Why President Obama Should Jettison the Individual Mandate

Two key elements of the Patient Protection and Affordable Care Act are the requirement that health insurance carriers accept all applicants (what’s called guarantee issue) matched by a requirement that individuals obtain health care coverage or face a penalty (referred to as an individual mandate). The PPACA was not the first bill take this approach to move toward more universal coverage. In response to then President Bill Clinton’s health care reform proposal, 19 Republican Senators joined by two Democrats, put forward the Health Equity and Access Reform Today Act of 1993. Central to the proposed legislation was an individual mandate.

That was then.

Now Republicans cite the individual mandate as a key flaw of the Patient Protection and Affordable Care Act. Recently a Federal Judge in Florida declared the individual mandate contained in the the PPACA was unconstitutional and, as a result, the law itself was unconstitutional. Eventually the Supreme Court will rule on whether the individual mandate in particular and the health care reform law in general can stand. Their decision will hinge on how they interpret the Commerce Clause of the US Constitution.

This is not a clear-cut, black-or-white issue and the Court could go either way on the issue. The Commerce Clause has evolved considerably since the Constitution was adopted. That legal scholars and judges reach different conclusions when applying it is not surprising. Consider: to date, two Federal District Court Judges have rejected claims the individual mandate exceeds Congress’ powers under the Commerce Clause while two others determined it does. For those interested, NPR’s The Diane Rehm Show aired one of the most informative, clear and helpful discussions of the legal issues surrounding the PPACA I’ve come across. (The entire 51 minutes segment is well worth a listen, however, much of the key legal explanation takes place between the 8 minute and 28 minute marks).

Unless the Supreme Court accelerates the process, they will probably hear appeals of lower court decisions after they convene their next term in October of this year, with a decision likely to be published in the Spring of 2012. Take note of that timing – as we’ll see it matters.

The question is, should President Barack Obama even let the individual mandate reach the Supreme Court? An argument can be made that the President and his signature domestic legislative accomplishment would be better off abandoning the individual mandate as it exists and replacing it with a different approach. Here’s my version of the argument:

Requiring carriers to accept all applicants without a provision requiring consumers to obtain coverage is a recipe for disaster. The average premium for individual coverage (insurance purchased without a contribution from an employer) in New York and New Jersey are more than twice the average premium for similar coverage in California in large part because New York and New Jersey law requires guarantee issue, but lack an individual mandate. . Consumers there take the economically smart course of waiting until they are sick or have an accident before obtaining coverage. To cover the inevitable losses, carriers set high premiums.

This is why Democrats included an individual mandate in the PPACA. Unfortunately, it isn’t much of a mandate. Individuals who fail to obtain coverage, unless excused from the requirement on religious grounds, will be required to pay a penalty. In 2014 this fine is the greater of $95 or 1% of income; by 2016 $695 or 2.5% of income, whichever is greater. Given that the CBO estimates that individual premiums for the lowest level of benefits available to most Americans under the PPACA will average between $4,500 and $5,000 (that’s for the Bronze level of benefits for those keeping track) the economic calculation is pretty straightforward. $4,500 is 2.5% of $180,000. So anyone with a taxable income of $180,000 is arguably better off going without coverage until they need it – give or take risk tolerance.

The PPACA’s individual mandate may be lightweight, but the political cost has been heavy Jettisoning the individual mandate as it currently exists would neuter one of the Republicans core attacks against President Obama and the PPACA – that this provision exemplifies an abusive expansion of the federal government at the expense of individual liberty. (That the IRS will need to hire additional staff to enforce the penalties only makes the situation politically worse for the Administration). Democrats may describe the individual mandate as a call for individual responsibility, but they’re losing the debate – as the election results of 2010 underscores.

Replacing the PPACA’s individual mandate with something different, something that more directly speaks to personal responsibility – without involving the IRS – and that is more effective in accomplishing the goal of the individual mandate, is a winning public policy and political strategy.

Fortunately for the Administration, there are viable alternatives. For example, a year ago I suggested allowing carriers to exclude coverage for pre-existing health conditions and impose a premium surcharge on individuals who go without medical coverage for a specified period of time. Others are suggesting creating a limited open enrollment period during which uninsured individuals can apply for coverage on a guaranteed issue basis.

