Archive for the 'Health Policy' Category

Will This Study Finally End Democrats’ Magical Thinking About the ‘Cadillac Tax’?

February 19, 2010

It’s been a fascinating anthropological exercise to watch the health excise tax concept (the so-called “Cadillac tax”) keep its popularity among Democratic and liberals, even as one study after another discredits the assumptions behind it. It’s the Democratic equivalent of trickle-down economics – an idea that doesn’t seem to die no matter how much it’s contradicted by the facts.

The Senate health reform bill places a 40% tax on all employer health benefit costs above a certain threshold. This tax came with a set of assumptions which have been disproven one by one. We were told that the tax would target health plans with especially ‘rich’ or ‘generous’ benefits, for example, but a comprehensive analysis showed that wasn’t the case. We were told that employers would cut benefits as a result of the tax and give the money saved back to employees as wages, but surveys showed that they plan to do no such thing (more here).

Then we learned that the tax would disproportionately affect plans with lots of older people, or more women, or people who live in higher-cost parts of the country. Who could support an unfair-sounding idea like that? Barack Obama, for one. After months of silence as the Senate eviscerated one of his campaign promises after another, he finally spoke up … in favor of the tax which he had lambasted during the election.

A lot of bloggers and commentators continue to agree with him, too,as do his top economic advisors. Why? In part, it’s because they oppose the idea of using employers to provide health care coverage. I do, too — but I don’t think you fix that problem by reducing people’s current coverage, especially in such a discriminatory way. After all, there’s no other option available for these employees. It’s like trying to solve the problems of public housing by throwing people out into the street.

Proponents also imagine that the employees affected will somehow become “smarter health shoppers,” despite the fact that doctors – who are not taxed by the bill – make the decisions that drive health care costs. So there’s also a heavy dose of Cato Institute-style free-market ideology in the idea (although its proponents would be shocked at the comparison.)

Finally the unions stepped in and negotiated a compromise deal with the White House. By this time the tax’s proponents were insisting this was a merely tax on “union benefits,” and that the unions were a “special interest” acting selfishly. Now a new study from UC Berkeleypunctures this final Cadillac-tax myth. Research conducted by Ken Jacobs and his colleagues at the Center for Labor Research and Education suggests that the vast majority of employees affected by the tax (at least 80%) would not be in a union.

It looks like the unions did everyone a favor by mitigating the effects of this tax. They’ve managed to reduce (though not necessarily eliminate) some of its more discriminatory effects. Yes, in some ways their negotiations would benefit union members slightly more, but only temporarily. And most of the people who benefit by the concessions they’ve won arenot in unions.

The unions managed to raise the tax’s thresholds, and they got agreement in principle to adjusting the threshold for age, gender, and residence in 17 high-cost states. Yet major problems remain: The increase in threshold levels is less than one year’s medical inflation. There’s no adjustment for active workers over 55, who are an especially costly group. The potential adjustments for state and gender haven’t been spelled out yet, but political experience raises doubts about whether those adjustments will fully account for cost differences.

The tax’s proponents have embraced the CBO’s conclusion that it will raise $149 billion in revenue over ten years, mostly by taxing those extra wages workers will supposedly get (but employers say they don’t plan to give). Fact is, you can’t collect taxes on wages that aren’t paid – and if benefits are cut back, which is likely, you can’t collect taxes on people’s lack of health care coverage, either.

Jacobs et al. have other reasons to doubt the CBO’s figure, too. They believe that the total number of employees affected by the plan is less than that the CBO projected. That, plus a lower estimated per-employee revenue figure, gives them a top number of $90 billion even without the union-won agreements.

So here’s the likeliest scenario under the “Cadillac tax”: A number of employees, mostly non-union, will find that their health benefits are either being taxed or (as is more likely) cut back. Their out-of-pocket costs (copayments and deductibles) will be raised, leading them to see the doctor less often. And their overall health costs may stay the same or even go up!

Oh … and one more thing about the tax: The public hates it. Yet despite all that, if a health reform bill passes this year Democrats are expected to keep the Cadillac tax in it.

Why isn’t this idea dead? Why doesn’t somebody put it out of our misery? There are four reasons: The first nobody thinks the Senate can be talked out of it. The second is that it’s one of the few remaining measures in the bill that even looks like cost containment, even though it isn’t, and Dems want to be able to say they’re cutting costs. The third is that the House’s alternative is to tax high earners, and for whatever reason some Democrats are reluctant to do that.

The last reason is the most potent of all: Zombie ideas like the Cadillac tax and trickle-down economics are hard to kill. If they’re “intuitive” – that is, if they sound good to you the first time you hear them – then you fall in love with them. And if the idea you love one day leaves millions of employees without the coverage they need? Well, then I guess it’s like the old saying goes: Love means never having to say you’re sorry.

A Tax Even Its Defenders Can’t Love

January 12, 2010

People are saying that the so-called Cadillac tax “might fall flat” and “has real problems.”  And those are its defenders.  I can’t remember any new policy in recent history whose own advocates had so many complaints with its design.

