Republican Health Care Reform: Destruction or Refinement?

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With the (surprising) election of Donald Trump as America’s next president I’ve been asked by quite a few folks what this might mean for the Patient Protection and Affordable Care Act, especially as it relates to individual health insurance. It’s been over seven months since I posted anything in this blog (been busy launching a couple of companies), but I thought I’d use this space to provide my perspective on the answer.

For the impatient among you, that answer is: either a complete disaster or some modest fixes that actually improve the ACA. Dramatic, but non-lethal changes, are unlikely.

As for the details: Mr. Trump’s call to repeal and replace the ACA was core to his campaign. His official health care reform platform promised to:

  1. Repeal Obamacare in its entirety.
  2. Permit the sale of health insurance across state lines.
  3. Allow individuals to fully deduct their health insurance premiums.
  4. Promote Health Savings Accounts.
  5. Require all health care providers to publish their pricing.
  6. Provide block-grants to states for Medicaid expenses.
  7. Remove barriers that delay the introduction of new drugs.

Some of these ideas, such as promoting HSAs and increasing pricing transparency, have merit. Some, like enabling carriers to sell across state lines, are nonsensical for several reasons I described in a February LinkedIn post. None, however, offer much solace to the 20+ million consumers in danger of losing their individual coverage if the ACA is repealed. Mr. Trump and his Republican allies in Congress will need to do more.

I hesitate to predict how Mr. Trump will lead as president. He seems to be  a “big picture guy” who leaves details to others. So let’s assume he lets Congress take the lead on repeal and replace. In December 2015, Republicans in Congress passed legislation aimed at gutting the ACA. President Barack Obama vetoed the bill, but its major provisions are instructive:

  1. Repeal the federal government’s authority to run health care exchanges.
  2. Eliminate premium subsidies available to individuals purchasing through the exchange.
  3. Eliminate penalties on individuals for not buying coverage and employers who failed to offer their worker’s health insurance.

Combined with Mr. Trump’s campaign promises, these elements of the Republicans’ repeal and replace legislation, give a glimpse to the starting point of GOP-style health care reform. Add House Speaker Paul Ryan’s call earlier this year for high-risk pools and the hazy outlines of a possible reform package begins to emerge.

Given Mr. Trump’s commitment to start the repeal and replace process on the first day of his administration and Senate Majority Leader Mitch McConnell’s statement yesterday that getting rid of the ACA was “pretty high on our agenda,” health care reform is coming — and soon.

Whether the result will be an outright, actual repeal of President Obama’s signature legislative accomplishment is no sure thing. Supporters of the ACA are already vowing to defend the law. And while Republicans will hold majorities in both chambers of the new Congress, they are a long way from having 60 votes in the Senate. And that’s problematic.

Senate filibuster rules require 60 votes to cut-off debate and allow legislation to come to a vote. This means the most powerful person in Washington on health care reform may not be President Trump, Speaker Ryan, or Senator McConnell, but the Senator needed for that all important 60th vote. Yes, the first through 59th supporters are important, but their support means little if a 60th vote is not found. As a result, the 60th Senator can have a tremendous impact on the final language in the bill simply by offering (implicitly or explicitly) a favorable vote in exchange for whatever is important to that Senator.

In 2017, the 60th Senator for repeal and replace will be a Democrat. A Republican is expected to win Louisiana’s run-off election giving the GOP a 52 seat majority in the upper chamber. Assuming Republicans vote as a block — something they’ve become quite adept at in the past eight years — eight Democratic votes will be needed to end a filibuster. The requests of each of the first seven will need to be considered and addressed, but it’s the demands of the eighth Senator, that 60th vote, that ultimately matters. Unless …

The Senate can temporarily eliminate the possibility of a filibuster against a bill under the rules of budget reconciliation. However, reconciliation bills must address the federal budget; a vague definition that Congress has interpreted with varying strictness throughout the years. Clearly, eliminating funding for exchanges, taxes, and monetary penalties impact the budget. Much of the ACA, however, doesn’t. For example, requiring carriers to issue individual policies to all applicants regardless of their health conditions (what’s called “guarantee issue”) has no impact on the budget.

This creates a dangerous, even apocryphal, situation. Just one example: Republicans use the reconciliation process to eliminate penalties paid by consumers who fail to purchase health insurance, but not the guarantee issue requirement. Under this situation, few consumers — especially young, healthy consumers — will likely obtain coverage until they get sick or injured. This adverse selection would be cataclysmic and few, if any carriers, would want to participate in such a market. After all, insurers are in the business of spreading risk across a broad population. Guarantee issue without an obligation to buy coverage guarantees a concentration of risk across a narrow population.

