Why the Baucus Plan is Dead, Why Co-Ops Won’t Work, and Why You Should Be Happy About It.

As anyone could have predicted weeks ago, the "alternative bill" Max Baucus has presented is a complete and utter joke.  But don't be mad, progressives. Be happy. Before this piece of crap appeared, there was all sorts of speculation about what an alternative might be. Talk of “co-ops” actually sounded like a feasible idea to a lot of people. Now, however, they can see them and read about them, and now, we can demonstrate that the alternative Blue Dog plan is, well, a dog. If we play this right, we can make a strong reform plan with a robust public option a reality.

First of all, it looks like Baucus wrote the damn thing over a weekend. I’m not sure if he drinks. The markup paraphrases current law, and recommends changes to that law. It seems kind of strange that he’s been making so much noise for so long, and ends up creating something so basic. And frankly, he has to be high if he thinks most of this crap will fly. In fact, he had to be giggling to himself at the mere prospect that Republican Senators would climb on board. If he truly thinks this is a “compromise” that Senate Republicans will go for, he’s delusional. His legislative aides must have been asking "Are you high?" repeatedly as they were reading the drafts.

Most of the provisions in this markup mimic HR 3200 and the other bills out there, which means there's little revolutionary about this garbage. But many of the additional provisions are laughable. It is such a pander to health insurance companies, it makes me I've rarely seen such a wink and a smile to a major industry. Most politicians at least attempt to make their kowtow a little subtler.

I actually find it hard to believe that an experienced politician like Max Baucus actually believes his own BS. He has to know this simply won't fly, and his ham-handed approach to "compromise" virtually guarantees its failure.

Here are some of the highlights. Here's the Baucus Markup, if you'd like to read along:

 

Right out of the gate, on page 2, we have the most ridiculous "reform" measure I've ever seen.  I've seen some reporters claiming that it eliminates discrimination with regard to pre-existing conditions.

They’re not reading very closely.

Read this…

 

The Chairman‘s Mark would establish Federal rating, issue, renewability, and pre-existing condition rules for the individual market. Issuers in the individual market could vary premiums based only on the following characteristics: tobacco use, age, and family composition. Specifically, premiums could vary no more than the ratio specified for each characteristic:

·         Tobacco use – 1.5:1

·         Age – 5:1

·         Family composition:

·         Single – 1:1

·         Adult with child – 1.8:1

·         Two adults – 2:1

·          Family – 3:1

Premiums could also vary among, but not within, rating areas to reflect geographic differences. States would define geographic rating areas. Taking together all permissible risk factors, premiums within a family category could not vary by more than a 7.5:1 composite ratio.

 

Issuers in the individual market would be required to offer coverage on a guaranteed issue basis. Under guaranteed issue, if a plan has a capacity limit and the Secretary determines that the number of individuals who elect that plan would exceed the limit, the issuer would be allowed to limit the number of enrollees according to specified rules. Also, issuers would be required to offer coverage on a guaranteed renewability basis, and rate those policies on the same factors used when initially issuing such policies. Issuers would be prohibited from excluding coverage for pre-existing health conditions and from rescinding health coverage.

 

This has discrimination all over it, and it creates a truly unfair marketplace. Instead of everyone paying the same premium, this gives insurance companies carte blanche to charge  different people different rates, based on their chosen family situation. Note that the only actual health choice decision included is smoking.

You start work with the company as a single healthy guy, and you pay $200 per month, which is the base rate. Five years later, your premium goes up to $300, because they can adjust rates based on age, even though you have only been to the doctor once a year for a physical. You get married, the premium doubles to $600, even if you’re still healthy, and haven’t had any health episodes. Five years later, because of your age, your base rate goes to $400, which means your premium goes to $800, even if you and your new wife are healthy as can be. The next year, you have a kid, which raises it to $1200 per month, even though the birth was uneventful, and you’re both healthy. A few years later, you turn 40, your base rate goes to $500, so your premium rises to $1500 per month, even if everyone is perfectly healthy, because they can. That’s the limit, of course, because Baucus, being the kind gentleman he is, limits premiums to 7.5 times the base rate. And all of this is assuming the base premium rate never rises from $200 for a single healthy guy with no kids who doesn't smoke.  Does that sound fair to anyone? Seriously? A single young guy with a heart condition pays $200 a month, while the healthy guy with a family pays $1500?

