The Senate has just spent most of today (Saturday) engaging in a debate on whether to allow a debate on comprehensive health care reform. Later this evening 58 Democrats and 2 Independents will vote to allow Majority Leader Harry Reid’s health care reform bill come to floor for debate and consideration of amendments. 40 Republican Senators will vote unanimously against allowing this to happen. Senator Reid’s Patient Protection and Affordable Care Act is still alive. It is unlikely to survive in its current form for long, however.

Don’t get me wrong. Tonight’s vote is significant, very significant.  The vote is a test of President Barack Obama’s and Senator Reid’s ability to line up enough votes to keep the bill alive.  The debate leading up to the vote has been an opportunity for Republican Senators to present their opposition to HR 3590. (Yes, the Senate has taken a bill passed by the House and moved to the Senate, gutted that language and substituted their health care reform package. Consequently, the Senate legislation has a House bill number.) And the vote to allow debate has served as an action forcing event, sort of, for Democratic moderates.

Those moderates could have sided with the Republicans killing the bill before it could be brought to the floor. Instead, they joined with their liberal colleagues and kept health care reform alive. While there are 18 moderate Democratic Senators (including Senator Joe Lieberman, who is an Independent), it eventually came down to three:  Senators Mary Landrieu, Blanche Lincoln and Ben Nelson. All three made clear they would seek amendments to the bill before voting for it. And all three are among those moderates making it clear further changes to the Patient Protection and Affordable Care Act is necessary before they’ll commit to voting for it.

We’ll learn more about the changes moderates will demand over the several weeks before a final vote on health care reform is held in the Senate.  Democratic leaders are hoping to hold that vote before the end of the year. The legislation would then move on to a conference committee that will attempt to reconcile it with legislation the House passed earlier this month.  More importantly, that conference committee, made up of an equal number of Senators and House members, will seek to fashion legislation they hope will earn the support of a majority of House members and 60% of Senators. As I’ve noted before, passage of legislation by the Senate is merely the final playoff game. The World Series — the conference committee — is yet to come.

Uniting the Democrats to allow debate on health care reform is a victory for the Obama Administration and for Senator Reid personally. That it took this much effort, however, demonstrates the challenges they yet face. Republicans appear to be uniting in opposition to the legislation. Even Senator Olympia Snowe, who voted for a health care reform bill in the Senate Finance Committee, is expected to vote against bringing HR 3590 to the floor.

I’ve written before about the power moderates have to determine if health care reform legislation will pass Congress and what the final bill will contain.  Now we’ll see that power put forward. Some of what they’ll ask for will be parochial. (That there’s a provision in Senator Reid’s bill that would send additional Medicaid money to Senator Landrieu’s state of Louisiana is neither a coincidence or accidental). But most of their demands wil concern public policy issues. Moderate Democrats tend to be more fiscally cautious than their more liberal colleagues, giving them pause to legislation that greatly expands governmental powers,  spends nearly a trillion dollars over the next decade and taxes corporations and individuals to pay for it. These are the issues on which they will focus.

Republicans will have their own pet issues, but those are unlikely to influence the outcome. Having already declared their unmoving opposition to any health care reform Democrats could claim keeps their campaign promises, the GOP has removed themselves from negotiations. (A couple of the Republicans, most notably Senator Snowe and her colleague from Maine, Susan Collins, might vote what moderate Democrats fashion. But whether they’ll be able to insert provisions without committing to voting for the bill if their amendments are accepted is unlikely. 

We don’t know yet what changes to HR 3950 moderate Democrats will demand, but the possibilities are extensive. They could eliminate a public option — or at least postpone its implementation until after other reforms have had a chance to take effect. They could  demand additional cost containment provisions. They could strengthen — or weaken — the requirement that all consumers obtain coverage. Certainly they will modify what taxes and fees are imposed to pay for health care reform.

What’s important to remember is that moderate Senators will have two shots at the bill. They’ll extract as much as they can during the current Senate debate. Then at least two or three of them are likely to agree to vote for the bill “in order to keep the process moving forward.” However, they’ll also make clear they want significant changes made to the legislation by the conference committee before they’ll commit to a vote that would place the legislation on the president’s desk. Liberals will insist they have compromised all they can, but in reality, the moderates (and the liberals) know that the progressives are likely to accept any legislation that can be called “health care reform” with a straight face. And as politicians, they have great skill in passing the straight face test.

Yes, Democrats have won the debate on whether to debate health care reform. What legislation eventually emerges from the Senate, if any, is still uncertain.

As the Senate begins their effort to pass health care reform anxiety levels are, quite naturally and rightly rising. Health care is highly personal. For those of us working within the current framework, having politicians mess with our livelihood is a stressful to say the least. That these politicians (both Democrats and Republicans) seem to care less about the substance of the reform and more about how they appeal to their electoral base does nothing to reduce that stress.

Of course, what we’re reacting to at this stage is not the final reform legislation. The House and Senate proposals foreshadow what Congress will eventually pass (if it passes anything). The actual legislation is still to come. Put another way, we know the basic outline, but the devil resides in a suburb of the details. As I pointed out in my previous post, however, the real drafting of health care reform legislation hasn’t started yet. With the Senate taking up the issue we’re seeing the end of the legislative phase in which the parameters are defined. It’s in the upcoming conference committee that will define health care reform 2009-style (or, more likely, early 2010).

Concerning that prior post, Ron Masters, a friend and frequent reader/commenter of this blog, took me to task for writing too kindly about the current House and Senate versions of health care reform. “I’m surprised that you seem to feel that either of these bills are any good,” he write. This after a litany of shortcomings concerning the current administration, the ability of government to deliver much of anything, and the foolishness of imposing taxes and creating new entitlements in the midst of the current economic mess. And he makes some fair points.

He’s not alone. I’ve heard from a lot of brokers, readers and others who are convinced the coming health care reform will be a disaster leading to ruin and damnation for the country. I disagree. Here’s why.

As any reader of this blog knows, I don’t buy into the premises of those at the extreme. Not all government programs are good, but some are. Not all taxes are bad, but some are. Change is important, but getting change right is more important. Defending the status quo just because it is the status quo is indefensible. In other words, I’m comfortable with the gray shades of reality and uncomfortable with the black-and-whites of true believers.

I’m also comfortable with the government doing stupid things now and then. No party and no administration has a monopoly on such foolishness. (Nor has any party or administration failed to achieve some truly noble accomplishments). What’s more, no administration lasts forever. Whatever health care reform passes in the next few months will be administered by a parade of future administrations and modified by Congresses yet to-be-elected. Many people have a tendency to believe whatever Congress passes and how the current administration implements it will remain unchanged forever. It won’t. Medicare was vilified as socialistic and a fast slide toward America’s ruin when it was being created. Things didn’t work out that way. The program has survived for nearly 45 years under the administrations of Presidents Johnson, Nixon, Ford, Carter, Reagan, Bush-the-first, Clinton and Bush-the-second. Yes, it is a far from perfect program and faces significant challenges. Still, it works, it’s evolved and it will continue to do so. And the country has survived.

Another reason I’m not outright opposed to health care reform is because I believe expanding access to health insurance is critically important. It is well understood that everyone in America has access to health care. But it is also well documented that people with health insurance live healthier, longer lives. A recent study by researchers at Harvard Medical School confirmed an earlier study from the 1980’s that “uninsurance is associated with mortality.” That’s an awkward way of stating a well-accepted truism: being uninsured can be hazardous to your health.

Expanding coverage, however, is expensive. The more people who have coverage the more people who will incur medical expenses. That is after all, the whole idea and a desirable outcome. It’s also an expensive outcome. In my mind, it’s a price worth paying. Especially considering the potential return on this investment.

Those with insurance are already making heavy payments to pay for care received by the uninsured according to a study by Families USA. In 2008, the study reports, nearly $43 billion of health care the uninsured received from hospitals, doctors and other providers went unpaid. This uncompensated care results in higher premiums for those with coverage. In 2008 this hidden tax increased premiums $368 for single coverage and $1,017 for family coverage. Given the recession, this amount has no doubt gone up. Increasing the number of Americans with insurance should reduce this burden.

Early identification of potential health conditions before they blossom into serious diseases can generate tremendous economic benefits, although these savings are rarely considered in a cost-benefit analysis. Every dollar invested in preventing and treating heart attacks generates $7 in increased productivity, according to a study by United BioSource Corporation.

