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The Baucus Plan and the Exchanges

Color me impressed. I've argued before that the Health Insurance Exchanges are the most important piece of health-care reform, and they're being unacceptably weakened and constrained. The House bill, for instance, specifically allows businesses with only 20 or fewer people to join.

Baucus goes quite a bit further. He begins by mandating that businesses with up to 50 employees be allowed to buy into the exchanges. If states want, they can expand that to businesses with 100 employees. There's substantial risk adjustment to make sure that no insurer is gaming the system. At the beginning, for instance, all insurers have to pay into a "reinsurance" fund that compensates those insurers with objectively sicker populations, thus wiping out the incentive to risk select. States can also partner with one another to create regional exchanges, which will have larger risk pools and more bargaining power.

So far, so good. This, however, is where the Baucus plan takes that crucial next step: "In 2017, states must develop and submit to the Secretary a phase-in schedule (not to exceed five years), including applicable rating rules, for incorporating firms with 50 or more (or 100 or more for those states that already included firms with 51-100 employees) into the state exchanges."

In other words, by 2022, the Health Insurance Exchanges will be open to all businesses of all sizes. That's a huge deal. And the first place where I've seen the Baucus bill go substantially further than the other bills.

By Ezra Klein  |  September 16, 2009; 10:57 AM ET
Categories:  Health Reform  
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Next: The Baucus Plan: State Insurance Regulation, National Plans

Comments

It's 2009. 2022 is 13 years from now. That's pretty far down the road to kick the can.

Will exchanges be big enough for meaningful price negotiation?

Also, what of unemployed individuals? Will they be able to participate?

Posted by: fuse | September 16, 2009 11:16 AM | Report abuse

Is there any reason not to just do this on day one?

Posted by: adamiani | September 16, 2009 11:24 AM | Report abuse

Let us know how this compares to the Senate HELP bill.

Posted by: westofthedc | September 16, 2009 11:25 AM | Report abuse

Yeah, um, the bill says 2022. And in 2018, insurance companies will ask that it be extended to 2024. And in 2022, they'll ask for an extension to 2025, and so on. We just went through this with DTV transition.

By the time this actually went through, my as-of-yet unborn child will probably have a drivers' license, or, at the very least, a learner's permit, since we seem to be upping the minimum driving age all the damn time.

Posted by: NicholasBeaudrot | September 16, 2009 11:26 AM | Report abuse

adamiani,

do you think there's a magic wand to be waved that it can just be done? setting up a state exchange takes years (just look at Mass.) A national one is even more cumbersome. The only things you could force right away (ie Jan. 1, 2010) would be the end to pre-ex to go along with the individual mandate. Just look at how the government butchered rushing out the ARRA portion of the COBRA laws. WHile many people kept coverage many lost it because of the process that things have to take.


And Ezra also seems to be still thinking along the lines that bigger is always better. Its not. Its better when it comes to administration cost but eventually even that becomes marginalized but the large driver of costs (claims) are affected minimally by size at certain economies of scale. Of a much greater factor is health status of the members.

Let's put it this way. If you get an exchange of 10 million who are smoking, red meat eating, obese people then their costs will be much higher than a group of 500,000 diet conscience, healthy consumers. Sure the admin costs of the larger group would be smaller but that takes up such a small piece of the puzzle.

Posted by: visionbrkr | September 16, 2009 11:34 AM | Report abuse

At Ezra's second link, he's pretty clear that it takes A LOT of people ("experts say that you need at least 20 million") in a Health Insurance Exchange for it to yield the hoped-for benefits.

If Alaska or Mississippi decides it doesn't want to partner with other states in a regional exchange, anyone in the individual market in those states is screwed. (Non)Participation in a wider exchange shouldn't be a state-level call.

So based on what Ezra's said earlier, I'm decidedly less impressed than Ezra is with this aspect of the Baucus plan.

The risk adjustment plan looks good, and the eventual opening of the Exchanges to everyone is good, too. But the latter can be tacked on in a future year; it really doesn't matter if it's not there in the bill Obama signs this year.

Posted by: rt42 | September 16, 2009 11:37 AM | Report abuse

Ezra, you're really being to sound like a awestruck kindergartener at a birthday party of late. 2022? Are you serious? The insurance lobby has been growing bigger and bigger each year. I can't imagine they wouldn't be even more powerful in 2022.

Posted by: jasonr3 | September 16, 2009 11:41 AM | Report abuse

[i]do you think there's a magic wand to be waved that it can just be done? setting up a state exchange takes years (just look at Mass.) A national one is even more cumbersome.[/i]

Assume, for purposes of this conversation, that I'm not actually an extraordinarily silly person. When I ask "Is there any reason not to just do this on day one?" I don't literally mean January 1, 2010, but as soon as it could be practically implemented. Surely a 13 year lead-time is grossly excessive?

