Public Health Plan Key to Health Care Reform Compromise

President Barack Obama came to Washington promising a new era of politics where pragmatism trumped partisanship and the search for common ground was more than a prelude to a political rumble. Health care reform will be his opportunity to deliver. Specifically, it will be interesting to see if the Administration is willing to accept meaningful health care reform that does not include the creation of a public health plan to make government sponsored health care coverage available to all Americans.

Whether there should be a government-run health plan to compete with private carriers, even if only in the individual and small group market segments, is shaping up to be the most controversial element of the health care reform debate. Many Democrats and progressives see it as a critical tool for controllingcosts and for maintaining a balance of power between consumers and insurance giants. Many Republicans and conservatives see it as the first step toward a single-payer system. Each side has made clear that they are implacable on this issue.

Except for the Obama Administration. Maybe. It has already indicated a willingness to negotiate how such a public health plan would operate. However, there’s been no sign the President would negotiate away his campaign promise to make available to all Americans health insurance at least as good as members of Congress receive through a government program if that’s what it would take to pass an overall reform package.

Part of the problem is that the President is trying to have it both ways: introduce a government-run health care plan while preserving the private, employer-based system. Today, government-run health plans shift costs to private carriers. No one seriously denies this reality. By setting Medicare and Medicaid reimbursements rates low (sometimes lower than providers actual costs) doctors and hospitals are forced to increase their charges to privately insured patients. This results in higher private insurance premiums. A government-offered alternative to private coverage for all Americans would, in theory, work the same way. As more costs shifted to the private carriers the price differential would increase resulting in more consumers moving to the public plan. Eventually, the public plan would be the only viable alternative in the market.

In suggesting the Administration was open to a compromise on how the public health plan would operate, the Associated Press reported Director of the White House Office on Health Reform, Nancy-Ann DeParle, as suggesting that “the public plan pays hospitals and doctors rates similar to what private insurers pay. That would address fears that government would use its muscle to pay rock-bottom prices for medical services, allowing the public plan to charge discounted premiums that private insurers couldn’t compete with”.

But if they are going to have a cost structure comparable to the private market, why bother? If a goal is to control medical costs, how can a public plan not use it’s clout to negotiate lower charges from providers? Is a government official going to go before the press and say “We could bring down the cost of health care, but we choose not to?” 

If the public health plan is setting reimbursement plans at the same level as private carriers it’s not contributing to cost containment, which is the most powerful rationale for creating a public health plan in the first place. Yet if it creates a public health plan that does impose lower costs, it will eventually drive private carriers out of the market.

It’s too early in the process for President Obama to negotiate away creation of a public health plan. But it may be a compromise he’ll be forced to make, in which case the sooner he cuts the deal the more valuable the bargaining chip will be.  The reason for this calculation is that President Obama may lack the political clout to push through Congress health care reform that includes a government-run health plan competing with private carriers. The political reality is that Republicans are adamantly opposed to the idea and Democrats are not unified on the issue.

Democrats will soon have a (theoretically) filibuster-proof 60-seat majority in the Senate with Pennsylvania Senator Arelen Spector switching parties to become a Democrat, the likely seating — eventually — of Al Franken as a Senat0r from Minnesota, and with two independents caucusing with them. Yet 15 of those Democrats and one of the independents have formed a moderate caucus that has raised questions about the cost of the Administration’s health care reform package and about a government program. Senator Specter is likely to join this group. With 17 votes they would hold the balance of power on key elements of the reform package. If advocates of a public health plan try to ram the idea through Congress without any Republican votes, it may find it lacks the necessary Democratic votes as well.

Then again, they may. President Obama is an adept politician. He may be able to swing enough moderates into support of a government-run health plan. While this certainty remains, the idea of a government-run plan could be the key to achieving a compromise on the overall health care reform package. Assuming Republicans and moderate Democrats are willing to negotiate. If they’re not, the Obama Administration should simply try to get everything it’s seeking rammed through Congress, giving ground on nothing. But if all sides are truly interested in reaching a consensus, the public health plan element is among the most valuable bargaining chips President Obama holds. 

By making clear — at the right time — what he would want in exchange for leaving out the government-run plan, President Obama will be able to gauge how serious Republicans and moderate Democrats are in compromise. And learning that information, in and of itself,  is worth the offer.