In other words, it’s not just the reform bills being considered in Washington that are expensive. So is the status quo. Health care costs are crippling businesses, bankrupting families and state governments, enabling fraud and abuse, increasing taxes, and failing to deliver on many of its promises. Change is inevitable – and it’s coming.

Too many in Washington believe (or at least claim to believe) that reforming the health insurance industry will reduce the cost of coverage. Far from it. The bills being considered in Congress will cause premiums to increase. Until Congress tackles the underlying causes of skyrocketing medical costs, health insurance coverage will become increasingly unaffordable. The House and Senate health care reform bills do have more cost containment provisions than is generally acknowledged. Could they be stronger and more ambitious? Yes. Are obvious cost containment opportunities missing (e.g., malpractice reform?) Yes. But they’re there. And future efforts to restrain medical costs will benefit from the seeds planted in the current reform debate.

Which brings us, I suppose, to the key question: are the House and Senate health care reform bills good? No, not really. They’re too heavy handed, using an axe when a scalpel is required. As noted, their cost containment provisions are weaker than the American people deserve. The bills reflect a misunderstanding of how health insurance works and about what drives premiums. The costs for the program are no doubt understated (few initiatives of this magnitude, whether attempted by government or business, come in under budget).

If either the House or Senate bills were the final legislation I’d be more concerned than I am now (and, for the record, I am concerned). But neither HR 3962 nor Senate Majority Leader Harry Reid’s proposal are going to be enacted, not as currently written. I believe the conference committee will need to make significant changes in order to get the votes needed for passage – if that’s even possible.

There are plenty of substantive problems with these health care reform proposals. To make matters worse, their backers and opponents are knowingly overpromising or attempting to frighten the public. Democrats claim their reforms will reduce overall health care costs, lower premiums and reduce the deficit. Wrong on all counts. Republicans claim it will destroy American businesses, annihilate Medicare, create death panels and bankrupt the country. Just as wrong.

We’ve seen this script before concerning Medicare, Iraq, and a host of other issues. Partisans on one side over promise, their opponents dredge up scenarios of doom. That both sides are equally guilty makes it no more acceptable or welcome. But it is what it is.

The main point of my previous post, and of this one, is that if reform passes, it will not be as bad as feared nor as good as promised. It will be refined sooner (by regulation) and later (by future legislation). The fight for a better health care system will continue. Only the status quo will have changed. The need to improve on it will remain.

Senate Majority Leader Harry Reid is unveiling his health care reform plan after it received passing grades from the Congressional Budget Office. Whether he has the 60 votes he needs to bring the bill to the floor is still an open question, but odds are he’ll have the votes when he needs it, perhaps by this weekend.

Then the fun begins. Senators will debate the bill, offer amendments, vote on those changes, and finally craft a bill. If Senator Reid and his allies play their cards well, they’ll have the 60 votes needed to allow a vote on the legislation. (Yes, before there’s a vote there’s a vote on whether to have a vote – you’ve gotta love democracy). Only then will the Senate make history and pass health care reform.

Of course, what the Senate passes and what becomes law are two different things. Just as passage by the House of Representatives of HR 3962 was only a prelude to what will be the act of drafting the “real” health care reform bill.

Many have tried, but only President Barack Obama, Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have gotten this far with health care reform. What they’ve accomplished is historic and Herculean. Whether you support or oppose their bills, respect for their accomplishment is appropriate. But getting this far is not the end. Well, it’s the end of the beginning. And it brings us closer to the beginning of the endgame.

The legislative process involves several stages. In the beginning there’s a lot of sincere questions being asked as lawmakers seek information, float trial balloons, and generally get a lay of the political landscape and the issues. During this phase there are a lot of options on the tables, including the most extreme positions (e.g., do nothing or enact a single payer system).

This phase was also when it became clear that, for the most part, Republicans were as interested in defeating “Obamacare” as they were in reforming the health care system. By publicly declaring so early in the process they would oppose any legislation containing provisions dear to the Democrats, the GOP effectively removed themselves from the deliberations. Why, after all, would Democrats negotiate with a party that had made clear they would oppose anything other than their own proposals?

Of course, Republicans could ask the same question of the Democrats (and do). The difference is that Democrats are in the majority in Congress. So if the two parties go their separate ways, the Democrats could still, under the right circumstances, pass a bill. In other words, it’s their bat and ball, so if the Republicans stalk off the field, the game continues.

In the second legislative phase the House and Senate committees with jurisdiction on health care weighed in. General concepts became legislative language. Lawmaker’s inclinations became public votes. Options feel by the wayside. (This is the phase in which the possibility of enacting a single payer system was formally laid to rest).

What the committees produced generated a lot of concern, anger and raucous  objections. Apparently some folks thought someone in Washington really thought these bills would become law. Nope. What the committees were producing were negotiating positions, not laws. Everyone had their eye on the main battle to come in the fourth phase. They were setting up their arguments, gathering their support for the real showdown.

Before the showdown, however, we have to get through the current phase, phase three. In this portion of our program, ideology and public policy take a back seat to a very practical concern: what needs to be in the bill – and what needs to stay out of the legislation – in order to get enough votes to pass it.

Senate Majority Leader Tom Daschle describes this process as shoveling frogs into a wheelbarrow. Speaker Nancy Pelosi’s job: craft a bill that could get 218 members of the House into her wheelbarrow. She succeeded by cobbling together legislation that is an abomination to many of the House Members who voted for it.

Senator Reid’s task: to get 60 Senators into his wheelbarrow. To do that he’s pared back provisions (such as on a government-run plan) in ways that only three weeks ago liberals would have labeled a betrayal (and some still do. Of course, those progressives complaining about the compromises Senator Reid has made tend not be in the Senate. Because liberal Senators understand the process. If they need to accept a weakened public insurance program to help Senator Reid keep 60 frogs in the wheelbarrow, so be it.

Why do liberal House members vote for a bill they consider an abomination and progressive Senators accept compromises that were absolutely unacceptable a few weeks ago? Because this is the phase where it’s about getting something passed, not public policy.

If the Senate passes Senator Reid’s health care reform legislation, the fourth phase begins. A conference committee will be created made up of members of the House and Senate. Their task: to meld together the House and Senate proposals into a single bill for which Speaker Pelosi and Senator Reid can shovel enough frogs into their respective wheelbarrows to pass.

Think about that challenge. A single bill that can get majorities in both chambers. That won’t be easy. The process won’t be pretty. Decisions will be made based on factors outside of health care reform.

Take Senator Joe Lieberman. He’s on record declaring his opposition to a government-run health plan is a matter of conscience. His history makes clear he loves being Chair of the Senate Homeland Security and Governmental Affairs Committee. Keeping the chairmanship he loves may require him to bend his conscience a bit. Yes, who chairs a particular committee has nothing to do with the substance of health care reform. But it has everything to do with the politics of health care reform.

(By the way, I’m not saying Senator Lieberman has been threatened with losing his chairmanship unless he agrees to let health care reform come to a vote in the Senate. But if it turns out he was, no one should be surprised. Hardball is a sport played by both parties. And  the higher the stakes, the harder the ball.)

Given the nature of the issue and the politics, the conference committee will forgo public policy debates and focus on fashioning a compromise that majorities of the frogs – I mean, lawmakers – in each chamber can support. This means what the House passed and what the Senate may pass are now the extremes in the health care reform debate. Compromises, after all, tend to wind up in the middle of two poles. The Congressional leaders making up the conference committee will try to establish a middle ground on which their needed majorities can stand. Their building blocks will be what it takes to get the bill passed. That the result may be messy, perhaps even unworkable is of less concern. There will be time enough to fix those problems.

Getting reform right was for an earlier phase in the process. And by eliminating some of the more extreme ideas, by establishing the boundaries of reform, those phases assured that public policy considerations would have an impact on the final legislation. But that was then. In this final phase of the legislative process it’s is about getting reform. Period.

In short, the health care reform process to date has been fascinating and important, but it’s main purpose has been to define negotiating positions. We’ll see the end of the beginning of health care reform if and when the Senate enacts its version of reform.

Only when the conference committee convenes, however, do we move into the beginning of the endgame, the point where the drafting process of health care reform begins in earnest.

Democrats paid a heavy toll to keep health care reform moving forward. They were forced to accept substantial and virtually unprecedented limits on abortion coverage in order to get the Affordable Health Care for America Act through the House of Representatives. This result should awaken them to the need to rethink their approach, but it assumes they learned the key lesson: where government goes, ideology follows.

