Walgreens Free Health Clinic Visits a Sign of the Times

You can look at this story in several ways. Walgreens is offering free health clinic visits to unemployed and uninsured individuals. According to the Associated Press, individuals and their uninsured dependents who become unemployed and uninsured after March 31 will be able to receive free treatment at Walgreen’s in-store clinic, which operates under the Take Care brand name. The typical visit costs $59 or more. Take Care’s lab partner, Quest Diagnostics, is helping out by offering tests for strep throat and urinary tract infections at no cost.

How you interpret this says something about your health care reform biases. Some will see this as further proof that the private sector can fill in the cracks of the safety net. After all, Take Care clinics are a for-profit entity. The press their receiving for this program and the positive word-of-mouth they’ll be receiving. Additionally, since the Take Care program provides free services for treatment that might otherwise wind up in an emergency room or urgent care center, they may make some sales of their other services such as immunizations or makes additional over-the-counter drug sales. So what they’re doing is an example of a market-driven win-win: consumers get care; Walgreens gets more customers.

The other perspective is that this effort highlights the cracks in the system. Newly unempl0yed who don’t qualify for government medical assistance through Medicaid or the State Children’s Health Insurance Plan (SCHIP) are poorly served by today’s system. Without employer based coverage and unable to afford individual insurance, they must rely on a drug store for their health care. There’s something wrong with that picture.

My take: Walgreens is to be commended for reaching out a helping hand to those who need it, even if they’ll profit from the gesture. And universal, portable and affordable health care coverage is needed and needed soon. The current system works well for most Americans, but as a nation it’s our culture not to leave anyone behind. The lesson here isn’t that we need a government-run system, but that we need a more comprehensive, integrated and sensible system to assure basic health care coverage to all Americans.

Out-of-Network Scandal is a Good Thing

As they said in the 60s, “you’re either on the bus or off the bus.” Were Ken Kesey talking in a more modern medical context he might have said “you’re either in the network or out of the network.” And being out of the network can be costly.

Unlike HMOs, which are closed systems — your health plan covers treatment within their network or, with few exceptions,  doesn’t cover the service at all — PPOs are more open. You get a higher reimbursement for seeing providers within the health plan’s network or you get reduced coverage for services from non-network physicians. The benefits to all concerned are rather straightforward: the physicians and other providers offer the health plan lower rates in exchange for the health plan encouraging patients to see those providers. The health plan pays less so can offer their coverage at a lower cost, increasing their market share. Consumers pay less out-of-pocket when they use one of these preferred providers. Yet, if the consumer does seek medical care from a provider outside the network, the health plan pays a significant portion of the bill.

In theory, what the carrier pays for out-of-network services is a percentage of the usual, reasonable and customary (“UCR”) charges imposed by most providers in that community. That sounds fair: if a consumer chooses to engage a doctor who is more expensive than the norm, the consumer should pay for excess cost.

The problem is that few people know what the UCR cost is for any given treatment. Heck, physicians rarely know what the UCR is for their community for a particular service. When the carrier notifies the patient that their doctor charged more than what is typical it’s too late for the patient to do much about it. The result: angry patients, frustrated doctors and another deposit of ill-will in the industry’s karma account.

At the heart of the problem is defining “usual, reasonable and customary.” In the end, despite all the surveys and actuarial work, a high level of subjectivity is involved. How is it measured? Who determines if the costs are “reasonable” even if they are usual and customary. There’s a lot of wiggle room in the data base.

For years, the “decider,” as a past president would put it, for the nation’s largest health plans has been a company called Ingenix. Ingenix is owned by UnitedHealth Group, Inc., which also owns the health plan United HealthCare. Even though Ingenix is owned by a competitor, most of the major health plans in the country relied on its billing information for determining what out-of-network charges they would pay.

Not for long. New York Attorney General Andrew Cuomo went after Ingenix and UnitedHealth for manipulating reimbursement rates and defrauding consumers. As a result of Attorney General Cuomo’s actions, Ingenix will exit the billing database business and UnitedHealth will pay $50 million to help create a non-profit assigned to maintain a new, independent database.

While the New York legal action is no doubt painful to some carriers, most notably UnitedHealth, it could work to the industry’s benefit. It replaces a point of intense friction with an objective, common definition. It’s not that the definition of UCR put out by the non-profit won’t still be significantly subjective — it will be. But it will be the definition of the non-profit.  And it’s not that consumers won’t blame the health plans when they disagree with the non-profit’s definition of UCR — they will. But the carriers will be able to refer their members to the non-profit.

