05/04/2009 05:12 am ET Updated May 25, 2011

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:

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