Posted by: adamiani | September 16, 2009 11:50 AM | Report abuse

im freakin' ecstatic here. i knew the exchanges didn't stand a chance of being of national scope right from the get-go. but at least, this contains some sort of mechanism cognizant of where we're going with this. and if you find it hard to get off on this little nugget, well, where's a better alternative? HELP? House bills? yeah. didn't think so.

Posted by: lupercal | September 16, 2009 11:53 AM | Report abuse

Keep this piece of the Baucus plan, jettison the rest of it. Go conferencing!

Posted by: JERiv | September 16, 2009 11:53 AM | Report abuse

Baucus's current proposal does "go substantially further than the other bills", both in forward-looking provisions and in language tuning.

This doesn't mean it will be popular; in fact, it probably means it will be unpopular. Finding a bill that's both "right" and "popular" is difficult... yes, sort of like finding a restaurant.

Posted by: rmgregory | September 16, 2009 11:57 AM | Report abuse

It's very incremental and therefore very costly. Maybe you'll live to see some benefit from this Ezra but I'm not sure I will.

The >10% affordability waiver seems to be gone from this version of the plan. I see that as a key cost control incentive which should be restored.

Posted by: bmull | September 16, 2009 12:05 PM | Report abuse

adamiani,

Ok. But just understand there are plenty of silly people around here that want everything done day one and they don't understand the system changes that an undertaking of this magnitude takes. I now realize you're not one of those. The point is you need to stagger enrollment. If you threw everyone in at the same time the system wouldn't be able to handle it. It would be like opening a single door to a stadium and expecting 75,000 people to get through there. It'd be ugly.


I do agree that they're staggering it in the right order (individual, small businesses, large businesses). I do think they could do it a little quicker than that and I'm sure those time frames can be adjusted in committee but I hope they don't swing too far the other way in the interests of speed at the cost of efficency.

Posted by: visionbrkr | September 16, 2009 12:06 PM | Report abuse

When every single American can choose to buy on the exchange regardless of the size of the company he or she works for or whether that company offers insurance, then I'll be impressed.

Posted by: redwards95 | September 16, 2009 12:07 PM | Report abuse

Anyone else wondering what portion of GDP will be spent on healthcare in 2022? Can we wait that long? Hell, why not make it 2042?

Posted by: slantedview | September 16, 2009 12:11 PM | Report abuse

Nevermind I found the affordability waiver.

It looks like eventually we're going to end up at Wyden-Bennett. That's okay I guess but having more direct government role in the market would have been a better long-term goal.

Posted by: bmull | September 16, 2009 12:22 PM | Report abuse

Visionbrkr-

Why do you believe there will be substantial efficiency gains to a slow ramp-up? It will no doubt be easier to implement a smoothly functioning system over a long period of time, but the effectiveness of the exchanges as a cost-control mechanism would, one imagines, largely be a function of their size.

Posted by: adamiani | September 16, 2009 12:23 PM | Report abuse

2022??? How many people will die until then?

Posted by: impikk | September 16, 2009 12:33 PM | Report abuse

adamiani,

my concern is that it IS a smoothly functioning system. If its rushed and it doesn't function well then it'll be useless and next to no one will participate and you'll never even get to the cost control mechanisms that would come with the larger size groups.


Its not about efficency its about viability over the long term.

Posted by: visionbrkr | September 16, 2009 12:40 PM | Report abuse

visionbrkr, but that's not why the specific dates were chosen. They were chosen to game the CBO estimates to get the desired cost for the bill.

Posted by: redwards95 | September 16, 2009 1:06 PM | Report abuse

I agree that 2022 is too long for this. But there's actually some reasoning here: The people who research this stuff think it actually will take a certain amount of time to get this right. The risk adjustment, in particular, is a huge problem when you open this to all employers, and you really need a stable exchange capable of dealing with the sudden influx of older workforces.

The other issue here is CBO. It's no accident that the exchange opens after the 10 year window. That means the bill isn't scored as creating large changes in the private marketplace, even though it will eventually do so.

If it were up to me, I'd set the date for the plan for large employers at 2016 (the plan begins in 2013, remember), with phase-in over the next five years.

Posted by: Ezra Klein | September 16, 2009 1:08 PM | Report abuse

Max Baucus cured monkey pox with a space laser in 2022.

Posted by: jamusco | September 16, 2009 1:13 PM | Report abuse

That it will take 13 yrs or so to figure out the risk adjustment needed to make the exchanges work is not impressive. It instead props up the fear that government-run medicine will be glacially slow to address the needs of patients.

