The Next Step on Health Reform

The Senate’s passage of a heath care reform bill over lockstep Republican opposition required every single member of the Democratic caucus to vote to override Republican filibusters. It will take equal political will to fuse the Senate’s bill with the more expansive reform approved by the House and enact a final version.

The House bill was approved by 220 to 215, and the Senate bill passed with 60 votes, the minimum needed to defeat a filibuster. The risk is that anything that upsets the balance of compromises in either chamber could doom the effort.

The Senate bill seems especially fragile. Senators — especially self-styled moderates — will have to forswear the posturing that weakened and almost derailed their bill. It is time to put the public interest first, because there are valuable features in each bill that warrant inclusion in the final product. The House bill, which is superior in many critical respects, does a better job of making health insurance affordable; the Senate bill has stronger provisions to restrain escalating medical costs.

The basic framework of the bills is the same. Both would require everyone to obtain health insurance — and all employers to provide it — or pay a penalty. Both would set up insurance exchanges on which small businesses and people who buy their own health insurance could choose from an array of private plans (but perhaps not a public plan, the way the winds are blowing).

Both would provide subsidies to help low-income people buy insurance on the exchanges and expand Medicaid to help the poorest. Both would impose new rules on insurance companies and force them to accept all applicants without regard to pre-existing conditions. Both would begin to move Medicare, and through its example the entire health care system, away from wasteful fee-for-service medicine toward coordinated delivery systems that improve quality and lower costs.

The House bill would spend $1.05 trillion over the next decade to expand coverage of the uninsured, a lot more than the $871 billion proposed by the Senate bill. The Congressional Budget Office estimates that the House bill would cover 96 percent of all citizens and legal residents below age 65 by 2019, while the Senate would reach only 94 percent. Both numbers would represent a substantial improvement over the current 83 percent. Neither bill would bust the budget; they would reduce the deficit over the next decade by comparable amounts in excess of $130 billion, according to the budget office.

Here are the major differences:

FINANCINGThe Senate bill has the better financing feature to help subsidize coverage of the uninsured — a stiff excise tax on the most costly employer-provided health plans. The tax would provide a strong incentive for employers and workers to shift to lower-priced plans. Organized labor is strongly opposed to the tax and the House is cool to the idea, but it should be retained. Health economists of all political stripes see the tax as the major cost-reduction element.

The main source of money in the House bill would be an income tax surcharge on the amount by which incomes exceed $500,000 for individuals and $1 million for couples. This is eminently fair given that the wealthy benefited enormously from the Bush-era tax cuts. The Senate rejected such a tax, but should agree to extract more money from the wealthy.

MEDICAL CARE REFORMSThe House bill relies heavily on pilot projects within Medicare to determine which approaches to restraining medical costs might work best, but lacks a strong mechanism to drive successful reforms into widespread use. The Senate bill would empower an independent board to carry out successful reforms broadly within Medicare and recommend changes in private programs. The board is a crucial cost-control mechanism. It should be strengthened, by removing a 10-year exemption for hospitals and hospices.

AFFORDABILITYUnder the more generous House bill, low-income people would pay substantially less and get better benefits than under the Senate bill. The House bill has far better subsidies to help lower-income Americans with premiums and cost-sharing. The Senate bill offers better subsidies for middle-income people. House staffers calculate that a family of four earning $33,000 a year would pay $1,521 in premiums under the Senate bill, which is $530 more than under the House bill. The same family would be exposed to as much as $4,100 in cost-sharing under the Senate bill, which is $3,100 more than under the House bill. Affordability is probably the most critical issue in winning popular support. The Senate needs to agree to more subsidies.

MEDICAIDThe House bill would expand Medicaid coverage to higher-earning people than the Senate bill does. It would raise Medicaid’s low payments to doctors in one crucial respect — paying primary-care doctors the same that Medicare pays. That would make it more likely that poor patients could find a doctor willing to serve them. The Senate should follow the House lead.

EMPLOYER MANDATESThe House bill imposes higher penalties on employers who fail to offer coverage, a prod estimated to increase the number of covered workers by six million in 2019. The Senate bill has weaker penalties that would allow more employers to opt out, reducing by four million the number of workers covered. Under the House bill, employers would have to pay most of the premium and meet minimum benefit levels; the Senate has weaker requirements. The House bill is superior.

INDIVIDUAL MANDATEThe House has stronger penalties on individuals who decline to buy insurance and would exempt fewer individuals on grounds they could not afford to buy coverage. Given that the reforms would work best with the greatest number of people insured, the House provisions should prevail.

EXCHANGES Analysts disagree over whether it would be best to set up a strong national exchange while allowing states that meet national standards to operate the exchanges (the House bill) or to let the states set up exchanges with federal government oversight (the Senate bill). A national exchange would ensure greater uniformity and probably impose tougher standards. State exchanges would know their local markets the best. Either approach could work. The more important issue is how the exchanges would operate.

EXCHANGE RULESThe House bill would merge individual buyers and small businesses into a large pool that would spread the risks among sick and healthy patients so as to keep average premiums low. The Senate bill would fragment the risk pools to the point that they might not function well.

PRESCRIPTION DRUGSThe House bill would close the notorious doughnut hole, a coverage gap that leaves many Medicare patients paying the full cost of their medicines; extract bigger discounts from the manufacturers; and allow the government to negotiate drug prices for Medicare beneficiaries. The Senate should yield to the House on the drug makers, who will be making enormous profits from tens of millions of new customers and ought to contribute more to reform.

PUBLIC PLANThe House bill includes a relatively weak public plan that might end up charging higher premiums than competing private plans because it would attract the sickest customers. Even that modest plan has no chance in the Senate. If it has to be dropped in the interest of passing a bill, that is a price worth paying.

ABORTIONThis is a choice of two evils. The House bill would prohibit any private insurance plan that accepts a single subsidized enrollee from covering abortion. That could effectively ban abortion coverage within the exchanges. The Senate bill would set up an extremely cumbersome procedure in which everyone buying an insurance plan that covers abortions on the exchanges (even men and post-menopausal women) would have to send two monthly checks to the insurance company, one covering most of the premium and a second tiny amount covering the estimated cost of abortion services that might be provided to some enrollees. This would discourage insurers from offering abortion coverage. The Senate would also let states ban abortion coverage.

TIMINGThe House bill would open the new exchanges in 2013; the Senate pushed the date back to 2014 to reduce costs in the first decade. Even 2013 seems a long way off. The Senate should agree to put up more money and open in 2013, if not sooner.