There’s another very practical reason for the President to seek a different approach to getting individuals to obtain coverage before they are sick or injured. Whether the Supreme Court will rule the PPACA’s individual mandate as unconstitutional is a great unknown. Legal decisions are hard to predict and given the makeup of the current Court, their decision on this matter will likely be close.

And the result could be devastating to the Administration. If the Court were to strike down the individual mandate in the Spring of 2012 the Administration would be forced to find a replacement in the heat of a presidential election campaign. How likely are Republicans to cooperate with the White House just weeks before their nominating convention? Worse, the Supreme Court could find that since the individual mandate is unconstitutional the entire health care reform law is nullified.

Imagine the chaos. Would 26 year olds insured under their parents’ policies suddenly be dropped? Would seniors be required to reimburse the government for checks they’ve received to close the donut hole in their Medicare prescription coverage? This is not what the President wants dominating the news during his re-election campaign.

The political and societal risk can be minimized to nearly zero simply by eliminating the element of the PPACA most open to challenge: the individual mandate. After all, the Supreme Court can’t declare unconstitutional a provision already removed from the law.

Republicans say they want to do away with the individual mandate. The President should let them do so. Yes, the GOP will claim victory. For the Obama Administration, giving Republicans bragging rights is a small price to pay for improving the PPACA, demonstrating his openness to bipartisan solutions, and avoiding a political nightmare of apocalyptic proportions.

This is one situation in President Obama should embrace the call to “repeal and replace.” Doing so is in his own – and more importantly, the American people’s – best interest.

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A Few More Unrelated Health Care Reform Items

There’s always something happening related to health care reform in general and the Patient Protection and Affordable Care Act in particular. As I continue my year end “clean-up” here’s some short takes on some of the more noteworthy events and ideas I’ve come across lately.

The AMA and the Individual Mandate:
The American Medical Association is of two minds when it comes to requiring everyone to obtain health care coverage  This individual mandate is at the heart of many of the law suits seeking to overturn the PPACA in court. During the health reform debate they supported this requirement. As reported over at the HealthAffairs blog, during their recent interim House of Delegates meeting the AMA voted to reverse this position. Only after “desperate scrambling by AMA leaders” the House voted to refer the issue to the AMA Board of Trustees and to hold a vote concerning their their position on the individual mandate when the House reconvenes again in June.

Both votes were close and reveal a deep schism within the AMA. Like the Wright on Health blog where I came across this item, I don’t believe the result will actually split the AMA, but if the organization abandons its support for the individual mandate it would be a serious political blow to the Obama Administration.

The PPACA and Medicare:
President Barack Obama and his allies argue that the Patient Protection and Affordable Care Act will strengthen Medicare even though the health care reform package cuts about $500 billion from the federal health program over the next 10 years. The Associated Press did an interesting fact check that sheds some light on the PPACA’s impact on Medicare. The bottom line: unless there are offsetting cost reductions in Medicare, the cuts to the program required by the PPACA will simply need to be replenished by other sources. While the Associated Press’ Q&A points out another example of the financial gimmickry so common in Washington, it also highlights the need to reform Medicare, especially in terms of reining in medical spending. The PPACA creates some pilot projects and the like to do just that. Whether they will generate the savings necessary in time is the $500 billion question.

And for a lighter look at Medicare, feel free to check out “The New Medicare Drug Card” brought to you by the Onion.

Speaking of Controlling Medical Costs:
Health insurance premiums reflect the cost of health care. This is a fact that many lawmakers seems unable to grasp. Perhaps its a gap in their education or, at the risk of being appropriately cynical, perhaps it’s because it is easier – and better politics – to beat up on insurance companies than it is to take on hospitals and doctors.

One way to reduce costs is to reduce needless care. As David Leonhardt wrote in the New York Times earlier this year, the potential savings from eliminating unnecessary medical treatment is huge, both in terms of dollars and in lives. Mr. Leonhardt, who writes the Economic Scene column for the paper, identifies three steps necessary to earn these savings: 1) “learning more about when treatments work and when the don’t;” 2) “give patients the available facts about treatments;” and 3) “changing the economics of medicine to reward better care rather than simply more care.”