Reconciliation Puts Health Care Reform on Fast Track and GOP in Bind

Democrats in Congress are going to pass a budget resolution soon and, at President Barack Obama’s request, it will include reconciliation protection for health care reform. This undermines the ability of Republicans to block provisions in whatever bill emerges and would allow Congress to send legislation to the president’s desk without any Republican support.

Reconciliation protection is not new. Republicans used it when they controlled Congress over Democratic outcries of injustice. Now that the Democrats are in the majority the script remains the same, just the roles have been exchanged. The purpose of all this is to prevent the minority party using a filibuster to block legislation.

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A quick social studies refresher: It takes 51 votes to pass legislation in the Senate. However, any Senator can mount a filibuster which prevents the Senate from voting on a measure (movie buffs may remember Jimmy Stewart mounting a one-man filibuster in Mr. Smith Goes to Washington).  It takes 60 Senators shut down a filibuster by voting for “cloture“. 

Reconciliation protection means filibusters are not allowed. Democrats (and the Independents who caucus withthem) now number 58 Senators (with a 59th, Al Franken, on the way from Minnesotta). Consequently,  Democrats need only hold on to 50 votes to pass health care reform legislation. Vice President Joe Biden would be happy to provide the 51st vote. Not a single Republican vote would be needed.

And now back to our regularly scheduled post:

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Imposing a majority vote on legislation as controversial as health care reform is not common in Washington, but it has precedent. The cable news chatterboxes and talk radio will be spewing sound and fury over the injustice of it all, but that’s mostly partisan political posturing. Politics, after all, is the art of getting things done. Exploiting (or, if you’re in favor of what’s happening, “merely invoking”) the rules to achieve a goal is very much an American tradition.

Nor does reconcilliation mean Republicans will be excluded from the health care reform debate. The culture of the Senate promotes vigorous debate.  As evidence: leading Senators are referring to the expedited process as a tool of last resort. The Los Angeles Times, for example, reports Finance Committee Chair Senator Max Baucusas expressing the hope that Democrats can work with Republicans to pass health care reform.

The reason is that Democrats like Senator Baucus want to pass long lasting reform. They recognize that pendulums swing — even political ones. Indeed, given the political environment of the past few years it’s hard to see how long Democrats can sustain their large majorities in the House and Senate. Pragmatic leaders want to find common ground so the new health care system they create can withstand changes in the political tide.  “If we don’t use reconciliation, we are going to have a much more sustainable result,” the LA Times reports Senator Baucus as saying. “When we jam something down someone’s throat, it’s not sustainable.”

Republicans aren’t buying it. They claim reconciliation means health care reform will not be subject to vigorous debate. That’s not likely. The Democrats are simply not unified enough to ram something this controversial through the Senate. Instead, a group of 16 moderate Democrats in the Senate will assure that multiple perspectives are heard. And like many Republicans they’ve expressed concern about the cost of reform and the expanded government role in health care coverage being sought by many Democrats. Without the support of at least half this group, the Senate Leadership can’t move a bill forward even on a majority vote. 

Reconciliation will prevent a filibuster, not debate. That debate will be loud and vigorous. It also, however, greatly increases the likelihood that there will be a vote on health care reform, most likely by the Fall. Which puts the GOP in a bit of a dilemma.

Republicans can remain on the sidelines of the debate leaving Democrats to shape the reform legislation and inherit the blame (or credit) of whatever is signed into law. Either way, however, the GOP is marginalized and their brand as the party of “No” is solidified. Not a politically pleasant outcome.

Instead, Republicans can engage in the debate, put forward alternatives and work hard to find common ground with moderate Democrats to force some of their provisions into the final legislative packkage. Compromise, however, means they’d need to accept some provisions they strongly dislike. Further, Democrats will get the lion share of the credit for finally addressing health care reform.

Worse for Republicans, accepting any significant compromise could put them at odds with their base — and the Rush Limbaugh’s of their world who speak for that base and who apparently cannot be opposed. It’s not clear the substantive gains Republican Senators could obtain by working with moderate Democrats is worth the resulting political pain.

Unless the moderate Democrats prevent it, healthcare reform is coming, probably in the Fall. Reconciliation protection will see to that. The loss of a filibuster does not, in and of itself, mean there will be no debate. Nor does it make Republicans irrelevent to fashioning comprehensive reform.

