 premium – $8,000 threshold = $2,000 x 35% = $700). The threshold amount would be indexed to the Consumer price Index for Urban consumers beginning in 2014). (Chairman’s Mark page 202).

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I think these cover all the questions, but if I missed any, please let me know and I’ll do my best to find the answers.

10 thoughts on “Senator Baucus Health Care Reform Bill: Q&A

  1. I would like the Senator to know he will go down in history as one of the five dems that denied millions of people health care. One American dies every 14 minutes due to not having availability to health care. More than car accidents or hunting with Dick Cheeney. Why would any Christian person vote agaisnt a public option.

  2. 1. Alan, regarding question (C). Under the Baucus plan, will new small group insurance be permitted to be sold outside of the Exchange?

    2. For the proposed co-op’s to successfully compete it would be smart for them to also use brokers. What do you think?

    • Thanks for the questions Rick. While everything is still subject to change, it’s pretty well established that small group medical plans will be sold outside of the exchanges as long as they offer “minimum credible coverage,” which means the Bronze plan described in the post.

      There’s no requirement that health insurance cooperatives use independent brokers, but there’s unlikely to be anything preventing them doing so. And I think co-ops will want to use brokers, for several reasons. First, brokers are a variable cost — we’re only paid if we make a sale. Compare this to hiring a captive sales force who need to be paid and supported regardless of production. So using independent brokers will reduce the health insurance co-operative’s start-up costs. Second, even with the insurance simplification likely to emerge from health care reform, medical insurance is still complicated, expensive and rarely shopped for by consumers. While a lot of data will be available to shoppers, but they’ll want expertise to help them make the right decision. Co-ops are all about adding competition to a market. If they’re smart, they’ll use brokers to their advantage.

        • I can see how you’d get that impression, JimK, but I think all four categories of benefits will be available in both the individual and small group market segments.

          The relevant language (on page 17 of the Chairman’s Mark; page 20 of the PDF) reads “Four benefit categories would be available: bronze, silver, gold and platinum. No policies could be issued in the individual or small group market (other than grandfathered plans) that did not meet the actuarial standards described below. All health insurance plans in the individual and small group market would be required, at a minimum, to offer coverage in the silver and gold categories.”

          What this section means rests on how you define the term “health insurance plan.” I take this provision to mean carriers in the individual and small group markets must offer at least silver and gold plans, but they may also offer bronze and platinum benefit plans if they want.

          I think you’re interpreting “health insurance plan” to mean a benefit package. This would mean the carriers could not offer the bronze plan. But if this was the intent there would have been no need to refer to the gold level of benefits. Instead the provision should have been written “… at a ;minimum, to offer coverage in the silver category.”

          I’m sure this will get clarified during the Senate Finance Committee’s mark-up, but for now, I’m interpreting Senator Baucus’ intent as meaning carriers may offer the bronze and platinum level plans, but are not obliged to do so.

  3. Since you did not address my questions then I must assume I was wrong and that the 13% number bandied about will be the maximum premium on a family of four who are within the 300% of the Federal Poverty level. As I stated in my previous post it appeared to me the 13% represented the tax credits offered and that in those State with a rate setting process the rate setting process will stay in place. Of course I do not know if the current rate setting process in those states are setting premiums above 13%, but if they are why is the 13% number a problem.
    Additionally, the tax credits are phased out if your familiy income exceeds 400% of the Federal Poverty level.

    Based upon my understanding of the current plan previous poster James Thornton who pays over 30% of his gross income would receive tax credits totalling approximately $7800 and his out of pocket expenses would be limited to the $5900 figure cited above. His total costs would come in at around $14000 or a mimnimum savings of about $7000 per year.

    All I am trying to do is get an understanding here about what is good in the plan and what needs to change. I would like to write my Congressman and voice my concerns but if cannot get answers from industry people I have a very limited idea of what I am talking about and will advise my Congressman that since I do not fully understand the plan and it has not been effectively communicated to me then my only option is to believe that all this plan amounts to is a tax on the people to be turned over to private interests and just as the TARP before it, I am 100% opposed. I think that is a pretty easy message to sell.

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