Given the low regard the industry is held in by the public, any action which stems that flow of ill will deposits is a good thing.

Of course, this being America, the path to better karma is not an easy one. The industry will first need to go through the political gauntlet of law suits and public hearings. Next in line: The Senate Commerce, Science and Transportation Committee.  It’s Chair, Senator Jay Rockefeller, is holding a hearing Tuesday in which executives from United HealthGroup and Ingenix will be the star witnesses. As reported by the Associated Press, Senator Rockefeller claims, UnitedHealth and Ingenix are “lowballing deliberately. They deliberately cut the numbers so the consumer as to pay more of the cost. … It’s scamming. It’s fraud.”

In that UnitedHealth has already paid $350 million to settle a suit on the matter brought by the American Medical Association, albeit without admitting guilt, the accusations are hardly surprising. And while UnitedHealth would like to put the UCR scandal behind them, there’s a script to these things and they tend to run through Washington. So this is just something they need to do. And it’s something they should do.

Because the UCR situation wasn’t fair to consumers. And if the industry needs to pay a price as part of fixing it, so be it. At the end of the day, there will be a more fair way of defining what out-of-network charges should be. And that’s a good thing for consumers, providers and health plans.

Health Care Reform: This Decade’s Crux

There’s a lot of moving parts when it comes to comprehensive health care reform. The goal is bring down the overall cost of care while increasing access to as close to universal as is possible. When you’re dealing with spending that amounts to $2.4 trillion, roughly 17 percent of the nation’s Gross Domestic Product, it can’t help be anything but complicated. (These figures are from the National Coalition Health Care’s web site). There’s so many moving parts involved and so many parties impacted by each proposal that it’s almost too much for any one person to grasp it all — assuming maintaining one’s sanity is a priority.

Fortunately the political process tends to winnow the complexity down to a few basic conflicts. Partly this is because many aspects of any reform proposal are noncontroversial (is there anyone who opposed promoting wellness?) In part it’s because the country’s 24-hour news organizations don’t handle complexity well. They next clear cut conflict to keep the commercials from running together. Pictures of Democrats and Republicans arm-in-arm singing the praises of cutting waste and fraud don’t garner viewers. Seeing them in a verbal cage match does.

One of the conflicts focused on during last decade’s health care reform debate was the creation of mandatory purchasing pools. The Clinton Administration proposed requiring all Americans to sign-up with these pools which would contract with private carriers to offer specified (meaning government determined) health plans.

Proponents of this “managed competition” approach argued it would lower costs, allow Americans to own their coverage without regard to their employment status, and force health plans to compete on efficiency and service. Opponents saw it as a government takeover of health insurance with HMO bureaucrats being supplanted by government bureaucrats in an effort to eliminate choice, increase government spending and eventually lead to a single payer system.

That was then. Now it appears the big fight will be over voluntary health exchanges. The idea here is that, if you’re happy with the health insurance you have, keep it. If you’re not, get your coverage from the exchange. That coverage, at least for now, is promised to be comparable to what members of Congress receive.

By having a horse in the race, so to speak, the government could assure a truly competitive market. Private carriers would be able to innovate and compete as they do now, but there’s be a new player on the field (to mix metaphors). That would prevent competition based on gaming the system and focus it on price, service, and meeting the needs of the public.

To advocates like former Vermont Governor and past Democratic National Committee Chair Howard Dean (who’s also a doctor) having a government alternative in the market is critical. According to Greg Sargent in his The Plum Line blog, Governor Dean is forming “Stand With Dr. Dean” to serve as a grass roots effort to push for inclusion of a public insurance option in whatever reform emerges in Washington. “We’re saying that if the public option is not included, it’s not real health care reform,” Sargent quotes a Dean-ally as saying.

At the same time, Republicans in Congress, most noticeably Senator Charles Grassley, the ranking GOP member on the Senate Finance Committee, is saying a government competitor in the market is unacceptable. As reported in the Wall Street Journal, opponents are concerned that if the government pool becomes too large, it will “drive down reimbursements to doctors and hospitals, much like Medicare does. To remain solvent those providers would need to increase the costs they charge private carriers forcing them to raise prices. Eventually this would force private carriers out of business, leaving only the government-run plan. In other words, creating a public plan creates a slippery slope leading to a single payer system.