 

Here’s an idea; everyone pays the same, based on the number of people covered. Family coverage should be more than single coverage, but why should a healthy 60 year old automatically pay five times more than an unhealthy 20 year old? I asked a friend to show me an actuarial table that showed that health quality goes down significantly based on age, if the person is receiving regular health care, and I have yet to see it. And someone will have to show me proof that health care 60 year old will always cost FIVE TIMES more than a 20 year old, because I don’t buy it. Higher risk, yes. But quintuple the risk? Not hardly.  

 

But the above provisions sure will make the insurance companies a lot of money. Once more, the healthy will be paying the bills for the sick. It's not difficult to see why Max Baucus is being sponsored by so many health insurance companies, is it?

 

And why the qualifications to the "guaranteed issue" mandate? Where and how does someone draw the line? Doesn’t that kind of defeat the purpose of creating an exchange? I thought this was supposed to be capitalism. If one insurer is offering a great deal, and most workers want to choose that plan from the exchange, why cap membership? Isn’t that the equivalent of saying, “Wal-Mart has too many customers, the rest of you will have to choose between Target and K-Mart.”? Apparently, Baucus hasn’t gotten the memo, that one of the biggest problems in the health insurance market is a LACK of competition, and reform should restore competition.

 

And that's only page 2, folks.

 

On page 14, we see another significant difference between his plan and the main bills, and that is in the creation of the insurance exchanges.  In this plan, exchanges are entirely state-based. Under HR 3200 (Obamacare), it's also likely the insurance exchange would be administered at the state level for the most part, but the main rules and guidelines would be federal, and uniformity would be encouraged. In the Baucus plan, states would set the rules for the exchange. This isn’t necessarily bad in and of itself, because it could potentially allow states to take the initiative to set up single-payer systems in the future. Unfortunately, as you’ll see later on, other provisions of this plan make a state-run single payer plan unlikely, if not impossible, in the future. It would also pretty much spell death for any such impetus on the national level.

 

But more than that, it ignores the reality that the problems with our health care system are not state-based. This is a national problem, and any solution has to be national. I know Baucus comes from Montana, which is one of those states that likes to pretend to be heavily into "states rights," and thinks of itself as “independent,” but there’s a reason the state takes in a lot more federal tax money than it pays. A geographically huge state, with a population that is almost entirely rural, and whose per capita income is among the lowest in the country is not going to be self-sufficient on health care costs, no matter how much he wishes it were so.

 

Oh, yeah, I haven’t gotten to that part yet. This section actually gets worse.

 

After three years, it allows states to permit "other entities" to set up their own exchange, meaning that, rather than one big statewide exchange per state, or 50 separate exchanges with different rules nationwide, we could be looking at hundreds of exchanges, and a system that is even more fractured than it is now.

 

The Baucus plan also REQUIRES that a state insurance exchange be self-sustaining within a few years after establishment, with nothing in place to help a state, should it be unable to do so. I wonder if the people of Montana understand that this provision alone could end up dooming them to far higher premiums than, say, the people of New York or New Jersey? Think Baucus will let them in on that?

 

I don't have to go much farther into the bill to see more nonsense.  The section on abortion (page 25) is priceless. Baucus manages to take a simple notion that is already a part of the law; that no federal money can be used to pay for an abortion unless the abortion is to save the life of the mother, rape or incest, to create several pages that basically prohibits federal money being used for abortions. But hey; it plays to the wingnut base, right. Not that they’ll support this plan, anyway, no matter what’s in it.

 

Now we come to the silliest, most pointless portion of this plan, which is the section on Cooperatives. It starts on Page 36.