Not that we’re  “Ezra Klein Watch” around here, but Ezra’s become the locus and the spokesman for the pro-tax contingent. He’s mounted a yeoman’s defense, using a broad (if what occasionally seems to be shifting) array of arguments.  Not that all of his points are without merit, by any means.  He and other tax proponents have raised compelling arguments that merit serious discussion.  Unfortunately, they don’t have much to do with this tax.

The debate shifted after studies (by Gabel et al. and the Milliman actuarial firm) showed that “richness of benefits” is not what would place most health plans into the tax.   It mainly targets benefits for older, sicker people, those than live in the wrong part of the country, or those in the wrong industry.  Then we learned that yes, employers will cut benefits if the tax is passed, but no, workers won’t get the money their employers save as wages.  Two consulting firms (Towers-Perrin and Mercer) confirmed overwhelmingly that companies intended to keep the money instead.

Sure, reducing overall health costs would free up more money for wages in the future.  But nobody’s explained how this tax would reduce overall costs. All we know is that these workers, whose coverage would be cut now, would  get nothing in return.  Meanwhile there would be a lot of unfair suffering – suffering to which the tax’s defenders seem uncharacteristically indifferent.  “No one should be under the illusion that this tax will not cause some pain,” writes Ezra.  “Everything has losers.”

So if your coverage gets cut because your co-workers are too old or too sick, take comfort:  Everything has losers.

Ezra acknowledged the problems during an online exchange we had recently.  “My argument is not that the excise tax is without problems, or sure to work,” he said then, “(a)nd I don’t deny that (it) might fall flat.”  But he’s still pushing for it.

“The excise tax is a tax that’s meant to change behavior,” he writes, “much like a cigarette tax.” But a cigarette tax taxes cigarettes. This tax doesn’t target inappropriate or excessive use of health services.  It taxes everything. It’s like cutting working families’ grocery budget with the rationale that “some of them might buy cigarettes with that money.”   It’s a blunt instrument where we need a  scalpel.

A “cigarette tax” approach to benefits would require a national discussion of “basic” vs. “optional” coverage  – ie, is vision coverage obsolete? – or some other creative ideas.  Maybe we should tax services that fall outside of accepted medical practice standards, or tax providers if they deviate too often from best practices.  (I’m not endorsing these ideas, merely listing some alternatives.)

Ezra also voices an argument I’ve heard privately from some health economists: “(A)ll employer-based insurance, right now, is exempt from taxes — a regressive and cost-increasing decision that this barely begins to redress.This is a tax that should already exist, and it should exist on every dollar of health benefits, not just every dollar above $23,000.”

It’s a legitimate point.  Our employer-based system is an historical anomaly, one that treats some forms of employee compensation differently from others.  That’s inherently unfair.  But the wage levels we have today are the product of this system.   They’ve grown up together with these  benefits, like tangled vines.  If we were to make a national decision to tax health coverage – an idea that was  mocked when Republicans suggested it – we would need to have a well-thought-out transition plan.  Otherwise we’d have an enormous de facto wage cut for our already-beleaguered middle class.

If we’re not willing or able to do that for the country as a whole, why select a portion of the insured workforce – on a discriminatory basis, no less – and do it to them?

Paul Krugman reluctantly endorsed the tax while simultaneously criticizing it:  “A flat dollar limit to tax deductibility has real problems. At the very least, the limit should reflect the same factors insurers will be allowed to take into account in setting premiums: age and region.”  There’s a genuine imbalance here:  The Senate bill allows insurers to charge up to three times as much for older people’s coverage, but raises the tax’s trigger point by only 13% for workers over 55. (And, to clarify, that’s for retired workers.  An active workforce with a a higher percentage of older employees will still be unfairly hit.)

Prof. Krugman insisted that “the final bill should address the criticisms.”  Amen.  That goes beyond Prof. Krugman’s proposed modifications to the tax design. WHile they would relieve the most egregious discriminatory effects of the bill, they still wouldn’t address the fundamental problem:  This tax doesn’t target excessive care.

That gets us to the last line of defense:  that this tax, however flawed, is a first step toward genuine cost containment.  But nobody’s explained how it would contain costs, and insurers have always responded to increased expense by shifting costs back to patients – not by getting smarter.  Why does anyone think a badly designed tax that causes indiscriminate pain will evolve into something better?  The most likely outcome is a backlash that makes genuine cost containment impossible for a generation.

There are good proposals, there are bad proposals, and there is the proposal on the table today.  The tax’s defenders have come up with some interesting ideas – or at least the germ of some interesting ideas.  But those ideas aren’t the table: this tax is.  Let’s not settle for a  flawed idea.  Let’s implement something that works.

Weird Science: Why Politicians and Pundits Cling to the “Cadillac Tax” Idea

January 8, 2010

The theory behind the “Cadillac tax” on health plans is little more than wishful thinking based on dubious research. Advocates believe that forcing employers to cut benefits will lead to cheaper, better care. That’s like preventing rain by outlawing umbrellas. Yet the President has reversed his campaign opposition to the tax and now supports it. John Kerry, who I respect, is defending it too.(1) Why?