Whether this scenario comes to fruition or not, there is a high likelihood that rules and regulations would emerge to benefit the public plan. To continue mashing sports analogies, when the umpire steps up to the plate, he’s rarely called out on strikes. Maintaining a level playing field could be impossible when one of the participants in the game is entrusted with setting and enforcing the rules. It’s worth noting that the Securities and Exchange Commission regulates stock markets, but it doesn’t sell stocks.

Whether or not there should be a voluntary federal health insurance exchange is an important issue, one of many important issues. It is rapidly becoming, however, one of the few defining issues of this decade’s health care reform debate. There will be others, but how this one is handled will say a great deal about the political process that will shape the ultimate health care reform package. If the debate over a public plan is civil and reasoned, it holds out hope for a compromise solution that takes into account multiple views. If a solution is rammed through Congress the hopes for bi-partisan health care reform will fade rapidly.

That’s the crux of the matter.

Health Care Reform is Coming, But it Won’t Be Easy

Personally, I think health care reform is inevitable. The need for change is simply too great. Too many people go without coverage, too many are insecure about the coverage they have. Controlling medical costs is a critical part of fixing the economy: businesses and state and local governments need relief. Political pressure for a solution — from across the ideological spectrum — has reached critical mass.

The reform process is well underway. President Barack Obama held a health care summit at the White House earlier this month. Several proposals are making the rounds. Senate Finance Committee Chair Max Baucus has one.  Senate Health, Education, Labor and Pensions Committee Chair Ted Kennedy and his staff have been actively meeting with stakeholders. Democratic Senator Ron Wyden and Republican Senator Bob Bennett have introduced the Health Americans Act, which is supported by several colleagues from both sides of the aisle. There’s the proposal put forward by President Obama during the campaign and embellished somewhat since his inauguration. Republicans have their plans and think tanks have theirs.

We’ve seen this before. In 1993 it looked like President Bill Clinton’s spent enormous political capital seeking health care reform. He failed. A recent Newsweek article by Katie Connolly outlined several reasons why the health care reform debate now is likely to be much different than the battles in 1993. The Clinton Administration failed in large part because their efforts were politically inept and inflexible. President Obama’s approach is much more open, inclusive and savvy.

Of course, at this stage we’re still dealing with generalities. The specifics, which is where the devil receives his mail, have yet to emerge.  When they do the hard part of the process begins. And that could be any week now.   The Washington Post’s Lori Montgomery and Ceci Connolly reported today that “House Democrats, in consultation with the White House, will give Republican lawmakers until September to reach a compromise on president Obama’s signature health-care initiative ….”  Currently, several committees in both houses of Congress are holding hearings on health care reform. These, however, are more educational in nature, allowing interested parties to provide input and begin staking out positions. With little legislation before them the hard negotiations have yet to begin. Those discussions will have to start sooner than later if Congress is to meet the House Leadership’s September deadline. Given the complexity of health care reform it will require months of negotiations to find common ground. 

Finding that common ground won’t be easy. Already Republican Leaders are identifying deal killers. A National Association of Health Underwriters’ newsletter quotes Senator Chuck Grassley, the ranking Republican on the Senate Finance Committee as identifying the Obama Administration’s call for a national health coverage exchange to compete with the private market as extremely problematic. The GOP won’t accept such a program, according to Senator Grassley, and Democrats are likely to insist on one. There may be a way to create an exchange that satisfies both parties, but that requires a lot more specifics than have emerged yet. 

(Note added 3/20/09 at 7:45 pm: the rift between Senator Grassley’s position and those favoring a government insurance plan is growing wider — and nastier. Carrie Budoff Brown, writing in Politico today, reports on “a four-day ad buy aimed at Iowa Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee who is increasingly vocal in his opposition to the government insurance option.” Health Care for America Now is leading the charge against Senator Grassley. At the White House Forum on Health Care the ranking Republican on the Senate Finance Committee told President Obama that such exchanges were “‘an unfair competitor’ and could run private insurers out of business,” according to the Politico story. The article also notes that Senator Wyden found no Republican Senators willing support his bipartisan legislation if it included a government run health plan. “From a raw political standpoint, having talked to a lot of senators, I wouldn’t have any Republicans on the Health Americans Act as cosponsors if we had a public option,” he told Politico.)