What’s especially interesting, and especially for those who believe the PPACA does nothing to restrain health care costs, is Mr. Leonhardt’s point that the new health care reform law makes a good start down this path. As he makes clear, the PPACA doesn’t go as far as is needed, but it lays the groundwork for much of the hard work yet to come.

Physician Owned Surgery Centers:
Here’s a not surprising headline: “Doctors with ownership in surgery center operate more often: U-M study.” Shocking, no? The University of Michigan study shows the financial incentives gained by doctors when they have a financial stake in a a surgery center. One possible explanation the researchers mention for this is “that these physicians may be lowering their thresholds for treating patients with … common outpatient procedures.” Those financial incentives can be hefty, amounting to what the authors call a “triple dip.” Doctors with a stake in a surgery center “collect a professional fee for the services provided … share in their facility’s profits and [in] the increased value of their investment.”

Writing in Health Affairs, the data showed that “owners operated on an average of twice as many patients as non-owners” and their caseloads increased more rapidly and dramatically. Significantly, the study reports that doctors have a stake in 83 percent of surgery centers in the United States. To be fair, these out-patient centers often charge less for comparable treatments than hospitals do. But if they double the number of surgeries, how much do they really contribute to constraining health care costs?

The “Best of” CBO’s Health Care Reform Reports:
The Congressional Budget Office occupies a unique position in the legislative process. In a hyper-partisan Congress, they are an island of non-partisanship. (Of course, partisans in both parties only admit this when what the CBO reports supports their position, but that’s politics). This is not to say that the CBO is always right or that they’re not constrained by the questions asked or the data they are provided. But at the end of the day, when it comes to reliable information and analysis, there are few places better to turn to than the Congressional Budget Office.

When it comes to health care reform the CBO was instrumental in providing meaningful input to the debate. And now those reports – and other health care related studies – are compiled in a greatest hits collection entitled “Selected CBO Publications Related to Health Care Legislation, 2009-2010.” The information contained in this 364-page compendium is invaluable. But what will be even more fun five or 10 years from now will to look back on the CBO’s projections and see how rarely the world world abides by the predictions of even well-informed and well-intentioned economists.

At Long Last the CBO Weighs in on Obama Health Care Reform Plan

The critical role the Congressional Budget Office plays in federal lawmaking cannot be overestimated. Both parties know their own economists generate numbers designed to bolster their bosses’ ideology. Meaning they lack much credibility. So Congress established the CBO to be a neutral arbiter of the financial impact of legislation. Both parties, whether in the majority or minority, rely on the integrity of the CBO.

This doesn’t mean they accept reports from the CBO blindly and completely. Especially if the results are at odds with a party’s political needs, there’s harping about the assumptions used and the like. But the fact that both parties cite the CBO’s analysis as fact so often means their analyses have immense credibility – enough credibility to settle disputes and sway votes.

So the CBO’s score (as their analyses are called) concerning health care reform has been long anticipated. President Barack Obama built his health care reform package on the chassis of the legislation passed by the Senate on December 24, 2009. But he wants substantial changes (as do House members before they’ll go along with it). President Obama submitted those changes to the CBO and everyone has been waiting to see what their financial impact would be. How important is the CBO analysis? So important Democratic leaders have withheld the actual text of the changes they want to make to the Senate’s health care reform legislation until they knew whether the CBO would score the bill as costing less than $1 trillion and would be, at worse, deficit neutral.

The wait is over. (Almost. The actual report will be issued later today and I’ll add a link to it from this post. In the meantime word of it’s findings have leaked out). Note: the Congressional Budget Office’s preliminary estimate of the direct spending and revenue effects of President Obama’s health care reform proposal is now available.

As reported by Ezra Klein of the Washington Post, the Congressional Budget Office has concluded the health care reform bill proposed by President Obama will cost $940 billion over the first 10 years, reducing the deficit by $130 billion during that time. The impact on the budget is even greater in the next decade: the CBO estimates it will reduce the deficit by $1.2 trillion between 2020 and 2029.  The President’s proposal is also expected to result in near universal coverage with 95 percent of the eligible population having private or public health care coverage.

