Who Should Get a Subsidy?

by Tim Foley

categories: Obama and Congress, State and Local Efforts

Published March 22, 2009 @ 09:24PM PT

Subsidies to allow individuals to purchase public or private coverage are all the rage. But for the plan being worked on in Congress, legislators have been reluctant to answer the questions of who should get a subsidy and how much.  In trying to come up with a number, we should avoid doing the normal political thing and going with whatever arbitrarily sounds good.  Instead, we should look at what’s working (San Francisco) and what’s totally not (Massachusetts.)

The basic approach of the Obama/Baucus plan calls not just for a National Health Exchange where anyone without coverage or dissatisfied with coverage offered by their employer could choose either a public plan, modeled on Medicare and with the benefits package given to a member of Congress, or a number of private insurance options with the same level of comprehensive benefits (or better.)  In order to help them pay for it, subsidies would be offered to make up the difference between the cost of the plan and what the individual could reasonably afford.

The subsidy strategy has been a key feature of the last three “big time” attempts at health care reform at the state or local level.  The Massachusetts Connector gives subsidies for those at 300% of the Federal Poverty Line or below, which is about $32,000 for an individual and $66,000 for a family of four.  But the lesson of Massachusetts is that this is clearly too low.  As Jonathan Gruber explains, a full 15% of the uninsured need to be exempted from the fines for not purchasing insurance in the state because there’s clearly nothing affordable at that level.  With the average family plan for a family of 4 coming in at $12,000, requiring a family making $68,000 to spend nearly 20% of their income on health insurance or be penalized seems and is arbitrary, not to mention over twice what is paid for a family in Japan or Switzerland – and that’s with employers picking up half the tab!  Still Gov. Schwarzenegger also proposed 300% of the Federal Poverty Line in his failed California universal health care plan.  Obama has avoided saying what level the subsidies should be capped at, but Baucus suggests 400% of the Federal Poverty Line, almost entirely to escape the Massachusetts enforcement problem.

Yet the other end of the spectrum is San Francisco.  The Healthy San Francisco plan is a city government-run coverage plan and the closest thing we’ve seen yet to the public option promised by Obama/Baucus.  Eligibility is at 500% of the Federal Poverty Line, so a stunning $54,000 a year for an individual or $110,000 for a family of 4.  Although not a strict subsidy structure, as there’s no insurance to subsidize, Healthy San Francisco is picking up a hefty portion of the tab to give shockingly cheap prices.  An individual is paying 3% of his or her salary to get comprehensive care – something to make even the Japanese and the Swiss jealous.

Now you might think that the national system would soon go bankrupt if the bill in Congress went the San Francisco route instead of the Massachusetts route.  After all, Massachusetts has famously exceeded cost expectations time and again, and increased the number of insured has not yet yielded appreciable savings or increased quality.  But San Francisco has a whole host of measures designed to cut costs and improve quality, such that it’s already showing system wide savings.  Just last week, the San Francisco Department of Health issued statistics showing that the Healthy San Francisco plan spends per person than even the most innovative of private insurance providers.

You can’t save money just by increasing eligibility, as Massachusetts has taught us, and for a mandate to have any teeth, you can’t set the bar too low.  But San Francisco rebuts that if you’re doing what you need to on cost and quality, then you can successfully set the bar much higher than the cynics would think.

(Photo credit:  envios on Flickr.)