How Max Baucus Would Bail Out the Insurance Industry at Your Expense


If Congress were trying to design a humane and sustainable national health system, two of the many features it would need would be (1) a means to ensure everyone would receive needed health care and (2) that the cost of achieving this universal health coverage was allocated fairly across those who could afford to pay it. The Max Baucus’ proposal achieves neither.

A basic difficulty in designing such a system is that the cost of providing care to different people does not match up to their ability to contribute to its costs. People who are very poor can also be very sick; and older people will tend to have much higher costs on average than younger people, but their relative average incomes might not match that difference in health needs.

Key relevant provisions of Baucus’ bill [pdf] are called "Rating Rules for the Individual Market" (pages 1-2). These rules apply to people who would be required to purchase insurance in the exchange and define how much more the insurers could charge some individuals compared to others:

Issuers in the individual market could vary premiums
based only on the following characteristics: tobacco use, age, and family composition. Specifically, premiums could vary no more than the ratio specified for each characteristic:

? Tobacco use – 1.5:1
? Age – 5:1
? Family composition:
o Single – 1:1
o Adult with child – 1.8:1
o Two adults – 2:1
o Family – 3:1

Premiums could also vary among, but not within, rating areas to reflect geographic differences. States would define geographic rating areas. Taking together all permissible risk factors,
premiums within a family category could not vary by more than a 7.5:1 composite ratio.

This is what Wendell Potter (see video), who testified before a House health forum is calling "benefit design flexibility." What this is saying is that if you are age 46-64, your premiums could be five times (5:1) higher than those age 21-45. And If you lived in a higher risk location, the total factor could be 7.5:1, or seven and a half times higher than the younger, lower risk group. Is this fair? Consider this.

The rationale for charging older people more is simple. Older people typically have higher health care costs, so they are riskier and thus more expensive to insure. A typical person aged 18 to 24 incurs $1,441 in annual health care expenses, according to Kaiser Family Foundation research. The annual tally for someone between 45 and 64 is more than three times that: $4,863.

So even if the principle we adopted were that we should charge broad groups according to the relative risks/costs of their care a different ages, a factor of 3:1 might be fair for some difference, but the 5:1 ratio Baucus proposes wouldn’t be fair for that same age difference. Of course, if the high risk group were more narrowly focused on the oldest in that group (e.g., 55-64), then a higher ratio might apply.

But notice where Max is going with this logic. He’s saying the older you get, the more we should allow insurance companies to charge relative to younger people, and the more we should force consumers to pay. But when people get to 65, a completely different principle applies. People with Medicare who have been paying into the system through their working years now receive full coverage for a nominal premium (e.g., about $100/month), which is far less than the cost of their care, and people who are still working contribute to paying for their Medicare costs. It’s a completely different principle of fairness and collected revenues to cover health costs.

So the very first question that needs to be asked about Max Baucus mandatory premium proposal is why should we impose a premium structure on those under but approaching 65 and a completely different premium structure on those 65 and older? And which is the fairer principle?

The core political problem we’re seeing is one I talked about a couple of months back when I argued that even if we can’t have single payer or "Medicare for all" health care system, we should examine the principles underlying single payer to help us think about what the criteria for judging what the next best — and I’m using the terms loosely — health reform proposals should try to achieve. In that system, everyone would receive the basic health care they need, and most of the costs of the system would be collected through a tax system premised on ability to pay, not on the difference in group treatment costs.

That is, the "premiums" would be based on progressive principles that we use for taxing people. When you’re trying to achieve "affordability," that’s the principle that should apply.

Max Baucus has done just the opposite. Even when you add in the federal subsidies that would be provided to those within 300 percent of the federal poverty level, Baucus is still trying to base the "tax" allocation for a health care system on how much it costs to treat people in different classes — especially age and where they live — rather than on how much it’s fair to ask them to pay based on income and ability to pay.

The Senate HELP and House Committee Bills follow the same principle, but they soften its effects, by lowering the ratios — the age differential couldn’t be more than 2:1 — and by increasing the subsidies and lowering the out-of-pocket limits. Those are all worthwhile improvements, making the House and HELP bills much better bills, but they’re still stuck in the wrong framework.

Beyond the question of affordability is one of philosophy. Without special rules, everyone agrees that younger people, who are generally more healthy than their elders, would end up shouldering a disproportionate share of health care costs. But maybe that’s exactly what they should do, some argue, knowing that when they get older they’ll benefit from that arrangement.

Dr. Reinhardt, for one, thinks this attitude is unlikely to take hold. “Americans are basically just a group of people sharing the same geography,” he said. “We don’t have a sense of social solidarity.”

One other point. The President Baucus and Olympia Snowe want to extract the new revenues needed only from "within the current health system," which means we somehow extract savings from Medicare without risking benefit cuts or tax health insurance or other aspects of the sector. But we don’t think of paying the basic costs of Medicare that way. Instead, we have payroll taxes that don’t even apply to everyone, supplemented by general revenues — the progressive tax system. There’s nothing wrong with supplementing that with a surtax on the very wealthy to help get us to universal health care, and the White House is wrong to oppose that.

How Max Baucus Would Bail Out the Insurance Industry at Your Expense


If Congress were trying to design a humane and sustainable national health system, two of the many features it would need would be (1) a means to ensure everyone would receive needed health care and (2) that the cost of achieving this universal health coverage was allocated fairly across those who could afford to pay it. The Max Baucus’ proposal achieves neither.

