Countdown to the Real Work on Health Care Reform

With a commitment of 60 votes, Senate Majority Leader Harry Reid unveiled the manager’s mark of the Patient Protection and Affordable Care Act or, as it is better known, the Senate’s health care reform bill. After day long negotiations over abortion and other issues, Senator Ben Nelson agreed to vote in favor of bringing the bill to the Senate floor.

The manager’s mark of HR 3590 identifies the changes made to the  original Senate health care reform legislation (in other words, if you want to read the bill you have to read both the original and the most recent document). As has been widely reported, there are some provisions of the legislation specifically aimed at securing the support of Senator Ben Nelson of Nebraska. For example, the health care reform bill will increase state spending on Medicaid. The Senate bill reimburses states for this extra cost until 2017 at which time the federal matching funds are phased out. Except for Nebraska where the federal government would pay for Medicaid expansion forever. (Or, to be realistic, until Congress takes the subsidy away).

There’s a host of other provisions of interest. A government-run health plan is out of the bill, much to the frustration and dismay of liberals. Carriers would be required to maintain a medical loss ratio of 80 percent for small group and individual products while meeting a minimum 85 percent MLR for their large group block of business. Rating differences based on age would be limited to a 3-to-1 ratio. However, states could increase the minimum medical loss ratios or narrow the age-based rating difference. There’s new language concerning abortions, one of the inducements to get Senator Nelson’s vote, although this language is apparently not strong enough for anti-abortion Democrats in the House.

The Office of Personnel Management would create a copy of the Federal Employee Health Benefit Plan featuring private carriers. (It appears both for-profit and non-profit plans could participate in this new program, but I may be reading it wrong and only non-profits are permitted). There’s a host of preventive/wellness programs, pilot projects and other provisions aimed at addressing costs. And it would allow carriers meeting certain federal standards to offer coverage in other states through state exchanges.

(I received an email from a conservative broker blasting this provision as removing the ability for “the Citizens of a State having a say on State Laws and Mandates!” Which is pretty funny considering it’s at the center of Republican reform proposals, was a part of Senator John McCain’s health care reform platform when he ran for president, and is not much different than the Associated Health Plans advocated by conservatives for over a decade. Sometimes it seems to be less about the underlying public policy and more about who makes a proposal that drives the reaction.)

The bottom line is that Senator Reid did what he needed to do to cobble together 60 votes in the Senate. What, in the words of former Majority Leader Tom Daschle, is the equivalent of shoveling 60 frogs into a wheelbarrow.)  As a result, the Senate will pass health care reform.

And that’s when the fun begins. There are substantial differences between the House and Senate versions of health care reform. Perhaps Speaker Nancy Pelosi, recognizing the greater challenge Senator Reid has in rounding up votes, will instruct House negotiators to quickly adopt the Senate version of health care reform. This could result in a bill passing Congress in very early January.

More likely, however, House and Senate negotiators will struggle to refine the legislation. The result will be closer to the Senate version than what passed the House, but it would not be the same HR 3590 that will pass the Senate. This process will take significantly longer, perhaps most of January. While unlikely, the conference committee has the power to start with a blank piece of paper and write a brand new bill.

My guess is Speaker Pelosi will focus on a few key modifications to the Senate bill. So long as it doesn’t cause one of Senator Reid’s frogs to jump out of the wheelbarrow these will be accepted. The result will a relatively short conference committee leading to a final vote on health care reform by mid-January.

What’s significant is that the playoff season is almost over. The World Series (that would be the conference committee) is about to begin. Which means the real work of writing health care reform legislation is about to begin.

Added December 21, 2009: Memorandum from the Congressional Budget Office to Senator Harry Reid summarizing their analysis of the Patient Protection and Affordable Care Act and to a blog posting by CBO Director  Douglas Elmendorf concerning a correction to the calculation of federal reductions beyond 2019.