President Trump can significantly impact the Affordable Care Act through Executive Orders, but the risk is the same as a partial repeal through legislation. The ACA is a multi-faceted construct with interlocking pieces. The wrong changes can cause devastating unintended consequences.

Republicans in Congress and President Trump may not care. The ACA has taken on nearly mythic proportions as the symbol of all that is evil with the liberal, big government side of politics. However, doing so would not only be irresponsible, it would risk the wrath of millions of voters tossed out of the individual market. Those votes matter. Keep in mind, Donald Trump’s election was close. He lost the popular vote. His leads in Wisconsin and Michigan add up to a combined total of less than 40,000 (as of today).

Yet failing to repeal Obamacare after making it so central to their 2016 campaigns could be a political disaster as well. Republicans jumped on replace and repeal in 2010 and over the past six years this position helped deliver durable GOP majorities in both houses of Congress. Many in their ranks may not care about the consequences of dismantling the law.

Assuming a desire to address health care reform in a responsible way will require the help of at least eight Senate Democrats. Fortunately for Republicans, ten Democrats have an incentive to responsibly neutralize the ACA issue in 2017. All are up for election in 2018 and hail from red or nearly red states.

  • Senator Tammy Baldwin of Wisconsin
  • Senator Bob Casey, Jr. of  Pennsylvania
  • Senator Joe Donnelly of Indiana
  • Senator Heidi Heitkamp of North Dakota
  • Senator Tim Kaine of Virginia
  • Senator Angus King of Maine (officially an Independent, but he caucuses with Democrats)
  • Senator Joe Manchin of West Virginia (and arguably the most conservative Democrat in the Senate)
  • Senator Claire McCaskill of Missouri.
  • Senator Debbie Stabenow of Michigan
  • Senator Jon Tester of Montana

The important question, then, is not what Republicans want to replace the ACA with, but what will it take to get enough of these Senators to come along? A task that could be extremely difficult if new Senate Minority Leader, Charles Schumer, doesn’t make it politically impossible for many of these Senators to break ranks.

Republican then have two choices:1) go nuclear and gut the ACA through the reconciliation process, but keep in place market reforms like guarantee issue; or 2) pass something palatable to eight Democrats, but which they sell as “repeal” to their base. Clearly the first option is irresponsible, but these are not necessarily responsible times. Nuking the ACA will appeal to many in the party, both in Congress and in their districts.

The more responsible choice, repealing the ACA in name only, makes the law more palatable and workable. This last point is critical: once they repeal and replace the ACA, the GOP will own health care reform. It darn well better be clear by say, October 2018, that the new system is working.

Which result — destruction or refinement — is most likely? We’re in a new and wacky world. We’ll find out soon enough.

Health Care Reform Makes It Clear: Howard Dean is No Ted Kennedy

Dr. Howard Dean was governor of Vermont for 12 years. He was a front runner briefly during the 2004 presidential campaign. He became chair of the Democratic National Committee. And now he is demonstrating why he failed for Governor and why Democrat are better off having him as the “former” chair of their party.

As Democrats in the Senate struggle to cobble together a super-majority in support of health care reform, Governor Dean is busy throwing bricks into the room. Upset that the legislation likely to emerge from the Senate will contain neither a government-run health plan nor the ability for 55-to-64 year olds to buy-in to Medicare, Governor Dean is urging defeat of the bill. The reason, according to a report by the Associated Press, the Senate health care reform bill is “an insurance company’s dream.” Which is malarkey. I don’t know any insurance carriers happy with the direction of health care reform in Washington. As the AP reports White House spokesman Robert Gibbs putting it, “If this is an insurance company’s dream, I don’t think the insurance companies have gotten the memo.”

Governor Dean asserts that “You will be forced to buy insurance. If you don’t you’ll pay a fine.” True enough, although in the Senate bill the fine is $750, far less than the cost of coverage. Then he goes on to assert that insurance companies would not be prohibited from denying coverage for preexisting conditions. And that older Americans would pay more than their younger neighbors for coverage.

Let’s look at the substance of the Governor’s complaints. Does he seriously believe that whatever health care reform bill emerges from Congress will allow health insurance companies to deny applicants for coverage? If so, he’s the only pundit in the country who does. Even Republicans support guarantee issue of health insurance coverage.

As for older people paying more for coverage than younger people, he’s right. Both legislation passed by the House and being considered in the Senate allow carriers some flexibility in setting rates by age. But both bills substantially reduce the differential that exists today. In California, for example, a 64 year old can expect to pay six times more than a 19 year old for the same coverage. (Anthem Blue Cross offers a $3500 deductible PPO that costs a single 19 year old in Los Angeles $110 per month and his 64 year old neighbor $664 a month). Under the legislation being considered in the Senate, the ratio would could be no more than 3-to-1. The House bill limits the differential to 2-to-1. Governor Dean never complained about this premium spread before. Now that the public option is likely to be cut from the Senate bill, a 3-to-1 limit on premiums becomes a decisive factor for him?