A basic difficulty in designing such a system is that the cost of providing care to different people does not match up to their ability to contribute to its costs. People who are very poor can also be very sick; and older people will tend to have much higher costs on average than younger people, but their relative average incomes might not match that difference in health needs.

Key relevant provisions of Baucus’ bill [pdf] are called "Rating Rules for the Individual Market" (pages 1-2). These rules apply to people who would be required to purchase insurance in the exchange and define how much more the insurers could charge some individuals compared to others:

Issuers in the individual market could vary premiums
based only on the following characteristics: tobacco use, age, and family composition. Specifically, premiums could vary no more than the ratio specified for each characteristic:

? Tobacco use – 1.5:1
? Age – 5:1
? Family composition:
o Single – 1:1
o Adult with child – 1.8:1
o Two adults – 2:1
o Family – 3:1

Premiums could also vary among, but not within, rating areas to reflect geographic differences. States would define geographic rating areas. Taking together all permissible risk factors,
premiums within a family category could not vary by more than a 7.5:1 composite ratio.

This is what Wendell Potter (see video), who testified before a House health forum, is calling "benefit design flexibility." What this is saying is that if you are age 46-64, your premiums could be up to five times (5:1) higher than those age 21-45. And If you lived in a higher risk location, the total factor could be 7.5:1, or seven and a half times higher than the younger, lower risk group. Is this fair? Consider this.

The rationale for charging older people more is simple. Older people typically have higher health care costs, so they are riskier and thus more expensive to insure. A typical person aged 18 to 24 incurs $1,441 in annual health care expenses, according to Kaiser Family Foundation research. The annual tally for someone between 45 and 64 is more than three times that: $4,863.

So even if the principle we adopted were that we should charge broad groups according to the relative risks/costs of their care at different ages, a factor of 3:1 might be fair for some differences, but the 5:1 ratio Baucus proposes wouldn’t be fair for that same age difference. Of course, if the high risk group were more narrowly focused on the oldest (and riskiest) in that group (e.g., 59-64), then a higher ratio might apply.

But notice where Max is going with this logic. He’s saying the older you get, the more we should allow insurance companies to charge relative to younger people, and the more we should force consumers to pay. But when people get to 65, a completely different principle applies. People with Medicare who have been paying into the system through their working years now receive full coverage for a nominal premium (e.g., about $100/month), which is far less than the cost of their care. And people who are still working contribute to paying for their Medicare costs, and they will in turn receive that benefit when they reach Medicare age. It’s a completely different principle of fairness and collecting revenues to cover health costs.

So the very first question that needs to be asked about Max Baucus mandatory premium proposal is why should we impose a cost-based premium structure on those under but approaching 65 and a completely different premium structure on those 65 and older? Which is the fairer principle, and how should we balance between the two?

The core political problem we’re seeing is one I talked about a couple of months back when I argued that even if our corrupt political system won’t allow us to have single payer or "Medicare for all" health care system, we should examine the principles underlying single payer to help us think about what the criteria for judging what the next best — and I’m using the terms loosely — health reform proposals should try to achieve. In that system, everyone would receive the basic health care they need, and most of the costs of the system would be collected through a tax system premised on ability to pay, not on the difference in group treatment costs.

That is, the "premiums" (i.e. taxes) would be based on progressive principles that we use for taxing people. When you’re trying to achieve "affordability," as Congress and the White House claim they are, that’s the principle that should apply.

Max Baucus has gone a long ways in the opposite direction. Even when you add in the federal subsidies that would be provided to those within 300 percent of the federal poverty level, Baucus is still trying to base the "tax" allocation for a health care system on how much it costs to treat people in different classes — especially age and where they live — rather than on how much it’s fair to ask them to pay based on income and ability to pay.

The Senate HELP and House Committee Bills follow the same principle, but they soften its effects, by lowering the ratios — the age differential can’t be more than 2:1 — and by increasing the subsidies and lowering the out-of-pocket limits. Those are all worthwhile improvements relative to Baucus, making the House and HELP bills much better bills, but they’re still stuck in the wrong framework.

Proposed health care legislation would forbid insurers from charging sick people more or rejecting them outright. But by allowing insurers to charge so much more for older, often sicker people, “You’re just using age as a proxy for health status,” said Uwe Reinhardt, an economics professor at Princeton University. He estimates that Senator Baucus’s age-rating plan would allow insurers to cover roughly 70 percent of the additional risk they’d take on by being required to accept all comers, regardless of health. . . .

Beyond the question of affordability is one of philosophy. Without special rules, everyone agrees that younger people, who are generally more healthy than their elders, would end up shouldering a disproportionate share of health care costs. But maybe that’s exactly what they should do, some argue, knowing that when they get older they’ll benefit from that arrangement.

Dr. Reinhardt, for one, thinks this attitude is unlikely to take hold. “Americans are basically just a group of people sharing the same geography,” he said. “We don’t have a sense of social solidarity.”

One other point. The President, Baucus and Olympia Snowe want to extract the new revenues needed only from "within the current health system," which means we somehow extract savings from Medicare without risking benefit cuts or tax health insurance or other aspects of the sector. But this is a perverse idea.

We don’t think of paying the basic costs of Medicare that way. Instead, we have payroll taxes that don’t even apply to everyone, supplemented by general revenues — the progressive tax system. There’s nothing wrong with supplementing that with a surtax on the very wealthy to help get us to universal health care, and the White House is wrong to oppose that.

And the new premiums Americans would be forced to pay under the individual mandate are not coming from "within the health system." They’re coming out of the pockets of the currently uninsured. The "within the system" rule is just misleading gibberish to keep people from thinking about what’s really going on.

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