Obama Should Focus on Getting Health Care Reform Right, Not Fast

President Barack Obama, as expected, has launched a full-court press on health care reform. For the fourth day in a row he spoke out on the issue, his tone becoming increasingly impatient. He consistent message is for Congress to pass comprehensive health care reform passed in August, which is a shame. His passion should be focused on what reform Congress passes, not when.

President Obama’s passion for health care reform is sincere and clear. Fixing America’s health care system was central to his campaign. Reform is critical to his economic recovery strategy. As moderates and others question the cost and approach to reform, the President’s tolerance is wearing thin. Here’s how CBS News reported on a speech he gave in New Jersey yesterday: “We have finally reached a point when inaction is no longer an option," Obama said, his hoarse voice rising in volume and anger. "I will not defend the status quo." Obama brushed off his opponents as naysayers who expect a different outcome with the same-old approaches to a decades-old challenge. "It’s a path where our health care costs keep rising. … That’s not a future I accept," Obama told the friendly audience.

The ramp-up in rhetoric is tied to an increase in concern about the legislative proposals moving through Congress. Take the preliminary analysis of the health care reform package being considered in the House of Representatives by the Congressional Budget Office. (The analysis does an excellent job of summarizing that bill as well). In his blog, CBO Director Douglas Elmendorf described the findings: “enacting those provisions by themselves would result in a net increase in federal budget deficits of $1,042 billion over the 2010–2019 period. “ His office also estimates that it would reduce the number of uninsured in the country “by about 37 million, leaving about 17 million nonelderly residents uninsured (nearly half of whom would be unauthorized immigrants).” That would increase the number of Americans under the age of 65 with coverage to an impressive 97 percent. But that trillion dollar plus price tag is causing sticker shock in Washington, causing widespread hyperventilation among lawmakers and pundits. (It is important to emphasize that the CBO analysis was preliminary and did not take into account all of the provisions of the bill).

Then there were the meetings President Obama held with moderate Senators Republican Olympia Snowe and Democrat Ben Nelson – both of whom urged him to slow down the process and let negotiations take their course. Add to the mix a letter to Congressional Leaders signed by Senators Snowe and Nelson, along with Senators Susan Collins, Joe Lieberman, Mary Landriu, and Ron Wyden (two Republicans and four Democrats) asking for additional time to find a compromise on health care reform, and you can see why the White House is pushing hard to keep the August deadline alive.

But that’s the wrong focus. The President’s need for speed is a political one. The longer the debate goes on  the greater the possibility outside events or internal political fighting will derail the effort. Passing legislation as complicated and controversial as comprehensive health care reform requires momentum and a sense of urgency. The August deadline, especially in the context of legislation passed by Congressional Committees so far, create both.

Legislation as complicated and controversial as comprehensive health care reform also requires careful consideration and broad support. The careful consideration minimizes the unintended consequences that will surely result from changes of this nature. The broad support assures increases the odds of the new law being enacted smoothly and with a minimum of interference by a future Congress.

By calling those who want to delay passage of health care reform obstructionists implies that the President supports the versions currently before Congress. Yet when asked about specifics the President and his spokespeople note that the details need to be worked out by lawmakers and everything is still on the table. In other words, President Obama wants Congress to hurry up and pass something. He’s outlined what he’d like in it (a public plan, exchanges, a host of cost control measures) and what he doesn’t like (taxing high-end benefits), but he’s not pushing for any specific bill. He’s just pushing.

The problem with this approach is that the President is putting his political capital and prestige into play for a timeline, not a policy. If Congress fails to enact a bill by August the President will be seen as having lost, even if they return from their summer recess and pass a sound bill. Worse, from his point of view, he’s giving opponents another argument for voting against reform if it’s brought to a vote next month: that the process was rushed.

The President would be far better served politically to have the Senate Finance Committee continue to work toward bi-partisan health care reform even if it means pushing back passage of a bill by a couple of months. The nation would be far better off with this outcome, too. The resulting legislation would be more likely to make America’s health care system better, more efficient, more fair and more broadly accepted.

