The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Baucuscare vs. Wydencare


At the moment, it looks as though a gently modified form of Baucuscare will become a reality. Ezra Klein describes the remaining roadblocks (possible revenue-enhancers  include a soda tax and curbing itemized deductions) and Nicholas Beaudrot, a data-driven liberal blogger based in Seattle, has been writing a series of posts on how to make Baucus’s reform proposal more generous to the less affluent. The debate has focused on reducing the cost of Baucuscare to the federal government, but of course any individual or employer mandate will create costs for families and firms. Without subsidies, the mandate essentially becomes an unacknowledged tax on the middle class, as James Kwak has argued.  

Relative to the House bill, then, the Baucus bill costs the government $140 billion less; but it costs middle-income people exactly $140 billion more, since they have to buy health insurance. The difference is that in the House bill, the money comes from taxes on the very rich; in the Baucus bill, it comes out of the pockets of the middle-class people who are getting smaller subsidies. Put another way, the Baucus bill is the House bill, plus a $140 billion tax on people making around $40-80,000 per year. That’ s not only stupid policy; it’s stupid politics.

I get the impression that Kwak is less concerned than I am about the drag created by high levels of government spending, but he makes a compelling point. The advantage of Baucuscare’s “modest” price tag is purely psychological: $856 billion sounds less frightening to taxpayers than $1 trillion, yet those same taxpayers will be legally obligated to spend an additional $140 billion as Kwak explains — only it’s not a “tax.”

I’m increasingly convinced that Senator Ron Wyden’s so-called “free choice” proposal is preferable to the Baucus approach.

I believe there is a way to work with the present employer-based system to guarantee that all Americans have choices, and I am proposing it in an amendment to the latest Senate health care bill. My amendment, called Free Choice, would let everyone choose his health insurance plan.

It would impose only one requirement on employers — that they offer their employees a choice of at least two insurance plans, one of them a low-cost, high-value plan. Employers could meet this requirement by offering their own choices. Or they could let their employees choose either the company plan or a voucher that could be used to buy a plan on the exchange. They could also simply insure all of their employees though the exchange, at a discounted rate.

All payments that employers would make, whether in the form of premiums or vouchers, would remain tax-deductible as a business expense. Reinsurance and risk adjustment mechanisms already in the bill would balance the costs of employers who end up with disproportionately sick pools of workers, and this would avoid any disruption to existing employer coverage. Any employers that did not offer either their own choices or insurance through the exchange would be required to pay a “fair share” fee to help support the system.

By increasing competition among private insurers, this approach is somewhat more likely to yield cost savings over time. While I’d much rather we move to a universal catastrophic coverage system based on a well-designed reinsurance program, Wyden’s proposal might be the best of the realistic options.

Many Republicans are banking on winning back Congress and the 2012 presidential election in order to repeal the reform legislation that ultimately takes shape. This is much easier said than done.  


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