All the news outlets are reporting the same figures. While it will be critical to see the qualifiers and methodology used by the CBO to reach these conclusions (which will be available only when the actual report is published later today), Democrats are already celebrating the figures. One reason: as Fox News reports, the CBO analysis makes it far more likely the clean-up legislation necessary to amend the Senate health care reform bill will meet the requirements of the reconciliation process. This means the clean-up bill can side-step the filibuster process and pass with a 51 vote, simple majority in the Senate.

Next up in the health care reform roller coaster ride: the CBO report will be issued today and the House will vote on the Senate health care reform bill and the clean-up legislation on Sunday. Then the clean-up bill heads over to the Senate where Democratic leaders hope to hold a final vote before the end of March.

At least, that’s the plan. And very little concerning this health care reform effort has gone according to plan.

Mandated Medical Loss Ratios’ Unintended Consequence

The health care reform package currently being negotiated in the Senate contemplates requiring health insurance companies to spend at least 90 percent of premiums on medical claims. But the Congressional Budget Office is warning lawmakers mandating such a high Medical Loss Ratio would be overreaching – unless their goal is to takeover those health insurance carriers. Which, as Megan McArdle notes on The Atlantic’s site, means the 90 percent mandated medical loss ratio would turn “the operations of the nation’s health insurers [into a part of] the financial statements of the United States government.”

Lawmakers could ignore the CBO memo, but are unlikely to do so. The credibility of the CBO is simply too high. This means the chances of a 90 percent medical loss ratio (“MLR”) requirement making it into the final health care reform bill has dropped from “well, maybe” to “not a chance” – or lower.

The CBO memorandum reasons that requiring carriers to meet a 90 percent medical loss ratio could drive carriers out of business, reduce plan offerings and take other actions limiting choice in the marketplace. The key to determining the impact of MLR requirements is to look at the percentage of health insurance carriers impacted by the requirement. “A policy that affected a majority of issuers would be likely to substantially reduce flexibility in terms of the types, prices and number of private sellers of health insurance,” the CBO memo states.

The CBO won’t say precisely when a required medical loss ratio crosses the line and becomes a government takeover of the industry. But it did give a hint, saying an MLR requirement “at 80 percent or lower for the individual and small-group markets or at 85 percent or lower for the large-group market would not cause CBO to consider transactions in those markets as part of the federal budget.”

Moving health insurance transactions isn’t what proponents of a mandated MLR had in mind when the put forward the idea. But unintended consequences are, well, just that: unintended. There are a lot of reasons why mandating medical loss ratios is bad public policy. The CBO has added another to the long list, a reason that even it’s most ardent advocates are unlikely to be able to overcome.

Devil Dwells in the Details of Health Care Reform Compromise

A critical health care reform compromise seems to have emerged from negotiations between five liberal and five moderate Democratic Senators (the so-called “Gang of 10”). They are putting forward a compromise that eliminates (or at least postpones) the creation of a government-run health plan while allowing Americans 55 through 64 years of age to purchase Medicare and tasking the Office of Personnel management to administer a program offering coverage through non-profit, private health plans. Of course, as with anything as complicated as health care reform, a solution or compromise on one issue creates new ones elsewhere – think of trying to flatten a partially inflated balloon. Push down on one part and the air pops up in another.

As I noted the other day, expanding Medicare is an idea that appeals to both liberals and conservative Democrats. For example, former Governor Howard Dean, a leading and vocal advocate for a government-run health plan called the compromise “a positive step forward” on the CBS’ “The Early Show.” Meanwhile, Senator Joe Lieberman, who had threatened to support a filibuster of any health care reform plan containing a public option signaled the compromise might be acceptable. According to MSNBC Senator Lieberman said he was “’open- minded’ about the deal” and indicated he was encouraged by what he’s heard so far about the compromise. In other words, he’s pretty much on board.

Senator Reid will be submitting the Gang of 10’s compromise to the Congressional Budget Office where its financial impact will be determined. In the interim, it’s worthwhile asking some questions about the impact of elements of the health care reform compromise as it is in the details that the devil likes to linger.