Arm twisting lawmakers into enacting health care reform by an arbitrary date is politics as usual. President Obama promised something different. He should keep that promise and focus on getting health care reform right, not just fast.

Health Care Reform 2009: More Required Reading

There’s a lot of moving pieces to the health care reform process currently underway in Washington, D.C. Politics, policy, and personal interest are all colliding as lawmakers and President Barack Obama Administration try to fix what everyone is calling America’s broken health care system. To put the debate in context it helps to know what the participants are thinking. To understand what they’re thinking it helps to know what their reading and writing.

Earlier this year I put forward a list of required reading for understanding the health care reform debate. Here’s the second installment of what will be a series of such posts. (Note: a third list of required health care reform reading was added August 2, 2009).

1. The Senate Finance Committee, chaired by Senator Max Baucus, will play a major role in determining the health care reform legislation that is likely to arrive on President Barack Obama’s desk this Autumn. And they are taking this role very seriously. The Committee has produced three policy option documents to facilitate their deliberations. The policy papers don’t describe what the Finance Committee will decide upon, but it does provide insight concerning what they will be deciding upon. The option papers are:

2. The Senate Finance Committee isn’t the only one in the upper house with jurisdiction over health care reform. The Senate Health, Education, Labor and Pensions Committee and its chair, Edward Kennedy, will have a great deal to say about the final legislative package as well. The Committee released an outline of its reform plan yesterday. I have yet to get my hands on that document, although I did find a Senate HELP Committee Briefing Paper dated May 21, 2009.  (When I get a copy of the most current outline I’ll post it here). In addition, as I’ve posted previously, Senator Kennedy recently described his vision for health care reform in some detail. The HELP Committee’s plan stakes out the most liberal, yet still politically realistic, proposals (meaning it doesn’t call for a single payer system). Whether Senator Kennedy expects to get much of what’s laid out in the outline into legislation is unknown. At the very least, by providing an anchor on the left his plan will help him keep the final product from moving what he would consider too far to the middle.

3. As members of Congress begin drafting legislation they will be paying close attention to the impact health care reform will have on the federal budget. The analysts they will turn to for answers work in the Congressional Budget Office.  The CBO recently published guidelines explaining how they will evaluate the budget impact of various proposals in the Budgetary Treatment of Proposals to Change the Nation’s Health Insurance System. An added bonus: the director of the CBO, Douglas Elmendorf, posts frequently to the Congressional Budget Office Director’s Blog, providing additional insight into the agency’s thinking.

4. The Emanuel family has hit the trifecta. Their youngest son is a major Hollywood agent. The middle son is a former Congressman and currently the White House Chief of Staff. Their oldest son is a doctor. Not just any doctor. He is the Chair of the Deparment of Bioethics at the Clinical Center of the National Institutes of Health (that must be one huge business card he’s got). But wait, there’s more. Earlier this year, Dr. Ezekiel Emanuel was named a special adviser to the director of the White House Office of Management and Budget for health policy. In other words, he’s pretty close to health care reform’s ground zero in the Obama White House.  (No slight intended of the Director of the White House Office on Health Reform, Nancy-Ann DeParle, who gets to sit on the actual bulls eye — see #5).  How Dr. Emanuel views reform, consequently, matters. He’s thought long and hard on the subject and, fortunately for inquiring minds, he’s written extensively on the topic, including the book Healthcare, Guaranteed: A Simple, Secure Solution for America. Other writings by Dr. Emanuel include a posting he made to The Huffington Post and another he co-wrote for the New America Foundation.

