Busch: The Baucus Framework for Health Reform

Yesterday, the Senate Finance committee released their plan for health care overhaul that Sen. Max Baucus provided to the "Gang of Six" bipartisan negotiators.

The biggest thing excluded was President Obama's "public option" plank that will be included in the US House version of the bill. The President has backed off from his demand for the public option even though Speaker of the House Nancy Pelosi has said it's a critical component.

According to early Republican estimates, the bill will still cost $900 billion. Given the dire state of the US fiscal deficit, the markets will have a hard time swallowing this expenditure. Let's see if President Obama addresses these costs in his speech tonight.

This Day 1 Year Ago - A CNBC Special Report - See Complete Coverage
This Day 1 Year Ago - A CNBC Special Report - See Complete Coverage

As I and others have been advocating, the dropping of this provision will make reform/overhaul more likely to be accomplished as it would drop the cost of the bill. The bill does make provision for state Co-ops to buy insurance with funding/loans by the federal government. The Town Hall meetings were a wake up call to moderate Democrats in the Senate that the public was nervous not only over the incredible cost of the overhaul with the public option, but also the government taking over provision of insurance.

In the Baucus framework, there are fees to insurance companies of $6 billion to help defray costs of expanded health care coverage. This would be allocated by market share, but I wonder how this will not end up being allocated to present holders of insurance polices. There will also be an excise tax on high-cost health plans of 35% on premiums for policies above $8,000 for singles and $21,000 for families.

Also beginning January 1, 2013, "health insurance plans in the individual market would be required to offer coverage on a guaranteed issue basis and would be prohibited from excluding coverage for pre-existing health conditions. Limited benefit plans and lifetime limits would be prohibited, and health insurance companies would be prohibited from rescinding health coverage."

Other fees starting in 2010: $2.3 billion on pharmaceutical companies, $4 billion on medical device makers, and $750 million annual fee on clinical laboratory companies. These fees along with the changes to how private insurance is run are why health care and insurance companies stocks were down yesterday when the rest of the market was up.

Last night on the Kudlow Report, we did a fair amount of bashing of the bill .

However, there are excellent provisions as well that may not be easily seen such as incentives for healthy lifestyles. “ The programs would target specific risk factors including high blood pressure, high cholesterol, tobacco use, overweight or obesity, diabetes, and falls prevention."There will be incentives for increasing the number of primary care practioners.

Where I think there is room for agreement is under the provision that recognizes that "young invincible" people only need catastrophic coverage. It's a model that the Finance Committee should consider for more people--especially people in higher incomes.

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Alternative Investing - A CNBC Special Report - See Complete Coverage

While the President will be criticized for his proposals and his desire for a public option, the fact is that he has already accomplished something that needed to be done.

He brought reform and overhaul focus to Congress.

Now, it's up to Congress and the "Gang of Six" to move forward in a deliberate way to create policy that works.

As a believer that government does more harm than good when it comes to the economy, a positive outcome for the 15% of our economy that health care comprises is questionable.

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Andrew Busch
Andrew Busch


Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece andreach him here and you can follow him on Twitter athttp://twitter.com/abusch .