There is a way for Democrats to pass health care reform without Republican votes. If a compromise fails to emerge by September, the House Leadership is pushing for a legislative process that would allow passage with simple majorities in both chambers. This would be accomplished through a process called “budget reconciliation.” Under the reconciliation rules, filibusters are not permitted enabling the Senate to move legislation forward with a simple majority of 51 votes instead of the 60 needed to end a filibuster. Democrats currently hold 58 seats in the Senate (including those of two independents who caucus with them) with one more likely to arrive from Minnesota. (Filibusters don’t exist in the House, making passage by majority vote the norm in that chamber).

But Democrats may have a tough time pulling together even 51 votes in the Senate. Senator Evan Bayh announced on MSNBC on Wednesdaythat 16 moderates in the Senate (15 Democrats and one independent who caucuses with the party) have come together to provide a united, centrist voice to issues such as health care reform. As noted in the press release announcing the group’s formation, their goal is “to pursue pragmatic, fiscally sustainable policies across a range of issues, such as deficit containment, health care reform …” and others. With 16 members, this caucus, currently dubbed the “Moderate Dems Working Group” represents more than a quarter of the Democrats serving in the Senate. If even 10 0f these centrists stick together they’ll need to be a part of any deal struck on health care reform.  (A list of the 16 Senators in the group is below).

At the same time there are liberals in Congress who would just assume have government take over the health insurance industry and create a single payer system similar to that in place in Canada and many Western European countries. At the very least they look to a greater role for the government in providing health care coverage to middle class Americans (the government is already the primary insurer for older and low income citizens).  They won’t go quietly along with a solution they feel fails to assure universal and comprehensive  coverage.

What this means is that while health care reform is coming, getting there won’t be easy. But there is a way. President Obama has long talked of the need to focus on core principles and the desired outcome instead of on how we get there. He has even said that his campaign proposal for a federal health insurance exchange (the deal breaker identified by Senator Grassley) is negotiable. As noted in the Newsweek article, the president said at  the White House summit, “If all Americans could be insured at ‘an affordable rate and have choice of doctor, have flexibility in terms of their plans, and do that entirely through market, I’d be happy to do it that way.'”

This is the approach all lawmakers and interest groups — whether liberal, moderate and conservative — need to bring to the table. The health care reform debate will be heated, passionate and difficult. But if all participants focus on the goals, the means of getting there can be found.  Given the need, it better be.

***************

The 16 members of the Moderate Dems Working Group (who, hopefully, will work on coming up with a better name) are:

  • Evan Bayh (Indiana) – co-chair
  • Mark Begich (Alaska)
  • Michael Bennet (Colorado)
  • Tom Carper (Delaware) – co-chiar and a member of the Senate Finance Committee*
  • Kay Hagan (North Carolina) — a member of the Senate H.E.L.P. Committee*
  • Herb Kohl (Wisconsin)
  • Mary Landrieu (Louisiana)
  • Joe Lieberman (Connecticut)
  • Blanche Lincoln (Arkansas) – co-chair and a member of the Senate Finance Committee*
  • Clare McCaskill (Missouri)
  • Ben Nelson (Nebraska)
  • Bill Nelson (Florida) — a member of the Senate Finance Committee*
  • Mark Pryor (Arkansas)
  • Jeanne Shaheen (New Hampshire)
  • Mark Udall (Colorado)
  • Mark Warner (Virginia)

* The Senate Finance Committee and the Senate Health, Education, Labor, and Pensions (H.E.L.P.) Committee have primary jurisdiction over health care reform legislation.

Is Taxing Health Care Coverage on the Way?

Ideas percolate through the political process in interesting ways: editorials in authoritative publications, important speeches, and more recently, blogs.

For example, the Director of the Congressional Budget Office maintains a blog and it includes an entire section concerning “Health.” The CBO will have a great deal of influence on the health care reform debate. They will provide the benchmark analysis of whatever plans emerge. What they’re thinking matters and, presumably, what their Director is thinking is what the agency is thinking.

For example, former CBO Director, Peter Orzag, now the Director of the Office of Management and Budget, have long warned of the need to reign in health care costs. According to Jonathan Cohn, writing in the New Republic, Mr. Orzag was one of those within the Obama Administration pushing hard for addressing health care reform now, as opposed to later. Clearly what the budget folks think matter. To gain an insight into Mr. Orzag’s thinking, the CBO Director’s Blog is a good start.

