How to Follow the Health Reform Debate

In what may become a new Opening Day tradition, John McCain threw out the first cranky¹ when debate on Kathleen Sebelius's nomination began this week. That means the topic of health reform is about to heat up even more, and it's getting hard to tell the players without a scorecard.

Here's a handy guide to the action: The debate now centers on two key proposals -- the 'public plan option,' and mandates that require individuals and businesses to obtain health coverage. While you'll hear about other issues (including fearmongering about health IT), they represent the real fight. And the ground may be shifting as some Democrats draw what may be the wrong conclusions from reform efforts in Massachusetts.

The public plan option offers people under 65 the ability to bypass private insurance and enroll in a government-run plan, similar to (but separate from) Medicare. "Mandates" come in two forms -- one that requires employers to offer health coverage, and one that requires individuals to obtain coverage (either from their employer or privately) or face penalties.

The public plan option would act as a restraint on private insurers and generate innovative cost-cutting measures. But some object because they believe it would become a virtual monopsony (like a monopoly, but where one buyer dominates a market), giving it "unfair advantage" over the private sector. That position may have some inherent logical flaws (e.g. if the free market does a better job why does it need protecting?), but the president has shown a certain amount of sympathy for it.

Mandates help manage costs by ensuring that healthy people, as well as those more likely to need care, join the plan. But forcing individuals to pay costly premiums to profit-making ventures could become an onerous burden and an politically unpopular move.

Health policy experts support mandates for sound economic reasons, but they bring significant practical and political problems -- unless they are combined with a public plan option, as in the proposal put forward by Prof. Jacob Hacker. (I interviewed Hacker about it here.) Combining the two programs should help limit premiums to an affordable level, especially with government support at higher income levels. That's important.

There's a compromise proposal on the table which would allow a public plan option but restrict its ability to press for price and other concessions. While this proposal might reduce resistance from Max Baucus and others, it somewhat weakens the principles behind the model. Ezra Klein does an excellent job summarizing the three ways a public plan option could play out, but I'm not sure I agree with Ezra's conclusion that the public plan alternative (especially what he describes as a "gentle non-profit") is not a critical element of reform.

Consider: If even a "gentle non-profit" captures a significant percentage of the insurance market -- say, 30% -- that could save half a trillion dollars or more over the next ten years². And a more unconstrained program could create new cost savings incentives that save even more.

The least desirable outcome (aside from complete failure) is a plan that includes mandates but doesn't have a public plan option, as is currently the case in Massachusetts. Sen. Baucus already implied to Karen Tumulty that he's using the public plan option primarily as a bargaining chip. That's not good.

The administration has indicated an increased openness to the mandate idea, although they opposed it (at least as an initial step) during the campaign. (I interviewed Obama health advisor David Cutler on the topic during the primary campaign.) There are indications now, however, that the Administration might avoid any suggestions of a reversal by letting Congress take the lead.

Sen. Baucus and others may be relying too much on the Massachusetts health reform initiative, which includes mandates but no public plan. While it has succeeded in expanding coverage - a good thing - it has had to exclude a significant portion of the state's uninsured ³ and faces serious financial problems.

Mandate-only advocates point to polls showing that Massachusetts residents generally have very favorable opinions about the reform. But...

A careful reading of those polls show that people who were personally affected by the reform (32% of the total) had a much more negative reaction to it. In this group, 56% said it had affected them negatively while only 44% said it had affected them positively. While some respondents may be people who can afford coverage but don't buy it, many of them are hard-pressed middle-class families who are now mandated to obtain an expensive private plan or face tax penalties.

And Massachusetts had a much smaller uninsured problem than the nation as a whole. A similar plan on a national level could be widespread economic strain for middle-income families. And the political impact on Democrats could be even greater. The very unhappy minority tends to shift its votes more than the mildly happy majority does.

The fate of the mandate and public plan proposals could determine what happens to health reform. And if Democrats rely too much on the Massachusetts mandates-only model, it could lead to a less effective plan and create a political minefield for their party. That's the heart of the battle currently being waged in Washington.

