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Spending Too Little On Reform Is Bad, Too

For a while now, the conversation about health care has been all about costs--in particular, the cost to the federal government. Somewhere along the line, somebody decided that health reform shouldn't involve the government sending out more than $1 trillion over ten years, even if we can provide that much money through some combination of higher taxes and savings in the medical care system.

There is no magic reason why $1 trillion should be the theshold. My colleague Jonathan Chait recently suggested that it's all because of way our bodies look. If we all had twelve fingers and toes rather than ten, he said, the magic number would be $1.2 trillion. I guess that would mean it's god's fault.

My own theory is that conservatives and centrists complaining about the price of reform don't think guaranteeing affordable coverage is really so important. I include among them a certain Democrat from North Dakota who runs the Budget Committee and keeps talking about what we can't afford to do. To be clear, Senator Kent Conrad is not god, although I wonder sometimes if he thinks he should be.

But I digress. Whatever the reason, $1 trillion seems to be the maximum the Congress is willing to spend. And that complicates policy development considerably.

If you want to make health insurance available to everybody, then for the first few years you have to spend some new money. The money pays for expanding Medicaid and giving financial assistance to people who can't afford coverage on their own.

But if you can't spend more than $1 trillion over ten yeras, then you're limited in what you can do. (Remember the scale here: As a society, we spend more than $2 trillion on health care every single year.) At best, you end up with a program that doesn't really get started until around 2014 and, even then, only reaches about 97 percent of legal residents. That's basically what the House bill does. We'd be accomplishing a lot, yes, but we could accomplish a lot more.


In the House, as Politico first reported, Blue Dog Democrats interested in downsizing reform have suggested to House leadership they pare back financial assistance. Instead of offering subsidies to people making up to four times the poverty line, the Blue Dogs have suggeted, government should cut off subsidies at three times the poverty line. The Senate Finance Committee, which has had trouble rounding up financing to pay for a $1 trillion package, is already looking at the same option.

What would this mean? A few weeks ago, when it became clear the Senate Finance Committee might cut off subsidies at three times the poverty line, the Center on Budget and Policy Priorities released a report on the likely impact. Among its findings:

This means that an individual with income above $32,490, and a family of three with income above $54,930, would not receive any subsidy to help pay for coverage.

Substantial numbers of people with incomes modestly above 300 percent of the poverty line could face difficulty paying the full price for coverage. The average job-based insurance policy today would cost a family of three at 300 percent of the poverty line about 23 percent of its income. This could leave the family short of funds for other expenses such as housing and child care.

The report went on to predict that lower subsidies could be particularly tough on older workers. As you may recall, while the main reform bills moving through Congress would bar insurers from varying premiums based on illness, they would allow insurers to vary rates by age. And early documents from the Senate Finance Committee suggested they might allow variations by as much as a factor of five. If that went through--and if subsidies were pared back to three times of poverty--plenty of older workers would be priced out of the market.

Also keep in mind that a lower subsidy threshold means less assistance for those who still receive help, since the subsidies are on a sliding scale that phases out gradually. In a downsized bill, somebody earning twice the poverty line--for a family, aorund $33,000 a year--would receive less assistance than they would under the current House measure.

Nor are subsidies the only issue. Keeping the bill to a trillion dollars has meant reducing what insurance actually covers. In a new story for Kaiser Health News, Jordan Rau and Eric Pianin explain the implications:

...a person with a serious illness such as cancer or diabetes could quickly run up charges for thousands of dollars in deductibles, co-payments and co-insurance.

Bill drafters are trying to protect people from such catastrophic costs by setting a maximum amount they would have to pay each year out of pocket—$5,000 a person and $10,000 a family in the House bill and a bit more in the Senate Health, Education, Labor and Pensions Committee version. But [Georgetown Professor and health care expert Karen] Pollitz said that even those levels may be too high for low-income people.

“It may be fine for families that don't need too much care, but God forbid somebody gets into a motorcycle accident," Pollitz says. "They're going to hit the $5,000 limit quickly. People with limited incomes, and particularly families, can easily drown in bills, even if there are co-pays."

...Congress appears to be moving toward more cost sharing by patients. In a bill recently approved by the Senate health committee, insurers would be required to cover at least 76 percent of health care expenses incurred by the average plan member, and the Senate Finance Committee is considering setting the requirement at 65 percent. The House Democratic bill would set the ratio, technically known as "actuarial value," at 70 percent.

That would be less than the standard health care plan available to federal employees and on par with what Medicare and high-deductible Health Savings Accounts pay, according to a recent report by the Congressional Research Service. Moreover, a typical private employer preferred-provider plan pays between 80 percent and 84 percent, and the typical health maintenance organization pays 93 percent, according to CRS.

To date, this issue hasn't gotten nearly the attention it's deserved. And partly that's because of a weird political assymetry. While conservatives and centrists have focused relentlessly on the overall cost of the programs, liberals have focused heavily--almost exclusivley--on the public insurance option.

A public insurance plan would, if well-designed, obviously help provide people with a more affordable coverage option. That's one of the (many) reasons it's such a good idea. But it's not clear how many people would be eligible for it--let alone whether Congress would give it the institutional power necessary to drive down premiums. In short, it's not a substitute for generous subsidies and benefits.

Thankfully, the issue is now getting attention. Last week, a coalition of liberal interest groups sent a letter to Congress urging it to keep to the 400 percent subsidy level. And they have an apparent ally in Senator Olympia Snowe, the Maine Republican widely seen as the Republican most likely to vote for health care reform when the debate is over. In Monday's New York Times, she tells Robert Pear that "We have to make sure that the health plans are affordable to average Americans, and to low-wage workers who are not eligible for Medicaid, because they would confront a penalty if they do not have health insurance."

Now if only she could get Kent Conrad to see things that way.

--Jonathan Cohn