National Perspective : HEALTH CARE: Pros and Cons

Three main health reform plans are under debate in Congress--a Republican plan offered by Senate Minority Leader Bob Dole of Kansas and Democratic plans by Sen. George J. Mitchell of Maine and Rep. Richard A. Gephardt of Missouri. The description of pros and cons below relies on analyses of the Mitchell bill by the Congressional Budget Office and of the Dole bill by the health consulting firm of Lewin-VHI. Gephardt’s bill has not been finalized but is similar to the bill passed by the House Ways and Means Committee, which was analyzed by CBO. All three bills will be subject to extensive debate and amendment over the next few weeks.

EMPLOYER MANDATE

Gephardt: Firms would be required to provide insurance to all workers. The employer would pay 80%, the employee 20%. The requirement would be phased in for large employers in 1997 and small companies in 1999.

Mitchell: No mandate initially. If 95% of the legal residents of a state are not covered by 2000, a mandate will take effect in that state starting in 2002. Under the mandate, companies and workers would share the cost of premiums 50-50, although a company could pay more if it wished. Companies with fewer than 25 workers would not be covered by the mandate, but all individuals would be required to have insurance if the mandate is triggered.

Dole: No mandate.

Pros: A mandate is the simplest way to guarantee that everyone has coverage. Without a mandate, some people and some companies get a free ride, receiving care from a system that everyone else pays for. Without a mandate, the government will have to pay more in subsidies to encourage people to buy insurance if the goal of increased coverage is to be achieved.

Cons: Any new requirement on employers raises the cost of doing business. The mandate would probably cause some job loss in some companies, although it might lead to job gains in other companies, such as those that already offer insurance and now face competition from free-riders. Enforcing the mandate could also be expensive and require new bureaucracies.

The 50% mandate would impose less burden on business, but it would also require greater government subsidies if low-income workers are to afford insurance. If companies that now offer 80% coverage decide to drop to 50%, costs could rise for middle-income families. Some analysts argue that making families pay a greater share of the cost of insurance would reduce waste by making Americans more conscious of medical care costs.

Mitchell’s proposal that the mandate be imposed state by state and that smaller firms be exempt could create serious problems. Large companies that operate in several states would face conflicting rules. So would people who live in one state but work in another. Companies near the 25-worker limit would have a strong incentive to find ways to evade the requirement.

SUBSIDIES

Gephardt: The government would pay subsidies to families with incomes up to 2.4 times the federal poverty level (a total of roughly $36,000 for a family of four). Those with income below the poverty line ($14,800 for a family of four in 1993) would get a full subsidy, which would then gradually phase out as income rises. Estimated cost: $76 billion in 1998, $118 billion in 2000.

Mitchell: Because Mitchell does not have an employer mandate in his bill, he includes broader subsidies. All families up to 2 times the poverty line would receive subsidies. Families with children up to 18 or pregnant women would get subsidies if their incomes were up to 3 times poverty. All subsidies would phase out gradually above the poverty line. In addition, workers who lose their jobs would be eligible for part-year subsidies even if their income while working exceeded the poverty line. Estimated cost: $104 billion in 1998, $131 billion in 2000.

Dole: Subsidies would be available for families up to 1.5 times the poverty level, with full subsidies at 100% of poverty, phasing out as income goes up. A new tax deduction would be available for workers who pay the cost of their own insurance. Estimated cost: $19 billion in 1998, $29 billion in 2000.

Pros and Cons: Dole’s subsidies cost much less but provide far less benefit. A family of four earning $25,000 per year would have to pay the full cost of insurance--about $6,000 per year for a comprehensive policy. Under Gephardt’s bill, by contrast, the same family would have to spend about $560. The government would subsidize the rest. Also, under Dole’s bill, subsidies would phase out more quickly for low-income families, which could give them a strong disincentive against earning more money.

INSURANCE MARKET REFORM

Gephardt: Insurers could not use pre-existing conditions to refuse coverage. Groups of 100 or fewer would pay premiums based on a “community rate” in which all members of a region would pay roughly the same premium. States could establish voluntary or mandatory health purchasing cooperatives for businesses to use in buying insurance.

Mitchell: Insurers could not use pre-existing conditions to refuse coverage. Groups of 500 or fewer would pay premiums based on a modified community rate that until 2002 would allow insurers to charge older people up to twice the premium charged to younger people. States would establish voluntary health purchasing cooperatives, and businesses would be required to give employees access to them, even if the business did not contribute to the cost of insurance.

Dole: Insurers generally could not use pre-existing conditions to refuse coverage. Groups of 50 or fewer would pay premiums based on a modified community rate that until 1998 would allow insurers to charge older people up to four times the premium charged to younger people. After 1998 insurers would be allowed to charge older customers up to three times what they charge younger people.

Pros and Cons: Community rating saves money by eliminating the incentive for insurers to seek out only younger, healthier workers to cover. Under community rating, rates for younger customers will go up while rates for older people will come down. Because younger people are already less likely to buy insurance, that increase in rates could cause more people to drop insurance if no mandate is in force. That in turn would push rates up for everyone else.

FINANCING

Gephardt: Medicaid recipients would be enrolled in the new subsidy programs and would buy private insurance. As of 1998, that would free up $98 billion now spent on Medicaid. In addition, the bill would make reductions in Medicare--$18 billion per year as of 1998, $32 billion per year by 2000. The bill also would raise about $10 billion in new taxes, primarily through increasing the tobacco tax and ending some health-related tax deductions.

Mitchell: Most Medicaid recipients would be enrolled in the new subsidy programs and would buy private insurance. As of 1998, that would free up $76 billion. The bill would make reductions in Medicare of about $14 billion per year. It would also raise taxes--roughly $20 billion per year in 1998, through increasing the tobacco tax, ending some health-related tax deductions and imposing a new premium tax on “high cost” health plans.

Dole: Some Medicaid recipients would be enrolled in the new subsidy plan. No estimate is yet available on how much money would be freed up as a result. In addition, the bill would reduce Medicare spending by about $11 billion in 1998. It would not increase the tobacco tax.

Pros and Cons: Hospitals and doctors worry that the Medicare cuts would reduce their incomes and say the reductions might cause some health providers to stop taking Medicare patients. On the other hand, expanded coverage would mean that those same doctors and hospitals would have fewer uninsured patients to whom they would be providing free care. The Congressional Budget Office has estimated that Mitchell’s bill and the House Ways and Means bill would slightly reduce the federal deficit over time. The analysis has not yet been completed on Dole’s bill.

WHERE TO WATCH

CNN plans extensive live coverage of the U.S. Senate health care debate. Coverage begins with start of the debate, tentatively scheduled for 6 a.m. PCT. C-SPAN also will cover the session.