How Much Will the Baucus Bill Cost?

Donald Marron offers a useful reminder:

So let me once again implore everyone commenting on the health debate: There is a difference between the cost of the Baucus bill ($904 billion) and the cost of its provisions to expand coverage ($829 billion). It is understandable that most commentary focuses on the health insurance provisions. But we should not forget the other $75 billion in spending on other initiatives. Dollar-for-dollar they deserve as much scrutiny as the coverage expansions.

This is not a trivial difference. Yet I think the more open question is whether this spending will deliver a better health system overall. Keith Hennessey offers a number of reasons to believe that it won’t.

In 2016 a family with a worker worth about $48,000 in total annual compensation would get about $9,000 of subsidies for the purchase of health insurance, if their employer does not offer them coverage.  If your employer offers you coverage, you are not eligible for these subsidies.  The bills create a firewall intended to prevent employers from “dumping” their employees onto the subsidized system.  This firewall creates an enormous inequity.

Imagine two families in the year 2016, each with an identical worker whose total compensation is worth about $48,000.  Both families are required to buy health insurance.

Family A is offered health insurance through an employer.  A “silver plan” will cost about $14,000 in 2016, squeezing out $14,000 of family A’s income and leaving $34,000 in wages.

Family B is not offered health insurance through an employer, and therefore qualifies for about $9,000 in subsidies to buy health insurance.  Family B thus has $48,000 in wages plus $9,000 in subsidies, minus $14,000 in health insurance and roughly $4,000 in higher taxes, leaving about $39,000 in wages after buying the same silver plan.

Family B ends up roughly $5,000 better off than Family A, even though the workers are worth the same in total compensation.  The family that does not get health insurance through employment is better off because it gets a big subsidy.

So while the legislation ostensibly “bans” the shifting families from one side of the firewall to the other, the incentives will be very large. Hennessey suggests that Congress will be under intense pressure to extend the subsidies from Family B to Family A, which would dramatically increase costs.

Congressional Republicans have been accused of trying to derail health reform through constant delays, and that is an understandable charge. It’s natural for opponents to want to slow down the process. But there are solid, substantive reasons for wanting to slow the process down, namely that there is still a great deal that we don’t understand — and further study could give us a better, more accurate picture of the choices we’re facing. The breakneck pace is all about the political cycle.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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