News & Events

Baucus’s insurance bill is a dose of bad medicine

By Maggie Mahar  |  September 21, 2009

AFTER MONTHS of work, Senate Finance Chairman Max Baucus has come up with a health bill that pleases neither Republicans nor many Democrats, but insurers must be smiling broadly.

It’s no surprise that his bill includes no public sector insurance plan. Instead, the only competition that giant insurers face will come from tiny co-operatives – and even then, to qualify for federal funding, they must be fledglings. Established co-ops will not qualify for help. Thus, private insurers can count on controlling the marketplace as millions of new customers who don’t have job-based coverage are required by law to come their way, tax subsidies in hand.

But what is shocking is that under the Baucus plan, a 50-year-old single parent could wind up paying far more for health insurance than a 28-year-old single adult who earns twice her salary. The Baucus bill won’t let insurers hike premiums because a customer suffers from a pre-existing condition. But it lets insurers charge older Americas five times as much as younger customers.

In a July letter to House leaders, the trade group America’s Health Insurance Plans called for the 5 to 1 ratio, saying anything less than that would force many young people to pay more to “heavily subsidize the naturally higher health care costs of older individuals.’’ House Democrats refused. The House bill, like Massachusetts, says that insurers can charge older adults no more than twice what they bill younger ones.

The Baucus legislation also imposes a penalty on single-parenthood. If you live alone with one child, you will be asked to shell out 80 percent more than a childless adult.

Of course it makes sense that coverage for a mother and child would cost more than the premium for a single person. But since children typically use much less health care than adults, 80 percent is a steep surcharge for single-parenthood – especially since a couple with children would pay only 50 percent more than a childless couple.

The Baucus bill also punishes smokers, adding 50 percent to their premiums. No doubt many would argue that this is only fair. But the vast majority of adults who smoke are poor. Many will qualify for full subsidies; others will be eligible for partial subsidies to help them pay for their premiums.

So who will pay 50 percent more for their health care? You, the taxpayer. If the smoker receives a subsidy, the 50 percent surcharge isn’t likely to induce him to stop. This rule seems designed primarily to funnel more taxpayer dollars to private sector insurers.

Single parents also tend to cling to the lower rungs of the income ladder. Many will qualify for at least a partial, if not a full subsidy. Who lays out the extra 80 percent? That’s right – you and I.

Finally, if under the Baucus bill, insurers can charge middle-income 50-somethings five times as much as even the most affluent 20-somethings, a great many of those older customers are going to need fat subsidies, sending more tax dollars to Aetna.

Granted, premiums are capped at 13 percent of income if you earn somewhere between 300 percent and 400 percent of the federal poverty level. But this means a 56-year old couple with joint income of $58,000 could wind up paying premiums of more than $7,500 – plus out-of-pocket expenses. Couples earning more than 300 percent of poverty ($43,710 in 2009) don’t qualify for subsidies.

Under the more generous House bill, couples earning up to 400 percent of poverty (or $58,280) would be eligible for federal help. Tax increases for the top 1.5 percent of earners would help fund the subsidies. By contrast, under the Baucus plan, middle-class and upper-middle class Americans who buy insurance but don’t qualify for subsidies would help foot the bill for those who do.

The irony is that in the end, neither conservatives nor progressives are backing the Baucus proposal. The senator’s goal was bipartisan reform. But he has failed to achieve that. Instead, by eliminating a public option that might have set a benchmark for high quality, affordable care and by offering stingy subsidies that exclude many middle-income families, he has watered down reform without pleasing either side of the aisle.

Maggie Mahar is a fellow at the Century Foundation where she writes HealthBeatBlog.