Governor Dean’s attack on the Senate bill is a loud reminder of how much Senator Edward Kennedy is missed in Washington. Senator Kennedy was as liberal, if not more liberal, than Governor Dean. The difference is that Senator Kennedy accomplished a great many things on the national stage. Governor Dean has accomplished nothing nationally. Senator Kennedy was successful in large part because he recognized the need to seize progress when and where he could. He knew there would be future opportunities. Even more importantly, he understood that, in broad terms, America becomes more progressive over time. Consider: it wasn’t that long ago that the fight was over whether the government should provide a medical safety net for older citizens. Republicans called Medicare socialism. Now they defend the program.

There’s a lot in the current health care reform bill I don’t like. There’s a lot about the status quo I don’t like either. What is infuriating about Governor Dean’s attack on the bill is that it is as nonsensical as those of the right. His “insurance company dream” is to the left what former-Governor Sarah Palin’s “death panels” are to the right – ideology masquerading as dire warnings.

Liberals in Congress will probably come around to supporting what they consider a watered down, insufficient health care reform bill. Liberals outside of Congress, like the former Governor from Vermont, will call on them to defeat the bill and start over. Underlying their logic is apparantly the belief that it’s possible to pass an even more liberal Congress.

What liberals like Governor Dean need to realize is that moderate Senators like Ben Nelson and Blanche Lincoln are just a part of the party as liberals like Senators Jay Rockefeller and Charles Schumer. I suppose Governor Dean could recruit liberals to run for the Senate in Nebraska, Arkansas, Indiana, Louisiana and other states from which moderate Democrats hail. There’s only one problem. Liberals don’t get elected to the Senate from those states. Not in 2010.

Members of Congress understand the need for compromise. They may not like it, but they accept that their less-than-liberal colleagues represent their constituencies. Those on the sidelines have the freedom to ignore such realities and to throw bricks with abandon. These ideologues won’t solve many problems, but I guess the brick throwing makes them feel better.

Senator Kennedy understood the need to work with those less liberal than himself, to keep issues alive by passing significant reforms that may not be all he wanted to achieve, but laid the groundwork for future efforts. Governor Dean is blind to this approach. But then, Howard Dean is no Ted Kennedy. Never was. Never will be.

Senate Likely to Move Forward with Health Care Reform Absent a Public Option

Liberal Democratic Senators appear to be sliding down a slippery slope, but one that will likely move health care reform to a conference committee.

In the beginning was a robust public option: a government-run health care program to compete with private carriers that would pay doctors, hospitals and other providers a small percentage above Medicare’s reimbursement levels (which for many services are below those medical providers’ actual cost). Moderate and conservative Democrats balked, claiming a public option paying Medicare-like rates would decimate the private market.

So liberal Democrats offered a compromise: the public health insurance plan would negotiate with medical providers as private carriers do. Never mind that this approach undermines the rationale for a public option – driving down health care costs. At least it preserved a government-run plan. Still no love. Moderate and conservative Democrats balked, claiming the government-plan would still have an unfair competitive advantage in the market, driving private health plans out of business.

So a group of Senators negotiated another health care reform compromise. The Gang of 10 (five liberals and five moderates) proposed turning to the Office of Personnel Management to administer a health care program involving private carriers in a manner modeled after the Federal Employee Health Benefit Plan (which is the program that covers members of Congress). They also proposed allowing individuals 55 through 64 to buy into the Medicare program. At first the Gang of 10’s compromise seemed to have some wind at its back. But Senator Joe Lieberman announced his opposition to the Medicare buy-in concept (a proposal he previously had supported). And on Monday, after a caucus of Democratic Senators concluded, the party’s leadership in the chamber all but announced the Gang of 10’s compromise proposal was off the table. Which means liberals face an uncomfortable choice: see health care reform fail or remove the public option and push legislation through the Senate – then hope they can improve it in the conference committee.

While this result was far from certain, it isn’t much of surprise either. The fate of health care reform has long been in the hands of moderate and conservative Democratic Senators. Republicans have been united and vocal in their opposition. Announcing early in the debate that they could never support any health care reform plan that contained provisions core to the Democratic platform is not a high percentage approach to being invited to negotiate on the legislation. So their 40 votes have long been off the table. That meant that the discussion would take place exclusively among the 58 Democrats and the two Independent Senators who caucus with them.

