Watching Health Reform Ping-Pong

In an effort to thwart additional Republican obstruction and speed passage of a final health reform bill the House and Senate have indicated they will play legislative ping-pong instead of convening a conference committee. Unless you’re a political junkie don’t bother learning the details of how this game is played, but read Jonathan Cohn and Kevin Drum if you’re interested. To learn why ping-pong may replace conference committees on all future controversial legislation, read Jeff Davis.

Though how Congress reaches a single bill is important (Ezra Klein explains why), my immediate interest is in knowing what that final bill will look like along certain dimensions. I’ll be reading my favorite sources closely for clues and will probably dig into the text of the bill when it exists (bonus points for readers who tip me off to legislative developments).

In particular, I’ll be looking for details on the resolution of differences between House and Senate bills on the issues below. Unless indicated otherwise my sources for the current state of House/Senate bills are The Kaiser Health Reform Gateway and the Tri-Committee House staff (h/t Taegan Goddard, though Ezra Klein says credit is due to Carrie Budoff Brown).

Employer Mandate. The first question is which employers must offer insurance (or pay a penalty)? With the exception of the construction industry, the Senate bill exempts employers with 50 or fewer full time employees from the mandate. The House’s mandate on the other hand has no such small business exemption. To avoid gaming around the number of full time employees, the House version is preferable. It would, though, impose a stronger link between employment and health insurance, an inefficient historical artifact that we’d be better off without (but that’s not on the table, alas).

Employer Penalty. Employers that don’t comply with a mandate would be penalized, but there is a big difference between House and Senate bills as to how. The House bill is very simple: an 8% tax on total payroll. The Senate bill is complex and includes incentives that would distort the labor market. Since I covered this Senate “free rider” provision in detail in a prior post I won’t go over it here. For its simplicity and lack of perverse incentives the House’s is superior.

Individual Subsidies. The House and Senate bills differ in the rates at which premiums would be subsidized and the levels of cost-sharing out-of-pocket caps for low-income families, as well as the minimum required actuarial value of coverage (see my prior posts on the individual mandate). In summary, the House bill would provide greater subsidies for families with incomes below 300% of the federal poverty level (FPL), and the Senate bill would provide greater support for families with income between 300-400% FPL. Neither bill would subsidize converge for families above 400% FPL. Which set of subsidy rates will prevail?

Individual Penalty. The penalty for lack of insurance under the House bill would be a simple 2.5% of income above a threshold and no greater than the average premium. The Senate’s penalty is slightly more complex. It phases in over time and is a maximum of a fixed dollar amount and 2% of income, again capped at the average premium. Despite the complexity of the Senate’s language, the penalties are fairly similar. For simplicity alone I’d go with the House’s version.

Medicaid Eligibility. The House would extend Medicaid coverage to families with incomes below 150% FPL, while the Senate would only do so up to 133% FPL. Both bills would dramatically increase the rate at which Medicaid state spending is matched with federal dollars. Because provision of Medicaid coverage is cheaper for taxpayers than other sources of insurance I prefer the House’s greater coverage. I also support moving toward federalizing Medicaid, which any increase in match rates does.

Medicare Donut Hole. The House would phase out the donut hole by 2019. The Senate would reduce the size of the donut hole by $500 in 2010 only. Both bills would provide a 50% discount on brand-name prescriptions in the donut hole. I haven’t yet decided whether or not closing the donut hole is a good use of taxpayer money (it will take considerable analysis for me to make up my mind). Closing or reducing the size of the donut hole is clearly good politics as it is a value to beneficiaries and the drug industry.

Medicare Advantage Payments. The House would reduce per-beneficiary payments to Medicare Advantage (MA) plans to the average cost under traditional fee-for-service (FFS) Medicare. The Senate would implement competitive bidding, under which payments to plans would be tied to average bids. If the point of MA is to encourage private firm participation in Medicare then the Senate’s approach is sensible. If the point of MA is to cover beneficiaries more cheaply then the House version is the right first step. But, in that case, the real solution is a hybrid: competitive bidding with an average FFS cost cap.

There are many other important issues that will be resolved in the ping-pong match. Though I’m obsessed with any and all things pertaining to health reform, the foregoing areas are of greatest immediate interest to me because of their relevance to my professional work (keep reading, you’ll see).

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