Speaker Nancy Pelosi needed 218 votes to make history: passage by the House of the Affordable Health Care for America Act. Liberals got her most of the way there, but to get across the finish line Speaker Pelosi needed support from moderates and conservatives. This meant cutting a deal with the pro-life caucus. The result: HR 3962 prohibits the government-run medical plan and coverage offered through the health insurance exchanges the bill would create from covering elective abortion procedures. Liberals are furious, but to pass health care reform they had to accept this restriction as part of the package.

This post is not about the politics or morality of abortions. Readers of this blog are on both sides of this issue. This blog is about health care reform and what happened to HR 3962 concerning abortion highlights one of the greatest pitfalls in Democrats approach to reform. If they continue down the road they are on, increasing the amount of America’s health care system government directly controls and manages, the party is guaranteeing that similar defeats on similar public policy issues is all but a certainty. The issue today is abortion. In the future it could be access to birth control. Or making coverage available to domestic partners. The fact is, government-run health care does not and cannot exist in a vacuum. Politics and ideology inevitably come along for the ride.

The final health care reform bill may loosen the prohibition on abortion coverage contained in the House bill. But if the restrictions are diminished, it will be because Democrats led by Speaker Pelosi and Senate Majority Leader Harry Reid are in control of Congress and President Barack Obama occupies the Oval Office.

For now.

Eventually conservatives will be in power again. No party or ideology dominates America’s politics forever. And a conservative government will not hesitate to use the tools given to it by Democrats to push forward their agenda merely because those tools were created by liberals. 

No one should be surprised about this political reality. In a post back in August 2007 I warned single payer advocates that a government takeover of health insurance would open the door to ideology meddling by conservatives. And in August of this year I reminded liberals that while Democrats are ascendant today, politics, like a pendulum, eventually changes direction. “In 2001 the President was George W. Bush, the Senate Majority Leader was Trent Lott and the House Speaker was Dennis Hastert (just two years earlier it had been Newt Gingrich). Their view of how a public health plan should work – what it covers and who it benefits – varies considerably from the Obama/Reid/Pelosi view. Yet the greater the role liberals give the government over health care, the more control over issues like abortion conservatives like Bush/Lott/Hastert will have when they take power again – and eventually, they will.”  And I’m hardly the only observer to state this reality.

So Democrats face a critical choice. They can pursue their health care reform goals care by increasing government’s direct participation in the market or by looking to the regulations the government imposes on the market.  One opens the door wide to groups of lawmakers holding health care reform hostage to unrelated public policy issues; the other narrows this opening.

For example, lawmakers want to prohibit carriers from denying consumers coverage because of their current or previous health conditions. Creating a health insurance exchange is one method of achieving this goal, but it is not the only way. And alternatives limit the opportunity for ideological meddling in Americans’ lives.

Yes, a public plan would increase competition in the market (a primary justification for a government-run plan), but so would health insurance co-operatives. And as non-government entities, co-operatives would be less susceptible to partisan interference.

By focusing on their goals and being careful of their methodology for achieving them, Democrats can have their health care reform and limit the price they’ll pay on other issues. Or they can continue down a road in which accepting limits on abortion coverage is merely the first of many heavy and painful tolls they will pay.

History was made on November 7th when the House of Representatives passed HR 3962, the Affordable Health Care for America Act. Yes, it was a close vote (220 in favor versus 215 opposed). Yes, only one Republican voted for the bill. Yes, the legislation leaves a lot to be desired. At the end of the day, all that matters is that the legislation passed. President Barack Obama’s health care reform initiative remains alive and is closer to reality than the efforts of his predecessors. Given the complexity and controversy surrounding the issue, not to mention the competing demands of numerous, powerful stakeholders, this is a remarkable achievement.

While historic and remarkable, however, it’s important not to read too much, or too little, into what happened. Consider:

House Passage of Health Care Reform Puts Pressure on the Senate: It’s probably hard for Republicans to understand the importance of health care reform to Democrats. I suppose it’s the equivalent of a tax decrease to the GOP. It’s a defining issue, in the sense that the issue differentiates themselves from the other side. When Republicans controlled the White House and Congress they lowered taxes. They could have made a major push behind health care reform during their years in power, but that’s not where Republicans were willing to invest the political capital in health care reform, not when it could be put behind cutting taxes. Democrats now control the Executive and Legislative branches. And they are investing their political capital where their heart is: health care reform.

Which means if you’re a Democratic Senator you do not want to be the reason health care reform fails. No doubt some members of the Senate were quietly hoping the vote in the House would fall short, letting them off the hook. No such luck. Now it’s up to Senate Democrats to keep the dream of health care reform alive.

HR 3962 is Not on the President’s Desk: Nor is it likely to ever get there.  What the Senate will pass is not likely to look a lot like the Affordable Health Care for America Act, either. The politics in the Senate are far different from that in the House. Consider the idea of the government creating – and maintaining – a health plan to compete with private carriers. Senator Joe Lieberman reiterated his threat to vote against allowing a reform bill containing a government-run plan to come to a vote on the Senate floor, according to the Associated Press. Unless his 60th vote is replaced by a Republican (think Senator Olympia Snowe) Democrats will be unable to overcome a GOP filibuster with Senator Lieberman’s vote.

Of course, as noted in an earlier post, Senator Roland Burris is threatening to prevent a bill without a public insurance plan to come to a vote. So Senate Majority Leader Harry Reid has to craft a package that satisfies a diverse and divided caucus (Senator Lieberman is an Independent, but he caucuses with Democrats in order to hold on to his committee chairmanship). Senator Reid has already submitted a proposal to the Congressional Budget Office for review. (That the CBO has yet to issue an analysis is widely taken as evidence the cost of the legislation is higher than Senator Reid is counting on, meaning adjustments will be required). Meaning …

The Senate Will Pass a More Moderate Bill. Whatever Senator Reid puts before the Senate, it will be more moderate than HR 3962. Moderates hold more power in the Senate than they do in the House. Leaving aside Senator Lieberman, passage of health care reform in the Senate will need to satisfy 17 moderate and conservative Democrats. While several of these Senators have already pledged their support to the legislation outlined (but not published yet) by Senator Reid, there’s enough hold-outs to force concessions that will disappoint liberals. Yet those liberals are unlikely to vote against health care reform and accept blame for defeating this core Democratic issue. (Senator Burris is an exception for reasons discussed in the previous post).

When the Senate Acts Will Be When Democrats Have 60 Votes:  Warner Pacific, a general agency based in California, held a series of town hall meetings last week featuring former Senate Majority Leader Tom Daschle. John Nelson, co-CEO of Warner Pacific, interviewed Senator Daschle for roughly 90 minutes and the result were numerous, meaningful insights which I’ll try to write about in future posts. But one observation Senator Daschle offered is relevant here. When it comes to passing legislation, the Senator described the role of the Majority Leader and House Speaker as shoveling frogs onto a wheelbarrow. Why did the House vote on health care reform now instead of waiting to learn more details concerning the Senate legislation? Because Speaker Nancy Pelosi had finally managed to fill the wheelbarrow with at least 218 votes and the longer she waited the more likely it was one of them would jump out.

Speaker Pelosi had a somewhat easier task than the one facing Senator Reid’s. She needed to muster a simple majority and the rules of the House gives her more power than Senator Reid enjoys in the upper house. Plus he needs to shovel a super-majority of 60 frogs into his wheelbarrow.  Once he marshals the votes, however, expect the Senate to act relatively quickly. And don’t expect a vote to be scheduled until Senator Reid is reasonably confident he will prevail. Once that happens, however, the Senate will likely pass their health care reform legislation. Then …

It’s the Conference Committee That Matters: Getting health care reform this far has required a Herculean effort by lawmakers and the White House. And it’s all aimed at getting two bills to a Senate-House conference committee. That’s where the final deals will be struck, losers and winners defined, and the political calculation made as to what single bill can be passed by both chambers of Congress.

For brokers, one of the issues to watch will be related to the health insurance exchange reform will create. In the Senate bill, at least for now, there’s a provision to require those selling products in the exchange to be licensed by their state; the House bill permits unlicensed entities to sell the products. (Ironically, the House approach, which would let DMV clerks sell health insurance in the exchange is supported by some Republicans in the Senate).

The conference committee will determine the taxes implemented to finance reform, what mandates are in place and how they’re enforced, whether there’s a government-run health plan, what cost containment provisions are included, and whether reform addresses malpractice – among other items. In other words, while everything leading to the conference committee is important, it has all been prelude.

