Grading the Baucus Health Plan

Henry J. Aaron
Henry J. Aaron The Bruce and Virginia MacLaury Chair, Senior Fellow Emeritus - Economic Studies

September 16, 2009

Groucho Marx famously said that he would not join any club that would have him as a member. American voters are about to find out whether the U.S. Congress will vote for any health plan it is willing to pay for.

The fundamental challenge is simple: extending health insurance to everyone is expensive. Meeting the president’s prudent commitment not to sign any bill that would boost the deficit requires sizable tax increases or spending cuts to pay the subsidies necessary to make insurance affordable for low- and moderate income households. How generous coverage should be depends on how much taxes can be increased or spending cut.

Like earlier draft Senate and House bills, the ‘”chairman’s mark” of Senator Baucus would require legal residents to be insured — through a public program, employer-sponsored plans, or individually purchased insurance. The price tag of the earlier bills was north of $1 trillion over 10 years. However, members of Congress seemed unable to identify ways to pay for those bills in a politically acceptable way. Senator Baucus’s plan lowers the overall cost by promising much less generous benefits than previous bills did.

Unfortunately, reducing one problem creates another. Health insurance is costly because health care is expensive. Someone has to cover those costs — individuals or taxpayers. So, reducing the subsidies heightens the risk that health insurance mandate may place undue financial burdens on low- and moderate income households.

Complicating the politics is the irresponsibility of Republican members of Congress. With remarkable inconsistency, they favor extending insurance, don’t want to boost burdens on households, oppose cuts in Medicare payments to providers, swear to vote against tax increases of any kind, and profess deep worry about the budget deficit.

With the support of virtually no Republicans, passing a bill requires that Democrats must stay united. But here is where the Groucho Marx problem bites. It is not clear that enough Democrats will vote for the tax increases or spending cuts necessary to pay for any bill they are willing to support.