The Senate Finance Committee’s Nothing Burger Proposal

I think Ezra Klein is right to argue that the leaked version of the Senate Finance Committee’s health reform legislation is somewhat of a nothing-burger. It’s not well done, it’s not rare, it’s just medium well (which, incidentally, is just how Obama likes it):

But this is what I’d term “comprehensive incrementalism.” It makes everything a bit better. It is not radical. It is not root-and-branch reform. For all the concerns about cost, there is no strong public plan able to negotiate low rates and implement aggressive reforms.

Indeed, as Klein points out, the plan institutes some important market reforms (guarantee issue, no exclusion based on preexisting conditions), but its adjusted community rating variation rate is capped at 7.5:1, which means that an insurance company can charge an older person 7.5 times the rates it charges a younger applicant. Individuals and families up to 300% of Federal Poverty Level (FPL) would receive tax credits to cover the cost of coverage and small businesses would be eligible for a temporary small business tax credit. Again, the subsidies aren’t great, but they’re better than nothing.

On the public option, the committee went with the Conrad co-op compromise and offered the new corporation some start-up seed money. Children and pregnant women below 133% of the poverty level ($28,200 for a family of four) and parents and childless adults at or below 100% of the poverty level ($10,800 per year) are eligible for Medicaid. Everyone is required to purchase coverage, but the employer role is somewhat undefined.


In fact, the “placeholder” section about employer mandate is the murkiest part of the proposal. Employers are not required to provide coverage, but employers whose workers receive Medicaid (so they are below 133% of FPL) or a tax credit in the Exchange (those at or below 300% FPL) have to pay 50% of the national average Medicaid costs on behalf of their Medicaid workers and/or 100% of the tax credit for workers in the Exchange. So employers don’t have to provide insurance if they don’t want to, but employers with a preponderance of poor workers will have to help finance their workers’ coverage. This approach preserves the employer contribution, but it doesn’t exactly preserve the system:

1) If employers are paying 50% of the national average Medicaid costs, then employers in low cost areas would be subsidizing workers in high cost areas. Employers in low-cost areas would be over-paying to provide coverage workers in high cost areas. Given this dynamic, I don’t imagine that Senators from low-cost states will find the proposal too appealing.

2) This provides employers with an incentive to not provide coverage or offer workers expensive plans, basically forcing them into the Exchange. Health reform should align the incentives so that employers and employees are all better off when the employee is insured.

The “alternatives for employer responsibility” on the last slide of the draft are no better. Option 4 is no mandate at all and the first three seem to lack an adequate penalty to encourage firms to continue providing coverage.