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Overview of President-Elect Obama's and Senator Baucus's Health Reform Proposals

Employee Benefits Alert

President-Elect Obama first introduced his health reform plan over a year ago. One of his campaign promises was to enact meaningful reform during his first term in office. As such, while the timing to begin that debate is still to be determined, it is expected that his proposal will receive significant attention as part of the health reform agenda.

On November 12, 2008, Senator Max Baucus (D-MT), Chairman of the Senate Finance Committee, introduced a 98-page, comprehensive proposal to Call to Action: Health Reform 2009. As Chairman of one of the two Senate committees with jurisdiction over health plan issues (the other being the Senate Health, Education, Labor and Pensions (“HELP”) Committee), this proposal is also likely to receive significant consideration. The proposal is intended to be Senator Baucus’s vision for health reform and is expected to be introduced as legislation shortly after the inauguration (to be drafted in cooperation with Senate HELP Committee Chairman Ted Kennedy (D-MA)). The proposal is considered a work in progress intended to encourage constructive input by policymakers, stakeholders, and health policy thought leaders.

These are not the only two proposals expected to become part of the health reform debate next year. Other proposals addressing either specific issues or encompassing broad-based reform are likely to be introduced by other members of Congress, but are not yet available. For example, Senator Wyden (D-OR) introduced the Healthy American’s Act (S. 334) during the current Congress and has been working for more than a year to gather support for his approach. It is unclear whether he will reintroduce the legislation during the next Congress or instead work to incorporate some of his ideas as part of Senator Baucus’s proposal. Miller & Chevalier will continue to update our clients as developments arise. Key provisions of the President-Elect Obama and Senator Baucus health reform plans are summarized below.

President-Elect Obama’s Proposal

New sources of coverage. Under President-Elect Obama’s proposal (the “Obama Proposal”), a National Health Insurance Exchange would give all Americans access to a new public plan or approved private plans based on the Federal Employees Plan (“FEP”), which is the plan currently provided to all federal workers, such as Members of Congress and their staffs. All private insurers participating in the program would be required to accept all applicants, and benefits offered under the plans would have to be at least as generous as those provided under FEP.

Impact on individuals. The Obama Proposal does not include a mandate that all individuals must have health coverage, although it does require all children to have coverage. The proposal would expand the State Children’s Health Insurance Program (“S-CHIP”) and Medicaid, and would give subsidies to low-income citizens who buy insurance.

Employer coverage. The Obama Proposal requires businesses to offer “meaningful coverage” or pay a percentage of payroll into a fund. No details have been provided regarding what would qualify as” meaningful coverage,” what size employer would be subject to the “play or pay” requirement, or how much they would have to pay if they did not offer health coverage.

Small businesses would get a refundable tax credit up to 50% of the cost of coverage for providing health care for their employees. For all sizes of employers, the proposal would reimburse catastrophic health plan costs above a certain threshold if the savings were used to reduce employee premiums. Finally, employer plans would be required to cover dependent children up to age 25.

Improvements in cost and quality. The Obama Proposal would invest heavily in health information technology and encourage better management of chronic illnesses. In addition, the proposal requires full transparency of health care quality and cost information and would invest in comparative effectiveness research. With regard to health care providers, such as physicians and hospitals, the proposal would require reporting of all preventable medical errors and would implement pay-for-performance for federal health programs, such as Medicare and military benefits.

Action against drug and insurance companies. The Obama Proposal includes several specific provisions aimed at prescription drug and health insurance companies. With regard to prescription drugs, the proposal would allow reimportation of prescription drugs from other countries, would authorize the Medicare program to negotiate for discounted prices with drug companies, and would prevent drug companies from paying incentives to generic drug manufactures to block generic drug production.

The proposal requires health insurance companies to cover all pre-existing conditions and mandates that they pay a “reasonable share” of their premiums for patient care instead of keeping “exorbitant amounts for profits and administration.”

State regulation. Finally, the Obama Proposal would allow states greater ability to experiment with coverage (presumably by making changes to the current ERISA preemption framework) so long as the states meet the minimum standards of the new National Health Insurance Exchange.

Senator Baucus’s Call to Action: Health Reform 2009

Senator Baucus’s proposal (the “Baucus Proposal”) includes provisions designed to improve health care coverage, cost, and quality. The Baucus Proposal is divided into three parts: increasing access, reforming the health care delivery system, and  financing.

Increasing Access

Individual mandate. The Baucus Proposal includes a mandate that all Americans have health coverage. The mandate would be enforced through the tax code or some other point of contact between individuals and the government. An open issue is how to deal with individuals who do not file tax returns due to their low tax liability.

Employer provisions. All but the smallest employers would be required to offer premium conversion plans, which allow all employees to purchase coverage on a pre-tax basis. It should be noted that the State of Massachusetts adopted a similar requirement as part of its health reform.

The Baucus Proposal would also include a “play or pay” mandate for employers. Employers that were able to provide coverage (particularly those that pay high wages) would be required to provide health coverage for their employees. Those that do not would have to pay into a fund that would help to cover those who remained uninsured. The contribution would likely be based on a percentage of payroll, taking into account the size and annual revenues of the company.

Businesses with the fewest workers and lowest wages would be offered a new tax credit to purchase insurance for their employees and would be exempt from the play or pay mandate.

New sources of coverage. The Baucus Proposal would establish a new health insurance exchange (presumably similar to that proposed by President-Elect Obama). Individuals and small businesses could purchase guaranteed coverage. Refundable tax credits would be available for individuals with incomes at or below four times the federal poverty level who purchase coverage through the exchange. Private insurers participating in the program would be precluded from discriminating based on pre-existing conditions.

In addition, the Baucus Proposal would allow individuals to buy into Medicare beginning at age 55, and would provide greater coverage for low-income individuals by expanding Medicaid and S-CHIP. Finally, the proposal includes a number of ideas focused on improving prevention and wellness.

Reforming the health care delivery system

The Baucus Proposal would strengthen the role of primary care and chronic care management. The proposal seeks to increase the supply and availability of primary care physicians by improving the value placed on their work, and refocuses payment incentives toward quality and value. In addition, the proposal would promote accountability, coordination of care, collaboration between providers, and patient-centered care. Finally, significant investments would be made in comparative effectiveness research, health information technology, and training of the health care workforce.


The Baucus Proposal would invest more to detect and eliminate fraud, waste, and abuse in public programs, and would address overpayments to private insurers in the Medicare Advantage program. The proposal would also increase transparency of cost and quality information, and would require disclosure of payments and incentives to providers by drug or device makers that may lead to “biased decision-making.” The proposal also suggests that Congress should consider careful reforms of medical malpractice laws and policies to address long-term care.

Senator Baucus notes in his proposal that “Congress should explore ways to restructure the current tax incentives to encourage more efficient spending on health and to target our tax dollars more effectively and fairly.” He continues that Congress should not completely eliminate the employee tax exclusion for employer-sponsored care and replace it with a tax deduction or credit because it could cause widespread disruption in employer-based health benefits. However, the proposal notes that one option is to cap the amount of premiums that can be excluded from employee wages for income and payroll tax purposes. This could be done by limiting or capping the tax exclusion based on the value of health benefits or, as an alternative, based on a person’s income, or both.


The Obama Proposal and Baucus Proposal provide important insight into the views of two instrumental policymakers as to future reform of our nation’s health care system. As such, both proposals merit serious analysis, discussion, and debate.

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