The Baucus Bill Decoded

This is a long one, but probably kind of important to you. During the Bronco/Charger game on Monday night, the Senate Finance Committee finally released its health care bill (S 1796 -- the “Baucus Bill”) for public review. It’s 1502 pages, but I reviewed it. . . every twisted, confused word. In all my years of reading legislation, I’ve never seen anything as hopelessly complex and bizarrely written as this little ditty. Nevertheless, I think I broke the code. Here’s what you need to know.

Before we begin, remember that this turdburger still needs to be merged with the Health Committee version, no doubt behind closed doors. That could change this bill significantly, particularly by adding more goodies for Harry Reid’s vassals in Nevada and for whoever else is up on their bribes. . . er, campaign contributions.


1. General Impressions

Here are some general impressions:

(1) MicroMax Baucus

First, like all good socialists, Max Baucus loves micromanagement. He dedicates page after page to mind-numbing minutia, everything from coding for wheel chairs to ordering studies of how much medication is given in long term care facilities.

(2) Non-Solution Solutions For Cost Control

Baucus has clearly been reading CommentarmaCare. Yep. He didn’t understand it, but he’s been reading it. At various points, Baucus mentions many of the thing that we pointed out as needing to be fixed to get costs under control. Sadly, rather than fixing them (or changing the incentives as we suggested), Baucus punts to the Comptroller General or the Secretary of Health and Human Services to study how to fix them.

Indeed, this bill is full of non-solution solutions. For example, it proposes:

• Implementing a “hospital value-based purchasing program,” once HHS figures out how to do that. (§ 3001)

• Improving the “physician quality reporting system,” once HHS figures out how to do that. (§ 3002)

• Creating “incentives for healthy lifestyles,” once HHS figures out how to do that. (§ 2103)

• Funding a childhood obesity demonstration project, presumably to figure out how to cut childhood obesity. (§ 2105)

• Studying “barriers to appropriate utilization of generic medicine,” with the idea of switching to generics some day. (§ 1654)

FYI, there’s not a peep about medical malpractice reform.

I am concerned that some of these reports require recommendations by the Comptroller General, which will be considered by the committee -- then acted upon outside the normal Senate rules, i.e. no filibuster.

(3) Harm To The Job Market: Temporary Workers

This bill has the potential to do some serious harm to the job market -- enter the law of unintended consequences. To avoid destroying small business, Baucus creates a scheme that allows employers to avoid the damaging consequences of his bill by eliminating permanent jobs and replacing them with temporary or part time positions. . . as they do in Europe. Moreover, the part time work will need to be cut off at less than 30 hours, as compared to less than 40 as is currently done.

Thus, it is likely that employers will replace permanent jobs with temporary jobs and reduce the number of hours given to part time workers.

FYI, in 1997, about 33% of workers in Spain and 37% in Denmark were temporary workers, compared to 2.2% in the USA. Companies in those countries did that to avoid the hassle of workplace laws. Expect that to happen here.

(4) This Bill Is Made For Sellin’

Baucus wrote this bill to reduce political resistance, not to be effective. He chose key constituencies and took out the things they might disagree with, e.g. no fine on small businesses, subsidies for “the poor” (67% of Americans), no illegal aliens, etc. However, by doing this, he’s set up the incentives just mentioned that will warp the job market and he’s jamming a time bomb into the heart of the federal budget.

Incidentally, nothing really applies until 2013, except for the taxes, which begin immediately. Maybe the Mayans were right?


2. Your Obligation To Get Coverage

Beginning on June 30, 2013, after Obama is safely re-elected, you will be required to obtain “essential health benefits coverage.” (§ 1301)

“Essential health benefits coverage” means (1) your current health insurance (“grandfathered health benefits”), (2) an employer sponsored plan, (3) a qualified health benefits plan, (4) Medicare/Medicaid or military coverage, or (5) federal employees coverage.

There does not appear to be any prohibition on you obtaining additional non-qualified coverage, but it will not count to satisfy your obligation under this bill.

(1) Existing Forms of Coverage

As noted, you can keep your current plan as a grandfathered plan. (§ 2221)

Federal employees also get to keep their plans. . . of course.

Medicaid coverage will be expanded to cover anyone with incomes as low as 133% of the poverty level. However, anyone between 100% and 133% of the poverty level can instead elect to get coverage from the “Exchange” (see below) rather than Medicaid.

(2) An Employer Sponsored Plan

Coverage can also come from an employer plan.

Baucus has dramatically changed the requirements on business from those in the House bill. Unlike the House bill, which requires all employers to provide health insurance, Baucus seems to have limited that requirement to any company with 50 or more full time employees. There is a $400 fine per employee if coverage is not offered. (§ 1306) (The employer must report your coverage to the IRS. (§ 1307)).