Reconiliation cannot make Republicans irrelevant. Only Republicans can make Republicans irrelevent.

Hybrid Health Care System: The Search for Common Ground

As the debate intensifies over the wisdom of including a publicly financed health plan to compete with private carriers serving the individual and small group market, it’s only natural that a search for a compromise intensifies, too. As noted in previous posts, Professor Uwe Reinhardt has promised to unveil a proposal that would enable a public health plan to compete with private offerings without destroying them.  And President Barack Obama’s Director of the White House Office for Health Reform, Nancy-Ann DeParle, has expressed confidence compromise is possible.

One place they’ll be looking to for examples is the experience states have in running government financed plans in competition with private carriers in coverage programs offered to state workers. For example, last month Lee Nichols and John Bertko of the New America Foundation examined what could be learned from these state programs in a policy paper entitled “A Modest Proposal for a Competing Public Health Plan.” The authors consider the polarized debate on the topic of a public health plan unnecessary. “It is possible to structure a new insurance marketplace so that public and private health plans compete on a level playing field,” they claim.

Examining state employee programs like California’s Cal-PERS, Mr. Nichols and Mr. Bertko conclude that the solution is to separate “oversight of the public plan from that of the managers of the marketplace or exchange(s). It will also require that all rules of the marketplace – benefit package requirements, insurance regulations, and risk adjustment processes — apply to all plans equally, whether public or private.” They also call for a system-wide approach to containing medical costs and warn against “relying heavily on the public plan’s potential market power” to bring down those costs.

The New America Foundation report does a good job of summarizing the positions of those in favor and opposed to creating government-run health plans. For that reason alone it’s worth reason. But the paper is also noteworthy for being among the first to offer a solution that, while not wholly satisfactory to partisans on either side of the issue, at least proves that common ground is possible.

Their emphasis on the need for a level playing field between the private and public health plans is especially critical. And the hardest to assure. Even if a program starts off with good intentions, over time the temptation to tweak the system in order to favor the government program could become overwhelming for lawmakers. If how Congress and the Pentagon deal with defense contracts is any indication, it won’t be long before a public health plan becomes a political toy for lawmakers to play with.

I have other concerns about the report. For example, like many others, the authors treat state employee health plans as fair equivalencies of the individual and small group market. But that’s a questionable assumption. The general public is far more diverse, dispersed and expensive to reach than state employees. There’s a reason why carriers who excel at serving large group clients flounder when they enter the small group or individual marketplace. It’s not just that the dynamics and challenges of the two segments differ, but so do the needs and expectations of the insureds.

Comprehensive health care reform is too complicated, controversial and complex for the partisans to harden their positions this early. There are going to be a host of issues to work through; creation of a hybrid system is merely one of them. By putting forward a compromise solution, instead of simply taking sides in the debate,  Mr. Nichols, Mr. Bertko and the New America Foundation have made a valuable contribution to the health care reform process. Assuming, of course, that the partisans on either side of the issue are able to consider compromise in the din of the debate.

Obama Search for a Public Health Plan Compromise a Good Omen

One of the most contentious issues in the current health care reform effort wending its way through Washington, D.C. concerns whether the government should offer a health plan in competition with private carriers. To oversimplify the controversy: supporters argue it will help bring prices down and keep private insurers honest while opponents argue it will unfairly compete, driving private health plans out of business. Both sides are preparing for a no-holds barred fight over the issue. (For more on this topic, please see earlier posts here and here).

The Associated Press is reporting today that President Barack Obama will be seeking a compromise on the issue. The Associated Press describes Nancy-Ann DeParle, director of the White House Office of Health Reform, as stating that “a public plan could be designed to address concerns about the federal government overreaching in its role.” One example given by Ms. DeParle is that “a public plan could pay hospitals and doctors rates that are similar to what private insurers pay — addressing fears that government would use its powers to dictate low rates that private plans can’t compete against.”

Because the government plan could be operated without the need to make a profit and would have lower administrative costs, Ms. DeParle argues such an arrangement could still work to lower the cost of health care coverage. However, there are already non-profits in the health care system. Many Blue Cross Blue Shield plans are non-profit and so is Kaiser Permanente. The Obama administration will need to demonstrate that they will be more non-profit than the other non-profits.

