Let the Amending Begin!

How to fix the Senate health reform bill.

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Health care reform limped to the Senate floor on a party-line vote, 60-39, after Democratic Sens. Blanche Lincoln of Arkansas, Mary Landrieu of Louisiana, and Ben Nelson of Nebraska gave their reluctant consent. (Republican Sen. George Voinovich of Ohio, who opposes the bill, was not present.) Statistically, the Congressional Research Service has found that 97.6 percent of all Senate bills that cleared this procedural hurdle during the past 10 years eventually won final Senate passage (though some would surely argue that unique circumstances make health reform an excellent candidate to become one of the 2.4 percent of all such bills that do not). Senate Democrats now risk finding themselves in the position of a dog that, after chasing a car, finally overtakes it. When the Senate returns from a Thanksgiving recess, it will be to reform health care in the United States. Er, how?

A few suggestions:

Keep the public option.On ABC News’ This Week on Nov. 22, Nelson said, “[W]e could negotiate a public option of some sort that I might look at, but I don’t want a big government, Washington-run operation that would undermine the private insurance that 200 million Americans now have.” (In her statement explaining her vote to proceed with debate, Lincoln said she, too, would not abide a “new government-run health care plan.”) What sort of public option was Nelson talking about? Possibly he had in mind a convoluted plan by Sen. Tom Carper, D-Del., to require states that fail to meet an affordability standard to include a nonprofit public option over which the president, the Senate, and the Health and Human Services Department would have some vaguely defined control.

At its worst, the Carper option would combine the lame “trigger” scheme of Sen. Olympia Snowe, R-Maine, which Landrieu has signaled she might support, with the lame “health cooperatives” scheme of Sen. Kent Conrad, D-N.D. At its best, the Carper option might serve as a Trojan horse for creation of a more robust public option down the road. But if that’s the case, won’t Nelson, Landrieu, Lincoln, and the redoubtable Sen. Joe Lieberman, Connecticut independent, sniff that out? Better to just leave the public option as it is, which is a pretty sad and withered thing already.

I don’t actually believe that will happen. I think the Senate will end up stripping out the public option altogether. But it shouldn’t.

Leave the abortion language as is.Another deal-killer for Nelson. The Senate bill basically revives a compromise reached in the House before Rep. Bart Stupak, D-Mich., and the U.S. Conference of Bishops inserted tougher language virtually forcing private insurers operating in the newly established exchange not to cover abortion. The Senate language requires any plan offered in the exchanges to establish elaborate procedures to segregate federal funds, which may not pay for abortions, from funds raised from premiums, which may do so. It’s analogous to a compromise that 17 states have enacted in allowing the state-federal Medicaid program to cover abortions with specially segregated state funds rather than federal funds. The Health and Human Services Department, which funds Medicaid, is forbidden to pay for abortions under the 1976 Hyde amendment.

I don’t expect to get my way on this one, either.

Tweak the Medicare tax.The Senate bill raises the Medicare tax, which currently is a flat 1.45 percent for everybody, to 1.95 percent for families earning more than $250,000. Henry Aaron of the Brookings Institution points out that this could distort compensation by encouraging a shift to nonsalaried forms of pay like stock options. “I would rather see Congress rely on broad tax instruments like the income tax,” he told the Wall Street Journal. The House bill already does that by imposing a 5.4 percent surtax on family incomes above $1 million. That remains the best option of all. But assuming it’s unsellable in the Senate, then perhaps Reid could extend that 1.95 percent Medicare tax for families earning more than $250,000 to cover investment income, too. Merely extending the current 1.45 percent tax to cover investment income would raise $160 billion through 2019, according to Citizens for Tax Justice, a labor-affiliated nonprofit. That’s more than three times the $54 billion that the current Medicare tax proposal would raise. Add in that $54 billion and the difference between 1.45 percent and 1.95 percent, and the new Medicare tax could raise well over $200 billion.

A political problem with what I suggest is that it risks riling the elderly, who are likelier to depend more on unearned income than the non-elderly and are already edgy about any savings in the bill that include the word Medicare. But as I’ve noted before, elderly people earning more than $250,000 are pretty well off, especially if most of that $250,000 is earned from investments.

