Understanding the new health reconciliation bill
Congressional Democratic leaders just released their summary of Bill #2, the health bill they intend to move through the reconciliation process.
Here is their description document. I caution you that this is a sales pitch aimed at Congressional Democrats.
Here is the preliminary CBO analysis.
Here is the legislative text, on which I am just now about to begin chewing.
Since things are moving quickly, I’m going to repeatedly update this post. You might want to bookmark it and return for updates.
The following notes are fairly technical. Most will be interesting only to policy practitioners.
Preliminary, technical, and disorganized very rough notes on the outline
There are several Byrd rule violations. This means the House will have to vote on this bill twice. The second time would be after Senate Republicans use the Byrd rule to strike these provisions from the bill, then the Senate passes the modified bill and returns it to the House. And no, I won’t tell you where all of them are. Sorry. I don’t want to help the Democrats find and fix them. Some of these are only arguable violations. I have found at least three that are clear violations.
Weaker individual mandates means more healthy people will stay out of the system and pay penalty fees until they get sick. This means premiums for the rest of us in the system will be higher, because there are fewer of us being forced to cross-subsidize the predictably high cost people (because of the guaranteed issue and community rating mandates).
Bigger employer penalties for not complying with the mandates are unsurprising when you think about the politics of the House Democratic Caucus. I’ll bet someone running a 53-person company doesn’t think he runs a big business.
More $ for poor.
One-time $250 “rebate” in 2010 for beneficiaries who reach the
[drug] “coverage gap” is pure politics. Send seniors a check in an election year.
More savings from Medicare Advantage plans means fewer Medicare Advantage plans. Massive changes to the Medicare Advantage payments formulas will fundamentally change these markets. Seniors in MA plans should expect significant changes as plans adapt to the new payments rules. This is a little-discussed but significant effect of these bills, if they become law.
More savings from hospitals are unsurprising.
Strengthens the Independent Medicare Advisory Board by making SecHHS a backstop. He/She can cut Medicare provider payments proportionally if the IMAB doesn’t deliver recommendations. Providers won’t like this. They probably had to add it for CBO to score it.
Cadillac tax is delayed until 2018 and the threshold is increased. Both these provisions weaken the Cadillac tax (unions like this). But they raise more money by reducing the indexing growth rate of the cap from (inflation+1) to (inflation). This is part of how they solve their long-run deficit problem of spending money on other stuff. This is good for those with high cost plans in the short run, bad for them in the long run. (I actually favor a much (X10) more aggressive version of this tax, so I like the lower growth rate. I don’t like the delay or the cap increase.)
Raise Medicare payroll tax by 0.9 percentage points for individuals with income > $200K and couples with income > $250K. This means you and your employer pay a combined 3.8% payroll tax on wages above these amounts. (This is the President’s proposal.) This is what they mean by “taxing the rich.” It is also crossing a decades-old line separating Social Security and Medicare funding from the rest of the budget. I would not have expected Democrats to cross that line and violate what was for them an important principle of “social insurance program,” but they really needed the money.
Beginning in 2013, the bill creates a new 3.8% tax on some capital income for individuals with income > $200K and couples with income >$ 250K. This applies to interest, dividends, annuities, royalties, and rents. Big tax increase.
Strengthens the Independent Medicare Advisory Board by giving the Secretary of HHS backup authority to proportionately cut Medicare payments to providers if the Board fails to make recommendations that hit the savings target.
Expands the Cornhusker Kickback to cover all States. This was the wrong way to fix it. It would have been much less expensive to eliminate it.
Increases Medicaid match rates for States already covering low income adults. This spending is, in effect, just fiscal stimulus: The second health bill contains billions in fiscal stimulus for sixteen States & DC
Spends money on doctors in 2013 and 2014, but leaves out the permanent fix, as expected. This means there’s another $300-ish B of Medicare spending that is not counted in this bill. So much for true deficit neutrality.
Big win for the AMA at the expense of States: In the late 90’s the feds gave up authority to determine Medicaid payments to providers, leaving all that authority in the hands of States. States liked this because they could squeeze providers to save money. Providers wanted federal “protection” from cost-conscious Governors. This bill prohibits States from paying primary care doctors less through Medicaid than they receive in Medicare (for two years). This is the camel’s nose under the tent to a long-term increase in Medicaid payments to providers. This means a loss of expenditure control for Governors, higher Medicaid costs for States and the federal government, and higher incomes for doctors. This is also the beginning of the reversal of a strong bipartisan mid-90’s policy consensus. This is terrible policy.
Net effect of Bill #2 on taxes: +$156 B higher taxes. While that’s the effect over a decade, the bulk of the tax increases occur in a six-year period beginning in 2014.
Adopts a version of the President’s proposal for feds to regulate health insurance premiums in addition to States. Secretary of HHS could “review potentially unreasonable premiums and may take corrective actions, such as requiring the insurer to pay a penalty, denying or modifying the premium or ordering the plan to pay rebates to consumers.” What is a potentially unreasonable premium?? Congratulations, AHIP. You have made your industry a federally regulated utility. Have fun with that.