For example, how will allowing 55 through 64 years old enroll in Medicare impact private health insurance premiums?  It is widely accepted that Medicare often pays doctors, hospitals and other providers less than the actual cost of the care they provide. For example, “payment levels for hospital services under Medicare are equal to only about 71 percent of what is paid by private health plans for the same service,” according to a study by the Lewin Group. Medical care providers make up for the Medicare reimbursement shortfall by charging more to their insured patients. This cost shifting is reflected in higher health insurance premiums.

To the extent the 55-through-64 year olds signing up for Medicare previously were insured by private carriers the amount of dollars being shifted to private insurance will increase and the number of privately insured consumers absorbing this cost will decrease. The result, upward pressure on health insurance premiums.

However, to the extent that these new enrollees were previously uninsured it will reduce the cost of private coverage. Right now virtually all the costs incurred by the uninsured are shifted to private carriers. If Medicare pays for 71 percent of these expenses that’s 71 percent less in losses providers need to shift to their insured patients. How these two consequences balance out is as yet unknown – and may not be knowable until after the fact. But lawmakers should be aware of these consequences.

There’s another detail of the compromise potentially offering affordable housing to the devil.  Alison, a regular reader of this blog, pointed out a provision that would require private carriers to spend at least 90 percent of premiums on medical care. Forcing carriers to spend a high percentage of premiums on medical costs is one of those proposals that: 1) sounds great; and 2) emerges with the regularity of ground hogs in Pennsylvania in February. And it’s a seriously flawed proposal.

Consider: requiring carriers to maintain a specified medical loss ratio (as the percentage of premium spent on claims is called) could reduce the availability of low cost plans. It costs just as much to process claims for a plan costing $300 per month as it does for one with a monthly cost of $100. If these fixed costs amount to $15, they represent 15 percent of the lower cost plan’s premium, but only 5 percent of the premiums for the more expensive plan. Need to get your medical loss ratio (as the percentage of premium spent on claims is called) to 10 percent? Raise your premiums. It’s counter-intuitive, but do the math and you’ll see the danger.

There are several other potential dangers from requiring a high and specific medical loss ratio. Economic swings or flu outbreaks (or the lack of expected flue outbreaks) can greatly alter the percentage spent on claims. So can government-imposed mandates to cover certain conditions. Private carriers pay taxes and need lawyers to deal with government regulation. These costs are beyond their control, but they tend not to increase over time (taxes and regulations have a nasty habit of piling up), meaning these uncontrollable costs are likely to absorb funds needed for truly administrative costs – like answering the phone. Answering the phone, of course, speaks to customer service, a likely victim of mandated loss ratios.

And setting the medical loss ratio at 90 percent would certainly eliminate broker commissions. Brokers would either need to charge fees directly to clients (if that’s permitted) or go away, leaving consumers bereft of independent advocates and counselors.

The good news is that just because a provision is in the compromise doesn’t mean it will be part of the final legislation. Or that it can’t be improved upon before reaching President Obama’s desk. When California Governor Arnold Schwarzenegger proposed an 85 percent medical loss ratio in his 1997 health care reform plan, lawmakers recognized the potential pitfalls. The provision was amended to make clear, for example, that taxes and disease management programs would be part of the claims side of the ledger. Eventually a workable compromise was was reached. (The bill did not pass the Legislature, however).

Of course, fixing California’s version of a mandated medical loss ratio didn’t happen of its own accord. Many interested parties, including the California Association of Health Underwriters, expended considerable effort to educate lawmakers about the implications of this provision. An effort of similar magnitude will be required to make sure that the devil is unable to take up residence in the details of the health care reform compromise shaping up in Washington.

House Health Care Reform Passes, But It’s Far From the Last Word

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.

CBO Bolsters Baucus Health Care Reform Plan

The Congressional Budget Office has given a boost to the Chairman’s Mark of America’s Healthy Future Act 0f 2009. In a preliminary analysis of  the health care reform proposal put forward by Senator Max Baucus, the chair of the Senate Finance Committee. the CBO estimates the plan would reduce federal budget deficits by $49 billion between 2010-and-2019.

The Congressional Budget Office is highly regarded by both parties for its independent analysis. Their findings can cripple a bill or enhance its stature. In this case, even though the report is preliminary, the CBO adds substantial credence to Senator Baucus’ reform effort. A good thing considering the attacks on the proposal from both wings of the political spectrum.

