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.
Showdown
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?