To use a baseball analogy, think of the general discussions and hearings earlier this year as Spring Training. The committee votes were the regular season. The vote in the House was a league playoff and now we await the outcome of one more playoff series. All of this leads to the World Series, known as the conference committee. So there’s still more to come. It’s what comes out of the conference committee that, if approved by both the Senate and House, will be signed into law by President Obama. And, assuming something is passed …

Health Care Reform Will Be Worse Than Hoped For, But Better Than Feared:  A  friend from college went to the same law school I did, but a year earlier. As I approached my first day of classes I asked him what to expect. “Worse than you hope it is; better than you fear it will be,” was his reply. (And he was right). Well, the same applies to health care reform.

For example, there’s far less medical cost containment in either the House or Senate bills than most observers believe is necessary to make coverage affordable. But as Senator Daschle noted at the Warner Pacific town hall meeting – and as reader JimK has pointed out – there are some potentially significant cost containment provisions tucked away in the bills. Yes, they call for studies and regulations as opposed to describing details, but perhaps that’s the only way cost containment can make it through the political labyrinth that is Congress. They hold the potential, however, to lead to a significant bending of the cost curve. Of course, for now, it’s only a potential, but still, it’s there.

Consider: When California passed its small group reforms in the early 1990s many brokers and industry insiders feared it would harm the market. Instead that legislation, AB 1672, has been a stabilizing influence that eliminated harmful industry practices without destroying the industry in the process. Yes, there were winners and losers (the dominance of Multiple Employer Trusts in the small group market soon ended), but most brokers and their clients will agree it was a net win.

I watched some of the debate on the Affordable Health Care for America Act on C-Span Saturday. To over-generalize, Democrats made the Superman argument: the status quo was leading the country to ruin and only HR 3926 could save the day. Republicans countered with the Hell and damnation offensive: passage of the Democrat’s health care reform legislation would lead to the destruction of all America stands for.

The reality is, the Democrats are overselling what the bill does. And Republicans are exaggerating the negatives. Many of the charges leveled against HR 3962 by GOP members were similar to those their counterparts made against Medicare 45 years ago. Now the GOP positions itself as the protector of Medicare. Apparently not all slippery slopes lead to damnation after all.

What the House accomplished on November 7th is historic. It is neither all good nor all bad. Nor, significantly, is it the final word.

Once upon a time it looked like Congress and the White House would deliver meaningful, comprehensive health care reform to the American people. They certainly started down that path. The talk was of “bending the cost curve.” And of tackling issues like medical malpractice. There was even promises being made of moving toward comparative effectiveness programs and away from the costly fee-for-service provider reimbursement model of today.

Those were the days, but they’re over now. Whether as a result of the August Town Hall ruckuses, lawmaker’s ignorance, or general cynicism, those ideas are pretty much a thing of the past. Yes, there are modest efforts in the current Congressional bills to control costs. But to call them modest is kind. Politicians and pundits. will claim that what’s moving through Congress will make health care coverage more affordable and relieve the burden of medical costs on American families, but few actually believe it.

Over the past few months, the focus of health care reform has shifted to health insurance reform. And while some changes in the way health care coverage is marketed and administered are necessary, those changes will do little if anything to bring down the cost of care. On the contrary, some of the proposals being considered will, it is generally accepted, increase insurance premiums.

This shift by lawmakers from comprehensive health care reform to simply addressing marketing and distribution reform is, to say the least, disappointing. It also shows the challenge in accomplishing major change in Washington. The partisan divide is deep and cynical. The extremes within each party are in ascendancy, making compromise – the life-blood of the legislative process – all but impossible.

So instead of passing real reform, changes to the system that would restrain medical cost increases, the goal seems to have shifted to passing something – passing anything – on which the “health care reform” label can be hung. The result will do little to increase the affordability of insurance coverage or to restrain medical cost inflation. Lawmakers choose to ignore this reality – and to distract attention from it by keeping the focus on whether Congress will create a publicly run plan to compete with private carriers.

Yes, health care reform is hard while taking on the insurance companies is easy. And, as I’ve mentioned, there are some industry practices that need reforming. Given the political realities in Washington it may be that health insurance reform is all that lawmakers are capable of delivering any time soon. 

The shame of it all is that the current health care system is unable to meet America’s needs. The status quo, most objective observers from across the political spectrum agree, is unacceptable. America is the only developed nation in which medical costs bankrupts families. The cost of medical care is overwhelming state governments, threatening their ability to deliver other necessary services. Medical cost inflation is outpacing growth in wages and general inflation, resulting in increasing numbers of families and businesses being priced out of health care coverage.

Meaningful, comprehensive health care reform is critically needed. It’s what the American people desire. But Congress and the White House seem unable to deliver. The fault is not solely with the Democrats nor solely with the Republicans. This is a bi-partisan failure. And hiding behind health insurance reform won’t change that reality.

If asked even two weeks ago I’d have said there was an 80 percent change or greater that meaningful health care reform would be signed into law this year. Now, however, I think the chances of such an outcome are far lower – still substantial – but much less likely.

One reason meaningful health care reform may not reach President Barack Obama’s desk this year is that Senate Majority Leader Harry Reid is having difficulties in lining up the 60 votes necessary to overcome the inevitable filibuster from Republicans. Senator Reid’s problem is that while there are 60 Senators in his caucus, there are really only 59 Democrats plus Senator Joe Lieberman.

Senator Lieberman caucuses with the Democrats because he used to be one (he won re-election as an Independent in 2006) and he wants to be a Committee Chair (he chairs the Homeland Security and Governmental Affairs Committee). However, he campaigned strongly for Senator John McCain in the 2008 presidential campaign, even addressing the Republican National Convention. Senator Lieberman also has said he expects to campaign for Republican candidates in 2010. It doesn’t take much insight to predict that, were Republicans to gain a majority in the Senate, Senator Lieberman would be knocking on their door for admittance.

Senator Lieberman has pledged to support a filibuster of a health care reform bill that includes a public option.  While he recently seems to have backed off this threat, as Timothy Noah on Slate.com points out, the Senator’s position on health care reform has been … well, let’s call it a bit erratic. So let’s say Senator Reid puts forward a bill that Senator Lieberman can support, does that solve his problem?

Hardly. Remember Senator Roland Burris, he of the controversial appointment to the Senate by then-Governor Rod Blagojevich. Senator Burris is threatening to oppose any health care reform bill that does not include the public option. As Senator Rollins is a bit of pariah in the Senate (many of its members, including his fellow Senator from Illinois, having called for him to resign) the Democratic leadership has little influence over his actions. So Harry Reid is in a bit of a no-win situation. Go after Senator Lieberman’s vote and he risks losing Senator Burris’ support. Accommodate Senator Burris and there goes Senator Lieberman.

Meanwhile, Senator Reid is forced to wait for an analysis of his proposal by the Congressional Budget Office. What they have to say about his efforts to blend the Senate Finance Committee and Senate Health, Education, Labor and Pensions Committee’s differing versions of health care reform will greatly impact the votes of moderate Democrats. Since only one Republican vote, that of Senator Olympia Snowe, seems to be in play, those moderate Democrats hold the key to whether the Senate can muster the votes for health care reform.

Given that the debate in the Senate will be long, slogging through the legislation will take quite some time. While Senator Reid would like to get a bill on the president’s desk before Christmas, this is a present that may need to wait for the new year. That, of course, complicates matters considerably as 2010 is an election year. Lawmakers hate doing controversial things in an even numbered year. (Why the difference between December 2009 and January 2010 makes a difference is one of those unanswerable questions that seem to be especially common within the Beltway).

On paper, Democrats have a 60-vote majority in the Senate. That’s a myth. In reality they have a group of 60 Senators who caucus together, but don’t act together. That’s actually good for democracy (the unanimity within the Republican caucuses in Congress demonstrates stronger party unity, but a lack of individuality that is somewhat startling). But the diversity within the caucus makes being Majority Leader a lot harder.

One person’s socialism is another’s sellout. At least that’s the way it seems to go when it comes to health care reform. And it certainly must appear that way to House Speaker Nancy Pelosi who today unveiled the Affordable Health Care for America Act. HR 3926 blends together provisions from the three House Committees that have produced health care reform legislation: the Ways & Means Committee; the Education & Labor Committee; and the Energy & Commerce Committee. The result is not as liberal as some on the left called for and is too radical for those on the right.

As CBS News reported, those on the left are upset that the bill would create a government-run insurance plan that would be required to negotiate rates with providers much as private carriers do. This angers liberals who want the public health plan to set rates that providers would have to accept, much as is done with Medicare and Medicaid.

