Coming Soon: The Inevitable Revision of the Patient Protection and Affordable Care Act

Health care reform legislation may have been signed into law on March 23, 2010, but the issue is not going away. Anyone watching the election campaigns playing out across the country can attest to that. Republicans have made the  “repeal and replace” of health care reform a key promise in their "A Pledge to America" campaign document. While some Democratic candidates are touting their support of the Patient Protection and Affordable Care Act, others are bragging about their opposition to it. And others, like West Virginia Governor and Senate candidate Joe Manchin have talked about “repealing the things that are bad in the bill.”

Then there’s the impact on polling. Now, some readers of this blog get vehemently angry that Congress and President Barack Obama would dare pass legislation opposed by the public. I disagree. Political leaders have a job to lead, to make tough choices, to examine the facts, their constituents’ interests and then to cast their votes in accordance with their beliefs and conscience. I do not think politicians who flip-flop in whatever direction the polls show is popular at the moment are worth a lot. If politicians are simply to reflect the majority of opinion we could replace Congress with online survey software and be done with it. Also, consider this: if politicians only voted as the polls dictate there would have been no Civil Rights Act in 1964. American troops would have been out of Iraq during the Bush Administration. Whether liberal or conservative, there are numerous examples of legislation passing in spite of polls showing a majority of Americans opposing the new law that you are likely to applaud – and decry.

Nonetheless, polls do and should be a factor in the deliberations of politicians. They indicate when problems have reached a critical point where a solution is demanded. And they can serve to help shape and influence the likely outcome. Some polls of late have shown that a plurality of Americans – and perhaps more important given that election day is near at hand, likely voters – have an unfavorable opinion of the PPACA. But if polling is to influence decision making, then it’s important to dive a bit deeper into the numbers.

A recent Associated Press-GfK poll shows why. This survey shows that only 15 percent of likely voters support leaving the new health care reform law as is while 85 percent want the PPACA changed in some manner. However, that 85 percent is far from monolithic. 37 percent of likely voters surveyed said they wanted to repeal the Patient Protection and Affordable Care Act completely. Another 10 percent wanted changes to the law that would narrow its scope, but did not call for repeal. And 36 percent, a nearly identical number to those supporting repeal, want the law expanded. I couldn’t find a copy of the poll itself, but I assume this latter group includes those who support a single payer system or at least a public option, who want greater regulation on insurance carriers and/or who want greater cost controls included in the legislation. However, one could easily assume a single payer advocate, for example, might simply state they want the new law repealed.

My point here is that advocates on the right and the left will be seeking changes to the PPACA. The basic law may have passed in 2010, but it will evolve over the next few years. Some of the likely battles:

  • Repealing the requirement that businesses issue 1099s to any corporation or individual to which they pay $600 in a year. Democrats and Republicans alike support changing this provision. Whether it’s repealed or greatly revised is the only open question. Similarly, requirements for including health insurance premiums paid on behalf of employees on W-2s (which is optional in 2011) create a burden on businesses, especially small ones, that will necessitate changes.
  • There will be an effort to revive the idea of creating public run health plans (the so-called “public option”). Given the firestorm of opposition to the federal government expanding its role in America’s health care system, however, I don’t see the votes being there for this approach – especially in a Congress with small majorities in each House.
  • I expect, although it may be more of a hope, that there will be a push to allow premium subsidies to Americans earning less than 400 percent of the Federal Poverty Level to use those subsidies outside the exchanges being set up under the PPACA. This would allow those receiving the premium support greater choice and force the exchanges to compete with the outside market on a more level playing field. The exchanges are unlikely to go away: both Democrats and Republicans support them. But taking away arbitrary advantages will result in greater and more fair competition in the marketplace. Let the best offerings win.
  • There will be proposals to do away with the mandate that all Americans obtain health care coverage. While there are law suits seeking this result, I personally don’t think they’ll prevail. But Republicans (and some Democrats) will see a benefit to championing the repeal of an individual mandate. Neither party, however, is likely to seek a repeal of the requirement that carriers accept all applicants, regardless of their health conditions. As I’ve written before, a mandate on carriers to sell health insurance absent a mandate on individuals to buy imposes a horrific surcharge on health insurance premiums. I would hope this effort fails, but fortunately, if it succeeds, there are other ways to reduce the inevitable adverse selection that would follow (impose limited open enrollment periods, increase premiums or impose pre-existing conditions when consumers buy coverage after going uninsured for a specified period of time, etc.)
  • And maybe Congress and the Administration will focus attention on the biggest driver of increasing medical insurance premiums – the skyrocketing cost of medical care. The PPACA has some meaningful cost containment ideas hidden away in its 300,000+ words, more than the new health care reform is given credit for  (the topic of a future post). But even so, there’s a lot more to do. Lawmakers know they need to confront this issue eventually. Eventually they will.