The CBO presented its findings in a letter to Senator Baucus on September 16, 2009. (The analysis is summarized on the blog of CBO director Douglas Elmendorf). In addition to the positive effect on the federal deficit the analysis projects the health care reform legislation would increase federal revenues by $139 billion over the 10 year period. To be sure, the CBO, working with the staff of the Joint Committee on Taxation notes these estimates “are all subject to substantial uncertainty.” Further, the analysis was based on a description of the Chairman’s Mark of the America’s Healthy Future Act provided by Senate Finance Committee staff, not the document itself let alone actual legislative language.

What the CBO reports is that Senator Baucus’ health care reform bill would reduce the number of uninsured Americans by 29 million by 2019 according to the analysis. This would increase the percentage of Americans legally in the country and under the age of 65 to approximately 94 percent in 10 years from its current level of roughly 83 percent. This would leave “25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants).”

Where these newly insured consumers obtain coverage is kind of interesting. As you read these numbers, keep in mind that the size of the individual health insurance market nationally is estimated to be approximately 18 million people. The CBO estimates roughly “25 million people would purchase coverage through the new insurance exchanges, and there would be roughly 11 million more enrollees in Medicaid than is projected under current law.”  These numbers are significant. They will change the dynamics of the market, but they hardly represent a government takeover, especially considering that the Senate Finance Committee proposal does not create a government-run health plan.

The health care reform plan put forward by Senator Baucus has been subjected a great deal of criticism by Democrats and Republicans, but the attacks by liberals have been especially vicious. Which means the real debate has begun. During August it was conservatives dominating the attack on Congressional health care reform proposals. Now liberals are joining the rant party. Here’s another example from Countdown with Keith Olbermann who, like the Glenn Becks on the right, seems unable to disagree with someone on public policy without calling them names or attributing venal motives to anyone on the other side. It’s politics by outrage that demeans the debate, but pleases the partisans.

Are there flaws in Senator Baucus’ health care reform plan? Yes. Hopefully the debate starting next week in Senate Finance will fix many of them. Is his plan better than the status quo?It certainly would be for the 29 million Americans gaining coverage under the proposal. Reducing the deficit seems like a step in the right direction. And, as I’ve noted before, to the dismay of Mr. Olbermann, health care reform will be decided by moderates. And moderates aren’t attacking the America’s Healthy Future Act.

Obama Should Focus on Getting Health Care Reform Right, Not Fast

President Barack Obama, as expected, has launched a full-court press on health care reform. For the fourth day in a row he spoke out on the issue, his tone becoming increasingly impatient. He consistent message is for Congress to pass comprehensive health care reform passed in August, which is a shame. His passion should be focused on what reform Congress passes, not when.

President Obama’s passion for health care reform is sincere and clear. Fixing America’s health care system was central to his campaign. Reform is critical to his economic recovery strategy. As moderates and others question the cost and approach to reform, the President’s tolerance is wearing thin. Here’s how CBS News reported on a speech he gave in New Jersey yesterday: “We have finally reached a point when inaction is no longer an option," Obama said, his hoarse voice rising in volume and anger. "I will not defend the status quo." Obama brushed off his opponents as naysayers who expect a different outcome with the same-old approaches to a decades-old challenge. "It’s a path where our health care costs keep rising. … That’s not a future I accept," Obama told the friendly audience.

The ramp-up in rhetoric is tied to an increase in concern about the legislative proposals moving through Congress. Take the preliminary analysis of the health care reform package being considered in the House of Representatives by the Congressional Budget Office. (The analysis does an excellent job of summarizing that bill as well). In his blog, CBO Director Douglas Elmendorf described the findings: “enacting those provisions by themselves would result in a net increase in federal budget deficits of $1,042 billion over the 2010–2019 period. “ His office also estimates that it would reduce the number of uninsured in the country “by about 37 million, leaving about 17 million nonelderly residents uninsured (nearly half of whom would be unauthorized immigrants).” That would increase the number of Americans under the age of 65 with coverage to an impressive 97 percent. But that trillion dollar plus price tag is causing sticker shock in Washington, causing widespread hyperventilation among lawmakers and pundits. (It is important to emphasize that the CBO analysis was preliminary and did not take into account all of the provisions of the bill).