The same holds true for the thinking of the CBO’s new director, Douglas Elmendorf. Consider his recent post concerning reigning in medical care costs. In it he notes that “a substantial share of our national spending on health care contributes little if anything to overall health.”  He calls for providing incentives to control costs and sharing of information concerning the effectiveness of treatment. Then he makes an interesting comment: “… the current unlimited tax exclusion for employment-based health insurance dampens incentives for costs control. Those incentives could be changed by restructuring the tax exclusion in ways that would encourage workers to join health plans with higher cost-sharing requirements and tighter management of benefits.”

This opens up a host of interesting worm-filled cans. During the presidential campaign, Republican Senator John McCain called for taxing the value of health care coverage (along with offsetting tax credits). The Democratic nominee, now President Barack Obama castigated the idea, calling it the biggest tax increase on the middle class in history. However, many in Congress of both parties are reviving the idea. OMB Director Orzag has indicated that all ideas, even taxing the value of health care coverage, needs to be on the table. Few other comments on the topic have been forthcoming from the Administration, but realistically, paying for the cost of universal coverage will require at least a strong look at this revenue option.

On the surface, this makes a lot of sense. The current system is regressive, meaning it is a better deal for the wealthy than for lower income Americans. The higher your tax bracket and the richer your benefits, the better the current system works for you. For example, a CEO earning $500,000 a year, paying an effective tax rate of 40 percent (state and local) and receiving health insurance benefits worth $10,000 per year. If the coverage was taxed, our hypothetical CEO would pay $4,000 in taxes. Instead, she gets a “gift” from the tax code of this amount. Working for this CEO is a clerk, earning $40,000 per year and paying 15 percent in taxes with the same coverage. If the value of health insurance was taxed the employee would pay $1,500 in taxes — his gift is less than half of the CEO’s.

You might think Democrats would be jumping all over this loophole. After all, they’re the party of progressive taxes. Instead, those few who are willing to raise the issue are demonstrating real political courage. Because unions, who contributed millions of dollars and armies of foot soldiers into the election of a Democratic Congress and President, are adamantly opposed to taxing benefits.

For decades, unions have negotiated rich health care benefits for their members in lieu of salary increases. Their members valued the coverage, which was received tax free. It was a reasonable trade-off for employers — they can deduct the cost of health insurance just as easily as they deduct the cost of salaries. Changing the rules of the game would, in essence, punish union members for doing what economists say everyone should do: pursue economic self-interest based on the rules of the game.

There are ways to mitigate the pain unions will feel if health insurance is taxed. As Mr. Elmendorf notes, the tax rules can be modified rather than eliminated so as to encourage consumers to choose cost effective plans. Or the value of union negotiated health benefits could be exempted from the tax for a transitional period, allowing unions and employers to negotiate new contracts under the new rules.

Health care reform is going to be expensive — covering all Americans will cost over $1 trillion. We’re already spending large sums to salvage the tattered economy (and, apparently, to enrich the AIG traders who helped get us into this mess). Yes, the government can print the dollars it needs, but that leads to another problem which goes by the name of  inflation.

If health care reform is going to be enacted in the next 12-to-18 months, which I think it will, the money for reform will need to be identified. My guess is taxing health care coverage will be one of those sources. It won’t be a straight repeal of the current exemption, it may be offset with subsidies and credits, some coverage may be grandfathered for awhile, but the tax is coming. 

Meaningful health care reform will change a lot of the rules we’re used to. This is just one of them.

Medical IT: Is Free Free Enough?

The health care investments contained in the recent economic stimulus bill could go a long way toward reducing medical costs — the number one priority if we’re to strengthen the U.S. health care system. By moving the provider community toward more widespread adoption of electronic records and other useful technologies, the stimulus package seeks to increase efficiency and reduce errors, both costly problems.

The government’s approach to encouraging adoption includes both carrots and sticks, the strongest carrot being the “free” technology. As others have found before, however, sometimes free isn’t free enough. That was WellPoint’s experience when it offered free PCs and prescription-customized PDAs to its network providers. The cost of changing behavior was too high to lead to widespread adoption.

That’s the concern of folks over at the web site Software Advice. As the name suggests, they’re a group that provides companies and consumers with advice on software, they match up buyers and vendors, and get a commission from the vendors (it’s free to the buyer). They’ve seen a lot of software installed and have concerns that the electronic health records aspect of the stimulus package could be headed for trouble. In a post by Austin Merritt the company warns that while moving to electronic records is a great goal, “the subsidies won’t change healthcare providers’ late adopter mindsets about information technology.”

