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Baucuscare: Who's Paying?

After a summer of contention, we finally have the first of several health-care reform bills for Congress to consider after the summer break. Senate Finance Committee Chairman Max Baucus is following in President Obama's footsteps, offering a middle-of-the-road compromise that neither side seems to like very much.

The bill doesn't have a government-sponsored public plan, but instead establishes an insurance co-op to cover the country's 46 million uninsured. The government would seed the co-op with $6 billion to cover start-up costs and meet insurance solvency requirements -- a drop in the bucket compared to the $182 billion it's pledged to AIG (NYSE: AIG  ) and the $700 billion that's been pledged under the TARP program to banks including Citigroup (NYSE: C  ) , Bank of America (NYSE: BAC  ) , and other entities.

A big part of the $774 billion to $856 billion cost over 10 years -- depending on whom you ask -- will come from government subsidies to help pay the premiums of individuals and families making as much as to three times the poverty level.

Who's paying for this thing?
If there's one thing every side of the debate seems to agree on, it's that we can't fix health care by putting it on the national-debt credit card. Instead, Baucus' plan works to contain costs and levies fees to cover the rest.

The Finance Committee's plan is to lower health-care costs by giving doctors incentives to save money, essentially turning Medicare fee-for-services into pay-for-performance. It asks the doctors to take on risk by accepting comprehensive bundled payments for certain procedures, which would make doctors and hospitals responsible if treating the patient cost more than expected.

If they don't offer health coverage for employees, businesses with more than 50 employees would be required to pay a $400 fee for each employee who instead uses a government-subsidized health insurance plan. Compared to what it would cost to offer health insurance, that sounds like a pretty good deal.

The entire health-care industry, from drug companies like Pfizer (NYSE: PFE  ) to medical-device makers like Boston Scientific (NYSE: BSX  ) to health insurers like UnitedHealth Group (NYSE: UNH  ) , will be hit with fees to the tune of $93 billion over the course of 10 years. The fees would be based on market share, so a small company like Intuitive Surgical (Nasdaq: ISRG  ) wouldn't be hit nearly as hard as Boston Scientific.

Still, a fee is a fee, and it'll ultimately hurt the earnings of health-care companies. In an op-ed in The Wall Street Journal, Baucus says that his plan wouldn't "inhibit the free-market innovations that have contributed to the exceptional medical advances Americans have benefited from in the last century," but it seems to me that added taxes that cut into profits discourage innovation, especially in a risky industry like drug development.

The plan also expects to raise more than $215 billion over 10 years by instituting a 35% excise tax on expensive insurance plans that cost more than $8,000 for individuals and $21,000 for families. Am I the only one who sees the potential irony here? If the bill works and reduces costs, there won't be as many people in these high-dollar plans, so the fees raised to help pay for the health-care plan will be diminished.

The Senate Finance Committee's bill isn't the only one in Congress; there are four other bills working their way through the House and Senate. As with the stimulus bill, legislators will need to compromise to finally get a bill passed.

Unfortunately, I'm not sure there's the same sense of urgency as there was for the stimulus bill; we have, after all, been working on health-care reform in some form or another since the Theodore Roosevelt administration. A stalemate would be bad news for consumers, but could be good news for investors.

What do you think about the plan to pay for health-care reform? Which is more important to you -- your pocketbook or your portfolio?

Intuitive Surgical is a Motley Fool Rule Breakers pick. UnitedHealth is a Stock Advisor recommendation. Pfizer and UnitedHealth are Inside Value recommendations.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of UnitedHealth and has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2009, at 4:33 PM, ozzfan1317 wrote:

    If you look at the Bill I'm really not too fond of it . It doesnt change the abuses of health care companies much and even requires everyone to carry insurance. Its nothing more than a way for health insurance companies to increase profits. Its no shock when you realize that Mr Baucus has recieved 100s of millions of dollars in campaign contributions from insurance companies.

  • Report this Comment On September 17, 2009, at 4:34 PM, ozzfan1317 wrote:

    Even though I prefer a public option I feel that in the least we must pass a provision outlawing insurance companies from dropping your coverage unless you fail to pay your premium and disallowing unfair practice and shoddy care.

  • Report this Comment On September 17, 2009, at 6:08 PM, MedDeviceENGR wrote:

    So Baucus wants to charge $93 billion in fees to the very companies he wants cost cuts from? That is stupidity at a whole new level.

  • Report this Comment On September 17, 2009, at 6:11 PM, mekanick wrote:

    I agree that they should not be able to drop someone who has paid in a timely fashion and did not get the coverage by use of obvious fraud.

    I have a Blue Cross Blue shield policy that costs me $120 a month with a 10k deductble. It belongs to me and has nothing to do with my employer. I think everyone should buy insurance for the big stuff and not for hangnails. I don't believe government force (guns, badges and black robes) should be applied to this end.

  • Report this Comment On September 17, 2009, at 7:31 PM, dc46and2 wrote:

    "Who's paying?" The average consumer would ultimately bear all these fees and taxes.

  • Report this Comment On September 17, 2009, at 7:39 PM, dc46and2 wrote:

    Where's the "Get the Politicians, Bureaucrats, and Employers Out of Health Care Forever / Let Freedom Ring" bill? This would not require me to choose between my pocketbook and my portfolio.

  • Report this Comment On September 17, 2009, at 8:27 PM, PDog57 wrote:

    Even I was surprised at how lame this bill is and feel it will do nothing except move millions of American families into the public pool as employees drop coverage and go for the $400 annual fine. Just this week it was announced that a typical family plan costs nearly $13000. Hmmmm, pay a big chunk of $13K or go for the $400. Don't underestimate good ol' fashion corporate greed. Some deals may be just too sweet to pass up.

  • Report this Comment On September 17, 2009, at 9:58 PM, eddietheinvestor wrote:

    I don't agree with some parts of Baucus's plan, but I like other parts. And at least he is honest by laying his cards on the table. It's an honest but flawed plan, and he should be commended for trying. And at least he is not trying to use threats like Nancy Pelosi did today by warning that there will be blood in the streets if people don't agree with her. It's even worse than Bush trying to raise the terror alert status before the election. It's blackmail and coercive. I hope that Congress and the American people give Baucas' plan a fair hearing.

  • Report this Comment On September 17, 2009, at 11:28 PM, SCBergman wrote:

    I'm ashamed that Max calls himself a Montana senator. I for one won't claim him.

  • Report this Comment On September 18, 2009, at 12:41 AM, knighttof3 wrote:


    just curious. Which government employees have badges, guns and black robes? Has your local judge been out drinking again?

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