_______________________________

¹"Would you agree," McCain asked, "that executives of firms receive more lavish health benefits than their employees?" I'm pretty sure that's wrong. I know what he's trying to do - tap into populist outrage and turn it against health reform - but when I worked in the health benefits world this sort of favoritism was very rare. Employers were especially concerned about the tax and discriminatory implications. Benefit consultants: Has that changed, or is Sen. McCain way off-base here?

²That's a rough calculation: Assume $2 trillion in annual expenditures, two-thirds of which is private-sector insurance. Take 30% of that, remove 15% for profit margins, and multiply by ten (since policymakers love those big ten-year numbers). Result: $594 billion.

³Figures vary, but most people agree that roughly 20% of the uninsured were excluded by design. As of June 2008, which are the last figures I've seen, significantly more than that had not yet received coverage.

 

RJ Eskow blogs when he can at:

A Night Light
The Sentinel Effect: Healthcare Blog

Comments

[oneherenow]

Private health insurance companies and gambling casinos both make money from the size of their handle. Double the amount bet at a roulette table and the house doubles it's take in the long run. Double the cost of health care and the actuaries will adjust premiums up to increase their profits accordingly.

There is no systemic incentive for private health insurance companies to work towards long term containment of health care costs. And perversely, these private health insurance companies have a strategy, forbidden to the casinos by law, for squeezing out even more profits once their premiums have been set for any given year, through underpayment, late payment, and routine denial of claims.

If the choice is a "socialized" public health insurance plan (similar to medicare) versus a "financialized" private insurance system prioritized on profits for the stockholders, I'll take the one that doesn't make me sick to my stomach when i think about how it really works.

[tiotom77]

I can't see what's so wrong with American Health Care. We have the BEST doctors and nurses, the BEST hospitals and equipment and the BEST research. What we need is Health Insurance Reform.
Imagine you have a car with a flat tire. Most people would replace the tire. President Obama wants to replace the entire car.
It's a lot simpler than it seems

[PlaceboStudman]

Amen! Someone sees the light. Well, sort of. Not only does the car have a flat tire, it is also running on diesel, which does damage to the car in the long run. The car is fine. It may be a porsche some people are driving. But, that car has some dents, dings, and needs a tune up. We need to improve the quality of care that we receive, reduce costs for everyone, and make sure that what we receive for the price we pay is worth the price.

Essentially, what we need to do is put the insurance companies through the same, but perhaps much more strict cost/benefit analysis program that they give us. That is what this comparative thing is going to be, But I fear it won't be stringent enough to be effective.

We need to also put pressure on government to reform the FDA to reduce the number of medications we are offered that end up causing more damage than good in the long run because their approval system is so low quality. We need to make drugs legal to reduce on pharmaceutical fraud, where a patient steals an RX pad to write his own illegal prescriptions, then goes out and sells them for profit, or uses them to feed their own addiction.

There should be many many levels if we really want health care reform, and insurance reform is only one level of that reform that is necessary

[research]

I wish we had the best. Not even close.

http://www.photius.com/rankings/healthranks.html

[RoloTomassi]

You are undoubtedly living in an ignorance vacuum....

[JBCinSD]

The most intelligent, comprehensive plan I've read was published in 2008 in a paperback, Healthcare, Guaranteed by Dr. Ezekiel Emanuel and Victor Fuchs. It is a good mix of public and private, covers everyone, rolls in all new enrollees of Medicare, pays for itself and allows free choices to the patient.

If you're interested in real healthcare reform, I highly recommend this book. Now is the moment to come as close as possible to getting it right.

[PlaceboStudman]

Unfortunately NONE of this, not one single word means one iota to a lot of people, who are not being given a voice. This whole debate is a sham, and will remain a sham until we have a real intelligent discussion about how to improve the quality of care we receive, at whatever the cost, whomever provides it.

Why pay anything at all to government or private providers, when the product they give us, in the medicine and technology we receive are substandard and often do more damage than good to those who depend on these medication and treatments for our very survival.

[research]

I guess we should ban all non-profits, since they may make it harder for profit taking corporations.

A governmnet backed, non-profit single payer, WILL probably wipe out nearly all of the private insurance companies. I feel real bad for the buggy whip makers too.

[SelenicMagick]

Whip makers found a different market for their wares.