And that’s what’s happening. And that’s why the Senate is likely to pass a health care reform bill before Christmas leaving it up to a House-Senate conference committee to come up with the final version of the reform bill. Liberals won’t be happy with the process. There will be a lot of complaining by their supporters that Democrats are failing to deliver on meaningful reform. But the reality is that moderates like Senators Tom Carper and Blanche Lincoln are as much a part of the Democratic party as Senators Jay Rockefeller and Charles Schumer. Whatever emerges from Congress will need to be acceptable to all Democrats. not just the most liberal. Or the loudest.

What all this also means is that the real work of drafting comprehensive health care reform legislation is about to get underway. It’s been a long strange trip, but that’s American politics in 2009 – and 2010, too.

New Elements Added to Health Care Reform Debate

I haven’t been writing much of late. The Senate debate has simply been too predictable to merit much comment. The partisan attacks could have been scripted months ago. The votes unsurprising, and the difficulty Democratic Leaders face in fashioning a 60-vote majority is to be expected.

Consider: Republicans charge the Democrats will destroy Medicare. The fact that not long ago it was the GOP wanting to eliminate waste and abuse from the program seems to be forgotten. Democrats, meanwhile, seem incapable of understanding the relationship between medical costs and insurance costs. Listening to their claims that cracking down on evil insurance companies will lower health care spending is disappointing. It would be nice if now and then a Senator would acknowledge that medical costs drives up premiums and not vice versa – a wish not likely to be realized any time soon.  I heard on the radio last week (sorry, not sure what station) a lawmaker complaining that health insurance companies use actuaries, an unfair advantage they wield to the detriment of consumers.

But in the past few days some ideas seem to be gaining traction that could mix things up considerably. One proposal is to allow 55 through 64 year olds to buy into Medicare. The Washington Post’s Ezra Klein seems to be the first blogger to report the Medicare buy-in proposal is “attracting the most interest” as an alternative to creating a new government-run health plan to compete with private carriers. The under 65 cohort would not get basic Medicare coverage for free nor does it look like this approach includes subsidies not already on the table. It simply is a way to create access for some Americans to a public health plan without creating a new public health plan. And as with the public option, participation by 55 year olds would be voluntary.

That the idea of a Medicare buy-in option is gaining traction would seem to indicate that chances for a “true public option” are diminishing. Even liberal bloggers like AntonRobb at Benzinga.com are reaching this conclusion. “… proponents of the public option may be compelled to get behind this plan as an alternative. The severeley (sic) comprised … versions of the public option that have any chance of passing … would probably be worthless and probably do more damage politically to the Dems than good,” he writes.

The other interesting idea to emerge is to, as CBS News describes it, “establish national health insurance options, which would be administered by the Office of Personnel Management (OPM) but operated by private, nonprofit insurers ….” Since the OPM already administers the Federal Employees Health Benefit Program (FEHBP), which insures members of Congress and their staffs among others, this alternative to a public option is being viewed as the equivalent of opening up the FEHBP to non-government workers. (Incidentally, although the CBS reports implies the plans would be administered only by nonprofit carriers, this is far from certain. None of the other news reports mentioned this restriction – and there are for-profit carriers participating in the FEHBP.)

The “what’s good for Congress is good for the public” approach seems to appeal to moderate and conservative Democrats who have been objecting to the creation of a new government-run health plan run by the Department of Health and Human Services. As CBS notes, Senators like Ben Nelson describes this proposal as an alternative to, not a version of, a public option.

The import of these proposals go beyond the fact that new ideas are on the table. It also shows the influence likely to be wielded by the “gang of 10” Senators formed over the weekend. These 10 Senators, five liberals and five moderates, are charged with hammering out a compromise on the public option, according to MSNBC. While focused on the public option, it is likely this group of lawmakers will be called on to bridge the chasm that separates liberal Democratic Senators from their moderate and conservative colleagues. Remember, liberals have long claimed that health care reform without a public option is no reform at all. So if the gang of 10 manages to find a way to remove a government-run health plan from the legislation while still keeping liberals on board, they will position themselves to fashion compromises on other divisive issues as well.

(For those interested, the gang of 10 is comprised of Senators Sherrod Brown, Russ Feingold, Tom Harkin, Jay Rockefeller, and Charles Schumer from the liberal wing of the party and moderate Democratic Senators Tom Carper, Mary Landrieu, Blanche Lincoln, Ben Nelson and Mark Pryor).

As noted above, the momentum building behind the Medicare buy-in and an FEHBP-type proposal is that the public option is not going to make it into the Senate bill. Not with a trigger. Not with an opt-out. Instead it appears the public option won’t be in the legislation at all. This should mollify Senator Joe Lieberman who has promised to vote with Republicans against bringing a health care reform bill to the floor if it contains a public option.

All of this also makes clear the strong desire of Democrats, regardless of their ideology, to pass health care reform. The New York Times reports on various lawmakers’ description of President Barack Obama’s message to Senate Democrats on Sunday. “He reminded us why we are here. He reminded us why we run for office. And he reminded us how many people are counting on us to come through.” “Decades from now this will be the kind of vote you remember. It will be written in the faces of children and families who are relieved of the burden of anxiety and sorrow.”