We all have a tendency to draw straight lines from current data. That’s how bubbles happen. Stocks are going up and they’ll continue to do so. Gold is at a record high it’ll continue going higher. Tulip prices are skyrocketing and they’ll do so forever.

The same phenomenon occurs in connection to laws and regulations. A law passes and humans have a tendency to accept that that’s that. Now that the law is in cement nothing will change. But laws evolve. They are molded by regulators. They are shaped by the people who live under them. And sooner or later they are revised by the legislative body that passed the new law in the first place.

When thinking about the Patient Protection and Affordable Care Act, intense revision was, and is, inevitable. No law seeking to reshape America’s health care system would get it right on the first try. Politicians may proclaim “Mission Accomplished” when speaking of legislation (and wars), but the reality is the goal is never achieved perfectly and refinement is always needed Usually there’s a passage of some time before the first attempt to address a problem and subsequent efforts. Changes to the Patient Protection and Affordable Care Act are likely to start much sooner. I’m thinking early January 2011.

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.

Health Insurance Exchanges are No Miracle Cure

That health care reform would include an insurance exchange has been all but a given for months. Democrats and Republicans alike are enamored with the idea of creating a marketplace in which individuals, small business and maybe larger enterprises could shop for health insurance. There are differing opinions as to whether these exchanges simply help purchasers compare plans on an apples-to-apples basis by presenting benefits and rates in a common format and language (along with providing common enrollment forms and the like) or whether they should also negotiate benefit and pricing with carriers and help users select and purchase coverage. What is rarely brought up is that exchanges are effective only if they are innocuous or cheat.

By innocuous I mean they serve simply as a data resource, providing consumers basic information in a common format and using a common terminology. Don’t get me wrong. This would be an extremely valuable service. Numerous brokers provide this kind of information today, but they’re hamstrung by the differing language and descriptions used by carriers. By forcing health plans to adopt a shared language, consumers would enjoy greater clarity when determining what plan to buy.

By cheating I mean that the playing field needs to be tilted in the favor of the exchange or it will not either deliver the intended value or last very long. That’s not the point of an op-ed in the New York Times by Cappy McGarr, who helped launch Texas’ version of a purchasing pool back in 1993, but it’s a fair conclusion. (Note: you may need to register with the New York Times web site to view the article, but registration is free. And my thanks to reader Nosedoc for bringing this opinion piece to my attention).  Mr. McGarr describes the failure of purchasing pools to take hold last decade in Texas, California, North Carolina and Florida. He blames their failure on cherry picking by private carriers outside the exchange, claiming these carriers signed up “all the small businesses with generally healthy employees and offload(ed) the bad risk … onto the exchange.”

From what I saw of the California version of a purchasing pool, Mr. McGarr claim is accurate in defining the problem, but wrong in describing the cause. California’s purchasing pool (called the Health Insurance Plan of California, or HIPC) did attract groups with higher claims. But this wasn’t the result of carriers directing expensive insureds to the pools as claimed by Mr. McGarr. Instead it was the direct result of a decision taken by the HIPC’s administrators.

Outside the HIPC, private carriers were required to accept all small groups applying for coverage, but could adjust rates up or down 10 percent based on a group’s risk profile. Virtually all of them did. The HIPC could have used this legal rating band, but its leadership chose not to do so. (The members and staff of the agency responsible for the HIPC were bright, well intentioned individuals, but they were reacting, at least in part, to public policy concerns, not a business needs). This meant low risk groups found the market outside more attractive and high risk groups found the offerings within the HIPC more attractive. The result is neither sinister nor should it be unexpected.