5. As noted in #4, Nancy-Ann Deparle’s is charged with coordinating President Obama’s health care reform efforts. It’s her job to keep the various players and issues in the debate from spinning out-of-control. Like a traffic cop, it’s up to her to keep things moving toward eventual passage of comprehensive legislation. It’s hard to find much on her personal health care reform positions (if anyone out there has links to her writings on the topic, please let me know).  In an April 2009 briefing for reporters sponsored by the Kaiser Family Foundation, Families USA and the National Federation of Independent Businesses, she did define what she means by a “public health plan.”  You can read a transcript or view a video of her presentation to the press on the Kaiser Family Foundation site

6. Everyone knows the key to health care reform is controlling medical costs. You can have all the market reforms Congress can dream up, but if medical inflation continues to outpace general inflation and wage growth at the rate it has been, it will cripple the economy. Even entrenched stakeholders recongize this reality, which is  how the Advanced Medical Technology Association (AdvaMed), America’s Health Insurance Plans (AHIP), American Hospital Association (AHA), American Medical Association (AMA) , the Pharaceutical Research and Manufacturers of America (PhRMA) , and the Service Employees International Union (SEIU) came to publish their medical cost reduction proposals. The document contains cost cutting committments the organizations have made to President Obama.

7. Perhaps the most talked about article on cost containment making the rounds today is a New Yorker article by Dr. Atul Gawande. It is a terrific read that recounts his investigation into why McAllen, Texas is “the most expensive town in the most expensive country for health care in the world.”  It seems MediCare pays twice as much per person in McAllen than it does 800 miles away in El Paso. Dr. Gawande investigates why, offering insights into the health care system that are too rarely considered.

8. It is generally accepted that 30% of health care spending in the united states is unnecessary. That’s $700 billion we’re talking about that could be spent insuring the uninsured, among other uses. Folks like Peter Orszag, the former director of the CBO and currently director of the White House Office of Management and Budget (which makes him Dr. Emanuel’s boss, for those keeping track) often sites this statistic — and its source: Dartmouth University’s  “Atlas of Health Care.”  They have done numerous and extensive studies on the connection (or lack thereof) between medical spending and health outcomes. Their most recent findings, published February 27, 2009, are described in Health Care Spending, Quality, and Outcomes. It’s subtitle: “More Isn’t Always Better,” pretty well sums up the results.

9. A bonus item: For a 3 minute summary of the health care reform debate, presented in a surprisingly entertaining, clear, and balanced way, take a look at the video at myhealthreform.org.  The video is not an in-depth dive into the issue, but rather an informative overview of the topic. If you’ve got friends, clients or colleagues who are looking for a simple explanation of what the debate is all about, it’s a great place to start. (Full disclosure: the site is run by Humana who clearly has a stake in the outcome of health care reform).

There will be more required reading coming soon. For example, we should hear very soon from the  three House Committees with jurisdiction on health care reform with details on their proposals for change. In the meantime, if you come across any articles, books, postings or the like you think belongs on a list of required health care reform reading for 2009, please send them my way.

CBO: Light Regulation of Private Market Reduces Budget Impact

Whether comprehensive health care reform is enacted this year rests to a substantial extent on its impact on the federal budget. To be sure, federal lawmakers can do what they want to the budget. Unlike families, businesses and state governments, the feds can literally print money. But there’s an economic and political cost to this. For example, President Barack Obama’s economic recovery efforts are already hampered by the deficit spending involved.  Opponents to his health care reform would seize any negative budgetary impacts stemming from his reform as a heavy club useful for bashing the Administration’s plan.

Even the Administration’s allies are concerned about the impact of health care reform on the government’s finances. In an email I received from Senator Diane Feinstein she writes, “I believe that there is much room for improvement in our nation’s healthcare system. However, I believe that health care reform should not increase the federal deficit.”

Which is why what the Congressional Budget Office considers “in the budget” or “outside” of it is so critical. The Clinton Administration’s health care plan was dealt a serious blow when, in 1994, the CBO determined that the employer mandate and the purchasing pools, both central  to the reform package, be considered a form of taxation, expanding the federal government. As the Washington Post notes, the “decision was one of several by the CBO that fueled Republican attacks and helped torpedo [the Clinton] reform efforts.” As a result, lawmakers this time around are “treading carefully around the role of government.”