Because they’re poorly served by their advisors, and by pundits who cling to the idea in the face of new evidence. Although the Washington Post got it right, too many analysts and journalists are beholden to ideas that Art Levine rightly dubbed “voodoo economics for the punditocracy.”

Why do President Obama and his advisors keep touting the tax? And why do journalists like David Leonhardt of the New York Times keep asserting that “health economists” think it’s a good idea? Uwe Reinhardt – the most respected health economist in the country – said the idea that “with high cost-sharing, patients will do the only legitimate … cost-benefit calculus … surely is nonsense.”

The best-known advocate for the tax is MIT economist Jonathan Gruber, who was hyping it as recently as a week ago, without mentioning new and contradictory data.

The Post described Gruber in 2007 as “possibly the party’s most influential health-care expert and a voice of realism in its internal debates.” How can a “voice of realism” claim that this is “a tax that’s not a tax,” one that affects “generous” plans? That statement was published only nineteen days after a paper in the influential journal Health Affairs (summarized here) disproved it. Using actual benefits data, the authors showed the tax would not target “generous” plans. Instead it would unfairly affect plans whose enrollees were older, worked in the wrong industry, or lived in an area where treatment costs are high. A leading actuary came to a similar conclusion.

Gruber also claimed that the money employers save (by slashing benefits to avoid the tax) would be returned to workers as wages or other compensation. But two leading health benefits firms (2) had already published surveys in which the vast majority of employers polled insisted they would do no such thing.

These are intelligent, ethical, dedicated people. So what’s going on? I suspect the problem is an inability to reject an attractive idea, even when confronted with contradictory facts. There is a simple truth in the world of ideas: Theories can be beautiful. Reality can be ugly.

This “beautiful” idea was born in research. The RAND Corporation published the results of its long-term Health Insurance Experiment (HIE) in the 1980s. Researchers claimed that forcing people to pay more for their medical treatment leads to reduced use of medical services, which saved money without making anyone sicker.

The HIE suggested that people who had to pay more for their care avoided treatments their doctors considered medically necessary about as much as those considered unnecessary. Yet, surprisingly, it concluded that they were no less healthy. The HIE became the theoretical foundation for 25 years of benefits-cutting, providing moral cover for a generation of analysts as they shifted medical costs back to patients. (I was one of them.) Now it underlies the thinking behind the “Cadillac tax.”

Here’s Problem #1: The HIE’s been challenged by a number of economists. As University of Minnesota economics professor John Nyman told me, “I don’t believe you can have a reduction of 25% in hospital admissions and not have it show up in any health measures.” While we don’t have space here to tackle the debate, it’s fair to say that the study’s conclusions are controversial at best. Gruber, a RAND defender, described the study as the “gold standard.” Others disagree.

Problem #2: Even if you accept RAND’s findings, you have to believe they still apply after widespread changes in society, the economy, and employer/employee relations. And then you have to believe Gruber’s assertion, based on long-term wage and benefit trends, that employers will give most of that money back to workers as compensation.

Even though surveys say they won’t …

So let’s review this fragile latticework of assumptions: First, that the RAND study is sound. Second, that the tax will only target ‘generous’ plans, despite a very thorough study disproving that. Third, that employers will give much of this money back to workers, although they say they won’t.

On that thin reed of assumptions the White House, many Senators, some economists, and the tax’s editorial supporters (Leonhardt, Ezra Klein, etc.) are prepared to support a policy that by 2016 will reduce coverage for one American in five with employer insurance. That’s more than eleven million people – and the figure would rise sharply each year.

What went wrong? I can’t know for sure, but here’s a thought: Experts can have an “aha” moment, a flash of insight, even when the pattern they perceive isn’t really there. They can build models and theories – even reputations – around that pattern. When evidence proves the pattern is false, they literally can’t see it.

Fortunately, it’s not too late. We can see it. There’s still time for the President, Senator Kerry, and other leaders to change course. Prof. Gruber and other tax advocates can still review these new findings. They and their advisors can discard an attractive but disproved theory and do the right thing for the American people.


(1) Although it was gratifying that Sen. Kerry acknowledged that the tax’s thresholds are too low.
(2)Towers Perrin Employer Survey, “Health Care Reform 2009: Leading Employers Weigh In,” (pdf), September 17, 2009; Mercer, “Majority of Employers Would Reduce Health Benefits to Avoid Proposed Excise Tax,” December 3, 2009

Maggie Mahar Fact-Checks the “Cadillac” Tax

January 6, 2010

Respected health writer Maggie Mahar (“Money-Driven Medicine”) got curious and decided to fact-check the excise tax. – the tax on misleadingly-named “Cadillac plans” (which are really plans that simply cost more, usually for reasons that have little or nothing to do with the benefits offered.)  Wisely, she follows the money – which in the world of health care follows the chronically ill. Her findings?

… 75 percent of our health care dollars are spent on patients suffering from serious chronic diseases such as cancer, heart disease, stroke, and chronic obstructive pulmonary disease.

