Senate Majority Leader Harry Reid (D-NV) has agreed to include a watered-down version of Sen. Ron Wyden’s (D-OR) ‘Choices Amendment’ in the merged Senate bill. Wyden, an ubiquitous presence on cable television, has been hawking his idea of instantly opening up the insurance exchanges to Americans in employer-sponsored coverage for months. He introduced the amendment in the Senate Finance Committee just hours before it ended its marathon mark-up session, but withdrew it for later consideration.

Under this compromise, a small sliver of the population — individuals and families under 400% of the federal poverty line who receive employer-sponsored coverage and spend 8-9.8% of their income on premiums — could “convert their tax-free employer health subsidies into vouchers that they can use to choose a health insurance plan in the new health insurance exchanges.” Currently, individuals in employer-based coverage who have to spend more than 9.8% of the incomes on premiums aren’t required to purchase health insurance and don’t quality for affordability credits if they enter an Exchange:

“As I have long said, empowering Americans to choose the health insurance that works best for them and their family is the single best way to hold health insurance companies accountable,” Wyden said in a statement. “While this is just one step in the direction of guaranteeing choices for all Americans, it is a major step because – for the first time – it introduces the concept of individual choice to a marketplace where it has long been foreign. This is a significant step toward real reform.”

The theory of instantly “empowering Americans to choose the health insurance that works best for them” is sweeter than the reality. The merged senate bill establishes a time line that more or less allows everyone to choose a plan from an exchange by 2017. In this way, the legislation builds on the current structure but also sows the seeds for an eventual transition to a more ‘individualistic’ system — or what Wyden calls “real” reform.

This ‘time release’ approach — to borrow a pharmaceutical term — is intentional. Opening the exchanges only to small businesses, individuals and the self-insured for a limited period preserves the employer contribution in the health care system and allows the exchanges to build a capacity for covering more people over time. It helps the Exchanges find their footing without being overrun by millions and millions of new applicants from the employer market. Care continuity is also better preserved.

In short, the existing legislation accomplishes the main goals of Wyden amendment on a more realistic timetable. Wyden was concerned that it didn’t have his name stamped all over it. Now it does.

Over at FiredogLake, Jon Walker points out that the merged merged Senate bill would “create two exchanges per state. There would be an exchange for individuals and a “Small Business Health Options Program” know as the SHOP exchange for businesses.” “This is, pure and simple, a dumb idea,” he writes. “The more customers using one exchange the larger the risk pool and the better the bargaining power.”

It’s unclear why the Senate separates the individual and small business markets rather than follow the Massachusetts model of combining the two markets. Under the Senate bill, insurers would pool risk for all policies in the individual market (inside and outside of the exchange) and all small business policies (inside and outside of the exchange) but couldn’t combine the risk unless the state voluntarily merges the two markets.

As Sarah Lueck explains, allowing multiple exchanges to participate in the same geographic area would increase administrative costs and “diminish the ability of an exchange to improve efficiency by creating a well-functioning marketplace”:

If there were multiple exchanges in the same area, the exchanges would have to spend money on marketing and advertising in order to attract customers….Also, permitting multiple exchanges in a single area would require a vastly more complex risk-adjustment system. Risk adjustment provides higher payments to insurers enrolling higher-cost beneficiaries, while lowering payments to plans enrolling healthier individuals with lower-than-average costs. In areas with multiple exchanges, the risk-adjustment mechanism would have to compensate for risk differentials across the various exchanges, as well as among the insurers within each exchange. This would make it more difficult to risk-adjust accurately.

One possible reason for the separation, a source suggests, is the reluctance of some insurers operating in the small group market to expand their options to individuals. The may not want to change their business model or cover a potentially sicker crop of newly insured individuals.

The so-called SHOP-exchanges have also been promoted by the National Federation of Independent Businesses (NFIB) and championed in the Senate by Sens. Dick Durbin (D-IL), Blanche Lincoln (D-AK) and Sen. Olympia Snowe (R-ME). But why they’re still necessary in the broader context of health reform is somewhat of a mystery.

SHOP may not make policy sense, but it may help win the support of a few moderate lawmakers.

Cosmetic surgeons and some conservative lawmakers are mischaracterizing that the new 5% “botox tax” on cosmetic surgeries and procedures in the merged Senate health reform bill. The tax, which would raise an estimated $5 billion over the next decade to help fund health reform, is narrowly tailored towards voluntary cosmetic procedures. But some critics, like long-time contrarian Sen. Tom Coburn (R-OK), are suggesting that the reform bill would also tax more serious operations, like breast reconstruction surgery following cancer:

Just yesterday — the day before yesterday, U.S. preventive task forces, services, recommended because it’s not cost effective that women under 50 not get mammograms unless they have risk factors. Well, you tell that to the thousands of women who were diagnosed with breast cancer lat last — last year under 50 with a mammogram. You tell them it’s not cost effective. Also in this bill is a 5% tax on the breast reconstruction surgery after they had a mastectomy. They’re going to tax having your breast rebuilt after your breast is taken off because it is elective plastic surgery. It is elective cosmetic surgery. We’re going to have a tax on it because we’ve taxed elective cosmetic surgery. We’re in trouble as a nation because we’ve taken our eye off the ball.

Coburn may be one of only two doctors serving in the Senate, but he’s no more knowledgeable about what constitutes ‘elective cosmetic surgery’ under reform legislation, than the average layman. Section 9017 of the merged Senate bill relies on the IRS definition of ‘cosmetic surgery,’ which defines the procedure as “any procedure which is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.”

The Senate bill doesn’t tax all cosmetic operations. Surgeries to “ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease” are excluded from taxation.

Under that standard, surgery performed to reconstruct a woman’s breast after cancer — a disfiguring disease — would not be taxed:

The tax is intended to discourage consumers from undergoing unnecessary surgeries or procedures. As much as one-third of nation’s health care expenditures are spent on procedures that don’t improve health outcomes. Capturing some of that spending and re-investing it into health care reform would help to slow the growing rate of health care spending, finance reform, and ultimately reduce costs for everyone. In short, the tax would help fill the wrinkles in America’s broken health care system.