Which makes a recent issues brief published by the CBO especially important. Entitled The Budgetary Treatment of Proposals to Change the Nation’s Health Insurance System especially important. The brief  provide guidance to the careful treading of legislators. At this stage the CBO is reacting to health care reform concepts, not legislation. As with most things, especially things issuing from Washington, D.C., the devil parties in the details.  Nonetheless, the CBO laid out very clearly what factors it would consider in making a determination.

For example, it noted that some determinations will be fairly straightforward. These are items involving cash moving in and out of federal coffers or of entities acting on behalf of the government. “Such transactions include the provision of subsidies for some people and businesses; the income and expenditures of a public health insurance plan; the gov­ernment’s receipts from “play-or-pay” requirements and from penalties imposed on individuals who fail to comply with a health insurance mandate; and “risk adjustment” transactions of the government that shift funds from insurers with lower-risk enrollees to those with higher-risk enrollees.”

Other provisions, for instance those related to requiring individuals to purchase health insurance coverage or the operation of health insurance exchanges through which individuals, small businesses and maybe larger corporations could purchase coverage, are more nuanced. Much will depend on how they are structured.

For example, concerning the individual mandate, the CBO’s determination will hinge on three factors:

  • Is the consumer likely to be able to choose among a number of insurance plans with differing degrees of comprehensiveness?
  • If there are plans with different levels of coverage, will they cover a broad enough range to offer consumers a meaningful choice?
  • Is the consumer likely to be able to choose among several different insurance companies competing on price?

It’s easy to see how complicated this can get. How many choices must consumers have for it to be meaingful choice? What if the minimum benefit package is so rich there’s no meaningful range of benefits? The mere existence of a mandate nor the imposition of federal oversight on the market will not be enough to require resulting premiums and subsidies to be considered part of the federal budget. Instead, it is “a combination of the two—a mandate and tight federal control over how that mandate can be met—[that] is necessary and sufficient to justify recording the affected private-sector transactions in the federal budget.”

How premiums (and expenses) flowing through health insurance exchanges are treated in relation to the federal budget is also far from clear-cut. Factors taken into account will be the nature of the exchange: is it a purchaser of coverage on behalf of its members or simply an information clearinghouse? To what extent are exchanges federal entities under government control? What it comes down to is the degree of federal government control of the exchanges, their powers, and their purpose.

 Douglas Elmendorf, the Director of the Congressional Budget Office, in his blog summarizes the CBO’s guidance to Congress:

  • “Premium income—for a public plan (or plans) and for insurance purchased through exchanges or in the private market—should be classified as federal revenues if there is an individual mandate and tight government control of the insurance market. The corresponding expenditures should also be recorded as outlays in the budget. Similarly, if there is an individual mandate and a dominant public plan available to some segments of the insurance market, premiums and outlays for those segments of the market should appear in the budget and the premium income should be classified as revenues.
  • Premium income should be classified as an offset on the outlay side of the budget—along with the corresponding spending counted as outlays—if:
    • Premiums are collected for a public plan but there is no mandate, or
    • There is an individual mandate in conjunction with an active, loosely restricted private market, and premiums are collected for a public plan or by governmental exchanges. 
  • Outlays for premiums and income from the receipt of those premiums should not appear in the federal budget if:
    • There is no mandate and no public plan, or
    • There is an individual mandate and an active, loosely restricted private market, and if premiums are paid through nongovernmental exchanges or directly to insurers. “

The Obama Administration and Democrats in Congress will try their best to keep revenue and expenses related to health care reform off the budget. They’ll only go so far, however. At some point the calculation as whether the public policy benefit of a provision (in their view) outweighs the political cost comes out on the side of the public policy.

Yet President Obama has made crystal clear his desire for bi-partisan health care reform. For Republicans to sign on to a package they’ll need the political cover keeping as much of the financial impact of the package off the budget as possible.  This, in turn, inserts the CBO guidelines squarely into the debate. And the message is clear: the looser government’s hand grips the new health care system the smaller its budgetary impact.

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.