I bring this up not to denigrate the IT skills of doctors and other providers. It’s to highlight the complexity of health care reform. President Barack Obama was absolutely correct to include push the provider community to adopt useful IT. Doing so will stimulate the economy, reduce costs in the health care system and save lives. But passing legislation is just the first step. The tough part comes in implementing the system. The real world reacts to new laws and regulations in unanticipated ways. The best and the brightest can’t out-think or out-plan the world. Reforms are needed, but they need to be thought through carefully. And in making change, its important not to destroy the existing support structures that make a system work.

Even when change is free, it’s not always free enough. That goes for health care IT, health insurance and most every other aspect of this complicated system. Legislate. But legislate with caution.

News Channels Fail to Explain Clinton Health Care Plan Failure

With President Barack Obama launching his health care reform initiative last week with a White House summit, the news programs have, not surprisingly, been recalling the last major push for change. For those who missed it, that was in 1993 and 1994. Then President Bill Clinton, who, like President Obama, had campaigned with a pledge to change America’s health system, assigned then First Lady Hillary Clinton to spearhead his Administration’s effort to provide affordable health care for all.

In recalling this recent history the news channels make it sound like the only reason the Clinton effort failed was the opposition of special interests. But for the insurance industry’s Harry and Louise ads, some greedy doctors and uncooperative Republicans, the Clinton Administration’s reforms would have breezed through Congress ushering in a golden era of health care. This is far from what happened.

Yes, special interests campaigned hard against the Clinton reforms, but they had a lot to work with. As I’ve written before, the Clinton effort failed in part because it was fashioned behind closed doors and in part because it wasn’t a very good proposal.  The task force that helped the First Lady draft the proposal excluded input from many in Congress and shunned many stakeholders. So when it emerged from the inner sanctum it  lacked broad buy-in. The take-it-or-leave-it attitude of many in the task force didn’t help matters.

What they proposed was both complex and elegant. They sought to enact “managed competition.”  This approach would have forced most Americans to drop their existing coverage and instead obtain insurance from government run “purchasing pools.” The carriers offering coverage through the pools would offer only plans designed by the managing government agency and would be expected to use their clout to negotiate deep discounts from health care providers. There was a lot more to it — a lot more — but those were two of the key provisions.

It wasn’t just special interests (which the news channels identify as insurance companies, the business community and some doctors) who thought it was a bad idea poorly executed. So did many Democrats in Congress and liberal think tanks. The Clinton health care reforms were attacked and even ridiculed by, well, most everyone who wasn’t on  the task force. It’s not that these critics didn’t recognize the need for reform. They just believed the Clinton package was bad reform. 

Any proposal seeking massive changes to a system as complex as America’s health care system is going to be controversial. It is also highly likely to be seriously flawed. The purpose of the legislative process is to allow interest groups (special and otherwise) to debate the plan’s details, to identify the flaws, and to the extent possible, fix them.

Given the numerous flaws in the Clinton Administration’s plan and the take-it-or-leave-it attitude of its proponents, Congress decided to leave it. Did special interests play a role? Certainly. (Full disclosure: I testified on behalf of health insurance agents against the Clinton plan  at three Congressional committees hearings in 1993). But to credit its defeat solely to those interests is to overstate their strength and to absolve the authors of too much guilt. They were the ones, after all, who put forward a poorly designed package with a striking lack of political skill. A better plan more ably presented might have passed in 1993. We never got the chance to find out.  

In oversimplifying history, reducing what happened to a tag team bout between Bill and Hillary on one side and Harry and Louise on the other, the news channels are doing the country a disservice. Yes, special interests from across the political spectrum will protect their special interests (that’s why they’re called special interests). But the Obama Administration’s health care reforms will stand or fall on their merits, just as the Clinton Administration’s did.

That’s the way it should be. And that’s the way it should be reported.

What if California Had Passed Health Care Reform?

California lawmakers recently passed a budget that, at least on paper, may, perhaps close the $42 billion shortfall the state faces in this and the next fiscal year. The budget was due before July 2008. So it was a bit less than eight months overdue. One of the methods required to close the gap was to reduce funding to some of the state’s neediest citizens.

Lawmakers inability to find a budget compromise in a timely fashion and in such a cruel fashion speaks volumes about a dangerous and dysfunctional political system. It brings into question whether California lawmakers can be trusted with something as critical to its citizens as the nature of its health care system, which would have happened had California enacted Assembly Bill X1-1 last year. Given the state’s current economic and political problems, what would have happened had health care reform passed in early 2009?