Meanwhile, back on the Hill, conservatives attacked the House health care reform bill in no uncertain terms. “It will raise the cost of Americans’ health insurance premiums; it will kill jobs with tax hikes and new mandates, and it will cut seniors’ Medicare benefits,” proclaimed House Minority Leader John Boehner.

Is it socialism? A sellout? A good idea or a bad idea? Most readers of this blog can guess my answers (for those interested, my view of it is at the end of this post). Here’s how others are discussing the legislation:

The National Underwriter does a great job of identifying where some of the controversial provisions in the bill can be found. While the publication is a bit too fixated with the number of pages in the House health care reform bill (1,990), it’s still a good starting point for understanding the legislation. And it points out that the bill does nothing to prevent brokers to sell products within the Exchange, so it offers a bit of a reassuring start, too.

The Congressional Budget Office is highly regarded by lawmakers on both side of the partisan divide for its objective analysis of the budget impact of legislation– unless, of course, they don’t like the analysis. The CBO’s analysis of HR 3926 indicates it will reduce the deficit over the next 10 years by $104 billion, insure 96 percent of non-elderly legal residents in the country (18 million people).  The CBO’s director, Douglas Elmendorf, maintains a blog and summarizes the analysis in his post today. he notes that the findings of the CBO are “subject to substantial uncertainty.”

The Christian Science Monitor’s story reports on the how the liberals may call for a floor vote on a more robust public option than is in the bill in order to put Democratic and Republican members on record as to where they stand on a government-run health plan.

The Associated Press focuses on the CBO’s conclusion that the public option might actually cost consumers more than private coverage. It also notes that while Speaker Pelosi compromised on the powers of the government-run health plan to appease the more moderate members of her caucus, many of those moderates remain concerned about the overall cost.

A BusinessWeek article zeroes in on some of the taxes the House health care reform legislation would impose and how they differ from the taxes likely to be in the Senate reform bill.

Reimbursing doctors for providing end-of-life counseling remains in the House health care reform bill. Given that some conservatives described this provision as creating “death panels,” preserving this element of the bill can be viewed as an act of political courage. As I’ve posted before, the death panel claim was more of a cruel hoax on the American people than an insightful read of the legislation. But the passions and paranoia surrounding the provision was so vociferous, the easy course would have been to simply drop it from the bill – as was done in the Senate. The Oregon Congressman, Earl Blumeauer, who championed inclusion of the counseling provision in the health care reform package, says he was motivated by a talk with a Southern Minister who told him ‘It’s very important for those of us in the clergy that this provision be kept, cos’ we see situations where families don’t get the help they need, and we have to try to counsel them through.”

For those interested in reading the bill, here’s a link to HR 3926 – the Affordable Health Care for America Act. As noted, it’s 1990 pages, but there’s a lot of white space on most of the pages.

My take on the House health care reform bill is that it’s not socialism nor a sellout. It is a politically necessary step down a long road. As regular blog reader Alison noted in her comment on an earlier post concerning Senate Majority Leader Harry Reid’s efforts to forge health care reform legislation that can muster 60 votes in the Senate, “… if you start off extreme then there is more room for negotiation to where he (Senator Reid) most likely anticipates its going anyway. If you give away the farm at first you have nothing left in your hand to negotiate with. I do not believe he anticipated this to fly at all but rather offers it as a calculated starting point.”

Alison’s point applies equally as well to Speaker Pelosi’s health care reform bill.

Health care reform is a process. First there was the pre-legislation discussion of what health care reform should do. Then there were the debates in various committees in which those intentions were put into bill form. Now the leadership of each chamber are blending the work of their committees into single bills. Next will come a conference committee tasked with combining the two bills that emerge from the Senate and the House of Representatives into a single bill. At each step along the way positions harden, the rhetoric (hard to believe it’s possible) becomes even more shrill, and the compromises more plentiful. But at each stage, the final legislation becomes more clear. After all, if the House Leadership is going to push moderate Democrats to vote for a public option of any kind, a vote those moderates will need to defend at election time, they must believe it is going to be a part of the final reform package. (At least those moderate Democrats hope so).

The Affordable Health Care for America Act will look more like whatever finally emerges from Congress than the bills passed by the three House Committees. But it’s not the last word. The blended Senate bill has been described, but not seen. Both the House and Senate proposals will be evolve. We’re several weeks away from seeing the legislation that will emerge from the conference committee.

The worthiness of the result, as always, will be in the eye of the beholder.

Senate Majority Leader Harry Reid’s challenge was to blend the liberal Senate Health, Education, Labor and Pensions health care reform legislation with the more moderate bill passed by the Senate Finance Committee. One of the most contentious issues concerned the creation of a public insurance plan to compete with private carriers — the Senate HELP Committee called for one; the Senate Finance Committee explicitly rejected the concept.

The problem for Senator Reid was that some members of his caucus were threatening to oppose a bill without a government-run plan while others were making the same threat if the legislation included such a provision. And Senator Reid’s number one priority was to find a compromise that could garner the 60 votes needed to pass a bill in the Senate.

His decision:  include a public option in the blended health care reform legislation he will be bringing to the Senate floor in the next few weeks, but include restrictions on it that, while appealing to moderates, are not enough to turn off liberals.

The legislation is being reviewed by the Congressional Budget Office and is not yet available online. But Senator Reid has announced he will allow states to opt out of participating in the public plan. This approach is very appealing to moderate Democrats such as Senator Tom Carper, who voted against one of the attempts to add a government plan to the Senate Finance bill. According to the National Underwriter, Senator Carper “has been a key advocate of letting states opt out of the public option health program and create their own alternatives to private plans.”

Not all moderates in the Senate are embracing the compromise yet. The Associated Press quote Senators Olympia Snowe, Ben Nelson and  Mary Landrieu as all expressing various levels of skepticism. But the White House is on-board with the compromise and will likely bring a great deal of pressure on these moderates to get at least vote in favor of ending the inevitable Republican filibuster on the health care reform legislation. By including an opt-out, these moderates can support the procedural movement and claim they were putting state rights above their opposition to the public option.

The other provision Senator Reid has apparently included in his compromise is that, in the words of Senate Charles Schumer as quoted in the National Underwriter article, “Any public option plan ought to operate on a level playing field with private insurers, and it ought to meet the same state requirements and use similar provider rates.”

How this limitation would be imposed on a government-run plan is, as yet, unknown. But if the public option must play by state-specific rules, it would be a step toward a more level playing field between the public option and private carriers — and certainly closer to the level playing field than is contemplated in the House version of health care reform.

What’s ironic is that, as I’ve written previously, a public option is likely to accomplish its primary public policy goal — reduce medical costs — only if it is allowed advantages in the marketplace such as the power to unilaterally impose reimbursement rates on providers. By restricting it to the same rules and pricing regulations as private carriers might meet, its effectiveness is reduced.

Whether a public health insurance option is part of the reform legislation eventually passed by Congress is far from certain. But Senator Reid’s proposed compromises keeps the possibility alive. At the same time, the restrictions he’s suggesting reduces the impact of the government plan. That’s a reality liberals will not accept willingly.

Senator Reid is doing what Majority Leaders have to do: find the middle ground that can garner the support of 60 Senators. It’s not an easy task. Nor will the result please everyone. It might even please no one.

Profits, it seems, is the eye of the beholder. What to one person seems meager appears to the folks next door immorally exorbitant. When it comes to health care reform there are many who perceive the profit margins of health insurance companies are obscene. The politicians and pundits sharing this belief can be viewed with frequency stating their case. It almost seems that they consider the main goal of health care reform as a means of punishing greedy health insurance companies. (That’s not the case, they care about access and affordability, too, but it sometimes does look that way). These are many of the same folks who forget that health insurance premiums are driven by the underlying cost of medical care. It is, after all, so much easier to just attack villains raking in obscene profits than to discuss complex issues like restraining overall health care spending in the country.

A number of sources are beginning to question the math of these carrier critics. The Associated Press, for example, ran a story Sunday noting that health insurance profit margins “typically run about 6 percent, give or take a point or two. That’s anemic compared with other forms of insurance a broad array of industries ….” Among the statistic the Associated Press brings to light:  ”Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better — drugs and medical products and services were both in the top 10.”

Of course, last year was a bad year for a lot of industries profits, but some did quite well. Tupperware brands had a profit margin of 7.5 percent, Hershey 6.1 percent, and the folks who own KFC, Pizza Hut, and Taco Bell earned profits of 8.5 percent.