When competing against the private market, exchanges will have other disadvantages. For example, government agencies must hold open and public meetings. This is a good thing, the government shouldn’t operate behind closed doors. But it’s also a cumbersome process. Businesses need to adjust quickly to changing circumstances, move quickly to seize unexpected opportunities and to avoid unanticipated dangers. Government enterprises are restricted in their ability to take fast action; private companies are not.

So how can exchanges compete with a vibrant market beyond their jurisdiction? One way is to give the exchanges advantages over the private market; the other is to hobble the private market. For example, the legislation making its way through Congress offers premium subsidies to lower income Americans. yet those subsidies can only be used within the exchange. Why? If coverage outside the exchange meets the definition of acceptable coverage, shouldn’t consumers have the choice to use their subsidies on whatever plan they determine best fits their needs? Lawmakers claim to support consumer choice, but here’s an example of where members of both parties are willing to restrict that choice. Other methods of tilting the playing field? Force carriers to participate in the exchange. Limit what they can do with their non-exchange products.

Mr. McGarr’s suggested solution is to require private carriers to accept all applicants (an idea nearly everyone, including the private carriers agrees upon) and to prevent them from adjusting rates based on health status. He notes, however, that enforcement will be challenging and then makes an interesting proposal: instead of creating exchanges to foster competition, create a public plan.

As regular readers know, I’m not a fan of public plans. But it is interesting to think about the trade-off. If a public plan was required to play by the same rules as private carriers (no fair simply reimbursing providers a percentage of Medicare rates) and be self-sufficient, would that be worse than creating exchanges that lawmakers will find ways of benefitting through a tilted playing field?  After all, if exchanges are to have a significant impact on the cost of health insurance, they will need to negotiate rates with doctors and hospitals. But that’s not what they do. It is, however, what public plans do.

Not that we have a choice, but if we did, which would you choose? An exchange? Or a public plan?

Cantwell Amendment Another Handoff to States

As the Senate Finance Committee concludes its mark-up of health care reform legislation an interesting dynamic is emerging: Senators are increasingly turning to the states to address some of the more pressing challenges the reform effort is designed to address.

Yesterday I wrote about a compromise being circulated by moderate Senator Tom Carper. The Carper Compromise would allow states to create government-run insurance programs, networks of co-ops or the like. That proposal has yet to be brought to the Senate Finance Committee and may not be. Instead, it could be offered later in the process as the Senate seeks to bridge the gap between the Finance Committee’s bill and legislation passed by the Senate Health, Education, Labor and Pensions Committee – which calls for a robust government-run plan.

Meanwhile, the Senate Finance Committee has adopted a proposal offered by Senator Maria Cantwell. which gives states the option “to negotiate with insurance companies for lower rates on health coverage policies for those living barely above the poverty line and provides federal dollars to pay for it,” according to the McClatchy news service. The Cantwell Amendment is modeled after a program currently in operation in Senator Cantwell’s home state of Washington and would benefit families between 133 percent and 200 percent of the Federal Poverty Level (up to $21,660 for individuals and $44,100 for a family of four). Senator Cantwell staff claims such plans could cover up to 30 million of the nation’s uninsured according to the Associated Press. This, of course, assumes that state’s out-reach efforts are successful in bringing those eligible for such a program into the system. There are millions of individuals eligible for existing programs like Medicaid and children health programs who remain unenrolled across the country.

Senator Cantwell’s amendment is not an alternative to the public option, the issue most dramatically dividing Democratic liberals from their moderate and conservative colleagues in Congress. Bridging that gap will require something along the lines of the Carper Compromise. (This doesn’t mean Senator Cantwell’s proposal wasn’t controversial. It was adopted on a 12-11 vote with Democrat Blanche Lincoln joining all 10 Republican members of the panel in voting against it).  What inclusion of the Cantwell Amendment in the Senate Finance Committee’s legislation does underscore is the likelihood Congress will be giving states a central role to play in making health care reform real.

The benefits of this approach include keeping health care decisions closer to consumers and allowing for different approaches to meet the differing needs of the states. One of the downsides to relying on states, however, is that it eliminates savings that might have been achieved by more uniform, national standards and regulations.