As Merrill Goozner points out: “The idea that taxing those plans will somehow encourage people to reduce their utilization is wishful thinking that ignores who actually makes health care decisions — doctors, hospitals, drug companies, and other providers. It also ignores why most people use health care — it’s because they are sick.

If co-pays for visits to a specialist are high, some chronically ill patients may put off seeking help, but eventually most middle-class Americans will see an oncologist or a cardiologist, even if they have to borrow the money to cover the deductible. “

She provides an excellent overview of the topic and strong rebuttals to the tax’s defenders. Well worth a read.

(Disclaimer:  I am working with the Campaign For America’s Future to prevent the tax from becoming law, both because I believe it to be unfair and because I consider to be poorly designed policy.)

New Massachusetts Polling Data: What’s the Lesson?

December 22, 2009

Paul Krugman doesn’t like the Rasmussen poll on the popularity of health reform in Massachusetts.  I’ve cited that poll in the past, so I have an obligation to present contradictory information.  Besides, when Krugman talks, I listen.  Since many people consider the reform we’re likely to get similar to that which was enacted in that state, it’s an important issue.

Krugman cites the Boston Globe/Harvard School of Public Health poll and finds this to be its essential conclusion:  ” 79 percent want (reform) to continue.”  That’s much stronger than the tepid support in the Rasmussen bill, and it’s important.

I had a somewhat different interpretation, however, when I read the write-up in the Globe that Prof. Krugman cites.  “79 percent of those surveyed wanted the law to continue,” the article says, “though a majority said there should be some changes, with cost reductions cited as the single most important change that needs to be made.”

Then there’s this:  “In another question, residents were nearly evenly split over whether Massachusetts could afford to continue with the law as it stands: 43 percent said the state could not, and 40 percent said it could.

Lastly, the money quote (literally):  “A national survey by Kaiser released this month found that Massachusetts has the most expensive family health insurance premiums in the country, averaging $13,788 in 2008.”

Some of us knew that already, but it’s important to repeat it in this context.

Granted, the Senate bill has more cost containment in it that the original Massachusetts bill, especially in the latest draft (and thanks in part to progressive opposition to the bill, in my opinion.)  But I still think it’s weak on cost controls, and that many people are wildly overestimating the effect of those that it does contain.  But it’s worth noting that many of the bill’s proponents have been touting the idea that mandates themselves will help keep premiums under control.  I think that argument has been seriously undercut by results in Massachusetts.

The Senate Deal: The Price of Everything

December 20, 2009

The CBO finally scored the redrafted Senate health care bill, saying it will cost $871 billion over the next ten years. Not that anybody waited for the numbers before cutting a deal. This was never really about the numbers. It was about coming in below an arbitrary figure and passing the bill by an arbitrary date.

The CBO Director’s Blog writes that  “(t)he changes with the largest budgetary effects include expanding eligibility for a small business tax credit; increasing penalties on certain uninsured people; replacing the ‘public plan’ … with ‘multi-state’ plans  … deleting provisions that would increase payment rates for physicians under Medicare; and increasing the payroll tax on higher-income individuals and families.”

In other words, the bill now has more breaks for business but harsher punishment for uninsured individuals, it eliminates the already-weakened public option, it pays doctors less – and it costs the Federal government $23 billion more.

Hey, what’s not to love?

The idea of raising payroll taxes on higher earners is a good one.  But if you take that new revenue, add the unfair tax on higher-cost benefit plans (studies demonstrate its unfairness), throw in the pay cut for doctors, and toss the higher individual penalties on top of that, it still doesn’t offset the fiscal recklessness behind killing the public option.

Why would the public plan have saved the government money?  Because, as the CBO puts it, “it was expected to exert some downward pressure on the premiums of the lower-cost plans to which those subsidies would be tied. ”  In other words, it would have made other insurance cheaper by creating real competition.  If it’s costing the government this much money to lose the public option, can you imagine what it’s costing the rest of us as individuals?

Remember: the CBO score doesn’t include the personal value of  these policies for each of us. The Senate’s new bill won’t just increase the Federal budget. We’ll also pay higher premiums because we lost the public option, and face more out-of-pocket payments from the excise tax.    Wasn’t it Oscar Wilde who said a cynic is someone who “knows the price of everything and the value of nothing”? It’s pragmatic to take the best deal you can get, but it’s cynical to avoid the battle and then claim it’s the best deal you can get.  The main thing dividing progressives right now is that some see pragmatism and others see cynicism.

Another question:  If Joe Lieberman can single-handedly be credited with most of these changes, is it fair to call him the Twenty Billion Dollar Man?  Maybe.  But remember, it’s easy to hate Joe Lieberman – and it’s a distraction.  The Administration and the Senate leadership made a series of choices that give him this power.

