Health care reform: A simple explanation, updated

Editor's note: This report updates our story from last summer, "Health care reform: A simple explanation," to reflect new developments in the debate, particularly the plan approved by the Senate and the president's proposal. We've also updated our story "GOP health care reform: A simple explanation."

In the wake of President Barack Obama's bipartisan summit on health care reform at Blair House on Feb. 25, 2010, we thought it would be a good time to review the Democratic Party's health care proposals. Obama recently released his own proposal that builds on a plan approved by the Senate in December.

All the Democratic plans are similar: Expand coverage and reduce costs. Compared with the Senate, the House plan is more ambitious in its regulation of insurers and generous in its tax subsidies to low-income people. Obama's proposal seeks to bridge the gap between the two plans, but it takes more of its substance from the Senate plan. Obama's plan also adopts Republican ideas on discouraging waste, fraud and abuse, especially in programs like Medicare, the government-run health insurance program for seniors. (Read our analysis of the Republican plans in our report, GOP health care reform: A simple explanation, updated.)

Here's an overview of the Senate proposal:

• Leave employer-provided insurance in place. About 60 percent of Americans get health insurance through work, and studies show many people like their coverage. The Senate bill does not require employers to offer insurance, but it does impose taxes on employers if they don't offer insurance and their employees qualify for new health insurance tax credits.

• Health insurance exchanges. To help people who have to buy insurance on their own, the Senate plan creates state-based exchanges, which are virtual marketplaces where individuals and small businesses can comparison shop. The government would regulate the exchanges so that insurance companies couldn't discriminate against people with pre-existing conditions, or charge wildly different amounts for similar coverage. Insurers would be able to adjust rates based on age, premium rating area, family composition and tobacco use. The Democrats appear to have abandoned plans for a public option, which would have been a government-run insurance program intended to compete with private insurers.

• Requirements for comprehensive coverage. Under the Democratic plan, people won't be able to buy high-deductible, catastrophic plans that only kick in for major medical expenses. Insurers would have to cover preventive care, and they wouldn't be able to cut off coverage unfairly or set annual limits on benefits.

• More for the poor. The plan expands eligibility for insurance programs like Medicaid and the state Children's Health Insurance Program. All poor people would qualify for Medicaid. (Previously, a person had to be poor and also elderly, disabled, pregnant or a parent to qualify.) People of modest means would receive tax credits to buy their own insurance on the health insurance exchange.

• An individual mandate. This requires people to buy insurance, unless they qualify for a hardship exemption. The Democrats want everyone to be covered, either through their employer, the exchange, the Veterans Administration, Medicaid or Medicare. People who don't buy insurance would have to pay a penalty on their taxes. Under the Senate bill, the share of legal nonelderly residents with insurance coverage is expected to rise from about 83 percent currently to about 94 percent.

• Electronic records. To reduce inefficiency and duplication of services, the government would promote standardized electronic health records, so doctors could see which tests and procedures patients have already had.

• Research on better treatments. A comparative effectiveness research center would conduct and publish scientific research to find which treatments are the most effective. The government hopes easy-to-access information for doctors, patients and insurance companies will reduce procedures and treatments that don't really work, wringing waste from the system.

• Medicare. The bills would make many changes to how Medicare pays doctors and other health care providers. Taken as a whole, the new rules aim to pay doctors for good patient outcomes instead of paying them per procedure, also called "fee-for-service." The bills also would eliminate excess payments to the Medicare Advantage program, which typically offer seniors extra benefits beyond what traditional Medicare offers. An independent payment advisory board would make recommendations on reducing cost growth and improving the quality of care for Medicare beneficiaries. Their recommendations would take effect unless Congress overrules them.

What's controversial

Critics have centered on a number of key issues, particularly the plan's cost at a time when the country's debt is skyrocketing.