Whether the government can run a health plan more efficiently than private enterprise (whether for-profit or non-profit) has yet to be seen. That didn’t seem to be the case with California’s experiment, the Health Insurance Plan of California. And since government programs tend to look at distribution costs for savings, putting the focus on reducing administration costs doesn’t necessarily bode well for health insurance agents. Whether these savings are real or a mirage will be the topic of much debate. Agents will have a chance to argue their value to the system and statistics of all kinds will be plentiful. But the good news is that there will be a debate.

It’s still early in the debate. What I take away from Ms. DeParle’s comments is that the Obama Administration is aware of the dangers posed by a government-run competitor and are open to a constructive dialogue on the issue. That’s a hopeful sign. In a previous administration (one that rhymes with “Clinton”) there was little talk of compromise. The Obama Administration’s approach doesn’t guarantee common ground will be found, but it’s willingness to try to find it is as significant as it is welcome.

Both Edges of Public Health Insurance Are Sharp

One of the more devisive issues emerging in the current health care reform debate concerns whether or not a government-run plan should compete with private carriers for individual and small group customers. President Barack Obama and Democrats in Congress have spoken forcefully in favor of this approach. Republicans have argued just as strongly against it. The role of government — should it be solely a regulator or serve as both regulator and competitor — is high on the list of issues most likely to frustrate a bipartisan solution.

I’ve written previously about the dangers of the hybrid approach, how it is likely to lead to a tilted playing field that benefits the public entry to the detriment and potential destruction of private offerings. But there are other points of view, several of them. For example, Princeton Professor Uwe Reinhardt, posting on the New York Time’s Economix articulates several reasons why the public might embrace a government competitor.

Professor Reinhardt notes that recent behavior by private health insurers has shaken public confidence in the industry. He also cites the double whammy of families facing lay0ffs in the current economic downturn and, as a result of our current employer-centric system, losing their subsidized coverage at the same time.

The long-term confidence elderly Americans have put in government-run Medicare plans, even over those of competing private health plans offering richer benefits.

But his strongest arguments in favor of a “Medicare for all,” public insurance program is its ability to beat down rising health care costs. “The providers of health care and health care products, to whom ‘national health care spending’ represents ‘national health care incomes,’ fear the market power that a public health plan might bring to the demand (payment)side of the health sector,” he writes.

Using its buying power, Professor Reinhardt expresses hope the public plan “might significantly bend down the lush, currently projected, long-run growth path of America’s health spending .”  Of course, it’s driving down the cost for enrollees in the public program at the expense of those in private plans that is of great concern to those who want to maintain a competitive system.

It’s the two-edged nature of a hybrid system that is most troublesome — and dangerous. As many of those who have commented on my previous post note, the key to meaningful health care reform is to focus on bringing down costs. Well, as Professor Reinhardt points out, Medicare-for-all can do that. But if the price of that cost control is the destruction of private insurance, why not just turn to a single-payer system in the first place? Well, of course, there’s huge problems with that approach, too, including the danger of runaway taxes.

Is there a middle ground?  Professor Reinhardt claims that an “all-American compromise that could give most sides in this fray much (but not all) of what they ask for” is possible and he promises to outline that compromise in a future post. Until he or someone else does, the debate over which side of the sword we want to face as a nation will, rightfully, be front and center.

A Hybrid Health Care System: Good Politics; Unrealistic Policy

When it comes to topics as complex as health care reform, the legislative dance generally involves two steps.  The first focuses on educating decision makers. It’s a sincere effort to learn the facts, understand the options and identify the trade-offs. Yes, there’s a political element to this phase, but there’s more often a genuine desire to learn about the issue.

The second step in the dance is when the actual language is drafted. This is the phase in which partisanship dominates, where the goal is to win, not educate. Yes, compromises will emerge, and hopefully they’ll be informed by the educational phase that went before, but this is when decisions get made. Which means it’s when political muscle matters more than the ability to educate.

We’re still in the educational step — for now. But the step is coming soon and outlines of the political phase are becoming clear. As I’ve written before, one of the key issues will be whether there should be a government-run health plan competing with private carriers for consumer’s premium.   Proponents see this hybrid approach as a way to drive down costs while keeping private health plans honest. Opponents see it as a big step to government takeover of the health insurance industry.

