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EconomicPolicyInstitute January 7, 2010

No one said it would be easy – or simple. After months of hard work, negotiations, public protests, and compromise, House and Senate leadership are beginning the process of combining two competing reform bills into one law. Collectively weighing in at more than 4,000 pages, these reform proposals can be difficult to penetrate, and some of the key details have been lost.

Over the past several months, EPI has tracked every key development in the effort to reform health care and weighed in on the fairness and effectiveness of various proposals, from how reform will be funded to how much it will cost – or save – the typical American. Attached is a guide to some of the key issues at stake.

Cadillac plans – The term refers to expensive health insurance plans. It was coined by supporters of proposals to fund health care reform with an excise tax (see below) on high-cost health insurance plans. EPI’s Director of Health Policy Research Elise Gould was among the first to point out that in the dysfunctional market for health insurance, high-cost does not equal high-quality and the “Cadillac” designation is misleading. In High-Priced but not High-Quality, Gould stresses that many people who pay the most for health insurance have very basic plans. People who work for small businesses often pay higher-than-average premiums, not because the plans are lavish, but because they have high administrative costs and lack the bargaining power of larger companies. People who work for companies with a large portion of older or less healthy workers also tend to pay more, because these workers are expected to have higher health care costs. Levying taxes simply on high-cost plans will, in short, capture very few Cadillacs and plenty of Chevys.

Excise tax – The excise tax refers to the proposed tax on high-priced plans in the Senate bill. In her analysis, Senate Tax Proposal Would Affect One-Third of Health Insurance Plans, Gould points out the flaws in the proposed 40% tax on high-cost employer-sponsored health plans. The bill defines high-cost plans as those that cost more than $8,500 a year for individual coverage and more than $23,000 a year for family coverage in 2013, and then indexes those levels to the increase in overall inflation (plus 1%) going forward. That means of indexing poses a significant problem: Because health care costs are growing much faster than inflation, the proposed excise tax would, over time, impact far more plans than advertised, over one-quarter of single and family plans by the year 2019. The tax could lead many employers to reduce the comprehensiveness of their insurance coverage, which would increase  patient out-of-pocket payments. As Gould and EPI economist Josh Bivens point out in The House Health Bill is Right on the Money, the excise tax would essentially shift health costs and risks onto workers and families and would hit those with high medical costs especially hard.

Employer-sponsored insurance (ESI)—The majority of Americans under age 65 get health insurance through their employers. Having a job, however, is by no means a guarantee of having health insurance. Gould has written extensively about the erosion of ESI over the last decade, and in this Briefing Paper, she tracks a steady decline in the portion of people under 65 who have ESI, to 61.9% in 2008 from 68.3% in 2000. The data on ESI also show how low-wage earners are less likely to be covered through their employers. This trend of declining ESI is a key reason many lawmakers have pushed for an employer mandate and a public option (see below).

Employer mandate—The House bill would require employers to provide a minimum standard of affordable health insurance to their workers, or pay a share of their payroll instead through a new employer mandate. Small firms would be exempt from the mandate and would actually receive subsidies (see below) to help with coverage. The Senate bill does not include a requirement that employers offer coverage, but it does charge a penalty for firms that do not offer insurance and whose workers qualify for subsidies when they enroll in the new national insurance exchanges (see below). In The House Wins, Elise Gould and UC-California Berkeley researcher Ken Jacobs examine the effects of both the House and the Senate employer requirements and find that the House bill’s pay-or-play (see below) mandate would be much more effective.

Pay or play—A means of enforcing an employer mandate (see above), a pay-or-play provision would impose a charge on employers who did not provide health insurance. It sounds simple enough, but the specific way it is executed can have a huge impact on coverage levels and even job security. An analysis by Gould and Jacobs shows why the employer mandate in the House bill would be far more successful than the Senate bill both at raising money and ensuring stable, reliable health care.

Public option—One of the most controversial and misunderstood aspects of health care reform, the public option is also a key component of effective reform and a key difference between the House and the Senate bill. The House bill contains a public option, but the Senate bill does not. EPI has long emphasized the value of a public health insurance option as a means to encourage competition among insurers, keep costs in check, and serve as backup insurance for the millions of Americans who do not get insurance through their employers, or who lose it when they are laid off. These multiple benefits are outlined in Health Care for America, by Yale University political scientist Jacob Hacker. A Public Plan Option as Backup Insurance for All Americans, by EPI researcher Alexander Hertel-Fernandez discusses how a public insurance option could benefit the large number of workers who do not have employer-sponsored insurance, or who lose it when they leave a job. One-third of America’s uninsured work full-time.

Insurance exchanges—A centerpiece of both the House and Senate reform proposals, insurance exchanges would be the primary vehicle to give individuals and small businesses more bargaining power when buying insurance. These exchanges are regulated marketplaces where insurers would be required to comply with minimum standards of coverage and would be barred from cherry-picking only the healthiest customers. The effectiveness of any exchange, however, would depend to a great extent on its size and scope. In The Best of the Health Reform Proposals, Gould and Hertel-Fernandez show that exchanges work best when they are open to a large number of individuals and are well-regulated to ensure high-quality options. The House reform bill, which proposes a national exchange, goes the furthest toward achieving this.  In contrast, the Senate bill would have states operate their own smaller exchanges with federal backup.

Small business—Declines in insurance coverage among workers in small businesses have driven much of the drop in employer-sponsored health insurance coverage nationwide. EPI has documented the burden that small businesses face in providing health insurance to their workers, including an inability to offer attractive risk pools to potential insurers, high administrative costs, and little competition in insurer markets. Bivens, Gould, and Hertel-Fernandez document these obstacles, as well as major improvements to the health insurance system for small firms for both House and Senate legislation.

Subsidies—A by-product of the mandates contained in both bills requiring all Americans to carry health insurance, subsidies are designed to make health insurance affordable to low- and middle-income Americans. The exact level of subsidy, however, has been a matter of great dispute, and setting the bar too low could result in many families having to pay up to large shares of their incomes on health insurance, Gould and Hertel-Fernandez show in this Issue Brief.

Surtax—While the Senate reform bill proposes funding health reform in part with an excise tax on high-cost plans (see above), the House proposes a 5.4 % surtax on incomes over $500,000 for single filers and $1 million for joint tax filers. In House Health Care Bill is Right on the Money, Gould and Bivens show that the proposed surtax would raise more money, while impacting only about 1% of all households while avoiding the risks to workers and families created by the excise tax. EPI’s Economic Snapshot, Money to Spare on Health Care, also shows how the surtax would have a minimal impact, even on high earners, leaving their marginal tax rates at a lower level than they have been for most of the past 60 years.

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