Democrats consider this a historic moment. While grasping it carries political risk in the upcoming 2010 elections, failing to seize the opportunity poses even greater dangers. And the crushing of a dream many of these lawmakers have held for decades.

There are still controversies that could scuttle health care reform. And there will enough political charges and counter-charges bandied about to satiate even the most verbose pundits. But Senators are serious about finding a path to passage and it is increasingly likely they will pass some version of health care reform before years-end. Of course, this will only set the stage for the real work to begin: the House-Senate Conference Committee likely to convene shortly after New Year’s Day.

Senate Finance Committee Rejects Government-run Health Insurance Plan

The Senate Finance Committee continues to refine its health care reform legislation. Today it broke ranks with other Congressional committees with jurisdiction over health care reform by defeating amendments to create a government-run health plan. The debate was passionate, but ultimately enough Democrats joined with Republican Senators to defeat two attempts by the panel’s more liberal members to insert public option language into the bill.

Keeping the public option out of the bill was a major victory for Senator Max Baucus, chair of the Finance Committee. While acknowledging that a public option would “hold insurance companies’ feet to the fire,” his opposition was based on the goal of enacting health care reform this year. According to ABC News Senator Baucus believes health care reform including a government-run program cannot pass the Senate.

Senator Jay Rockefeller insisted, however, that a public health insurance plan was absolutely essential to meaningful reform. Failure to to create a public, non-profit plan to compete with private carriers, the Associated Press reports the West Virginia Democrat as saying, “was a virtual invitation to insurance companies to continue placing profits over people, and he predicted they would raise their premiums substantially once the legislation went into effect.”

Senator Baucus countered that the legislation being developed by the Senate Finance Committee includes numerous consumer protections, including a provision to prevent insurance companies denying coverage based on pre-existing conditions. None of the lawmakers on either side of the aisle spent much effort in defending the behavior of private insurance companies. Senator Baucus said he agreed with the intent of the Rockefeller Amendment to “hold the insurance industry’s feet to the fire,” according to the Washington Post. The Associated Press quotes Senator Jim Bunning as observing that “the private sector is not doing exactly what it should do with medical services.”

Republican members of the committee were unanimous in their opposition to public options. The Washington Post quotes the ranking GOP member of the panel, Senator Charles Grassley, as warning that a government plan “will ultimately force private insurers out of business” and that “The government is not a fair competitor. It’s a predator.”

The first public option amendment, offered by Senator Rockefeller, would have permitted the government-run plan to set reimbursements to medical providers at levels paid by Medicare for the first two years. (After that period, I believe the Senators proposal would have permitted the public medical plan to, like Medicare, impose rates on providers). It should be noted, Medicare often pays doctors and hospitals less than the cost they incur providing services. The five Democrats joining with Republican committee members to defeat this amendment were Senators Baucus, Thomas Carper, Kent Conrad, Blanche Lincoln, and Bill Nelson.

Senator Charles Schumer then proposed an amendment that would have required the public plan to negotiate reimbursement rates with providers, much as private carriers do today. Three Democrats – Senators Baucus, Conrad and Lincoln – voted against accepting this amendment.

I’ve maintained for some time that a government-run health plan was unlikely to be part the health care reform plan passed by Congress. The Senate Finance Committee’s rejection of this provision increases the likelihood of this outcome, but the debate will continue. Senator Schumer, for one, pledged to continue the fight. 

"’The present system is broken’" the Washington Post reports him as saying. “He said he was pushing for a public option not for ideological or symbolic reasons but because ‘costs are going through the roof.’ And he expressed confidence that, ‘with some work and some compromise,’  proponents of the provision eventually could get 60 votes on the Senate floor. ‘We are going to get at this, and at this, and at this, until we succeed, because we believe in it so strongly.’"

With polls showing 65 percent of the public support a government-run health plan operating like Medicare to compete with private health insurance plans, President Barack Obama continuing to argue for a public option, and Speaker Nancy Pelosi claiming the House was unlikely the House would pass health care reform that did not include a public option, this debate is far from over. Assuming the Senate Finance Committee moves forward a reform package this week, the next step will be for it to be integrated into the bill passed by the Senate Health, Education and Pensions Committee – legislation that does include a public option.

Getting health care reform is a long hike. Today’s vote in the Senate Finance Committee is a step along the way – albeit a very significant step indeed.

A Public Health Plan and Competition

The purpose of a public plan, according to its advocates, is to assure a competitive marketplace. The result will be lower costs, they argue, because a government-run health plan will keep private carriers honest.