When it comes to small business, I cannot find a requirement that they provide you with health care, nor can I find a fine if they fail to provide such health care. Hence, you can see the incentive to reduce the number of full time employees. A small business has fewer than 50 full time employees. “Full time employees” includes any employee who works 30 or more hours per week, but does not include temporary workers or seasonal workers (which may include construction workers and farm workers).

For small businesses with fewer than 25 “full time equivalents” (any employee who works 30+ hours a week), there will be a subsidy to provide health insurance. (§ 1221) This subsidy will equal 50% of the employer’s contribution less (1) the amount of the credit multiplied by the number of full time equivalent employees above 10 divided by 15; and (2) the amount of the credit multiplied by the average annual wages of the employer above $20,000 divided by $20,000. Simple huh?

(3) A “Qualified Health Benefits Plan”

If you aren’t offered employer coverage, you can buy health care directly from an exchange.

The exchanges will be set up by the states, which remain responsible for regulating the insurance industry. (§ 2225) Exchanges can be set up within states or within regions by groups of states.

The exchanges must offer coverage in four levels. Each of these levels is designed to provide a level of benefits equal to a certain percentage of the actuarial value -- basically, the percent they intend to pay: Bronze (65% of actuarial value); Silver (70%), Gold (80%) and Platinum (90%). (§ 2241, § 2243)

There can also be a catastrophic plan, but only for people under the age of 26.

(4) Fines On You For Non-Compliance

If you fail to get the required coverage, you will owe a tax, which you must include with your income tax return. (FYI, you will also be fined for dependents and for spouses who file jointly.) Though, interestingly, the government cannot take collection action against you for not paying, except to offset tax overpayments or benefits payments. There can be no penalty or interest charged for non-payment.

This tax will be equal to $200 per person without insurance in 2014, but will rise to $750 per person who lacks insurance by 2017, and will thereafter increase using a cost-of-living adjustment. (§ 1301)

Thus, unlike the House version of this bill, the fine is significantly lower and there are no criminal penalties.

For those who can’t afford the premiums, there is a hardship exemption. If the premiums charged by your employer’s plan or the premiums charged by the cheapest plan in the state exchange exceed 8% of your income, then you are excused from the requirement to get health care. Of course, you won’t have coverage, but at least you can rest assured that your higher taxes are delivering health insurance to people who can afford to buy it now, but have refused to do so.

(5) Subsidies To You: “Premium Assistance”

There is also a subsidy (“premium assistance”) for people in certain income groups (§ 1205) -- this will be paid directly to the insurers (§ 2247).

The amount of the subsidy is determined using a ratio of the portion of your income that exceeds 100% of the poverty level divided by 200% of the poverty level. That is multiplied by 10% and added to 2% and then the whole thing dissolves into gibberish. If I read this correctly, the subsidy will cover most Americans, making it unsustainable. The amount of the subsidy seems to be capped at 10% of the cost of the policy.

Illegal aliens don’t qualify for the subsidy.

Low income persons (read: 67% of Americans) also can expect some reduction in their co-payments as follows 2/3 reduction for anyone at 100-200% of the poverty level; 1/2 reduction for anyone between 200-300% of the poverty level; and 1/3 reduction for anyone between 300-400% of the poverty level. (§ 2247)


3. Requirements To Be Considered “Qualified Health Benefits Plan”

To be considered a qualifying plan, the insurer/plan must agree to the following rate restrictions, must provide the following benefits, and must comply with certain restrictions/requirements.

(1) Rate Restrictions

The Baucus bill limits the factors that insurers may use to adjust the rates charged under the plan. Under Baucus, insurers can only adjust your rate for the following factors (§ 2204):

• Family size. Two adults may be charged twice what one adult can be charged. An adult with a child may be charged 1.8 times what a single adult may be charged. A family of any other size may be charged a maximum of three times what a single adult may be charged.

• Age. The highest-charged group may be charged as much as four times what the lowest-charged group gets charged.

• Tobacco use. Tobacco users may be charged up to 1.5 times what a non-user gets charged.

It is not clear if these can be cumulative, e.g. can you charge an old smoker four times as much as a young non-smoker or six times as much? In any event, these can still lead to significant differences in premiums.

(2) Required Benefits

The Baucus bill also requires that any qualifying plan provide the following “essential benefits package” (§ 2242):

• Hospitalization
• Outpatient clinics and emergency services
• Professional services (physicians and other health professionals)
• Surgical care
• Services, equipment, supplies incident to providing health care at hospitals, physicians offices, or patient homes
• Prescription drugs
• Rehabilitation services
• Mental health and substance use disorder services
• Preventative services, including vaccines
• Maternity benefits
• Well baby, well child, oral health, vision and hearing for children under 21

However, what this means is left up to the insurer, so don’t expect that there won’t be huge variances between policies or fights over what is and what isn’t covered.