Another reality check raising doubts on how critics evaluate health insurance profits was published recently by PolitiFact.com. Senator Jay Rockefeller in September claimed “Insurance companies have seen their profits soar by more than 400 percent since 2001,” but the award-winning site, sponsored by the St. Petersburg Times, labels Senator Rockefeller’s charge a half-truth — an in my mind, that’s being kind. The problem with Senator Rockefeller’s statistics is the data is flawed. Senator Rockefeller’s statistics are based on an analysis conducted by Health Care for America Now. They examined profits between 2000 and 2008 of just 10 companies. (Interestingly, Senator Rockefeller cites just the change in profits from 2001-to-2007; if he had used 2008 the rise would have been 249 percent, not the 400 percent he claims).

In analyzing the profits of the big 10 carriers, however, the study ignored increases in profits resulting from carrier consolidation. “When big companies absorb smaller ones, the net effect may be to enlarge the profits of the biggest companies … even as the total size of the health insurance industry — the broader entity that Rockefeller seemed to be referring to — stays roughly the same.” This is more than a little problem as not all those smaller companies are truly “small”  (consider WellPoint’s merger with Anthem). This flaw alone makes any conclusions based on this study open to question.

Some will argue that, when it comes to health care, any profits is immoral. Yet profit exists throughout the system: doctors, nurses, hospitals, pharmaceutical companies, device manufacturers, and others all make a profit (or at least earn a living) from the medical services and products they provide. There’s nothing special or unique about carrier profits. Except that people like doctors and nurses and don’t like health insurance companies.

Instead of focusing on insurance carrier profits, industry critics would make a more significant contribution to the debate by broadening their inquiry to carriers’ administrative costs. This would lead to a more nuanced discussion on the value of expenses such as disease management, marketing, customer service, technology investments, taxes, regulatory compliance costs and, yes, profits, among other expenses. And it would require a discussion of what is an appropriate level for these non-claim costs. Here, I would suggest, the true measure of excessive costs is a carrier’s ability to bring health plans to the market that consumers buy. Carriers unable to control their administrative costs are unlikely to be able to compete long-term — another, more efficient carrier is likely to emerge and capture market share. (Yes, I know that in some states there simply isn’t enough competition among health insurance carriers for competition to work its magic, but in many states there are — and solutions can be found for where it is inadequate).

My point is not that anyone should feel sorry for the relatively low profit margins earned by health plans. Nor am I suggesting that it is unfair to question how insurance companies operate as part of the health care reform debate.

What I’m asking for is a broader examination into all contributors to the cost of health care in America, including looking at how the dominant fee-for-service method of reimbursing doctors and other medical providers, the  near monopolies enjoyed by some hospital chains in many regions of the country, the disparity between prices drug companies charge in the United States versus oversees, and the how medical malpractice and government regulations add to the cost of health care.

Because at the end of the day health care reform will be judged not by its impact on health insurance company profits, but on whether Americans can afford their health insurance coverage.

Most of the major provisions of the health care reform proposals circulating through the halls of Congress won’t take effect until 2013 or later (the major exception being some of the taxes created by the reforms). There’s a huge political problem with that: opponents of the reform will throw every rock, pebble and boulder they can find at the reform package. If voters have to wait three or four years to see any of the benefits of the reforms lawmakers are taking the better part of a year to resolve, they’re going to be sorely disappointed. In fact, a Kaiser Family Foundation poll indicates that nearly half of the respondents expect to see insurance company reforms take effect within a year.

So it’s not surprising Democrats are searching for ways to implement elements of their reform package as soon as possible – preferably before the November 2010 elections. As Carrier Budoff Brown puts it in a posting on Politico.com, “Democrats are pushing Senate leaders and the White House to speed up key benefits in the health reform bill to 2010, eager to give the party something to show taxpayers for their $900 billion investment in an election year.”

What matters, of course, is what parts of the bill are implemented sooner than later. Starting the taxes right away is critical for making the financial numbers work. Yet they are likely to increase medical costs (and, consequently, insurance premiums) in the near term. Some provisions, like requiring carriers to allow families to cover young adults until they reach age 26 offer little downside. The same with creating a fund to cover catastrophic claims of early retirees (those aged 55-through-64) who receive coverage their employer. Requiring health care companies (for example insurers and hospitals) to be more transparent in reporting their costs may embarrass some companies and force them to quickly set up reporting processes, but are won’t harm the system overall. These are some of the items the Politico.com post identifies as under consideration.

What would be damaging is requiring carriers to guarantee issue individual health insurance coverage (accept all applicants regardless of their health conditions) in 2010 while delaying the mandate on individuals to obtain coverage. As I’ve written about frequently, an imbalance between requiring carriers to sell and consumers to buy health insurance will price the cost of health insurance beyond the means of many Americans.

Moving the benefits of health care reform forward makes political sense without abusing common sense. If it’s done the right way. Whether lawmakers will have the patience to find that way, is still uncertain, but they appear to be making the effort.

It’s funny what people complain about concerning health care reform. I see people people ridicule the Senate Finance Committee for producing a 1,500 page bill. Or complaining that Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi are combining the different versions of legislation passed in their respective chambers into consolidated bills behind “closed doors.”

Who cares how long the bill is? Much of the language is boilerplate anyway. The length of the bill reflects the complexity of the issue and the numerous sections of existing law that need to be changed. Complaining about the size of the bill is foolish and immaterial. It doesn’t matter how long a bill is. What matters is what it says.

As for private meetings among lawmakers to help shape the bill, what do people expect? Are Senator Reid and Speaker Pelosi supposed to have cameras trailing them as if they were stars of a reality TV show? As the Associated Press reports, these legislative leaders are determining what health care reform bill their caucus members can support and, if not, what changes are needed. These are not discussions best held among politicians playing to the media. And it’s not like the health care reform package is going to be passed in the dark of night when no one is watching. Already there have been weeks of public hearings, days of town hall meetings, and hours of press conferences. The legislation put forward by Senator Reid and Speaker Pelosi will be available online, dissected by bloggers, lawyers, and reporters from all political perspectives, and the subject of televised debates in Congress. Everyone will have more than enough opportunity to review – and to attack – whatever is put forward.

These frivolous attacks on the health care reform process are more an expression of frustration than a substantive problem with reform. That frustration stems from the reality that those making these charges are losing on the public policy issues. Seeing health care reform move in a direction they oppose, they are driven to throw every pebble they can find to slow down or derail the legislation. Ridiculing the Senate Finance Committee for generating a 1,500 bill may make them feel better in some way, but it doesn’t help their cause.

Many of the faulty ideas circulating around Washington today stem from a misunderstanding of health insurance and/or economics. These are the issues critics should be raising.

Issues like the need to balance a mandate on carriers to sell coverage to all applicants regardless of health conditions (“guarantee issue” with a requirement that all Americans purchase coverage (an “individual mandate.”)  An imbalance between guarantee issue and an individual mandate will lead to disastrous results. The tough issue is making the balance affordable – a topic that is worthy of substantial discussion.

Another example: opinion leaders need educating concerning what drives health insurance premiums. Jonathan Alter is a bright man and his columns in Newsweek are usually well reasoned, even if his conclusions are controversial. Mr. Alter’s recent comments on health insurance premiums, however, reveals an unconscionable and surprising naiveté. “The key to a political victory on health care,” he writes, “isn’t just passing a bill, it’s controlling insurance premiums. After much-ballyhooed reform, Massachusetts failed to restrain premiums, which are set to increase another 10 percent next year. If the same thing happens nationally after Obama signs a bill, Americans will take it out on Democrats. So assuring that premiums don’t skyrocket should be the No. 1 priority as committee chairs get down to the short strokes.” Mr. Alter’s solution is a government-run health plan and/or caps on premiums.

If health insurance premiums were set arbitrarily, Mr. Alter’s suggestions might have merit. But health insurance premiums reflect medical trend. Here’s some uncomfortable facts (based upon this inflation calculator):

• It takes $1,820 in 2009 to buy what $1,000 purchased in 1989 after adjusting for retail price inflation.
• $1,000 in wages in 1989 have grown to $1,805 today based on wage inflation.
• However, it now takes $2,623 to pay for the same medical costs that $1,000 would have purchased twenty years ago.