Another outcome of shifting responsibility and power to the states under health care reform: even after Congress completes its work, intense legislative battles will remain. Only the venue will move from Washington, D.C. to a state capital near you.

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.

Health Care Reform: Getting Ready for Crunch Time

For health care reform, the next few weeks will be critical. Congressional committees are poised to pass legislation (to put this in perspective, this never happened during the Clinton Administration’s reform efforts in 1993-94). President Obama and his aides will become even more engaged concerning the legislative language they would like to see Congress enact. Senate moderates will begin taking sides on critical issues. In short, this is when it all starts coming together. In the next few weeks, it will become clear if Washington will enact health care reform and, if so, what it will look like.

Events will move quickly, so I’m clearing out some short items that have been lingering in my “to blog” folder for awhile. They are a random assortment of items unlikely to become stand-alone posts. Taken as a whole, however, I hope they provide some useful background to the history about to unfold.

  1. Health care reform ideas are flying around the Capital in ever increasing numbers. Keeping track of them all can be a challenge. Good thing there’s the Kaiser Family Foundation’s health care reform proposal comparison tool. It makes comparing the entire plan or just particular issues across the various proposals simple.
  2. One of the plans we have yet to see details on will be presented in the next few days in the Senate Finance Committee. They are working hard to construct a legitimately bi-partisan proposal, which means it has the greatest likelihood of foreshadowing the legislation likely to emerge from Congress. To get an early taste of the coming debate in that committee, check out the dialogue between Senator Charles Grassley and Senator Charles Schumer on CBS’ “Face the Nation.”
  3. I’m a fan of the FiveThirtyEight.com blog. The site applies rigorous math to political topics. Very rigorous math: it’s prediction of election outcomes during the presidential primaries and the general election were eerily accurate. The site has a left-leaning bias on some topics, but overall, its posts are more nerdish than ideological. Recently it did an interesting analysis on how campaign contributions may derail a public option plan. Of course, whether Senators vote a certain way because of the contributions they receive or they receive contributions because of the way they vote is an open issue (which, to his credit, the author acknowledges). But the issue of causality does not change his conclusion: unless the several stars fall into place, a public option is unlikely to be part of the final health care reform package.
  4. Need more evidence a government-run health plan is losing momentum? As noted last week, Democrats on the Senate Health, Education, Labor and Pensions Committee feel the need to dress their public plan proposal in moderate clothing. Then there’s White House Chief of Staff Rahm Emanuel making clear today the Administration is willing to accept legislation without a public plan. According to the Wall Street Journal Mr. Emanuel says “’The goal is to have a means and a mechanism to keep the private insurers honest. The goal is non-negotiable; the path is’ negotiable.”  Mr. Emanuel goes on to say creating a public plan only if the private market proves incapable of offering competition would be one acceptable solution.
  5. Is a government-run plan even needed for health care reform to be meaningful? Uwe Reinhardt, an economics professor at Princeton, uses the German health care system as evidence it is not. This is not to say that the German system is an appropriate model for the United States, but it does undermine the argument that health care reform will only work if the government is both referee and player.
  6. All the health care reform attention is focused on what’s happening in Washington. Some folks think this is a mistake. Instead, the federal government should simply enable states to pass their own reform plans. This would allow solutions to reflect local values and enable the best ideas to emerge over time. I disagree. States lack the levers of power necessary to reform something as complex and critical as health care reform. In a post from 2007 I cited an article by Ezra Klein describing the many failed state health care reform efforts. That doesn’t mean, however, that every health care decision needs to be made at the national level. Meaningful structural change — and the financing required to implement it – requires the federal government. Implementing those changes can be managed and administered at the regional, state or even local level.
  7. The status quo is on life support. Health care costs are rising faster than either general inflation or wages. (To see for yourself, check out Tom’s Inflation Calculator). We have the opportunity today to enact responsible, meaningful reform. Without such intervention, the current system will eventually deteriorate until unwise and extreme proposals make sense. Fortunately, what’s likely to emerge from the current debate will be determined by moderates. This doesn’t mean the reforms won’t be flawed, but it does mean that there’s a chance for responsible reform sooner rather than later.
  8. The advocates of a single payer system know that the status quo is unsustainable. It is why some of them will oppose whatever moderate reforms emerge from the current health care reform debate. They are like a doctor who sees surgery as the solution to every ailment. If the patient takes medication, and it works, they don’t get to cut. Similarly, if reasonable changes increase access to affordable, quality health care coverage and reduces overall spending, the need for a single payer solution vanishes.
  9. Meanwhile, back at FiveThirtyEight, Nate Silver crunches some poll result numbers and points out that moderates are disappointed with President Obama’s handling of health care reform. Whether these results show President Obama needs to get more specific in describing his health care reforms (as Mr. Silver concludes) or whether he needs to focus more on pushing the right health care reform, is something to ponder.