 

It provides $6 billion (wow! Can we afford that?) to provide grants and loans to groups, in order to create non-profit co-ops. Seriously, you have to read this. It's almost funny.  The co-ops are to be organized at the state level, although they could eventually represent more than one state. Of course, states have to be completely self-sufficient within a short time. That means states will be under an amazing amount of pressure to get these set up really quickly. Also, there is no mandate to set them up, and I mean none.  But check out the restrictions on who can create a co-op, or at least receive federal funds for that purpose. It's laughable:

 

In order to be eligible for Federal funds under the CO-OP program, an organization must meet the following requirements.

 

1. It must be organized as a non-profit, member corporation under State law.

2. It must not be an existing organization that provides insurance as of July 16, 2009, and must not be an affiliate or successor of any such organization.

3. Its governing documents incorporate ethics and conflict of interest standards protecting against insurance industry involvement and interference.

4. It must not be sponsored by a State, county, or local government, or any government instrumentality.

5. Substantially all of its activities must consist of the issuance of qualified health benefit plans in the individual and small group markets in each State in which it is licensed to issue such plans.

6. Governance of the organization must be subject to a majority vote of its members (i.e., beneficiaries).

7. As provided in regulations promulgated by the Secretary of Health and Human Services (HHS), it must be required to operate with a strong consumer focus, including timeliness, responsiveness, and accountability to members.

8. Any profits made would be required to be used to lower premiums, improve benefits, or for other programs intended to improve the quality of health care delivered to members.

 

Organizations participating in the CO-OP program would be permitted to enter into collective purchasing arrangements for services and items that increase administrative and other cost efficiencies, especially to facilitate start-up of the entities, including claims administration, administrative services, health information technology, and actuarial services. A purchasing council may be established to execute these collective purchasing agreements. The council shall be prohibited from setting payment rates for health care facilities and providers. There shall be no representatives of Federal, state, or local government or any employee or affiliate of an existing private insurer on the council. The council would be subject to existing anti-trust statutes.

 

Not only does Baucus make it unlikely that anyone will be able to start a health insurance co-op in the first place, but he actually manages to pretty much prohibit the creation of a single-payer option. I get why you wouldn't want current insurance companies from setting up co-ops; the anti-trust implications would be huge, if the government ever actually starts paying attention to the Sherman Act at some point in the future. 

 

But what's the purpose for prohibiting ANY government involvement in a co-op plan, if it's such a gosh darned great way of saving money, and you're presumably trying to allow folks to maintain maximum health care choices? If a small town with its own doctor and its own branch of the state's largest hospital chain wants to set up its own co-op under this ridiculous plan, why would Baucus prohibit that?

 

You know the reason why, right? It's because if one town is able to enroll its residents in a co-op, then two towns might do it, and then a whole county, and perhaps an entire state will do so.  This guy is trying to stifle any attempt to create a single-payer option, even if a majority of the people in this country eventually want one. He’s absolutely phobic about government having anything to do with health insurance, despite the fact that Medicare is a major success. Meanwhile, he’s put all of his eggs in the co-op basket, even though it’s never been tried. But then, he creates restrictions that basically ensure the failure of the co-op idea.

 

If anyone was giving Max Baucus the benefit of the doubt before, with regard to his purchase by the health insurance industry, this should pretty much put that to rest. He is jumping through hoops to prevent competition in the health insurance industry.

 

How can co-ops possibly work? Oh, I suppose there might be a few Wendell Potters out there, who know about health insurance and might come forward to create a co-op. But most other folks with health insurance experience are pretty well locked out. How will a co-op handle risk? Under the above scheme, they have to be completely self-sufficient, they have to compete on the same level as insurance companies with billions of dollars in assets to fight them, and they’re required to plow any profits back into the co-op; they can't save for a rainy day. Even if there are a few brave souls out there, they’ll be at a major market disadvantage.

 

But there’s something else to consider here. Think Wal-Mart.