The kind of public option being considered by Congress is not going to reduce medical costs. Only if a public plan can unilaterally impose reimbursement rates on medical providers will costs come down. Of course, if a government-run plan has the authority to set reimbursement rates there’s no future for private carriers. So if the public option is going to be designed in a way that eliminates private carriers, the logical solution is to skip the transition period and jump right into a completely government-insured system. Now that’s a weighty subject deserving attention and concern – a heck of a lot more concern than how lawmakers negotiate).

A cap on insurance premiums won’t directly effect medical costs either. (One might argue they could indirectly bend the cost curve if medical providers knew the carriers couldn’t pay more for their services, but caps are a messy way to achieve this speculative results). Premium caps – like any wage and price controls – are a feel good solution (who doesn’t like bashing insurance companies?) that accomplishes virtually nothing of substance.

Let’s face it, the insurance industry’s inept behavior (both politically and many of their business practices) make them a too easy target. Watching politicians and pundits bash insurance carriers is like watching high-tech hunters take down Bambi’s mom – it’s hardly a fair fight. It’s also immaterial to making America’s health care system work. If critics – and columnists – want to provide a meaningful public service, they should take a pass on the easy stuff (the number of pages in a bill or uninformed attacks on carriers) and raise tough issues like what it will take to address medical costs.

It’s harder to contribute to a debate than to snipe, but the time has come for heavy lifting.

There’s a big difference between bending and breaking; between change and destruction. This is especially important to keep in mind when talking about the impact health care reform will have on insurance brokers. Some commentators, like John Goodman, president of the National Center for Policy Analysis, are quite emphatic in their doom and gloom. In an interview published in HIU magazine, Dr. Goodman states “Under any sort of exchange that’s being envisioned by Congress or the White House, there will be no broker.”

I disagree. As I wrote several months ago, my take is that “brokers will continue to be a part of whatever new health care system emerges.” My confidence rests partly on the herculean efforts made by the National Association of Health Underwriters and other broker organizations to include specific language in several of the bills moving through Congress that explicitly permit brokers to sell products offered in an exchange. But more importantly, I believe that even after the exchanges are up and running (probably in 2013) individuals and small business owners will still need the services of independent brokers.

Whether this need for brokers will survive health care reform will be determined to a large degree by two factors: the nature of the exchange(s) created; and the viability of the individual market. While it’s (unfortunately) easy to imagine an exchange that eliminates the need for brokers, the exchanges most like to emerge from the debate in Congress are widely expected to be much more benign. In my previous post I articulated a “Theory of Disintermediation.” This theory hold that “whether the Internet will eliminate distribution intermediaries depends on the interplay of six factors of the product or service being sold, specifically how:

1. complex the product or service is to consumers
2. frequently the product or service is purchased
3. personal and critical the product or service is to consumers
4. expensive is the product or service
5. much on-site service is required to install or use the product or service
6. easily a description of the product or service can be digitized.”

Exchanges are likely to simplify health insurance policies and bring some standardization to marketing material and the like. However, consumers are still going to have to make a decision concerning an expensive, complex product they infrequently purchase which is critical to their health and financial security. For small business owners the need for independent expertise will be even greater: they are making a decision that effects not only their own families, but those of their workers. That’s a responsibility most employers will feel reluctant to make without expert support.

Whether individual coverage remains viable is still uncertain. The danger is that while Congress will require carriers to sell coverage to all applicants, they won’t require all Americans to purchase coverage. The result is the equivalent of allowing motorists to buy auto insurance after they’ve had an accident. Few consumers would voluntarily buy such coverage until they need it. The result would be price increases previously only experienced in states like New York where this dynamic has resulted in a costly health insurance surcharge.

This may be naive and wishful thinking, but I do think there’s enough common sense in Congress to recognize the need to require all residents to obtain coverage before they show up at the doctors office or hospital. The American people seem to recognize this. A recent ABC/Washington Post public opinion poll shows a majority of those surveyed support requiring everyone to buy health insurance. Indeed, if subsidies are offered to low-income households, support for an individual mandate rises to 71 percent. So the political wind is there to help Congress create a fair and workable approach to this issue. And that, in turn, would go a long way to keeping the individual market viable.

So if brokers are likely to be part of the new world of health insurance does that mean it will be business as usual for us?

No.

The value brokers bring to the products we sell is likely to evolve. So will the way we’re paid. For example, helping consumers find the plans that best fit their unique needs will remain at the forefront of what we do. The reforms will make that part of the job easier. The reforms will make after sale service a bit more complicated as a new layer or two of bureaucracy gets added to the mix. (Only someone working in Washington DC will claim that adding a government agency, like an exchange, to the mix will reduce problems or make resolving them easier).

These are mere tweaks in the average broker’s day. The biggest, most fundamental change brokers will face is how they are compensated. First, brokers will likely be paid less per sale. Requiring everyone to purchase coverage is a two-edged sword. It dramatically increases the number of consumers buying health insurance. It also creates tremendous pressure to keep premiums low. Distribution costs are generally the second largest budget line for carriers trailing only claims costs. With everyone having to buy, reducing broker compensation for each sale is all but inevitable. This doesn’t mean producers won’t be able to do well under the new system. They’ll just have to do more. Given that 30 percent or more of the individual cases they work on today are rejected by carriers, reforms which assure all applicants are accepted will go a long way to offsetting this per sale reduction.

The second impact of reform is likely to be the end of the commission system. At the risk of being flamed by brokers reading this blog, paying us a percentage of premiums makes little sense now and will make even less sense going forward. The reality is that the cost and rewards associated with making a sale don’t relate to the premiums paid by the consumer. The biggest driver of health insurance premiums is the underlying cost of medical care and these cost increase far faster than general inflation. It’s not uncommon for medical trend increase at twice the rate of rent, supplies, phones, and other costs associated with running an agency. Linking broker pay increases to medical trend is a historical, but no longer logical, practice.

No one likes to talk about how they’re paid and the public policy issues involved. When’s the last time you heard a doctor publicly criticize the fee-for-service model – you know, the one that rewards them for maximizing the number of tests and treatments a patient receives without regard for the outcomes of those treatments? But to think that policymakers and carriers aren’t aware of this disconnect between how broker compensation is calculated and their actual costs.

Yet broker cannot work for free – nor should they. In the current system, carriers charge consumers for the brokers compensation and pass this revenue through to to the broker. It’s an efficient method and is likely to continue, but instead of commissions, brokers are likely to receive a flat fee per month per member. There may be regular adjustments made to the level of this fee to account for inflation, but it will be independent of the underlying premium.

Additionally, we’re likely to see the emergence of consultants in the individual and small group market segments. Instead of being paid through the carrier, these entrepreneurs will charge consumers directly. This is a less efficient method –- and is currently illegal in many states. But laws can be changed and the context for a new approach to producer compensation will be strong. We shouldn’t be surprised if new systems emerge.

And many consumers may find this pay for services system appealing. When California ran a health plan in the 1990s it imposed on a five percent of premium surcharge on small business owners wanting to work with a broker. Over 65 percent of the employers enrolling in the state plan paid the surcharge.

I believe Dr. Goodman’s warning that health care reform will do away with brokers is overstated.  And brokers need to remember, just because someone – even someone as bright and respected as Dr. Goodman – claims the sky is falling, doesn’t mean it is falling. It could just be changing.

America’s Health Insurance Plans have struck a nerve. The carrier’s industry association issued a report warning industry’s Warning that Congress is heading for a set reforms that could dramatically increase the cost of health insurance coverage for American consumers. The study, prepared by PriceWaterhouseCoopers warns that various taxes and fees, combined with a weakening of provisions requiring all Americans to purchase coverage, will raise premiums paid by a family in 2013 by $1,700 more than they would pay without the reform. Premiums for a single person would go up by $600 more than would otherwise be the case.

The AHIP report examined the impact of four provisions of the Senate Finance Committee bill. These are:

• Requirements on carriers to sell coverage coupled with “weak coverage requirements” on consumers along with rating reforms
• Taxes on so-called “Cadillac plans”
• Cost-shifting resulting from $400 billion in cuts to Medicare
• Taxes on insurance companies, medical device manufacturers and other health care sectors

Significantly, the study did not consider other proposals in the reform legislation that might reduce the cost of medical coverage. Even so, what the report has to say about current medical cost trends and these four elements of the reform package is important to understand.