Some say that the public option was always doomed – that the Administration cut a deal in which they’d make a half-heated attempt to fight for it and would then let  it die, placating the always-compliant liberal wing with another mantric repetition of the phrase “we didn’t get everything we wanted, but …” In that scenario Joe’s the Bad Cop to the President’s (and Harry Reid’s) Good Cop.  If Joe Lieberman didn’t exist it would be necessary to invent him.  “Hey, I wanted to help you out – here’s a cup of coffee – but my partner here …”

Think that’s unfair ?  I certainly hope so, but that gets us back to the string-of-blunders interpretation. Reality’s probably somewhere in the middle:  mismanagement and a back-room deal or two. (We know there was a deal with Big Pharma.)

There’s an easy way for the President and Sen. Reid to disprove the Good Cop/Bad Cop Scenario, of course:  They can fight like hell to win concessions in the House/Senate conference, to bring the  final bill more in line with the House version.  That would mean, at the very least, a public option and no excise tax.

Think they will?  Me neither – but I think they should be pressed to do so.  I expect that the House will be put under enormous pressure to cave and accept the bill as it is.  I think the President and other party leaders assume the left can always be counted on to cave in for the good of the country.  I also think that anyone who points out the flaws in this bill will be subjected to another round of scoldings from party leaders and their supporters, charged with not understanding how the world works. Wouldn’t it be better to debate the tactics on their merits instead?

Because that last charge is the biggest miscalculation of them all.  Many of the people being lectured  over this bill are the same people who have been right about matters of both policy and politics for most of the last decade.  (And about the politics – the Democrats are going to get killed if they pass this bill.)  So it was particularly satisfying to see Markos Moulitsas respond forcefully to Chris Matthews for his wave-of-the-hand dismissal to those who saw the last decade’s events more clearly than he did.

That doesn’t necessarily make them right today, of course, but I think they are.  And speaking personally, I’m not talking about “killing the bill” – I’m talking about getting a better bill.  I believe it will take a credible threat  – a “fear factor” – to get that done.

You Call That Health Reform?

December 13, 2009

These days when people ask about health reform, I’m reminded of Gandhi’s visit to England in 1931. Somebody asked him what he thought of “Western civilization” and his answer was, “I think it would be a good idea.”

That’s how I feel about health reform: It would be a good idea.

The truth is that what we’ve been calling health reform doesn’t really “reform” the system at all. It mostly shifts responsibility from one part of the economy to the other. While the Senate’s misguided excise tax places undue and unfair pressure on working people’s health plans, both bills squeeze the middle-class enormously. How? By mandating the purchase of costly and inefficient private insurance, in order to create conditions where the lower-income uninsured can receive coverage. Maybe we should call it “health inefficiency redistribution” instead, since the few cost-containment provisions are in all likelihood being oversold.

That said, the current House and Senate bills would both accomplish some very important things. But these bills do little to lower costs, and it didn’t have to be this way. This seems like a good time to get out of the weeds and look at the situation from a slightly broader perspective.

Here are some thoughts that might help sketch the outline of real reform:

People don’t understand how the money really flows in InsuranceLand.

Ezra Klein will point out that insurance company profit margins are low. They are, but as I pointed out here, the really big insurers have better-than-average margins – and most people are covered by really big insurers.

Even more importantly, margins are artificially low for health insurers. Think of it this way: Let’s say you hire me to pay your bills for $5 each. The first bill is for $1,000, so I charge you $1,005. My profit margin is very low (0.5%), but I just made five bucks and all it took was a second to write the check (and 42 cents for the stamp). Sweet. If I do that 10,000 times I day I’m rolling in cash … and I when I bitch about my profit margins, it’ll sound reasonable to lots of Democrats and liberals.

With the cost inflation we’re seeing, health insurers aren’t “managing” anything. Like my example above, they’re just writing checks. They should be treated that way – as overpaid performers of a clerical function – until they demonstrate that they can do their jobs better. We could make some accounting changes, too.

The idea that insurers have to pay 90% of whatever they charge for medical expenses sounds good, but …

if that happens, what’s the one sure way to make sure they have more profit in the years to come? Charge more! If you only get to keep ten cents on the dollar, the only sure way to get more money is to collect more dollars. Don’t think they’d do that? I hope you’re right. But at a minimum, it certainly doesn’t give them much incentive to lower costs, does it?

There are more creative ways to accomplish the same goal – and give them the right incentives.

We already have single-payer in most of the country – but it’s private single-payer.

One study has shown that 94% of health insurance market areas in this country have a near-monopoly situation, while another showed that in 16% of markets they studied one carrier had 90% or more of the market. We have near-single-payer or absolute singer-payer in wide swaths of the country – but it’s single-payer in the hands of a profit-making elite answerable to no one.

Real health reform would do something about that.

Meanwhile, here in the real world …

So, what about the health reform we do have? I had already said that the watered-down public option probably wasn’t worth keeping, and that advocates should hang tough in favor of something more robust. Medicare expansion seemed like a good alternative to that weak public option in certain ways, although that’s a tough choice to be forced to make. There are also many unanswered questions – and it could become a dumping ground for bad risk. The number of people eligible for the plan is likely to be extremely small. And I never underestimate the political process and its ability to mess up even a marginally good thing. (See reports that Kent Conrad was trying to ensure that the expanded Medicare program can’t use Medicare rates – an idea that would rob it of any real value.)

