The Baucus Bill's Bad Math

The Associated Press has some speculative details of the "compromise" health care bill that looks ready, at long last, to emerge from Max Baucus's Senate Finance Committee:

[Any] legislation that emerges from the talks is expected to provide for a non-profit cooperative to sell insurance in competition with private industry, rather than giving the federal government a role in the marketplace. The White House and numerous Democrats in Congress have called for a government option to provide competition to private companies and hold down costs.

Officials also said a bipartisan compromise would not subject companies to a penalty if they declined to offer coverage to their workers. These businesses would be required to reimburse the government for part or all of any federal subsidies designed to help lower-income employees obtain insurance on their own.

Democratic-drafted legislation in the House includes both a penalty and a requirement for companies to share in the cost of covering employees.

So there's not a public option in the Finance Committee's bill -- which should come as no great surprise to anyone who's been following this debate. Instead, there's Kent Conrad's plan for regional, non-profit cooperatives. The real fight over the public option will take place when the HELP Committee's bill, which does include a public option, is reconciled with the Finance Committee's version, and/or when the Senate's version is ultimately reconciled with the House version.

The bigger news, rather, is that Baucus's bill will not contain an employer mandate -- a requirement that employers provide health insurance to their employees -- even though it does contain an individual mandate.

Does this look familiar to anyone?

-- No employer mandate
-- No public option
-- But yes, an individual mandate

It should -- because this particular permutation on health care reform looks an awful lot like the incomplete draft of the HELP Committee's bill that the CBO scored last month, which also lacked an employer mandate and a public option but contained an individual mandate. That bill, the CBO estimated, would cost about $1.0 trillion -- but would only cover a net of about 16 million people. In contrast, the revised version of the HELP Committee's bill, which did include both a public option and an employer mandate, would cost about the same amount but cover a net of 37 million people.

It's not quite right to say that the public option and the employer mandate would allow us to cover an additional 21 million people for "free". That's because the employer mandate represents a burden on businesses, and could in turn result in some additional costs in the form of lower wages and/or reduced employment. A recent study by the Federal Reserve Bank of San Francisco found that in the state of Hawaii, which does have an employer mandate, wages dropped but by a "statistically insignificant" amount. It also found that there was an increase in the reliance on sub-part-time workers (people working fewer than 20 hours a week are not subject to Hawaii's requirement) but no overall drop in "employment probabilities". The upside, however, is significant: Hawaii has both the broadest coverage among adults aged 18-64 (only 11 percent are uninsured) and (!) the cheapest premiums. Although some of this has to do with Hawaii's climate, ethnic makeup, and diet, that seems like a pretty good trade-off.

Baucus's bill makes a different trade-off. In order to placate business interests on the employer mandate, and what are frankly ideological interests on the public option, it sacrifices coverage. If I'm reading this right, in fact, 16 million might be on the high end in terms of the net gain in coverage. That's because whereas the HELP Committee's unfinished draft subsidized insurance at up to 500 percent of the poverty line (meaning $54,150 for an individual or $110,250 for a family of four), the assistance in Baucus's draft would end for people making more than 300 percent of poverty ($32,490 for an individual or $66,150 for a four-person family).

The AP may be right that Baucus's bill will cost less than $1 trillion, but it accomplishes that by shifting the burden to middle-income families, some of whom have poor balance sheets and will face a really tough choice between paying for health insurance they can't quite afford and facing some kind of penalty. Odds are that many of them will take the penalty, which is why coverage probably won't expand very much. Or, the enforcement mechanisms could be more stringent, in which case they'll have to buy health care, at the cost of reducing their spending in other areas -- and in probably being very teed off at the Democrats who passed the bill**.

This is a pretty poor combination of attributes for a health care reform bill to have. If Baucus & Co. wanted to get the cost below $1 trillion, they could have chopped the subsidies down to, say, 350 percent of poverty, while keeping the employer mandate and the public option. As a very rough guess, a bill like that might insure another 30-35 million people at a gross cost of about $850-$900 billion. The actual Baucus bill is going to cost about the same but will be lucky to insure half as many.

The good news is that the math on this bill is so bad that I doubt it will survive intact. Personally, I think the public option is probably a goner, but that the employer mandate will probably be restored -- especially if Baucus dares to put his bill before the CBO and see what they think of it.

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** Just to underscore this point: when it scored a similar bill, the CBO estimated that 15 million people would lose their employer-provided coverage. Most of these people are likely to be lower-to-middle income persons with somewhat tenuous employment situations, a group that tends classically to be swing voters.

Now, how are those 15 million people going to feel about health care reform when they find out that:

a) Although the bill was supposed to guarantee access to health insurance, they've in fact lost theirs;
b) They're required to buy an expensive, private plan on their own, or to pay a fine;
c) They're probably not getting any government assistance;
d) They certainly don't have any Medicare-like alternative to fall back upon;
e) All of this cost the country about $1 trillion dollars.

You think those 15 million people are going to vote for the Democrats again, like, ever?

EDIT: The Politico article on the subject implies a little bit more of a compromise approach toward the employer mandate.

Sen. Olympia Snowe (R-Maine) confirmed that the three Republicans and three Democrats negotiating the Senate Finance bill are moving away from a broad-based mandate that would force employers to offer insurance. The senators instead are leaning toward a “free rider” provision that requires employers to pay for employees who receive coverage through Medicaid or who receive new government subsidies to purchase insurance through an exchange.

This is better -- maybe a lot better -- than having nothing at all, although it potentially leads to some distortions in the market. Say that you're picking between a job candidate who has a family of five, and a job candidate who is single. The job pays $40,000 per year, but for whatever reason, you've decided that it's not cost-effective to provide your employees with health insurance. The former candidate, the one with the family of five, will be eligible for the government subsidy, which you will ultimately have to foot the bill for. The single guy will not be. Who are you going to hire?