The Congressional Budget Office has officially given the health overhaul bill before the Senate Finance Committee a clean bill of fiscal health. But the health insurance industry says some last-minute changes could threaten the entire framework on which the overhaul effort is resting.
At issue is the level of penalties that will be assessed to people who fail to buy health insurance under a new requirement that nearly every American have coverage beginning in 2013.
The good news for the Senate panel is that the overall cost of the bill, according to the CBO, is $829 billion over 10 years — well under President Obama's $900 billion limit. But to keep the bill under that limit, the measure does not provide much in the way of subsidies to help middle-class families. That made some senators worry that families could face an unpalatable choice between having to pay premiums they can't afford or penalties they can't afford.
"It is unfair to put the entire onus on the middle-class family," said Sen. Charles Schumer (D-NY).
So one of the last amendments added to the bill dramatically cut the proposed penalties, eliminating them entirely for the first year the measure is in effect.
But that, say insurance officials, could backfire in a big way.
The bill would require that everyone have insurance — a so-called "individual mandate." But there was only enough money to help the poor and lower-middle-class — who don't already have insurance — pay for it. That lack of help for more solidly middle-class families made a lot of senators, like Maine Republican Olympia Snowe, squeamish about imposing financial penalties on those who didn't, or couldn't, buy coverage.
"You need everybody in the insurance pool to make sure that premiums are affordable. And lowering the penalty will mean that people will find it more advantageous to pay a very small penalty than to buy insurance," says Alissa Fox, a senior vice president with the Blue Cross and Blue Shield Association.
Of particular concern to the insurance industry are young, healthy people, she says, "and it's critical to have the young and healthy people, because they keep premiums as affordable as possible for everyone."
A Balancing Act
But it's not just the health insurance industry that says making the penalties too low could threaten the entire overhaul effort.
"This raises enormously the risk that the entire enterprise falls apart," says Jonathan Gruber, an economist at the Massachusetts Institute of Technology who sits on the board that oversees Massachusetts' mandated insurance plan and has been advising the Obama administration.
Gruber says the combination of the individual mandate, plus insurance market reform — the requirement that insurers accept people with pre-existing health conditions without charging them more — plus government subsidies for those who can't afford coverage, make up a three-legged stool.
"And if any of the legs gets pulled out," he says, "the whole stool can collapse."
He says there's already evidence in the five states that have tried to require insurers to ban the practice of basing premiums on health status (New York, New Jersey, Massachusetts, New Hampshire and Maine).
"And they are all now five of the eight most expensive places in the country to buy non-group insurance."
The Public Option
So how do you fix the problem?
One way would be for the committee to increase the subsidies to help people pay their premiums, but Jacob Hacker, a political science professor at Yale, says committee members don't feel they can come up with the amount of money needed to make coverage affordable for the middle class — at least not without going over the $900 billion limit.
So Hacker has another proposal: add a government-run public option. He, in fact, helped devise the original proposal for a public option that was adopted by most of the Democratic candidates during the 2008 presidential campaign.
"The CBO says it would be about 10 percent less expensive for consumers than would a private insurance plan, and that would mean you don't have to spend as much on subsidies to make sure that people have affordable coverage," he says. "And ultimately that's what we're trying to do."
In fact, a public plan competitor is about the last thing the insurance industry wants as a solution to the problem. But it demonstrates yet again the delicate balancing act lawmakers face as they try to find both the right political and policy pieces to make the health overhaul puzzle fit together.