Senator Charles Schumer, speaking at a rally sponsored by Health Care for America Now!, put it this way, “A public health insurance option is critical to ensure the greatest amount of choice possible for consumers. We believe that it is fully possible to create a public health insurance plan that delivers all the benefit of increased competition without relying on unfair, built in advantages.”

If  a public plan is to provide competition, the question is: what does a competitive market look like? Is it three carriers slugging it out? Six? Ten? A report by the folks at Health Care for America Now! says the “U.S. Justice Department considers a market ‘highly concentrated’ if one company holds more than a 42 percent share of that market.”  But “highly concentrated” does not automatically result in anti-trust objections by the federal government. It’s a factor, but it’s not a determinative factor.

Competition is lacking in some states. The Government Accountability Office has tried to determine the competitive landscape in the small group market (not an easy task given differing definitions and variations in reporting methodologies). In a letter to several Senators on the subject of “Private Health Insurance: 2008 Survey Results on Number and Market Share of Carriers in the Small Group Health Insurance Market” the GAO reported that while there were, on average, 27 licensed carriers in a state, the median market share of the largest carrier was about 47 percent. Further it found that the combined market share of the five largest carriers in a market was 75 percent or greater in at least 34 states and was over 90 percent in 23 of these states (only 39 states provide sufficient information to determine the market share of its top five plans, so the actual number of states in these categories could be higher). The lowest combined percentage of market share held by the five largest carriers was 56 percent in Wisconsin according to the GAO.

The disparity among the states was substantial. The GAO study found that in Arizona the largest carrier has a market share of about 21 percent; in Alabama the leading carrier controlled 96 percent of the small group market. Even the most ardent capitalist should admit that Alabama is not a competitive market

The American Medical Association does. They publish competitive information on the commercial health-insurance market. I was unable  to find a description of the methodology to use this determination, and the AMA study includes large businesses, unlike the GAO study that focused on small groups). The AMA study found a paucity of competition. As reported by Business Week, the AMA claims that “in 15 states one insurer has 50% or more of the entire market.”  In a somewhat confusing statement, Business Week, reports the AMA as claiming that “out of 314 metropolitan markets, 94% are controlled by one or two companies, or fewer.” (I’m not sure what’s fewer than “one or two companies” — what does a half company look like? )

The AMA concludes that this means there’s no competition among health carriers, a somewhat predictable determination given their relationship with the carrier community. “These findings, coupled with higher insurance premiums, higher profits, lower scope of benefits and high barriers to entry, leads to the conclusion that health insurers are exercising market power in many parts of the country.”

Thus, claim public plan proponents, arises the need for government-run health insurance plan. But will the mere presence of a public plan increase competition. In Alabama, the answer is no doubt “yes.” With one small group carrier enjoying 90 percent market share the entry of a new player would certainly bring greater competition. In Wisconsin, where five carriers split 56 of the market and the largest carrier has a 32 percent market share, a public plan would be just one more choice among many.

The problem with the “public plan ensures competition” argument, in my view, is that it applies a national solution to regional problems. In some states and regions more competition is needed. In others where four or five carriers are already slugging it out, the public plan — if it competes on a level-playing field as lawmakers promise — contributes little.

Some government-run medical plan advocates claim the difference will be that a public plan will lack the profit motive of existing carriers. But there are already non-profit competitors in the small group market. In California, two of the top four competitors are non-profits. The addition of another is unlikely to change much.

It is true that premiums have skyrocketed in recent years. The Business Week article notes that, according to the Kaiser Family Foundation has found that health insurance premiums have increased 120 percent in the past 10 years. General inflation increased by 44 percent during that period. The AMA concludes this is the result of anti-competitive actions taken by carriers.

Another likely reason, as pointed out in the article, is that hospitals and other health care providers have commensurate power. “A 2006 study found that one or two hospitals controlled the market in 88% of the nation’s large metropolitan areas.” It goes on to quote Karen Davis, president of the Commonwealth Fund, as saying “’You’ve got a dominant insurer up against a dominant health-care provider … That just doesn’t work out well for lowering costs.’”

What this suggests is the most effective way for a public plan to lower medical costs is to impose MediCare-type pricing on doctors and hospitals. This, however, would violate the pledge of lawmakers to maintain a level-playing field between the public plan and private carriers.

Why this matters is that MediCare pays less than the actual cost of many medical services. Hospitals and doctors shift this shortfall to commercial carriers. If the government-run health plan did the same the cost shift would be brutal, driving many of those carriers out of the market — not because they couldn’t compete on a level playing field, but because the playing field was not level.