The Lewin Group published a study today that bolsters the argument of opponents. Entitled “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options” the report attempts to quantify the impact a federal offering would have on private competitors (and on the income of providers). And that impact is substantial. The study assumes health plan offers coverage comparable to the Blue Cross Blue Shield Standard Option within the Federal Employee Health Benefit Plan (meeting President Barack Obama’s promise to offer all American’s access to the same coverage as members of Congress).  If this government competitor sets doctor and hospital reimbursement at the same level as is used by Medicare, the Lewin Group predicts over 131 million Americans would enroll — approximately 119 million of them shifting from private plans.

If the government alternative is made available only to individuals, the self-employed and small businesses the impact is significantly less, but still substantial.  The study estimates 42.9 million Americans would enroll in the government offering — 32 million of them moving from private plans.

While several factors were taken into account by the study’s authors, John Sheils and Randy Haught, the most impactful driver was cost. The theory is that the federal-plan would impose Medicare reimbursement rates on doctors, hospitals and other medical care providers. This gives the public plan a 30-to-40 percent premium advantage over comparable coverage offered by private carriers. The reason: as noted by in the study “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.” Indeed, this reimbursement rate covers “only between 92 percent and 95 percent of the cost of the services provided by the hospitals.” 

When it comes to doctors, the Medicare reimbursement rates are about 81 percent of that paid by private carriers.  The study assumes the public plan would have a further pricing advantage due to lower administrative costs resulting from there being no need to earn “insurer profit and insurance agent and broker commissions and fees.” But the big savings comes from the reduced claims costs.

Today, hospitals and other providers make up for the shortfall in revenue received for services to Medicare patients by increasing the fees charged to their insured patients. While this hidden tax raises the costs of premiums, it impacts on private carriers is somewhat equal. Since the Medicare population is distinct from the commercial market, the playing field remains level.

If the government were to step onto the field as a player, however, the dynamic changes. Now a competitor gains the pricing advantage — and that advantage would grow over time. As the public plan attracts more members, providers will see an increasingly negative impact on their income. The severity of the impact depends greatly on whether the public plan is open to all employers or only small businesses, the self-employed and individuals. If everyone has access to the public plan, the ability to shift costs to privately insured patients is greatly reduced. Under the latter scenario, providers could more than make up for the government’s underpayment by charging higher rates to large group insureds while also benefiting from a reduction in the number of uninsureds.

The likelihood, however, is that all Americans will have access to the public plan. President Obama has clearly linked health care reform to his economic recovery efforts. Large companies (think the auto firms) need the relief offered by the availability of a public plan — especially a public plan offering a 30-to-40 percent premium advantage.

The spiral would kick in rather quickly. As the public plan attracts more members, rates charged by private plans would go higher driving even more insureds to the government offering. Eventually, the only health plan standing would be the government’s.

Some might claim that the public plan would be unable — or unwilling — to use Medicare reimbursement rates. But why? The entire purpose of the government coverage is to drive down costs. Voluntarily paying providers more than Medicare would run counter to the governing agency’s mission.

There’s some caveats to this bleak scenario. It’s a good idea to be skeptical of all studies that estimate the future impact of unknown legislation. I’m not questioning the authors motivation or scientific rigor, but studies like this are, ultimately, educated guesses based on assumptions that may not come to pass and whose unintended consequences cannot, by definition, be anticipated.

Nonetheless, the study does raise the likelihood that the coming debate over whether there should be a public alternative available in the private market is the wrong topic. The Lewin Group Study underscores how difficult it will be for the government to maintain a level playing field while it competes on that field. And once the playing field begins to tilt in its favor, the result is inevitable: eventually the public plan will be the only player on the field.

So the debate is really whether Americans want a private health care system or a public system for all. There is no middle ground. The hybrid approach won’t last — eventually it will become a public system. So while the hybrid approach is attractive politically, it’s a false choice from a policy perspective.

There’s a legitimate debate to be had over whether the government should replace private carriers. That’s the debate lawmakers should have — especially while we’re still in the educational phase of the legislative dance. Calling for a mixed system sounds nice, but it’s not really an option. And health care reform is too important to debate fantasies.