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Affordability in the Baucus Bill

Jon Cohn snagged a useful internal Finance Committee memo (pdf) outlining how Max Baucus's bill would affect families at different income levels. This table conveys the key information, and you can click through it for a larger version

FinanceSnapshot.jpg

Crucially, this is all counting health-care insurance that people don't really need to use. An average year, in other words, when no one gets cancer or is in a car accident. It's good to have insurance in those years -- preventive medicine is important, and seeing a doctor when you have strep throat matters -- but it's not really the point of health-care insurance.

The point of health-care insurance is to protect against the financial burden of catastrophe. So imagine a year of catastrophe. The plan includes out-of-pocket limits, but they're tied to the laws governing health savings accounts. For a family above 300 percent of poverty, that means a maximum out-of-pocket limit of $11,600. If that family made $78,000 a year, and paid $10,800 in premiums, that would mean 29 percent of their income would go towards medical costs.

That's better than the current system, when literally unlimited amounts of money can go toward medical costs. But "better" isn't the same as "affordable." Particularly if the costs are coming from an illness, like cancer, that will last more than one year (it would be nice if the out-of-pocket cap lowered after each year it was reached). The choices, in that scenario, are not that different from the choices today: bankruptcy, dropping insurance or forgoing needed care.

I don't want to underplay the fact that this plan really does make life better for people up to 300 percent of poverty, and even a bit better for people up to 400 percent of poverty. Being socked with a bill for $11,600 is better than facing one for $45,000, or $100,000. But it's worth comparing this with a national system like that in Canada or Britain or France, or even the national system that our own seniors enjoy: In those cases, an awful illness stands no chance of bankrupting a family or consuming 30 percent of its income.

The reforms under consideration make our system somewhat better. Maybe even a lot better. But they don't make it good enough.

By Ezra Klein  |  September 15, 2009; 10:12 AM ET
Categories:  Health Reform  
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Comments

The biggest unasked/unanswered question in this debate is and has been:

What do we expect any individual, family, small business, whoever, to pay for health care (premium plus out-of-pocket) as a percentage of their income?

If we started at that point, we would quickly realize that if the cost of a family premium is about 16,000/year, why would we expect a family with an income of $50K pay that amount, as well as a family with an income of $150K, or the family with $500K income?

Conyers single-payer bill answered this question: A primary funding mechanism would be a payroll tax (the way we pay for Medicare now!) with amounts of 4.5% on employee side and same on employer side. So for less than 10% of employee compensation, we'd cover everybody.

This is such a good deal for small businesses, getting the monkey of health insurance off their backs, I'm surprised there hasn't been a much stronger movement from that quarter. Maybe it's a question of marketing.

Posted by: jshafham | September 15, 2009 10:32 AM | Report abuse

If you can't pay a bill, it doesn't matter a whole lot whether it is $11,000, $45,000, or $100,000. This is the problem with what is being done now. Democrats are going to try to sell any kind of health reform bill as the second coming, but people who currently voluntarily forgoe insurance are going to feel worse off, and people with insurance who still get hit with big bills will feel no better off.

As long as we cling to the conceit that we need a 'uniquely American solution' (i.e., its a crappy system, but it's OUR crappy system, and by God, we're going to keep it!), there's no way out of this dilemma.

Posted by: exgovgirl | September 15, 2009 10:44 AM | Report abuse

I think it's important to note that you really don't pay an unlimited amount of your income to medical costs even without insurance. Once the burden of medical costs gets too high, bankruptcy is an option. Even if somehow you avoid bankruptcy, if the debts are unsecured, I suppose you can pay what you can on the bill, which may or may not be 20 % of your income. All of that is to say, it may well be a financially prudent move to not have insurance and take the risk of bankruptcy over a policy like Senate Democrats think is great for the masses but would object to horribly if given to them.

You'd have to read the language on how deductibles work in the plan, but you can imagine high deductible plans discouraging use (that's the point), causing medical issues to be diagnosed only when the cheaper treatments are no longer an option.

Thus, evidently, the real problem with going bankrupt for medical expenses is that the medical insurance companies and the hospitals lose money. Better to extract as much as possible up front from everyone who doesn't have to good fortune to work for a large company.

Posted by: windshouter | September 15, 2009 11:02 AM | Report abuse

Is anyone realizing that this is the far right bookend for this legislation? I can't imagine any final legislation being farther right than this gang-of-six proposal. It still has to go through the greater finance committee, then merged with the HELP bill, then modified on the senate floor, then finally merged with the house bill.

Do you really think this will be the final subsidy / payment cap levels in the end bill?

Posted by: mayorm | September 15, 2009 11:05 AM | Report abuse

Isn't this Cost Sharing stuff capping out-of-pocket expenses around $4500? Or is that in an average year? Not that $15300 is far enough away from $22,400 to be hugely different...

Posted by: NicholasBeaudrot | September 15, 2009 11:13 AM | Report abuse

Yes, this is health insurance for the hospitals and the health care industry. They feel the pain when you go bankrupt.

Sticking anyone with a normal income with a ten-thousand dollar bill to pay off is financial waterboarding. Eventually they are going to miss payments, lose their credit rating, and suffer all that implies.

With the "reform" that's emerging, Ezra is correct to say that the important part is not access to preventive care, or universal coverage, but insurance for catastrophic health events, in which the hospitals and the industry would otherwise lose money. It's basically a system that pays the industry, but leaves the citizen with huge debts- much like today, but with the citizen paying more in the form of taxes and mandatory coverage.

Posted by: serialcatowner | September 15, 2009 12:56 PM | Report abuse

Of course, this plan does nothing to prevent people from going bankrupt. Ezra, you have made earlier claims that health care reform would put a stop to people going bankrupt as a result of their medical bills. I posted a comment awhile back asking you how you could make such a bold claim. I guess you were just waiting to see the Baucus plan for yourself. Unfortunately, I've even heard President Obama make the same claim. As I've also said before, the biggest thing this bill will do is reform health insurance. It's still a crappy bill in many other respects whatever the final bill is.

Posted by: goadri | September 15, 2009 12:59 PM | Report abuse

Is anyone realizing that this is the far right bookend for this legislation? I can't imagine any final legislation being farther right than this gang-of-six proposal. It still has to go through the greater finance committee, then merged with the HELP bill, then modified on the senate floor, then finally merged with the house bill.

Posted by: mayorm | September 15, 2009 11:05 AM

-------------------

This isn't remotely close to the far right end. We haven't gone through the amendment process were all the ConservaDems start tossing things out on the floor, and Snowe works to talk down Baucus's $880B to $800B or lower. Once you start cutting those costs, those premiums go up.

Worse yet, they likely are using rosey figures on the number of people who will be at those levels of poverty. They are unlikely to be realistic if we stay either in a long recession or (more likely) a long period of high unemployment and/or massive under employment (people not working enough hours to qualify for their company's benefits). Jobless recovery is the buzzword of the day.

John

Posted by: toshiaki | September 15, 2009 1:53 PM | Report abuse

goadri,

no system is 100% fullproof to avoid medical bankruptcy. Even a public option, even single payer unless single payer requires by law every provider in the land (doctor, hospital, pharmacy, labratory, medical device seller etc to accept fee schedules set forth.

These people that think these caps are TRUE caps are simply fooling themselves.

Oh and good luck getting all the above mentioned providers of service to accept Medicare reimbursement alone. Ain't gonna happen.

Posted by: visionbrkr | September 15, 2009 2:09 PM | Report abuse

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