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Baucus Unveils $774 Billion Proposal to Overhaul Health Care

By Jane Norman, CQ HealthBeat Associate Editor

September 16, 2009 --Senate Finance Committee Chairman Max Baucus, D-Mont., on Wednesday brought an end to months of negotiations aimed at striking a bipartisan deal on the health care overhaul and issued a $774 billion, 10-year plan similar in its basic structure to the three bills approved in House committees but lacking a feature considered central by his party's liberals—a public option to compete with private plans.

In another major difference with the House, Baucus would set up, instead of an employer mandate, a system in which small businesses would get tax credits if they offer health insurance to employees, and businesses with 50 workers or more that don't offer insurance would have to reimburse the government, with a payment of up to $400 per worker. He would finance his system changes in part with a 35 percent excise tax on insurance companies linked to high-benefit insurance plans.

At an afternoon press conference in a room overflowing with reporters and TV cameras, Baucus said the health care system is "simply unsustainable" and he is determined to seize "our moment in history" to change it. "We can't let this opportunity pass," said Baucus.

His 223-page chairman's mark meets the standards set out by President Obama in his speech to Congress, and is "a common sense bill that can pass the Senate," Baucus said, with its spending fully offset. According to a Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) analysis of the proposal, by 2019, the number of non-elderly, legal Americans who are uninsured would be reduced by 29 million under the bill.

That would leave about 25 million non-elderly people without health insurance—a third of whom are not legal residents, CBO and JCT said. Additionally, the share of legal, non-elderly people with health insurance would rise from the current 83 percent to about 94 percent, CBO and JCT said.

Said Baucus, "This package may not represent all of our first choices," but "the time for action is now."

No Republican support was voiced in the hours after the chairman's mark was issued at about 9:30 a.m., and even other Democrats seemed tepid. Senate Majority Leader Harry Reid called it a "good beginning." The new chairman of the Senate Health, Education, Labor and Pensions Committee, which already has produced a companion bill with a public option, Democratic Sen. Tom Harkin of Iowa, said the Baucus proposal was a "positive development" but also warned that many amendments are expected to be filed.

"Obviously, the bill that Sen. Baucus proposes is just that – a proposal," said Harkin.

Republican Sen. Charles E. Grassley of Iowa had been one of the members of the so-called "Gang of Six" that spent months working with Baucus to devise a bill that could attract Republican and moderate votes. Grassley said he's willing to continue talks but Democratic leaders set a Sept. 15 deadline that forced Baucus to put forth a plan.

Grassley issued a statement late Tuesday night saying he was disappointed to be "pushed aside" by Senate leaders, and told Iowa reporters in a conference call on Wednesday that he thought the Gang of Six could have arrived at an agreement. He said his continued concerns surround costs to taxpayers, affordability for individuals, taxpayer funds used for abortion services and enforcement against subsides for those in the country illegally. He also wanted an alternative to the individual mandate for insurance and additional provisions on medical malpractice.

In the Baucus plan, individuals who don't buy health insurance would be subject to a penalty ranging from $750 a person per year to $3,800 a year for families earning more than 300 percent of the federal poverty level.

"I think it was possible for us to move ahead," said Grassley. "We were making considerable progress on very difficult issues."

But he still didn't close the door. "All I know is, he's putting in his framework," said Grassley. "But who knows what's going to take place in committee next week?"

The Baucus plan would rely on the concept of Web-based health insurance exchanges, and would require that all individuals purchase insurance coverage, with "health affordability tax credits" provided for low and middle-income families to help pay for plans. The tax credits would kick off in 2013.

Instead of mandating that businesses cover employees, the Baucus plan would use a so-called "free rider" approach that as of Jan. 1, 2013, would require that employers with more than 50 workers reimburse the government for the cost of employees receiving tax credits. About 25 million people would buy insurance through the exchanges, CBO said.

Medicaid eligibility would be extended to all parents, children, pregnant women and childless adults earning less than 133 percent of the federal poverty level, or about $14,400 a year for an individual, beginning in 2014. Those earning between 100 percent and 133 percent of poverty could choose between Medicaid and a private plan in the exchange. CBO said that would add about 11 million more Americans to the Medicaid rolls.