 

Say, for the hell of it, that Joe and Mary decide to start a health insurance co-op with some of that whopping $6 billion. They get it all set up, set their premium rates, which are 20% lower, on average, than the major insurance companies. They sign up some folks, and the major insurers don't like it. Keep in mind, these co-ops will be tiny, by design, because Baucus has designed them that way, being state-based. What's to prevent Aetna or Cigna, or any or all of the private health insurance conglomerates, from taking a loss in the small geographic area where Joe and Mary’s co-op appears, and putting them out of business? The simple answer is nothing.

 

I mentioned Wal-Mart. This is how Wal-Mart killed commerce in hundreds of small towns all over this country. They’d pick a cheap plot of land just outside of a small town, build a humongous store, carry every bit of merchandise that small businesses in the town carried, including items unique to the areas, then undersold them until they were all out of business. When the rest of the businesses in town were boarded up, they'd raise their prices, and stop carry the unique items altogether.

 

Of course, what if no co-ops form in some states? Well, Baucus has a hell of an idea for that, as well. He'll instruct the HHS Secretary to encourage the formation of co-ops.  And how does he plan to encourage them? Grants, combined with an income tax exemption. Wow.

 

But think about this. Say you have an idea for a co-op. Your group applies, takes a couple of million dollars, tax free, to investigate it. After a couple of years, your co-op idea doesn't fly. Then what? Well, he's covered that, too. He’ll receive a 10% penalty. I can't see how anyone could possibly take advantage of this plan, can you?

 

I may get into this more in the following days, if I think this piece of crap might have wings, but it's unlikely. I’m not in the least bit worried about this.

 

In fact, if Baucus did anything, he's made the greatest case EVER for a public option. See, before today, the "co-op" idea was but a germ, it sounded plausible. Now that it's been placed before the public, I predict a major thud.

 

This plan is just plain pointless, and does more to undermine reform than anything I could imagine. The only good points in this plan are already in the main bill, HR 3200. There's an employer mandate, although it's somewhat watered down when it talks about small businesses. It also kind of requires that insurance companies take everyone, and kind of prohibits discrimination based in pre-existing conditions and rescission, but it also unfairly tiers premiums based on subjective criteria that have little or nothing to do with health, and everything to do with maximizing profit.

 

The original bill makes the system very simple. Everyone offers their wares in an open, competitive market, wherein consumers make the decisions. The rates are set the same for everyone, thus acknowledging reality; that it's impossible to predict when you'll be hit by a bus or a car, when you'll be stricken with cancer or a heart attack. And risk is spread evenly throughout the entire market, without attempting to micromanage it. Micromanagement of risk is among the key problems with our health insurance system, and Baucus embraces that with both arms.

 

Even if Baucus' system would work perfectly in every other way, there is still no explanation as to how he plans to cover the 10-20 million people who have no access to health insurance through an employer, either because they work for themselves, or they work for a very small company. He mandates that everyone must buy insurance, but his reimbursement regime is very limited. What happens to the household in which two adults have two kids, and work two jobs each, and are looking at family premiums in the $1500 a month range (assuming a base premium of $200 a month), when the combined household income is $50,000 per year? And if everything is handled at the state level, and states must be completely self-sustaining a few years in, who picks up the slack?

 

There are no answers in the Baucus Plan. Co-ops are a suggestion, not a mandate. Creating either one nationwide exchange, or even one single exchange in every state, with a mandated publically financed public option for those who can't get insurance any other way, or those who choose not to deal with private insurance companies is clearly the only option that makes sense at the current moment, and Max Baucus' plan actually serves to make that reality clearer than ever.

 

That’s why progressives should be glad he presented his plan. Baucus is covering his ass, and the asses of the other Blue Dogs, who are in states with a significant population of right wing cretins. There’s no possible way this plan will go through intact. It's simply not possible, because it makes no sense. If I was able to pick it apart this easily in the first 50 pages, who besides right wing cranks will buy its nonsense?

 

We just won the war. But keep marching, anyway.