Obama Reiterates Support for Public Insurance Plan, Pushes Affordability

President Barack Obama lined up squarely behind the creation of a government-run health plan today. At the same time the White House has fully engaged on the financing of his health care reform plan.

Whether a public health plan should be created to compete with private sector carriers is among the most controversial issues in the current health care reform debate — and will be one of the most difficult on which to find common ground.  While many Democrats, especially those on the left, are insisting a public plan be a part of whatever reform package emerges from Congress, Republicans are equally firm — and united — in opposing them.

During his campaign for president, then-Senator Obama included a government-run health plan in the health care reform plank of his platform. Lately, however, there were indications there might be flexibility in his position. In a letter sent today to Senators Max Baucus and Edward Kennedy, President Obama removed any doubts as to where he stands. “I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

Senator Kennedy, Chair of the Senate Health, Education, Labor and Pensions Committee, is a strong advocate of a public plan. Senator Baucus, the Chair of the Senate Finance Committee, has been less supportive. It is these two committees which will draft the Senate version of reform. The House bill is all but certain to call for creating a public plan.

The mere fact that President Obama supports a government-run health plan does not mean it will be in the final bill. Republicans appear to be unanimously opposed to the idea and so are some moderate Democrats. Together they could block passage of legislation unless the public plan is removed. Or there could be a compromise. One possibility being discussed would prevent the entry of a government-run plan into the market unless “triggered” by certain (yet to be determined) events.

The President’s letter to the committee Chairmen also conveyed the Administration’s support for a health insurance exchange to help consumers obtain coverage. “I agree that we should create a health insurance exchange — a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can.” Interestingly, this describes an exchange as an information clearinghouse. This falls short of Senator Kennedy’s call for a gateway that would, among other things, “”… negotiate with insurance companies to keep premiums and copays low….”  The Senator is describing something akin to a purchasing pool.

President Obama’s letter addressed market reform, but concentrated on cost cutting measure. “I want to stress that reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care. That means promoting the best practices, not simply the most expensive.”

This is part of an Administration-wide effort to focus on making coverage more affordable. For example, Peter Orszag, the Director of the White House Office of Management and Budget, has written two blog posts on the fiscal effects of health care reform (here and here).  In his most recent post he writes of “game changers” that, while not reducing costs immediately, are critical for long term savings. Among the changes he calls for are “patient-centered quality research and re-orienting financial incentives through bundling and payment for quality rather than quantity of services delivered.” Both the President’s letter and the Director’s postingemphasize the Administration’s desire to make health care reform “deficit neutral even over the next five to 10 years, through scoreable offsets such as savings within Medicare and Medicaid and (as necessary) additional revenue.” (“Scoreable” offsets are those recognized in the federal budget. The Congressional Budget Office recently provided guidelines on how they would go about determining the impact various health care changes will have on the budget.)

I expect we’ll be hearing a lot from the White House on health care reform with greater frequency in the next few weeks. While the Obama Administration has been content to lay out broad principles and let Congress hammer out the details, it cannot afford to be completely hands-off. The President has consistently expressed his hope for bi-partisan legislation, but he has been even more vocal that health care reform needs to happen this Fall. The President will need to spend a great deal of political capital to get a bill on such an expensive and complex issue to his desk for signature. He is clearly willing to make that expenditure.

It would have been foolish for the President to back off or even water down his call for a public plan at this stage. My guess is that he will need to push liberals into accepting a reform package that doesn’t go as far as they would like. By siding with them now he’ll be in a better position to do just that when the time for compromise arrives. We’re not there yet, but we’re getting closer.

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.