MANDATES: THE NEXT BATTLE?

Two big political battles are going on in Washington over details of health care reform. With more to come.

The public plan fight continues to dominate health care policy news, and was fueled this past week by a letter from President Obama, to Senate committee chairs Baucus and Kennedy, expressing his strong support for a public plan option.

How to pay for reform is the second and more fundamental fight. With current cost estimates of a trillion and a half dollars over ten years, and the President promising revenue neutrality, the pressure is on to find a credible and acceptable combination of savings and new revenues.

Both these fights continue to generate visible heat with television commercials from conservatives attacking the public plan (“the government is going to control your medical care”) and unions attacking proposals to tax health benefits (“the government is going to slash our paychecks”). Neither issue will be settled soon, although much of the public plan controversy is political posturing, with a compromise approach (for example, applying a trigger to the plan, as I suggested in a post some weeks ago) seeming most likely.

The next battle—also anticipated in the President’s letter— is likely to be over coverage mandates, imposed on individuals or employers or both.

There were hints of the upcoming clash in recent comments by Senator Baucus, in which he estimated that only 94 to 96 percent of Americans would be covered under reform, then was forced later to amend his remarks to “as close [to 100 percent] as we can.” The gap between Baucus’ two estimates could be critical, since health insurers have agreed to eliminate medical underwriting only if universal coverage is achieved—and mandates are the obvious approach.

Whether imposed on employers or individuals, or both, mandates will be a political hot potato. Small businesses will fight a play-or-pay mandate, while conservatives will battle any attempt to require individuals to carry a prescribed level of insurance. The bigger problems are likely to be more practical than philosophical, though.

To appease small businesses, an employer play-or-pay mandate will have to involve only very modest “pay” requirements (as in Massachusetts) and perhaps exclude the smallest employers (also as in Massachusetts). The first would put a hole in reform funding, the second could threaten the universal coverage goal.

Individual mandates face other problems. Tying them to income tax filings will not make them more attractive, and will raise questions of how to determine compliance, what penalties to impose for non-compliance, and how to relate a retroactive process (tax filing) to a current requirement (insurance coverage). States like California and Texas, with far larger numbers of uninsured than pre-reform Massachusetts, will present particular difficulties in requiring individuals to obtain coverage.

Together these difficulties imply an inherently weak and “leaky” system, with many individuals failing to be covered, in turn leading to insurers backing away from their promises of guaranteed issuance and elimination of pre-existing condition exclusions, and to higher costs for those who do have insurance—in other words, perpetuating today’s big problems.

An alternative to mandates is some form of tax-funded voucher, with funding shared by employers and employees. The Wyden-Bennett Healthy Americans Act proposed a version of this, while the concept of shared employer-employee levies that guarantee benefits is common to Medicare and Social Security. Guaranteeing coverage to everyone who files a tax return is simpler administratively than a mandate-penalty model, would spread costs more equitably, and would reduce insurance risk.

As in the Wyden-Bennett bill, a tax-funded voucher model could allow exceptions for self-insured or other large businesses. It could also—if employer tax payments are tied either to revenues or net income—similarly allow exceptions for non-profit and governmental entities. Otherwise, the model is vastly simpler and results in lower insurer risk and enhanced price competition.

The concept of a health care “tax” is obviously politically unappealing, but only the most naïve will believe that a mandate is much different in its effect. The issue that congressional health reform designers should be considering is whether pretending that mandates are not taxes—and so can be sold somehow to the American public—is worth risking health care funding viability and universal coverage.