The messy legislative process is moving toward a solution that addresses the competition issue without incurring the consequence of additional government coverage cost shifting. The consensus is Congress is moving toward the idea of regional health insurance co-operatives (albeit not without loud cries of anger from liberal and other supporters of a government plan). An advantage of co-ops is that they can more easily address disparities in competition across the country as opposed to a national health plan that would treat the country as a whole. Based on the GAO report, for example, one might expect co-ops to do well in Alabama, but have a much tougher time getting established in Wisconsin where the need for them appears to be less.

The debate over a public insurance plan would be more straightforward if it focused on the real issue: should the government offer coverage at lower prices resulting from imposing reimbursement fee schedules on doctors and hospitals. That’s unlikely to happen, however. When it comes to health care reform the public trusts doctors and hospitals and they don’t trust insurance companies. Consequently, ignoring the fact that a lack of competition among carriers is a local, not a national, problem is good politics. But it makes for an awkward public policy debate.

Senator Conrad’s Public Health Plan Compromise

For many Democrats, the benefits of a government-run health plan competing with private carriers in the individual and small group health insurance markets is simple: provide more choice to consumers and keep health insurance companies honest. Republicans and some moderate Democrats see the idea as the first giant step toward a government takeover of health care coverage fearing that a public plan would have an unfair advantage that would soon drive private carriers out of business. Both sides are gearing up for a tough and bruising battle over the issue. There will be many differences that will be hard to bridge during the health care reform debate. Whether the government should participate in the health insurance marketplace is, for now at least, the leading candidate to derail comprehensive reform.

Senate Kent Conrad, a Democrat from North Dakota, is seeking to prevent that from happening. According to the Associated Press, Senator Conrad is floating a compromise that would allow residents and small businesses in an area to crate non-profit health care cooperatives to offer health insurance. The idea is designed to appeal to Democrats based on the assumption that the co-ops would increase consumer choice and keep carriers honest. Because the co-ops would need to be self-supporting (the only government funding would be seed money designed to get them up and running) they would not have the unfair advantage against private health plans Republicans (and the insurance industry) fear.

The idea is getting a warm reception on Capital Hill. Senator Max Baucus, Chair of the Senate Finance Committee, said “the idea could be key to a bipartisan health bill,” according to the Associated Press. The AP quoted the ranking Republican on the Senate Finance Committee, Senator Charles Grassley, as saying “It’s got possibilities.”

Details concerning Senator Conrad’s compromise still need to be worked out. As those details emerge the proposal may serve as common ground for lawmakers working toward a bipartisan reform package. But those details have to satisfy some wary legislators. Reuters, for example, notes Senator Grassley’s insistence that “”any federal money used to set up what likely would be state and regional health cooperatives would have to be in the form of loans and that the government should have no role in their operation.” Meanwhile CNN describes the initial concern of Democratic Senator Charles Schumer that “co-ops might struggle to compete with big health-insurance companies and therefore would not help drive down costs.” However, Senator Schumer also said “he would see if they could craft a workable plan.”

Similar cooperatives have been set up to provide electrical services in rural areas. Would the concept would nationally for health insurance? That’s uncertain. Would health insurance co-ops serve the needs of Democrats without fulfilling the fears of Republicans?  Also uncertain.

In getting both sides to consider a middle way, however, Senator Conrad has made an important contribution to the health care reform effort.

27 Senators Call for Public Health Insurance Plan

Twentyseven Democratic Senators have signed onto a “sense of the Senate” resolution demanding that a government-run health plan be included in whatever health care reform bill emerges from Congress. Staking out the liberal position for what will be one of the most controversial elements of this year’s health care reform debate, the Senators define a public health insurance option as “essential to reform” according to a report on Politico.com.

Of course, there are government-run plans and then there are government-run plans. As Politico reports, Senator Max Baucus, chair of the Senate Finance Committee, has said that while he expects any comprehensive health care reform legislation emerging from his committee to include a public plan this shouldn’t frighten opponents. “There are says to skin a cat. There are ways to find a solution,” the site quotes him as saying. One option under consideration, for example, is a “‘fallback’ plan, which would trigger a public insurance option if private competition proves inadequate in a geographic region.”

Most Republicans and many moderate Democrats have said they would oppose a health care reform bill if it includes a government-run health plan to compete with private carriers. Whether they would accept the idea of such a plan as a “fallback” is unknown.

Among those co-sponsoring the resolution are several important players in the health care reform debate. For example, Senator Edward Kennedy chairs the Senate Health, Education, Labor and Pensions Committee which will, along with the Senate Finance Committee, is drafting health care reform legislation. And Senators Dick Durbin and Charles Schumer are members of the Democrat’s leadership team in the Senate. Missing from the list are any members of the Moderate Dems Working Group — 18 Democrats (including one independent) who may seek to block inclusion of a government-run plan in health care reform legislation.

