The Baucus Bill: Where's The Money?

The Congressional Budget Office  says that the Baucus plan, as newly marked up, will cost under $900 billion over 10 years, insure an additional 29 million Americans. Of the 25 million Americans who would remain uninsured, 1/3 are illegal immigrants.  The bill as written (and interpreted) would also decrease the federal deficit by $83 billion.

Sounds like a trifecta.  But if more people are covered, the health care system is not transformed, and the deficit goes down, someone is paying more!


Here’s how this works out (all figures over 10 years – cost in parentheses)

Net Costs
Net Savings
Tax Increase
Medicaid CHIP

Subsidies for Low Income

Tax Credit for Small Employers

Tax on High Cost Plan

Penalties on Uninsured

Penalties on Employers

Other tax effects

Fee For Service Reductions


Medicare Advantage reductions


Reduce safety net payments


Other direct spending cuts


Medicare Commission


Other savings


Impact on Deficit


I want to focus on a few elements of this bill that are likely to cause implementation trouble.

* Tax on high cost plans: Sentiment is already building against this, and some “Cadillac plans” negotiated by labor have been removed.  The tax on high cost plans is likely to lower the number of Americans offered such plans (the CBO has considered this).  High cost plans are geographically situated in states with large Democratic majorities (Massachusetts, New York, California), and congressional representatives from these states probably will be heard from further.

* Penalties on uninsured and business: Massachusetts’ experience is that the amounts collected were far smaller than expected (and recent evidence suggests that compliance is lower than was first reported).  It looks like the CBO has discounted these receipts already

* Fee for service reductions: Note that there are not physician office visit reductions here (which is good, given the AMA’s recent success at overturning the “sustainable growth revenue” cuts each year.  Of course, those whose fees are to be cut will be advocating caution, raising the specter of access trouble and plunging quality

* Medicare Advantage cuts:  Health plans will oppose these cuts, and will be maneuvering behind the scenes to remove them.  I’m fearful that cuts here might force some of the better-integrated groups taking Medicare Advantage plan capitation to dismantle some of their care management infrastructure even as we start “medical home” models to encourage provider-based care management.

* Disproportionate Share cuts: These are payments to safety net hospitals to care for the uninsured.   It makes sense that these payments can go down as more of the population is insured.  However, the Massachusetts experience is that the cost of caring for the uninsured has not diminished as rapidly as this subsidy, and our major safety net hospitals (Boston Medical Center and Cambridge Health Alliance) are in serious financial distress.

I note there is little delivery system transformation in this bill. The headline on Ezra Klein’s column in the Washington Post tells the story “Meet the New Health-Care System, Not That Different From the Old Health-Care System.”   This might be the health care reform that is possible today.  We will need much more in the way of savings to make this sustainable.