Then there were the meetings President Obama held with moderate Senators Republican Olympia Snowe and Democrat Ben Nelson – both of whom urged him to slow down the process and let negotiations take their course. Add to the mix a letter to Congressional Leaders signed by Senators Snowe and Nelson, along with Senators Susan Collins, Joe Lieberman, Mary Landriu, and Ron Wyden (two Republicans and four Democrats) asking for additional time to find a compromise on health care reform, and you can see why the White House is pushing hard to keep the August deadline alive.

But that’s the wrong focus. The President’s need for speed is a political one. The longer the debate goes on  the greater the possibility outside events or internal political fighting will derail the effort. Passing legislation as complicated and controversial as comprehensive health care reform requires momentum and a sense of urgency. The August deadline, especially in the context of legislation passed by Congressional Committees so far, create both.

Legislation as complicated and controversial as comprehensive health care reform also requires careful consideration and broad support. The careful consideration minimizes the unintended consequences that will surely result from changes of this nature. The broad support assures increases the odds of the new law being enacted smoothly and with a minimum of interference by a future Congress.

By calling those who want to delay passage of health care reform obstructionists implies that the President supports the versions currently before Congress. Yet when asked about specifics the President and his spokespeople note that the details need to be worked out by lawmakers and everything is still on the table. In other words, President Obama wants Congress to hurry up and pass something. He’s outlined what he’d like in it (a public plan, exchanges, a host of cost control measures) and what he doesn’t like (taxing high-end benefits), but he’s not pushing for any specific bill. He’s just pushing.

The problem with this approach is that the President is putting his political capital and prestige into play for a timeline, not a policy. If Congress fails to enact a bill by August the President will be seen as having lost, even if they return from their summer recess and pass a sound bill. Worse, from his point of view, he’s giving opponents another argument for voting against reform if it’s brought to a vote next month: that the process was rushed.

The President would be far better served politically to have the Senate Finance Committee continue to work toward bi-partisan health care reform even if it means pushing back passage of a bill by a couple of months. The nation would be far better off with this outcome, too. The resulting legislation would be more likely to make America’s health care system better, more efficient, more fair and more broadly accepted.

Arm twisting lawmakers into enacting health care reform by an arbitrary date is politics as usual. President Obama promised something different. He should keep that promise and focus on getting health care reform right, not just fast.

Dr. Gawande’s Radio Interview

There’s a chicken and egg aspect to health care reform which often frustrates lawmakers and policy makers. To achieve universal coverage the cost of health insurance must be affordable. To make coverage affordable you need universal coverage. So which comes first?

My take is that affordability has to come first. You cannot require people to buy something they cannot afford. When a pen is out of ink, all the regulations in the world won’t fill it again. This means the government has to make coverage affordable, most likely through subsidies of some kind. Subsidies are expensive And the budget, already groaning under the weight of the recession, two wars, an economic stimulus package, existing entitlements, and much, much more. Congress will be hard pressed to find the funds needed to provide the premium support required to get close to universal coverage.

Consequently, affordability needs to come first. This explains, in part, Director of the Office of Management and Budget Peter Orszag’s consistent focus on the as much as $700 billion in medical spending each year that goes towards services which do not improve health outcomes.  He began pushing lawmakers on this issue when he was Director of the Congressional Budget Office and he continues in his new role at the OMB.

The opportunity for health care reform to reign in medical costs received a substantial boost recently with the publication of an article in The New Yorker by Dr. Atul Gawande, a Boston surgeon who is also a staff writer for the magazine. Titled “The Cost Conundrum,” the article described Dr. Gawande’s exploration of medical practices in McAllen, Texas. That community spends more per person on health care than anywhere in the country with the exception of Miami, Florida which has higher labor and other costs. McAllen’s spending is twice that of nearby El Paso, Texas, even though the two areas have similar demographics and similar outcomes. The explanation, Dr. Gawande discovers, is the entrepreneurial culture of the community’s physicians. They maximize their incomes, but fail improving the health of their patients.