So the Medicare expansion, even if it’s not diluted any further, is a backdown from a compromise proposal that was a itself compromise from the Democrats’ 2008 campaign pledges – pledges which were themselves less than what most experts felt needed to be done. A compromise of a compromise of a compromise of a compromise: I’ll let others decide if that’s the best we can expect from (and for) our nation.

Any good news? Sure. Both the Senate and House bills provide insurance to the lower-income uninsured (although the subsidies are too weak), create portability for people with pre-existing conditions, and limit out-of-pocket costs. (Note that I said limit and not reduce. From what I’ve seen, neither bill would lower those costs much, but they’d cap them.) But would the bill be “a pretty remarkable accomplishment,” as Mike Lux put it? Only if you grade on an extremely steep curve – one in which an “A” is not the health reform we should have, or even the one that was promised by Democrats in the 2008 election, but is the result of a process that seemed to lack the best our leaders can offer in the way of imagination and decisive leadership.

Maybe, once the bill is passed, we could use the enormous reservoir of talent our leaders possess to begin work on real reform. The work won’t end then – it’ll just be beginning.

Top Five Reasons the Baucus Bill Is Really, Really Bad

September 17, 2009

Here are the top five reasons why it’s a really bad bill:

1. Premium rules that are a giveaway to the insurance companies.

The first shocker in the Baucus bill came early on in the draft. Since  I was stunned to see that the bill allows insurers to charge up to five times as much for some enrollees as for others, based on age. (By contrast, the House draft bill only allows them to charge up to twice as much based on age.)

One of the things we’ve been hearing from the President and other Democrats is that insurance needs to be affordable to everyone, including those with pre-existing conditions. This new provision, however, is a back-door way to let insurers essentially evade that provision. High-cost medical conditions, including chronic (and therefore pre-existing) conditions, aren’t restricted to older people, of course. But they become increasingly common as we age — so much so that indexing costs to age addresses a lot of the difference. The Baucus bill allows insurers to use age as a proxy for costly medical conditions and make coverage prohibitively expensive for those who need it the most.

There’s a principle involved here. The fundamental reason we have insurance in the first place is to spread the risk, so that services are accessible and affordable in our time of need. That’s why it’s considered a social good (if done right). This provision goes a long way toward undoing the principle of shared risk.

The net result would be to make insurance increasingly unaffordable to Americans as they age. Nevertheless …

2. The individual mandate is in there anyway.

Although I’ve been critical of the way many proposals have structured the individual mandate, I’ve always said that I understand the logic behind them: If you’re going to force insurers to take all comers at a relatively average price, the healthy as well as the sick need to enroll. But if you’re allowing insurers to charge much more for the (probably) sick than they do for the (probably) healthier, why have a mandate at all? You’re not pooling risk in the manner originally proposed, so this is a heads-I-win-tails-you-lose proposition for the health plans.

3. It taxes benefits, slowly but surely.

I’ve been opposing the idea of taxing so-called “Cadillac benefits” for a long time. This plan does just that, although they’re not likely to be “Cadillac plans” for long. As I feared, the tax isn’t based on plan design. It targets plans above $21,000 indiscriminately, regardless of the reason for the added cost.

How is this terrible? Let us count the ways. First, it will hit plans hardest when they enroll older employees (who, you will remember, can cost five times as much to cover). That will penalize older employee groups, and will encourage employers to discriminate on the basis of age. Next, it will hurt people who live in urban and coastal areas where medical costs are higher (not that the Senator from Montana cares about that, I suppose). Lastly, if medical costs continue to increase at 10% per year, $21,000 will be the cost of the average plan in five or six years.

This plan’s good CBO forecast rests in part on this new tax income. In other words, it achieves much of its vaunted “budget consciousness” on the backs of the middle class. It’s a lousy bargain for workers and business alike. Granted, taxes will apply only to that portion of cost that exceeds $21,000 — but that portion will increase nationally every year. And the tax rate for costs above the cap is 35%, so it will quickly become a huge new burden.

4. No public plan option.

But you knew that already, didn’t you?

5. Co-ops can’t always “cooperate.”

First, the good news: Co-ops will be able to share data systems and some other services. Given the horrible nature of the bill overall, I was surprised to find that. But they can’t pool their negotiating ability to get better deals from providers on behalf of the American consumer. (Congratulations, Dems — more money out of the taxpayer’s pocket.)

The draft language reads: “[Purchasing councils for co-ops] shall be prohibited from setting payment rates for health care facilities and providers.” That means less savings to be passed on to enrollees.”

It’s unclear whether this provision also applies to drug companies and pharmacy benefit programs. If so, guess who that benefits? After all, most physicians serve patients primarily from one state, so this provision wouldn’t apply to them. Hospital systems may serve patients in two or three states at most. But pharmaceutical companies are national entities. If co-ops could bargain with them collectively (make that “cooperatively”), they could demand substantial savings.

