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Health Care Reform Background

Health Care Reform on the Horizon: Senate and House Committees Begin Debate

The vast majority of manufacturers provide health care insurance to their employees, and few would disagree that rapidly rising health care insurance costs are among the biggest and most burdensome expenses a business faces. NPES members are no exception, and for this reason the Association has been active in an NAM (National Association of Manufacturers) task force monitoring health care reform proposals being developed by congress and the Obama Administration. While nearly everyone agrees that something needs to be done, the multi-trillion dollar questions are: what can and should be done, and how should it be paid for?

As vexing as these questions have been for many years, their answers may soon begin to be known as President Barack Obama attempts to use his current popularity to speed health care reform - his top domestic priority - through congress this summer with the hope of signing landmark legislation into law later this year.

To that end, the Senate’s two committees of jurisdiction for reform - Finance, chaired by Senator Max Baucus (D-MT) and Health, Education, Labor and Pensions, chaired by Senator Chris Dodd (D-CT) in the absence of Committee Chairman Edward Kennedy (D-MA) have both been drafting legislation during June and July, with full Senate approval hoped for in September.

 House action may proceed more rapidly, with the Energy and Commerce, Education and Labor  and Ways and Means Committees all marking up legislation in early July, with consideration by the full House of Representatives possible in late July, even as President Barack Obama makes an all out push.

Reform Roadmap

In analyzing the various aspects of health care reform, the Senate Finance Committee has conducted the most open and expansive discussion of potential policy options, dividing them into a roadmap with three broad categories: 1) Delivery, 2) Coverage, and 3) Financing.


The Finance Committee reported that in 2008 the United States spent more than 17 percent of its Gross Domestic Product on health care – more than any other industrialized country in terms of total and per capita spending. And by 2017, health expenditures are expected to consume almost 20 percent of GDP, or $4.3 trillion annually.

In assessing the current health care delivery system, the Committee noted that the way health care is paid for does not always encourage the right care at the right time, often rewarding quantity rather than quality. To correct this, the Committee suggested that payment incentives must be re-oriented toward services and activities that improve patient care in an effective and efficient manner, and reduce the growth of national health care spending. Reform should emphasize prevention and wellness services, incorporate comprehensive health management approaches and align provider payments with successful outcomes. And it is imperative that information technology be employed to maximize efficiency and reduce costs.


According to the Finance Committee, the U.S. is the only developed county that does not guarantee health care coverage for all its citizens, with 46 million uninsured and another 25 million underinsured. Currently, the cost of caring for the uninsured is largely borne by those with insurance in the form of increased health insurance premiums. Moreover, the crisis also extends to those who have health coverage but are worried about increasing costs that may eventually put it out of reach for them too.
Proposals for reform in this area are designed to attain the major goal of providing all Americans affordable, quality coverage regardless of age, health status, or medical history. Most believe that the principle means by which to reach this goal is through an effectively functioning insurance market. To that end, individual and small group market reforms would ensure a competitive market in which plans compete on price and quality rather than by segmenting risk and discriminating against unhealthy people.

Additionally, a new “gateway” or marketplace would be established where consumers could easily compare and purchase coverage that best meets their needs, much like the Federal Employees Health Benefits Program.

To make this affordable, there are proposals for targeted tax credits for low-income individuals and small businesses, and improved public programs for those at the lowest end of the income scale that are least likely to have private coverage through an employer.

With these reforms in place, all Americans would be required to obtain coverage through one means or another, with the expectation that the vast majority of employers would continue to provide coverage as a competitive benefit of employment.

The NAM task force commended reforms focused on individuals and small businesses, but encouraged that they also be extended to medium-sized employers, as well as those that are fully-insured. At the same time, employers must be able to maintain maximum flexibility to manage their health benefits, including the ability to offer such features as Health Savings Accounts, Flexible Spending Accounts, and Health Reimbursement Arrangements.

Conversely, mandating rich minimum coverage requirements or imposing new restrictions or requirements on existing employer plans that could make them unaffordable for many businesses must be avoided. Establishing a public health insurance option that competes with private employer-based plans would be equally problematic, as it could seriously destabilize the insurance market and undermine a system that currently covers over 170 million Americans.


Policy options for funding health care reform focus on three specific sources: 1) savings to be achieved from within the healthcare system from reductions in current levels of spending, 2) reevaluating current health tax subsidies, and 3) changes to non-health tax provisions.  

Savings to be achieved from the first source are primarily related to issues discussed earlier relating to reforms in the delivery of health care.
In addition to direct expenditures on health care, the tax code includes many subsidies and incentives related to health care that make up the second source of funding for systemic reform. These indirect costs comprise the largest category of federal tax expenditures, totaling $194.2 billion in 2008, with the exclusion from income of employer sponsored health care at $132.7 billion being by far the single largest item in this group. Taxing such benefits as imputed income to employees would be highly controversial, but it is a cash cow and a growing possibility supported by both Democrats and Republicans (although the latter would want to return the money to individuals in the form of tax credits.) Equally troubling to businesses would be any reduction in the employer deduction for providing these benefits to employees, which in 2008 was worth $228 billion.

Finally, since delivery system reforms, reductions in health spending and changes in tax subsidies may not yield enough revenue on their own to pay for all of health care reform, other revenue options may be considered. Those that have drawn particular objection from the NAM task force include, 1) Obama Administration proposals to increase taxes on worldwide American companies, 2) efforts to repeal Last-In-First-Out (LIFO) accounting, 3) increasing taxes on small businesses that are often taxed at individual tax rates, and 4) so-called “lifestyle” taxes that target specific industries.

For more information contact NPES Government Affairs Director Mark J. Nuzzaco at phone: 703/264-7235 or e-mail:

CBO Scores Senate HELP and Baucus Finance Bills at more than $1Trillion Apiece, House Tri-committee Bill Would Likely Cost More

The Congressional Budget Office (CBO) has determined that the Affordable Health Choices Act released by the Senate Health, Education, Labor and Pensions (HELP) Committee would result in a net increase in the federal budget deficit of $1 trillion from 2010 to 2019.

A key provision of the proposal is the establishment of insurance exchanges (called “gateways”) through which individuals and families could purchase health insurance, some of whom would receive substantial federal subsidies. These subsidies would be the greatest single cause of the plan’s cost.

Although CBO estimates that 39 million uninsured would obtain coverage through the exchanges, it also calculates that the number of people covered by employer plans would decline by 15 million, and those covered by other sources would drop by an additional 8 million, yielding a net decrease in the uninsured of only 16 million people.

Other features of the legislation include stronger emphasis on prevention, better quality care and use of information technology, steps to increase investment in training healthcare professionals, and innovations in long term care services designed to help the elderly and disabled stay in their homes instead of nursing homes.
The CBO has also analyzed the Senate Finance Committee’s draft legislation and scored it at $1.6 trillion, even more costly than the HELP bill. In response Committee Chairman Baucus directed his staff to make changes that would rein in costs to $1 trillion or less.

Senate Finance is also considering Senator Kent Conrad’s (D-ND) innovation of a not-for-profit cooperative as an alternative to a public plan. However, the Senate Republican Conference is skeptical whether a co-op would compete on a level playing field, or dominate the market like Fannie Mae and Freddie Mac did in the housing market.  

Other proposals also in play include competing legislation by House Democrats and Republicans that span the ideological spectrum. The Democrat plan promises a broad expansion of heath care to millions of the uninsured, but at this point offers no detail on how to pay for it. In contrast, the House GOP version rejects employer and individual mandates, and public option plans in favor of tax subsidies for individual and small businesses, medical liability reform and association health plans.