ABX1-1, you may recall, passed the Assembly, was supported by the Governor, but was defeated in the Senate early last year. A major reason for its demise was a Legislative Analyst’s Office Report on ABX1-1 that raised serious concerns about the state’s ability to implement the reform package within the $14 billion price tag touted by its supporters, primarily Governor Arnold Schwarzenegger. then Assembly Speaker Fabian Nunez and then President Pro Tem Don Perata. Using what it considered to be optimistic assumptions of the bill’s sponsors, the LAO concluded the plan would be running a deficit of $300 million. Using more conservative (and what the LAO called, more realistic assumptions), it estimated the health care plan would be running a deficit of $1.5 billion in it’s fifth year and have run up a cumulative deficit of $4 billion during it’s first half-decade of operation.

Supporters of the health care reform bill protested that the LAO report underestimated savings from fixing the state’s broken health care system. They relied on a study conducted by professor Jonathan Gruber of the Massachusetts Institute of Technology that demonstrated the reform package was a net financial plus for the state.

Yet the Gruber report made some questionable assumptions. The LAO report noted, for example, that the Gruber model “is not designed to estimate the effects of an economic slowdown on population responses” to the various elements of the reform.”  Translation:  if the economy tanks the Gruber analysis doesn’t work. That’s because, according to the LAO report, ABX1-1’s proponents assumed then current growth rates would continue over time. “For example, the cost of expanding Medi-Cal to adults was grown at the projected growth rate for current Medi-Cal expenses, while the wage-based employer fee was projected to grow at the projected growth rate for wages.”

But tank the economy did (and has). Time and again, the LAO report, delivered to the Legislature on January 22, 2008, warned against the danger of mis-predicting the future. “California is subject periodically to slowdowns in economic activity. During these times, unemployment often increases. This reduces the number of Californians with access to employer-provided healthcare. A recession similar to the one California experienced in the early 1990s could result in hundreds of thousands of Californians losing access to employer-provided health care, thereby increasing the costs for the [health care reform] plan.”

Statistics published by the California Economic Development Department puts this into context. In January 2008, when the LAO report was published, the state’s unemployment rate had been below six percent for three years, dipping below five percent in 2006. This compares to the state’s unemployment rate during the 1990s recession of more than nine percent during most of 1992 and 1993, peaking during several months at 9.9 percent. California’s current unemployment, at least during January 2009, was 10.1 percent. The worst case scenario the LAO warned against has arrived.

I don’t bring all this up to deny the need for substantial health care reform. For the state and national economies to recover sooner-than-later, substantial changes to the health care system are necessary. In times of economic dislocation like we are experiencing now, the human need for change in health care is especially acute and poignant. Unemployment is about more than data and statistics, it’s about neighbors and families in pain.

Nor am I raising this issue to gloat over the failure of ABX1-1. A number of the reforms contained in that legislation would have significantly improved California’s health care system.

These statistics, however, point to several truths:

  1. Predicting the future is hard, if not impossible. Any reform package has to make assumptions about the economic environment years from now. And most likely, those estimates will be wrong.
  2. Meaningful health care reform must come from the federal government — state’s simply aren’t equipped to deal with it. This isn’t to say there aren’t good ideas emerging from the states. But they lack the tools needed to deal with unexpected problems. As California has ably demonstrated, states do a poor job of facing economic challenges. They can’t deficit spend. The federal government has a tough time influencing the economy; states simply can’t.

Think about the budget drama of the past eight months. Now think about a health care structure upon which the state’s residents depends being subject to this horrendous display of chaos. It’s more than scary. It’s a nightmare that eventually California — or any state — will likely face if it tries to tackle the complex issues of comprehensive health care reform aimed at achieving anything close to universal coverage. Until states can print money, they will be incapable of shepherding their health systems through economic times like these.

America’s economy will recover. It’s only a matter of time and hard work. The nation’s health care system can be reformed into a truly American-style system that achieves universal — or nearly universal — coverage. It’s also a matter of time, hard work as well as of smart politics able to find common ground among competing factions. It won’t be easy, but it can be done.

No one during the debate over ABX1-1 could have anticipated what’s happened to the economy. The LAO warned against the potential, but even they did not declare this situation likely. Yet here we are. If ABX1-1 had passed the California fiscal crisis would be even worse than it is. And the state’s lawmakers would have been unable to face the challenge.