This issue needs to be clarified right away — hopefully in the consumer’s favor, by indicating that it does not apply to drug companies.

The plan does other bad things, too, like the provision that will encourage employers to discriminate against lower-income workers. But hitting you with more than five of them at once could conceivably be bad for your health.

How Progressive Groupthink Hindered Health Reform

September 9, 2009

There’s no point just blaming Max Baucus, Rahm Emanuel, or Barack Obama for the current unpleasant state of health reform – although they’ve each earned their share of criticism. The Left bears some responsibility, too, for failing to set the stage for meaningful change. By granting too much authority to “experts” and ceding their judgment to the resulting groupthink, many progressives laid the groundwork for the poor state of health reform today.

The public option’s in trouble. And if Max Baucus and the other centrist Dems have their way Americans will be forced to buy health insurance that costs $12-14,000 per year. Progressives are finally raising a hue and cry about this burden, but a year ago they were busy promoting the idea that mandates were the centerpiece to meaningful health reform. Now, as the reality of this “reform” takes shape, it’s becoming clear how badly this could turn out. Rational options are being proposed. But with the mandate issue all but resolved politically, progressives have no leverage left to push their agenda.

I can’t have been the only one beating the drum about mandates (although it felt like a lonely position at times). It was clear long ago that any plan that imposes them on the American public without first creating significant savings would be a disaster, both politically and in human terms. As things stand now, a family of four without employer coverage trying to get by on $75,000 could suddenly be forced to fork over 20% of their income to a health insurer – or face government punishment.1

And according to the usually-reliable form Martin E. Segal, those costs are likely to rise more than 10% on average in the coming year, even as benefits are cut back. Mandates? To buy that??

So perhaps those of us who have been sounding the alarm may be forgiven a little frustration when we read items like this one from Josh Marshall, which asks: “Am I the only one who thinks that if the Dems pass a bill with mandates and subsidies for poor and moderate income people to purchase it but no public option or competition with the insurers, that it will be pretty much a catastrophe for the Democrats in political terms?”

His reaction’s being echoed all over the progressive blogosphere, as progressives suddenly realize the idea’s unfair – and a political loser. Jed Lewison at DailyKos called it “horrible political miscalculation” when Marc Ambinder reported that “the President continues to operate under the belief that liberals will warm to the bill when presented with a goodybag that includes an individual mandate … ”

How? How could the President get the idea that an individual mandate, especially without a public option, was a “goody” for progressives?

Because progressives told him so – over and over during the 2008 primaries. Supporters of John Edwards and then Hillary Clinton hammered Obama because his plan didn’t include individual mandates, claiming explicitly (and wrongly) that mandates equaled “universal coverage” and were therefore more “left.” And it’s still happening, as in Joan Walsh’s comment from a recent piece: “Let’s remember that Obama opposed mandatory universal health insurance and backed the GOP fiction about the need for social security reform’ – two social policy stands that put him to the right of all the leading Democrats in the primaries.”

No! “Mandatory universal health insurance” is not a progressive position, as we explained here in 2007. And it’s not even “universal,” as we explained in early 2008. That’s why Obama was able to score some points against his opponents in the primaries by rejecting mandates. That’s a pledge he broke early on without drawing liberal fire, perhaps because of progressive misconceptions about this policy. But Paul Krugman, who battered Obama on this point during the election, understands what a wildfire the Democrats will ignite if they push mandates without a public option.

Context is everything. Virtually without exception, writers who are considered progressive leaders on health care pushed for individual mandates without considering the regressive and confiscatory form they could well take, and without emphasizing that they could only work fairly in the right context. As Ezra Klein wrote when the President met with all those “stakeholders,” reflecting this progressive consensus: “Insurance market reforms can’t happen in the absence of an individual mandate. Either everyone jumps together or no one will leave the ledge.”

There is sound actuarial logic and economic calculation behind this concept. But a kind of groupthink took over. The group-thinkers decided to push Obama on mandates and assume that questions of access, fairness, and cost containment will be handled through a public option or some other mechanism. But nobody put those issues on the front burner, even though they were given lip service The result is the potentially disastrous plan facing us today.

With mandates, the execution has to be practical and fair. Taxation’s one such principle – the one I originally pushed – but it’s apparently politically unsupportable. So Jacob Hacker came up with another (as discussed in my interview with him, here). But Hacker’s plan, as with any meaningful reform proposal, requires a public option – both for cost containment and to serve as an insurer of last resort. If you’re going to force people to buy something, you have to ensure they can afford it.

How did we get here? Josh Marshall’s piece holds part of the answer. First he writes of Switzerland and Massachusetts, whose plans feature individual mandates and no public plan. But Switzerland created a rational system before things got out of control, so the Swiss aren’t being forced to buy $14,000 plans. As for Massachusetts, its reform is only vaguely popular there, where the initial problems weren’t nearly as complex as they are nationally, and is decidedly unpopular with those who have been affected by it (see summary about two-thirds of the way down the page, here).