As an alternative to the public option and in a bid to win Republican and moderate Democratic support, the Finance proposal would rely on a system of voluntary, consumer-run co-operatives called the "Consumer Owned and Oriented Plan." Run at the state, regional or federal level, the co-ops would provide health insurance coverage for individuals and employees of small businesses, receiving $6 billion in federal money for start-up costs. Aides said local organizations with matching funds would be sought to help establish the co-ops.

CBO, however, said the co-ops "seem unlikely to establish a significant market presence in many areas of the country." The co-op provision, the brainchild of Democratic Sen. Kent Conrad of North Dakota, also brought forth harsh criticism from Democratic Sen. John D. Rockefeller IV of West Virginia, who backs the public option.

"The proposed co-op model is untested and unsubstantiated—and should not be considered as a national model for health insurance," Rockefeller said in a statement. He said both the U.S. Department of Agriculture and the Government Accountability Office "agree there is not sufficient analysis and data for health care co-ops, and the National Cooperative Business Association—the leading association for co-ops nationwide—believes that more research must be done before such a plan can be considered."

In an initial estimate prepared by the committee, the Baucus mark was said to cost $856 billion over 10 years. However, that was the preliminary gross cost of expenditures in the bill, while the updated CBO figure of $774 billion is net. Both figures are accurate, aides said.

Aides said about $300 billion is spent on expanding Medicaid, while $400 billion goes toward tax credits for low-income people enrolled in the exchange. Another $24 billion is spent on the small-business tax credit and $100 billion goes toward other program changes in Medicare and Medicaid, including the elimination for one year of a proposed cut in Medicare physician payments and the end of the "doughnut hole" in Medicare prescription drug coverage.

The bill at the same time reduces spending on both Medicare and Medicaid, including slicing $123 billion from Medicare Advantage managed care payments to insurance companies, $15 billion in nursing home payments and $500 billion from Medicare payments to providers, most of them recommended in the past by the Medicare Payment Advisory Commission, committee aides said. The excise tax on insurers tied to high-benefit plans was expected to bring in $215 billion in revenue over 10 years, aides said. The tax would apply to self-insured plans and plans sold in the group market.

Annual market basket updates would be reduced for hospitals, home health providers, nursing homes, hospice providers, long-term care hospitals and inpatient rehabilitation facilities.

A flat fee of $2.3 billion a year would be placed on the pharmaceutical manufacturing sector, $4 billion on the medical device manufacturing industry, $6 billion on the health insurance industry and $750 million on clinical laboratories, all beginning in 2010.

Under the Baucus plan, health insurers would have to issue plans to individuals regardless of their health status, and couldn't exclude people based on pre-existing conditions, though limited variations would be allowed for age, tobacco consumption and family size.

Rates could vary by geographic area but not within a geographic area. Yearly and lifetime limits on coverage would be eliminated.

The plan would also shift Medicare incentives to reward quality rather than quantity, increase the number of primary care doctors, encourage coordination of care, provide wellness visits for Medicare beneficiaries and provide free tobacco cessation classes for pregnant women enrolled in Medicaid.

Transparency is encouraged. Each covered individual would receive an outline of coverage in a uniform format that does not exceed four pages in length and has a 12-point typeface.

A 15-member independent Medicare commission is created that would make recommendations on curbing program growth, and in years when costs are projected to be "unsustainable," the commission proposals would take effect unless Congress passes an alternative proposal.

The plan is called "America's Health Future Act," and Baucus said it is designed to broaden access, lower costs and allow Americans to keep the coverage they like, a message that's also been emphasized by President Obama and House Democrats. He said it will not add to the deficit, drawing revenue in part from an excise tax levied on insurers and tied to high-value insurance plans.

"The cost of America's broken health care system has stretched families, businesses and the economy too far for too long. For too many, quality, affordable health care is simply out of reach," said Baucus. "This is a unique moment in history where we can finally reach an objective so many of us have sought for so long."

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