The article has been cited by President Barack Obama (who, it is said, has made the piece required reading for his staff), members of Congress, pundits and policy wonks. Few magazine articles have had comparable impact on the health care reform debate.

Those wanting to learn more about what he discovered in McAllen will enjoy an interview with Dr. Gawande  on Public Radio’s Fresh Air. During the nearly 30 minute segment, the doctor expands on his article providing insights from his own practice.

Dr. Gawande has made a valuable contribution to the health care reform debate by shedding light on the correlation between community medical practices, health care costs, and health outcomes. For anyone interested in health care reform, his Fresh Air interview is well worth the investment of time.

Obama Reiterates Support for Public Insurance Plan, Pushes Affordability

President Barack Obama lined up squarely behind the creation of a government-run health plan today. At the same time the White House has fully engaged on the financing of his health care reform plan.

Whether a public health plan should be created to compete with private sector carriers is among the most controversial issues in the current health care reform debate — and will be one of the most difficult on which to find common ground.  While many Democrats, especially those on the left, are insisting a public plan be a part of whatever reform package emerges from Congress, Republicans are equally firm — and united — in opposing them.

During his campaign for president, then-Senator Obama included a government-run health plan in the health care reform plank of his platform. Lately, however, there were indications there might be flexibility in his position. In a letter sent today to Senators Max Baucus and Edward Kennedy, President Obama removed any doubts as to where he stands. “I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

Senator Kennedy, Chair of the Senate Health, Education, Labor and Pensions Committee, is a strong advocate of a public plan. Senator Baucus, the Chair of the Senate Finance Committee, has been less supportive. It is these two committees which will draft the Senate version of reform. The House bill is all but certain to call for creating a public plan.

The mere fact that President Obama supports a government-run health plan does not mean it will be in the final bill. Republicans appear to be unanimously opposed to the idea and so are some moderate Democrats. Together they could block passage of legislation unless the public plan is removed. Or there could be a compromise. One possibility being discussed would prevent the entry of a government-run plan into the market unless “triggered” by certain (yet to be determined) events.

The President’s letter to the committee Chairmen also conveyed the Administration’s support for a health insurance exchange to help consumers obtain coverage. “I agree that we should create a health insurance exchange — a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can.” Interestingly, this describes an exchange as an information clearinghouse. This falls short of Senator Kennedy’s call for a gateway that would, among other things, “”… negotiate with insurance companies to keep premiums and copays low….”  The Senator is describing something akin to a purchasing pool.

President Obama’s letter addressed market reform, but concentrated on cost cutting measure. “I want to stress that reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care. That means promoting the best practices, not simply the most expensive.”

This is part of an Administration-wide effort to focus on making coverage more affordable. For example, Peter Orszag, the Director of the White House Office of Management and Budget, has written two blog posts on the fiscal effects of health care reform (here and here).  In his most recent post he writes of “game changers” that, while not reducing costs immediately, are critical for long term savings. Among the changes he calls for are “patient-centered quality research and re-orienting financial incentives through bundling and payment for quality rather than quantity of services delivered.” Both the President’s letter and the Director’s postingemphasize the Administration’s desire to make health care reform “deficit neutral even over the next five to 10 years, through scoreable offsets such as savings within Medicare and Medicaid and (as necessary) additional revenue.” (“Scoreable” offsets are those recognized in the federal budget. The Congressional Budget Office recently provided guidelines on how they would go about determining the impact various health care changes will have on the budget.)

I expect we’ll be hearing a lot from the White House on health care reform with greater frequency in the next few weeks. While the Obama Administration has been content to lay out broad principles and let Congress hammer out the details, it cannot afford to be completely hands-off. The President has consistently expressed his hope for bi-partisan legislation, but he has been even more vocal that health care reform needs to happen this Fall. The President will need to spend a great deal of political capital to get a bill on such an expensive and complex issue to his desk for signature. He is clearly willing to make that expenditure.

It would have been foolish for the President to back off or even water down his call for a public plan at this stage. My guess is that he will need to push liberals into accepting a reform package that doesn’t go as far as they would like. By siding with them now he’ll be in a better position to do just that when the time for compromise arrives. We’re not there yet, but we’re getting closer.