By Marc Seltzer; originally published on December 29, 2009, at care2.com
While the House and Senate health care reform bills are nearly identical, they differ in a couple of important ways — and this can potentially make the final bill much better than what has so far been contemplated. Comparisons: Bloomberg & New York Times.
The just-passed Senate bill partially funds health care insurance for those who cannot afford it by taxing luxurious insurance plans. (I see it as ending a subsidy, not a tax at all — as I explain here) This is not only a source of revenue, but crucially the tax will create an incentive for insurance companies to create cost-savings plans, “bending the cost curve,” of the entire system by reducing excess health care services. Decreasing the unneccessary care lowers demand, cutting prices for insurers and eventually for businesses and individuals. See Atul Gawande, New Yorker, Dec. 14 — a must-read on costs (and also June 1, New Yorker).
However, the House bill takes a different tack. It raises taxes on high-income Americans, under the theory that they can afford to pay more without cutting into food, shelter or health care. At some point, increasing taxes on wealthy Americans does lower their overall investment in new businesses — a drag on the economy — but such taxes are at a relative low point and the proposed tax is not so dramatic as to significantly damage investment potential.
The conventional wisdom is that the Conference Committee, which will meet in the new year to create one final health care bill, will choose between House and Senate options. On many provisions, the Senate bill will prevail, because it is more cost-conscious, as already noted, and there is less support for the House provisions in the Senate, where the Democrats have no margin of error on the final vote. Senate legislation has already been CBO (Congressional Budget Office) scored to reduce the deficit at ten- and twenty-year projections. This does require doctors to take less payment from Medicare patients than they have in the past and requires individuals to buy insurance or pay a fine, which will be unpopular for some people who neither have insurance nor want to pay for it. On the other hand, projected cost savings of the Senate legislation do not entirely factor in other cost-containment approaches, which are being tested, from malpractice reform to replacing the fee for service model, and which will likely bear fruit over the next decade.
Deficit Reduction and Health Care Cost Containment
The conference committee should take both the Senate tax on high value insurance plans and the House tax on wealth in the final form of the bill. This would lower the deficit even further. It might upset a moderate Democrat or two and it might not induce any Republicans to vote for health care reform, so Harry Reid needs to shepherd his flock and ask Olympia Snowe and Susan Collins where they stand on the idea, but it has the distinct advantage of creating universal health care legislation that is strongly positive on deficit reduction and still stepping in the right direction by changing health care incentives.
Currently incentives in the profit-driven system reward over-testing and overuse of resources by those who have, and tolerate underuse by those who have not. The Senate legislation, as it stands, gives the have-nots a chance to participate in the health-care marketplace. While taxing wealth must be done cautiously so as not to damage investment and new business potential, here the benefit of lowering the deficit in the process of providing the opportunity for basic health care for all Americans is a worthy purpose for a moderate wealth tax. Control of the deficit will return rewards to many who pay the tax by improving confidence in the economy and raising prospects for investments. This could be a win-win in the long run, provided that the economy was emerging from the current recession before tax increases were imposed.
The Senate’s health care legislation is a monumental accomplishment in the direction of universal coverage. It also begins to tackle cost issues by taxing luxurious insurance plans and pointing towards other models of care that will lower demand and drive down costs. We could add substantial deficit reduction to the legislation — an unplanned bonus — by including the House’s moderate tax on wealth in addition to the Senate bill’s revenue measures.
What are your priorities? If this sounds appealing, please spread the word.
Listen to care2.com blogger Jessica Pieklo and I discuss health care and more on our weekly podcasts.
January 4, 2009 UPDATE: Hendrik Hertzberg at the New Yorker on support and opposition to the health care bill. An outspoken liberal, Mr. Hertzberg is in favor of the current legislation.
On the White House blog, a comparison of President Obama’s Transition period positions on health care reform compared with the near final product.
January 11, 2009, UPDATE: PBS Newshour hosted a good discussion on whether it was better to adopt Senate or House approaches, but there was no mention of taking both. Why not?