Posted by: anne3 | September 16, 2009 1:17 PM | Report abuse

redwards95,

i get that point thanks but also realize it takes some time to get things right as Ezra points out. but its interesting too how Conrad wants it scored over 20 years now (when the exchange's costs are more accurate). Is he then working against Baucus? If Baucus is hiding some cost and Conrad is trying to expose it what's the deal? whose running the show there? These guys are like a bad soap opera. "As the Gang of 6 turns"

Posted by: visionbrkr | September 16, 2009 1:34 PM | Report abuse

"The insurance lobby has been growing bigger and bigger each year. I can't imagine they wouldn't be even more powerful in 2022."

Oh, I can. As the post on premium increases made clear, the long-term future of American-style private health insurance is pretty much doomed. The question is really one of when the corporations decide to cash out and run for the hills.

Posted by: pseudonymousinnc | September 16, 2009 3:01 PM | Report abuse

Wow. That's a big deal. It's almost worth a lot of other crap in the bill just to have that in there. Hopefully this will be included in the final bill.

Posted by: TWAndrews | September 16, 2009 3:23 PM | Report abuse

I can't believe that Ezra and I have read the same bill. The complexity of the exchanges boggles the mind, makes a Rube Goldberg scheme look like an exercise in elegant simplicity, and reminds me of the hypercomplexity that was the real downfall of Hillarycare.

Worse, the delay in implementing the scheme means tens of thousands will suffer or die because they need health care now, but cannot afford it.

Baucus's proposal serves as irrefutable proof that a zero-dollar, single-payer system that outlaws private health insurance is the only moral and economically responsible approach to health care in a civilized nation.

Posted by: jrconner | September 16, 2009 4:12 PM | Report abuse

The Dems should do what they should have done all along, pass health care reform with the public option. The Republicans never had any intention of coming on board with any plan. They just wasted several months of time in getting this thing done. They have no ideas. Their 'plan' was the status quo to make sure those health care industry checks keep on coming.

Posted by: carlyt | September 16, 2009 8:15 PM | Report abuse

FDL has a nice explanation of how this will all shake out, and Donkeylicious crunches the numbers and shows what I've long suspected--that even a $1.2T bill wouldn't come close to what's needed.

http://seminal.firedoglake.com/diary/8209

http://www.donkeylicious.com/2009/09/baucus-blunders-part-ii-affordability.html

Posted by: bmull | September 17, 2009 12:24 AM | Report abuse

"The House bill, for instance, specifically allows businesses with only 20 or fewer people to join."

It does? Where? I am working from the Ed&Labor version, which I believe represents the Tri-Committee Bill PRIOR to markup. So maybe something got taken out. I don't see why that would be, but on a plain reading the above assertion is simply a misreading.

The relevant section is: SEC. 202. EXCHANGE-ELIGIBLE INDIVIDUALS AND EMPLOYERS. starting on pg. 73. 'Employers' are categorized in 202 (e)(1-3) starting on pg. 79 into 'Smallest' or 10 employees or fewer, 'Smaller' or 20 employees or fewer, and "Larger'. The rules for these latter are spelled out in 202 (e) (3) as follows:

(3) LARGER EMPLOYERS.—
(A) IN GENERAL.—Beginning with Y3, the Commissioner may permit employers not described in paragraph (1) or (2) to be Exchange eligible employers.
(B) PHASE-IN.—In applying subparagraph (A), the Commissioner may phase-in the application of such subparagraph based on the number of full-time employees of an employer and such other considerations as the Commissioner deems appropriate.

This last bit seems to mean that mega-employers can't dump all their workers on Exchange Plans all at once.

The confusion may come from Sec 202 (c) starting on pg. 74
(c) TRANSITION.—Individuals and employers shall only be eligible to enroll or participate in the Health Insurance Exchange in accordance with the following transition schedule:
(1) FIRSTYEAR.—In Y1 (as defined in section 100(c))— {i.e. 2013}
(A) individuals described in subsection (d)(1), including individuals described in paragraphs (3) and (4) of subsection (d); and
(B) smallest employers described in subsection (e)(1).
(2) SECOND YEAR.—In Y2— {2014}
(A) individuals and employers described in paragraph (1); and
(B) smaller employers described in subsection (e)(2).
(3) THIRD AND SUBSEQUENT YEARS.—In Y3 {2015} and subsequent years—
(A) individuals and employers described in paragraph (2); and
(B) larger employers as permitted by the Commissioner under subsection (e)(3).

Unless 202 (c)(3) and 202 (e)(3) were deleted during markup in all three Committees it would appear that all employers will become Exchange Eligible starting on Jan 1, 2015 subject only to phasing requirements for the largest companies. A process that surely would be accomplished well before the 2022 in the Baucus markup.

What did I miss?

Posted by: BruceWebb | September 17, 2009 8:06 PM | Report abuse

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