Tweak the tax on “Cadillac” health insurance plans. Reid accommodated labor unions by raising the threshold on the value of health insurance subject to taxation from $21,000 to $23,000. That doesn’t address an objection raised against the provision when it was added to the Senate finance bill—i.e., that some people have expensive health insurance policies because they perform dangerous work. To accommodate this possibility, the Senate finance bill raised the threshold for such people. But it defined the “dangerous work” group too narrowly, and the Reid bill is similarly narrow, including those engaged in police work, firefighting, emergency medicine, construction, mining, agriculture, forestry, and fishing, but not, for instance, in heavy industry. That needs to be remedied.

Fix the “employer responsibility” provision. The House bill has a straight-ahead “employer mandate,” requiring all except the smallest businesses (defined as those with payrolls under $250,000) to offer health insurance for their workers or pay a penalty up to 8 percent of payroll. The Senate finance committee flinched at imposing an employer mandate and instead concocted an elaborate workaround requiring employers to reimburse the government up to $4,000 or more for any subsidies their employees might receive to purchase health insurance in the exchanges.

A big problem with that approach was that it gave employers a powerful disincentive to hire low-income people. The Reid bill mostly fixes that problem by saying that if even one full-time employee receives such a subsidy, then the company must pay a fine equivalent to $750 for every one of its full-time employees, whether they receive subsidies or not. That’s a powerful club to force employers to provide health insurance coverage. But the Center on Budget and Policy Priorities, a nonprofit that specializes on how the federal budget affects low-income people, notes a couple of (admittedly smaller) problems. Firms might evade or minimize the penalty by making full-time employees part-time employees instead. (If an employee works fewer than 30 hours per week, he isn’t included in the head count for the fine.) This could be fixed by making the fine equivalent to $750 for every employee, full-time or part-time.

Another problem noted by CBPP is that the Senate bill retains a finance committee provision allowing some employees to purchase health insurance on the exchange, even if their employers already offer health coverage, if it’s a crap plan (i.e., one that requires the employee to pay more than 10 percent of his income in premiums or fails to meet a minimum coverage standard). If an employee chooses to bypass his crap employer-sponsored plan and receives a federal subsidy to purchase insurance on the exchange instead, then the employer is fined $3,000. But this scheme creates a disincentive for firms offering crap health insurance to hire low-income people who might be eligible for the exchange subsidy. The solution proposed by CBPP is to impose basic standards on the quality and cost of all employer-sponsored health insurance, as the House bill and the version of health reform passed by the Senate health committee both do. No more crap plans!

Adopt the Wyden amendment.I’ve been skeptical about Sen. Ron Wyden’s voucher solution to the health care crisis, mainly because I think it puts too much faith in private health insurance. But he’s right that if you’re going to create a health insurance exchange, you want it to serve as many people as possible. Currently under Reid’s bill, some families’ employer-sponsored premiums would be high, but not quite high enough to qualify them to buy health insurance on the exchange (i.e., their premiums would be 8 percent to 9.8 percent of their income, not 10 percent). Reid has agreed to support an amendment that would allow those families (provided their incomes are less than $88,000 for a family of four) to convert the federal tax subsidies they would receive for their almost-crap employer-sponsored health insurance into vouchers to purchase health insurance on the exchange. This would work a lot better if a public option were included in the final bill. But even if it isn’t, it’s worth trying.

Increase subsidies.Remember all that revenue that could be generated by altering Reid’s Medicare tax? Some of those proceeds should be used to increase subsidies to lower-income people to purchase health insurance on the exchanges. The subsidies in the Reid bill are less stingy than in the Senate finance committee bill, but they’re still inadequate. For example, CBPP notes that a family of three living on $25,000 a year would pay more than $1,000 in premiums under the Reid bill; under the House bill, it would instead be made eligible for Medicaid. One particular problem is that, compared with the House bill, the Reid bill shifts subsidies from low-income people to middle-income people who are likelier to vote. Subsidies ought to be brought up to the levels in the House bill. This isn’t simply a matter of being more compassionate. If Congress makes people purchase health insurance and then doesn’t give them enough money to do so, a lot of Democrats will be turned out of office.

I’m sure there are more changes that ought to be made, but these are the ones that come to mind immediately.

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