• Cost for consumers: People are wonder whether the new plans would increase or lower their insurance premiums. For most people, rates would stay the same or drop, according to estimates, but it depends on your circumstances. The nonpartisan Congressional Budget Office conducted an analysis, looking at three groups: the large group market (typically people who get insurance through large employers), the small group market (people who get insurance through small employers or other small groups) and the individual market (people who have to buy insurance on their own, directly from insurers). For the large group market, the CBO found that rates would either stay the same or decline slightly. For the small group market, rates would essentially stay the same as well. The individual market is a more complicated story, because insurers will be required to offer comprehensive coverage, and because people can qualify for tax credits. Rates in the individual market would go up 10 to 13 percent, the CBO found, because insurers would have to offer more coverage. But 57 percent of people who buy their own insurance would qualify for tax credits, and for them, rates would drop by more than 50 percent.

• Cost for taxpayers: The plan doesn't come cheap. Covering millions of people who are now uninsured would cost billions more per year. Many different types of taxes have been proposed and rejected. Obama supports a plan to tax the most expensive health insurance plans, the so-called "Cadillac" tax, though in comparison with the Senate, the plan he favors would kick in later and affect higher priced plans. Obama would also increase Medicare-related payroll taxes for people who make more than $250,000 a year. There would be new taxes on prescription drug manufacturers, the makers of medical devices and indoor tanning salons. The Congressional Budget Office found that the Senate bill spends $871 billion over 10 years to expand coverage, but its new tax revenues and other cost reductions make up for it. Overall, the Senate plan would lower the federal budget deficit by $132 billion over 10 years, according to the CBO. Obama's plan has yet to be scored by the CBO, but Obama has said he would not support a plan that adds to the deficit.

• "Rationing." Critics say the Democratic plans would lead to health care rationing. They attribute that to various elements of the plans, such as the Medicare payment advisory board we mentioned, and an approach known as comparative effectiveness research that seeks to find the most efficient treatments. The current proposals state that comparative research shall not be binding on health care plans or dictate treatment. Still, it seems reasonable to assume that health insurers would act on the government information, refusing to fund treatments considered experimental or ineffective. Supporters say health care is rationed already, by insurance companies. Your comfort level on this probably depends on whom you trust more: the government or insurance companies.

• The public option. It seems unlikely that the public option will make it into the final plan; neither the Senate nor Obama are including it in their current proposals. But supporters are still talking about it, and it was a major part of the debate in 2009. The public option is an insurance plan run by the government that individuals can choose over private insurance. Supporters say the public option would offer basic coverage, keep costs low and ensure private insurance companies offer fair rates. Conservatives say it's a stalking horse for an eventual single-payer system, or that it's simply unfair competition for private providers.

What we still don't know

Procedurally, the plans still face several hurdles, and lawmakers will still have to settle how to reconcile the Senate bill with Obama's proposals.

• How big will the subsidies be for low- to middle-income people? The House plan is more generous with its tax credits and subsidies than the Senate plan. Obama's proposal seeks to bridge the gap between the two bills. The more generous the benefits, the higher the costs.

• How will the plan make it through Congress? When Republican Scott Brown was elected to the late Ted Kennedy's seat in Massachusetts, it threw plans for the Senate into disarray, because the Democrats now have only 59 members and can't overcome filibusters without Republican support. Procedurally, the House could approve the bill that the Senate voted on before Brown's election. Any changes would have to be made through reconciliation, a parliamentary maneuver that only requires 50 votes and only allows changes to budgetary issues. The Democrats might pursue this option if they're unable to win any Republican votes. But it's not clear whether enough House members will support the Senate plan. The biggest controversy could be over abortion: The House measure put more restrictions on how insurers could offer coverage for abortion services.

• Will the promised cost savings materialize? The Congressional Budget Office has concluded that the Senate plan would reduce the deficit over the next 10 years, and over the 10 years after that. But even the CBO warns that it's very difficult to put dollar figures on many of these things, because of the size of the health care industry and the inherent unpredictability of major policy changes over many years. It's good to keep in mind that when it comes to health care reform, no one has a crystal ball.