Health Mandate Could Impose Costly Burden On Middle Class

By JED GRAHAM, INVESTOR'S BUSINESS DAILY
Posted 08/21/2009 07:47 PM ET

Although the House health care bill comes with a price tag of $1 trillion-plus, it's telling that President Obama showcased a figure of $800 billion to $900 billion at his recent town hall meetings.

Shedding the trillion-dollar label might appeal to Blue Dog Democrats reluctant to embrace tax hikes and a big expansion of government.

But the government mandate to buy insurance that is central to the Democratic plans means that a slimmer-looking health bill might be largely an illusion; more of the overhaul's burden would shift to the middle class, which could be required to pay a whole lot more to buy less in the way of coverage.

That's why the emerging conventional wisdom that Democrats could win passage of a scaled-down bill might be wrong.

For perspective, the House bill deems it unaffordable for households to spend 11% of pretax income on health insurance.

Fine Days Ahead
But under a June draft of the Senate Finance Committee's cost-cutting compromise, a family of three with pretax income at 300% of the poverty level, or [income] $55,000, would have to pay up to 15% of pretax income, or $8,250, to buy coverage — or else face a fine.

Assuming a qualifying policy is available at that price, it would almost certainly be a high-deductible plan. That means such a family would likely be required to pay upwards of 18% of their income before the first dollar of benefits kicks in.

While the finance panel's final bill could look different, the bipartisan gang of six led by committee Chairman Max Baucus, D-Mont., is focused on further shrinking costs after getting an earful from the public during the August recess.

As details of a future Baucus compromise emerge, Robert Laszewski, president of Health Policy & Strategy Associates, expects the individual mandate to join the public option as a key flash point.

"I don't think the other shoe has fallen in this debate," said Laszewski, a former executive at Liberty Mutual Insurance.

The problem, as he sees it, is that Washington is trying to revamp health care "on the politically cheap."

By shying away from the systemic reform that Laszewski believes can produce the savings to pay for sufficient insurance subsidies, the Democrats' approach makes the subsidies dependent on the size of the tax hike that can be passed.

Mandate Key To Dems' Plans
The individual mandate is essential to the Democrats' health care vision because it's closely linked to provisions to prevent insurers from cherry-picking healthy customers or charging untenable rates to those with pre-existing conditions.

Passing insurance reforms without a mandate would encourage people to wait until they are sick to get coverage and could destroy the economics of the industry. But requiring the young and healthy to sign up would give insurers an influx of profitable customers to offset the risk of covering more people in relatively poorer health.

"If you have to exempt a lot of people from the mandate because they can't afford coverage, you start to unravel the mandate and the reason for the mandate," said Judith Solomon, a senior fellow at the liberal Center on Budget and Policy Priorities.

Her analysis of the Baucus group's June draft reveals several ways in which they try to keep the mandate more or less intact despite cutting off insurance subsidies at 300% of the poverty level.

To ensure that policies will be available for no more than 15% of income — at least for the young and healthy — the Baucus draft would let insurers shift more costs to policyholders and charge much higher rates to older adults.

High-deductible employer-sponsored plans tied to Health Savings Accounts typically cover 76% of the medical costs of an insured population, but qualifying plans under the Baucus draft would pay as little as 65%, Solomon notes.

Further, older adults could be charged as much as five times more than young adults vs. a maximum 2-to-1 in Massachusetts.

"This provision, when combined with an eligibility limit for subsidies set at 300% of the poverty line, would make it very difficult for many near-elderly adults with modest incomes to be able to afford coverage," Solomon wrote.

The House bill provides subsidies up to 400% of the poverty level — as did the initial Baucus plan.

This higher level of subsidies doesn't appear to be a deal-breaker for Senate Republicans, at least the five who have co-sponsored Oregon Democratic Sen. Ron Wyden's Healthy Americans Act.

That bill, which also carries a mandate, subsidizes coverage up to 400% of the poverty level, but pays for it by redistributing the value of the tax benefit that goes to people who get coverage via the workplace.

Obama criticized the concept of a mandate as a candidate, stressing the unfairness of penalizing people for not buying coverage they can't afford. But although he's been highlighting the finance panel's lower price tag, the White House hasn't publicly said if it could agree to limiting subsidies to 300% of poverty.

"That's the kind of detail we had anticipated working through in conference," Obama told Time magazine's Karen Tumulty last month.

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