(3) Limitations On Insurer

Insurers must also accept the following limits/requirements:

• There can be no co-pays or other “cost sharing” on preventative medicine.

• Deductibles will be limited to $2,000 per person and $4,000 per plan.

• Insurers may not impose annual coverage limits.

• Insurers may not impose lifetime coverage limits.

• Insurers may not impose pre-existing condition exclusions. (§ 2202)

• Insurers may not impose health status limits or terminate coverage because you get sick. (§ 2202)

• Insurers must accept all applicants, without discrimination, up to the capacity limits (i.e. the total number of people the insurer has offered to cover each year). (§ 2203)

• Insurers may not refuse to renew a policy or rescind a policy. (§ 2203)

None of these are particularly surprising.


4. Hot Button Issues

Next we come to the hot button issues. These are surprising.


• Illegal Aliens. Baucus forbids covering illegal aliens. (§ 2232) BUT, he knows that they will continue to do what they do now, which is to appear at hospitals without coverage. Thus, the federal government will continue to reimburse those costs through other programs. Basically, this is misleading.


• Abortion. (§ 2245). Oh boy. This one is confusingly written, I suspect intentionally so. Let’s cut to the chase. No insurer will be forced to provide abortion services, but they all can.

When it comes to funding, it appears that insurers will fall into one of two categories. In the first category, the use of any federal money for abortions will be prohibited. Thus, you will be able to join an insurer that is prohibited from using federal money to provide abortions. BUT, the insurers in the second category apparently will be allowed to use federal money to provide abortions.

HHS will be required to make sure that there is at least one of each plan available to everyone.

I suspect this is set up so that both groups can be told that they have won this debate.


• Abstinence Education. (§ 1804) For reasons unknown, Baucus wades into the abstinence debate, restoring funds for abstinence education. Keep it in your pants kids. . . oh, and stay in school.


• Assisted Suicide. (§ 1921) This one is confusing as well. Baucus very clearly states that no provider or insurer who receives funds under this act may participate in assisted suicide in any way. BUT then Baucus says that this prohibition doesn’t apply to withholding or withdrawing medical care, withholding or withdrawing nutrition or hydration. So I guess you can let people die from neglect, but you can’t kill-kill them.


5. No Public Option

There does not appear to be a public option in this bill. It does require HHS to establish co-op plans (of multiple insurers) to make sure that enough plans exist in each market to satisfy the obligations set forth within the bill, i.e. so that there are four levels of plans and/or plans that provide the required benefits. (§ 1401). But as currently written, this does not appear to be a public option.

FYI, Deranged Nancy Pelosi told CNBC today that, "according to the polls", support for the public option "continues to grow, into the 60%" range. Whether she's just lying or deluded, expect her to demand that a public option be added to the Baucus bill.


6. How Do We Pay For This?

Finally, how do we pay for this plan? Baucus imposes a number of taxes that will increase all aspects of the costs of health care:

• A yearly tax on manufactures and importers of branded prescription pharmaceuticals. (§ 6008)

• A yearly tax on manufacturers and importers of medical devices. (§ 6009)

• An annual fee on health insurance providers. (§ 6010)

• Health care providers may no longer deduct certain high salaries. (§ 6014)

Every one of these taxes will be added to the price of the product, which means that most of this tax (at least half) will be charged right back to the government. Stupid huh? The other half will be paid by . . . you.

There are also tax changes aimed at individuals:

• A 40% tax on any “excess benefits” you get from your employer. Excess benefits are benefits that cost your employer more than $8,000 for an individual plan or $21,000 for family coverage (these amounts go up to $9,850 and $25,000 in certain blue states. . . er, high cost states, and for certain “high risk professions” including emergency responders, construction workers, miners, farmers, forestry workers and fishing industry workers ). (§ 6001)

• An increase in the tax penalty on unqualified distributions from your HSAS from 10% to 20%. (§ 6004)

• Further limits on the deductibility of unreimbursed health care expenses when you itemize. You must now exceed 10% of gross income rather than 7.5% to deduct. (§ 6013)

Right now, I can’t price how much these taxes will bring in or what the bill will actually cost. But it's clear that the figures are so false that Baucus should be charged with fraud. My guess is that these taxes will cover the cost of the program until the bill actually kicks in four years later, then all hell will break loose in the budget.

That’s it for now. Go forth and medicate.