The "Affordable Health Choice Act"

The Senate health committee led by Sen. Edward M. Kennedy of Massachusetts yesterday formally unveiled its healthcare overhaul bill -- the "Affordable Health Choice Act," one of several competing bills that Congress and President Obama will be considering in the weeks ahead.

Kennedy's bill aims to improve access to coverage by regulating insurers, expanding Medicaid and the State Children's Health Insurance Program (SCHIP), and building state-sponsored insurance Gateways (or exchanges) to help Americans find affordable coverage. The proposal would provide subsidies for buying health insurance to families with annual incomes as high as five times the poverty level.

Also included was a new tax on employer-provided health benefits to help pay for expanding coverage to the uninsured, and a requirement for all individuals to purchase affordable coverage, with an unspecified penalty for those who refuse and a waiver for those who cannot cover the cost. The bill, however, did not include one of the most controversial items of the current debate -- the inclusion of a public insurance plan that would directly compete with private insurers.

The question, of course, of whether a public insurance plan can effectively increase competition, lower costs and maintain (if not enhance) the quality of outcomes is contingent on a raft of variables, not the least of which is pricing methodologies. The two sides of the argument for now seem divided between those who view the public plan option as a tool for stimulating competition on the basis of quality and efficiency, and those that believe it represents unfair competition for private insurers and will in time lead to a single public system down the track.

We maintain our Buy recommendations on both Wellpoint (WLP - Analyst Report) and Humana at current levels despite a neutral stance on the sector overall.