According to PriceWaterhouseCooper, health care costs in America are expected to “grow over the next decade by approximately 6 percent per year under current law, which is more than double the expected growth in the Consumer Price Index of approximately 2.5 percent per year.” This means the cost of private health insurance coverage is expected to increase by 26 percent between 2009 and 2013 and 50 percent between 2009 and 2016. If the four provisions it reviewed are implemented, however, health insurance premiums would increase by 40 percent between 2009 and 2013 and by 73 percent between now and 2016. Meaning the average cost for single coverage, $4,800 today is expected to increase to $5,800 in 2013 under current law, but to $6,400 in 2013 given these reforms. And instead of costing $6,900 in 2016, the average single policy would cost $7,900. These are average increases. The impact by market segment is even greater:

• 49% increase for the non-group (individual) market\
• 28% increase for small employers (those firms with fewer than 50 employees)
• 11% increase for large employers with insured coverage
• 9% increase for self-insured employers.

Again, the impact of other provisions of the Senate Finance Committee’s proposal might reduce this trend, but there’s two conclusions that can be drawn from the report:

First, the status quo is unsustainable. Any system in which the cost of a service increases year-over-year-over-year by more than twice general inflation will eventually become unaffordable. Change is needed.

Second, key elements of the reform package expected to be passed by the Senate Finance Committee today will increase costs significantly beyond the already unacceptable trends.

Not surprisingly, proponents of reform have vociferously attacked the AHIP study. The White House described the report as “Distorted and flawed.” An AARP spokesman called it “Fundamentally dishonest.” Senator Jay Rockefeller described AHIP’s publication of the study as “The misleading and harmful claims made by the profit-driven insurance companies are politicking for corporate gain at its worst.” (That AHIP also represents numerous non-profit health plans has apparently escaped the Senator’s notice).

The harsh tone of the attacks on AHIP and its report reveals correlates with the significance of the study’s conclusions. Supporters of reform had long claimed it would reduce the cost of health care for most Americans or, at the very least “bend the cost curve.” For voters happy with their current coverage this is a critical message. They generally support health care reform, but that support could waiver if the cost to them personally is too high. And AHIP is now demonstrating what the cost to these individuals is in dollars and sense. That could undermine support for reform just as the legislation heads for a crucial stage: consideration and a vote in the next few weeks by the Senate and the House of Representatives.

In the next few days, critics will undermine points in the study. The tax on high-end plans may drive consumers to less rich benefit packages, reducing their premiums. The Medicare cuts could eliminate waste and, consequently, avoid shifting additional costs to individuals with private insurance. The taxes on medical suppliers will be passed through to consumers, but spread over a broader population as more Americans obtain health insurance coverage.

But if nothing else the study will bring highlight an important reality: a requirement on carriers to sell coverage that is not tied to a strong, enforced requirement for consumers to buy coverage will dramatically increase insurance premiums. The Congressional Budget Office concludes the Senate Finance Bill will increase the number of Americans with insurance from 83 percent today to approximately 94 percent. Karen Ignagni, AHIP’s president, says “You really have to have a coverage level in the high 90s to make this work.”

You don’t need high priced analysts to recognize that mandates to buy and to sell coverage need to be balanced. New York and New Jersey currently require health plans to guarantee issue coverage, but has no requirement that their citizens purchase insurance. Not surprisingly, premiums for individual health insurance coverage is two-to-three times what it is in California. The difference is a health reform surcharge paid for by the residents of those states.

But the example of New York and New Jersey isn’t even necessary: common sense shows the impracticality of an unbalanced approach. Imagine if consumers could put off buying auto insurance until the tow truck arrives at the scene of their accident. Auto insurance costs would skyrocket. What would fire insurance cost if it could be purchased after the flames are extinguished?

American consumers will do the math. If the penalty for purchasing coverage is the equivalent of one month’s premium (which is roughly what the Senate Finance Committee is proposing) every month they go without coverage (minus the first month) is money saved. When they face medical charges greater than the penalty, they’ll buy it. Once they’re treated, they’ll drop the coverage. The result will be a surcharge on all those with health insurance coverage.

Passage of the Senate Finance Committee legislation is not the end of the health care reform debate. It’s merely a milestone – and important one, but in the end, just a milestone. As the reforms move forward, lawmakers will need to face up to the need for balanced reforms.  That will require making tough decisions, such as telling their constituents they must have coverage. But health care reform, if it’s to be done right, takes both common sense and political courage.

That health care reform would include an insurance exchange has been all but a given for months. Democrats and Republicans alike are enamored with the idea of creating a marketplace in which individuals, small business and maybe larger enterprises could shop for health insurance. There are differing opinions as to whether these exchanges simply help purchasers compare plans on an apples-to-apples basis by presenting benefits and rates in a common format and language (along with providing common enrollment forms and the like) or whether they should also negotiate benefit and pricing with carriers and help users select and purchase coverage. What is rarely brought up is that exchanges are effective only if they are innocuous or cheat.

By innocuous I mean they serve simply as a data resource, providing consumers basic information in a common format and using a common terminology. Don’t get me wrong. This would be an extremely valuable service. Numerous brokers provide this kind of information today, but they’re hamstrung by the differing language and descriptions used by carriers. By forcing health plans to adopt a shared language, consumers would enjoy greater clarity when determining what plan to buy.

By cheating I mean that the playing field needs to be tilted in the favor of the exchange or it will not either deliver the intended value or last very long. That’s not the point of an op-ed in the New York Times by Cappy McGarr, who helped launch Texas’ version of a purchasing pool back in 1993, but it’s a fair conclusion. (Note: you may need to register with the New York Times web site to view the article, but registration is free. And my thanks to reader Nosedoc for bringing this opinion piece to my attention).  Mr. McGarr describes the failure of purchasing pools to take hold last decade in Texas, California, North Carolina and Florida. He blames their failure on cherry picking by private carriers outside the exchange, claiming these carriers signed up “all the small businesses with generally healthy employees and offload(ed) the bad risk … onto the exchange.”

From what I saw of the California version of a purchasing pool, Mr. McGarr claim is accurate in defining the problem, but wrong in describing the cause. California’s purchasing pool (called the Health Insurance Plan of California, or HIPC) did attract groups with higher claims. But this wasn’t the result of carriers directing expensive insureds to the pools as claimed by Mr. McGarr. Instead it was the direct result of a decision taken by the HIPC’s administrators.

Outside the HIPC, private carriers were required to accept all small groups applying for coverage, but could adjust rates up or down 10 percent based on a group’s risk profile. Virtually all of them did. The HIPC could have used this legal rating band, but its leadership chose not to do so. (The members and staff of the agency responsible for the HIPC were bright, well intentioned individuals, but they were reacting, at least in part, to public policy concerns, not a business needs). This meant low risk groups found the market outside more attractive and high risk groups found the offerings within the HIPC more attractive. The result is neither sinister nor should it be unexpected.

When competing against the private market, exchanges will have other disadvantages. For example, government agencies must hold open and public meetings. This is a good thing, the government shouldn’t operate behind closed doors. But it’s also a cumbersome process. Businesses need to adjust quickly to changing circumstances, move quickly to seize unexpected opportunities and to avoid unanticipated dangers. Government enterprises are restricted in their ability to take fast action; private companies are not.

So how can exchanges compete with a vibrant market beyond their jurisdiction? One way is to give the exchanges advantages over the private market; the other is to hobble the private market. For example, the legislation making its way through Congress offers premium subsidies to lower income Americans. yet those subsidies can only be used within the exchange. Why? If coverage outside the exchange meets the definition of acceptable coverage, shouldn’t consumers have the choice to use their subsidies on whatever plan they determine best fits their needs? Lawmakers claim to support consumer choice, but here’s an example of where members of both parties are willing to restrict that choice. Other methods of tilting the playing field? Force carriers to participate in the exchange. Limit what they can do with their non-exchange products.

Mr. McGarr’s suggested solution is to require private carriers to accept all applicants (an idea nearly everyone, including the private carriers agrees upon) and to prevent them from adjusting rates based on health status. He notes, however, that enforcement will be challenging and then makes an interesting proposal: instead of creating exchanges to foster competition, create a public plan.

As regular readers know, I’m not a fan of public plans. But it is interesting to think about the trade-off. If a public plan was required to play by the same rules as private carriers (no fair simply reimbursing providers a percentage of Medicare rates) and be self-sufficient, would that be worse than creating exchanges that lawmakers will find ways of benefitting through a tilted playing field?  After all, if exchanges are to have a significant impact on the cost of health insurance, they will need to negotiate rates with doctors and hospitals. But that’s not what they do. It is, however, what public plans do.

Not that we have a choice, but if we did, which would you choose? An exchange? Or a public plan?