The 27 Senators listed by Politico as co-sponsoring the sense of the Senate resolution are:
Jeff Bingaman (D-N.M.)
Barbara Boxer (D-Calif.),
Sherrod Brown (D-Ohio)
Roland W. Burris (D-Ill.)
Benjamin Cardin (D-Md.).
Bob Casey (D-Pa.)
Chris Dodd (D-Conn.)
Dick Durbin (D-Ill.)
Kirsten Gillibrand (D-N.Y.)
Tom Harkin (D-Iowa),
Daniel K. Inouye (D-Hawaii)
Ted Kaufman (D-Del.)
Edward Kennedy (D-Mass.)
Frank R. Lautenberg (D-N.J.)
Patrick Leahy (D-Vt.)
Carl Levin (D-Mich.)
Claire McCaskill (D-Mo.)
Robert Menendez (D-N.J.)
Jeff Merkley (D-Ore.)
Barbara A. Mikulski (D-Md.)
Jack Reed (D-R.I.)
Bernie Sanders (I-Vt. – an independent, Senator Sanders caucuses with Democrats)
Charles E. Schumer (D-N.Y.)
Jeanne Shaheen (D-N.H.)
Debbie Stabenow (D-Mich.)
Tom Udall (D-N.M.)
Sheldon Whitehouse (D-R.I.)

Compromise on Public Health Plan Not Easy to Find

If Congress is to enact comprehensive health care reform on anything approaching a bi-partisan basis, Democrats are either going to have to jettison their calls for creating a public health care plan to compete with private insurers or fashion a compromise that makes such a government-run plan acceptable. This won’t be easy.

Last week, 17 Senators  signed a letter to Senate Finance Committee Chair Max Baucus and Health, Education, Labor and Pensions Committee Chair Edward Kennedy insisting that a public health plan needed to be a part of any health care reform package.  The 16 Democrats and one independent argued that “There is no reason to believe that private insurers alone will meet the public purpose of ensuring coverage for all Americans at affordable prices for taxpayers.” According to The Hill, the originator of the letter, Senator Sherrod Brown, told reporters that “A public plan option ‘would provide competition to the sometimes dysfunctional private insurance market.'”

Seventeen Senators is a significant block of votes, especially when they’re expressing the position of the Obama Administration as well. Yet Republicans are, thus far, united in their opposition to a government-run plan.  And not all Democrats are sold on the idea, either. The New York Times counts Democratic Senators Ben Nelson and Arlen Specter as among those expressing “reservations about a public plan.” If these and other moderate Senators object to the public plan, their liberal colleagues will be faced with the need to either give in on the issue or give up on comprehensive health care reform.

Thus the search for common ground.

The New York Times reports Senator Charles Schumer is attempting to do just that. The article  is indispensible reading as Senator Schumer’s was asked to search for a compromise by Finance Chair Baucus. Senator Schumer identified four principles that might make a public health insurance plan acceptable to moderates:

  • “The public plan must be self-sustaining. It should pay claims with money raised from premiums and co-payments. It should not receive tax revenue or appropriations from the government.
  • “The public plan should pay doctors and hospitals more than what Medicare pays. Medicare rates, set by law and regulation, are often lower than what private insurers pay.
  • “The government should not compel doctors and hospitals to participate in a public plan just because they participate in Medicare.
  • “To prevent the government from serving as both “player and umpire,” the officials who manage a public plan should be different from those who regulate the insurance market.”

This approach was echoed, with less specificity, during testimony before the House Ways and Means Committee by the new Secretary of Health and Human Services, Kathleen Sabelius. According to The Wall Street Journal, she told a Congressional  Committee, “What I can assure is that it can be done as a level playing field.” The key, she went on to say, is how the program is set up. “It is about the rules that are established at the beginning.”

But there’s the rub. The rules in the beginning are not necessarily those that apply long term. California had a government managed health plan competing with private carriers in the small group market not all that long ago. The Health Insurance Plan of California (HIPC) was created by AB 1672 as part of a comprehensive small group health care reform package. The HIPC operated under many of the prinicples put forward by Senator Schumer. Ultimately the HIPC, which was spun off from the government and became the PacAdvantage, failed.

Yet almost immediately after it’s creation, legislators from both sides of the aisle put forward proposals to buttress the plan by giving it special status. Government, regardless of the party in charge, when seeking to build new programs, tends to look to existing programs as a foundation. Which means the level playing field promised by Secretary Sabelius may not last long. The principles enunciated by Senator Schumer may not last. As with any public program, once a government run health plan is in place, the rules that apply can be changed at any time. And someone is likely to try.

This doesn’t mean the search for a compromise shouldn’t continue, but  it highlights the difficulty involved. Unless the restrictions on the public plan aimed at preventing it from gaining an unfair advantage in the market are strong and long lasting, any compromise will simply be a milestone on an inevitable journey.