And I have a sneaking suspicion that the people affected on the national level – independent tradespeople and contractors, for example – might just be swing voters in critical states like Indiana.

Marshall writes: “… many health care experts I have a lot of respect for still believe (these plans) would be a big improvement over the current situation.” I have respect for those people, too, but we might be better off today if Josh Marshall and others had trusted their own instincts instead of relying on a group of people who appear to have reinforced each others’ fixation on mandates. Now the progressive debate has been reduced to whether the likely final version (via Sen. Baucus) will be slightly better or significantly worse than today’s status quo – and sadly, we can’t know the answer to even that modest question yet. We could have had better than this.

So what now? Let’s encourage the people who spoke with one voice in favor of mandates to speak with one voice again – this time, in favor of comprehensive and meaningful reform – while there’s still a chance to influence this legislation.


1The new Baucus draft bill limits out-of-pocket costs to 13% of income, but that draft is jumbled and incomplete, and it’s unclear how this would be achieved. See here for details.

Co-op, Co-opt, Cop-Out: Conjugating Health Reform

August 19, 2009

A verb is conjugated according to its context. Healthcare proposals change according to their context, too. Health insurance co-ops have worked very well in certain parts of the country. But when they’re used to kill meaningful nationwide reform, “co-ops” become a “co-opting” of the political process by special interests.

I’ve already expressed my objections to co-ops in this context. Bob Laszewski calls them “the single dumbest idea (he’s) heard in the health care debate in twenty years.” I think that’s harsh – after all, I’ve heard lots of dumb ideas over the years – but Bob raises some objections I hadn’t considered.

Sen. Kent Conrad boasts on his website that his co-op idea is a “a bipartisan, compromise health care reform proposal.” But he apparently forgot to get any “bi” support. Sen. Jon Kyl rejected the idea by calling it a “Trojan Horse.”

That makes co-ops a “monopartisan” proposal.

Conrad insists there aren’t enough votes in the Senate for a public option. He has rejected Obama’s deadline for health bill, and has sent mixed signals on whether he’d even vote for a bill that included a public option. He was evasive and perhaps even a little misleading in this exchange with Robert Siegel on National Public Radio:

SIEGEL: How much would it cost to get a network of nonprofit co-ops up and running all around the country?

Sen. CONRAD: We’ve gone to the best actuaries in the country and they’ve independently come back with the same answer. They have said about $6 billion to have the insurance reserve requirements met.

Sen. Conrad wasn’t asked about “reserve requirements.” He was asked how much it would cost. The total cost for creating a national co-op network would include offices, staff, computer systems, overhead, advertising, etc. etc. … … plus those billions in reserves. (We can’t vet the $6 billion figure without knowing the underlying assumptions the actuaries were given.)

The Medicare organization at CMS already has much of the needed infrastructure in place, so it could do the job at much less cost – that is, if politicians don’t bargain away too many of these cost-efficiencies. (Here’s a little political shorthand: When it comes to the public option, “level playing field” is a euphemism for “spending a lot of money to provide political cover.”)

Sen. Conrad also said this in the NPR interview: “There are large cooperatives all across this country. Land O’Lakes is a $12 billion club functioning all across America. There are rural electric co-ops in 47 states. Ace Hardware is a cooperative.”

But healthcare is not a “commodity” like a kilowatt of power or a stick of margarine. Insurance is an amalgamation of predictions backed by financial instruments, and medical delivery is an economy in which the seller (who is frequently the physician) often controls the demand. Ace Hardware and Land O’Lakes may be fine companies, but they aren’t working models for a competitive and efficient healthcare system.

Here’s the political bottom line: Right now the “centrist” Democrats support a requirement that middle-class Americans obtain health insurance – the so-called “mandate.” If they don’t also provide a meaningful alternative to costly, for-profit insurance, the backlash against them will be enormous. Co-ops will not be able to provide that alternative.

And those who think Obama hasn’t compromised enough on the public option should take note: He’s already compromised plenty. He promised during the campaign that “any American (would) have the opportunity to enroll in the new public plan or an approved private plan.” Yet only about six million employees will have that opportunity under most proposals being discussed, according to the Congressional Budget Office. (You can read the pdf report here or see Timothy Noah’s summarization in this piece for Slate.) Six million employees is far more modest than a plan that’s available to “any American,” so there’s already been plenty of compromise.

The co-op idea is probably dead, so the public option remains the last best hope for meaningful reform. So far the President has remained above the fray, preferring to let others fight it out. He won’t have that luxury for much longer. The confrontation between progressive House Democrats and Senate Dems over the public plan option will come to a head soon. It will take a firm Presidential hand to resolve the conflict.

It’s going to take leadership to turns co-option into co-operation.


UPDATE: Speaking of Timothy Noah, today he points out that Obama is increasing funding for that “socialized medicine” over at the Veterans’ Administration. I share his outrage, but I have a suggestion: Democrats should add provisions that remove the VA’s “unfair advantages” over private insurance. That way they can ensure that our veterans receive care that is both more costly and less efficient than other Americans get.

Gotta level that playing field!