Baucus' Plan Cost Less By Doing Much Less

Senator Baucus proudly touted what is in fact a very bad CBO score for his possible bipartisan bill. Almost everyone in the mainstream media parroted his claim that the CBO projection was, in fact, good without question. The Washington Post, Politico, WSJ, and CQpolitics all reported the “good news.” If the media know basic math their reporting would be more critical.

Baucus is very proud that the CBO said his bill would be under $900 billion and “would cover 95 percent of Americans by 2015.”

It is true that his bill would cost roughly 10% less than the House bill, which has a price tag just over $1 trillion. But Baucus' bill would cover 12% less uninsured by 2015. The CBO concluded the House bill would cover 97 precent of Americans by 2015. So Baucus' plan is cheaper simply because it leaves roughly 6 million more people without insurance. That is 12% of the projected number of uninsured in 2015.

On the basis of price per uninsured Americans covered by 2015, Baucus' plan is more expensive than the House bill. The CBO score does not prove Baucus' bipartisan bill is better written. It only proves it is less cost effective reform.

The 6 Word Change That Could Save Health Care Reform And The Public Plan

Providing subsidies to help Americans afford health insurance is the single biggest cost driver in health care reform. The CBO calculates that the subsides in the House bill would cost $773 billion, and in the Senate HELP Committee bill they would cost $723 billion.

There are several ways to reduce the cost of those subsidies. You can further restrict who would qualify for subsidies, reduce the size of the subsidies, reduce what is considered minimum health insurance benefits, reduce the minimum actuary cost sharing, or change how you calculate the size of the subsidies.

Changing how you calculate the size of the subsidies seems to me the single best minor change to reducing the cost of health care reform. It would also dramatically strengthen the case for, and the cost savings from, a robust Medicare-like public option.

Currently both the House bill and the Senate HELP Committee bill calculate the size of the subsidies based on the “reference premium,” which is equal to “the average premium for the 3 basic plans in the area for the plan year with the lowest premium levels.” Lowering the price of the “reference premium” would dramatically reduce the cost of reform.

By simply redefining the “reference premium” to be equal to the premium of the lowest cost basic plan offered, it would substantially reduce the overall cost of health care reform. It would also dramatically increase the savings that result from the public plan proposed by the House Democrats.

The CBO concluded that the House's public plan would on average be “about 10 percent cheaper than a typical private plan offered in the exchanges.” It has also been reported that the public plan in its current form reduced the cost of the House's bill by $150 billion.

I'm assuming that since the public plan would be 10% cheaper it would reduce the size of the reference premium by 3.3%. I'm also assuming that the 3.3% reduction in the reference premium is responsible for the public plan reducing the cost of health care reform by roughly $150 billion.

If that is the case, redefining the “reference premium” to mean the premium of the lowest cost basic plan (which would be the public option) would farther reduce the cost of health care reform by roughly another $250 billion. Progressives should push for redefining the term “reference premium” as their solution for reducing the cost of the bill. It would not only produce dramatic savings but it would also make it harder to remove or change the public option in the House bill.

There is an expected change to the accounting rule dealing with Medicare payment rates, which would reduce the price tag of the House bill by $245 billion. Combined with the change I outlined above the cost of the House bill could be cut almost in half.