After some frantic last minute political gyrations and a lot of pressure from the President, House Democrats have announced details of their draft health care reform bill.
Much as expected, the 852-page bill emerging from three House committees would impose a mandate on larger employers to provide insurance, impose a second mandate on individuals to obtain coverage, prohibit medical underwriting by insurers, establish a government-administered public plan to compete with insurers’ offerings through insurance exchanges, offer subsidies to lower-income individuals, and expand Medicaid. The target ten-year trillion-dollar (or more) price tag would be funded through a combination of taxes on high income individuals and reductions in some Medicare and Medicaid payments.
So, is this the answer to the nation’s health care crisis of sky-rocketing costs and growing millions of uninsured?
The bill does make a serious effort to cut the numbers of uninsured. As Massachusetts’ experience has shown, a combination of Medicaid expansion and subsidies for other lower-income folk, combined with mandates on employers and individuals, can significantly increase the numbers of those with coverage. However, this is an expensive approach, as Commonwealth taxpayers can attest. It is also one that is likely to be less effective on a national scale during a recession than when implemented in one wealthy state during better economic times.
Both the employer and individual mandates have weaknesses. The employer mandate, with its option of a modest levy instead of paying directly for insurance, could lead to firms currently providing coverage choosing the less expensive levy, while the exclusion of smaller firms from the mandate could result in restructuring of businesses into multiple pseudo-independent units. The individual mandate suffers from similar weaknesses: penalties may be insufficient to force the young and healthy to obtain coverage, while the application of penalties to only those for whom “affordable” coverage is available provides an obvious loophole.
A big reduction in the number of uninsured with no new controls over costs carries its own risk. As Massachusetts—even with only a modest percentage increase in its covered population—discovered, making health care more accessible means a jump in demand, but with no corresponding increase in supply. The predictable results: higher prices and disenchanted consumers unable to obtain care.
While the House bill’s approach to reducing the numbers of uninsured seems at best problematic—and in which failure to achieve almost universal coverage may undermine attempts to impose restrictions on insurers’ medical underwriting practices—the much bigger failure is the absence of changes necessary to bring health care costs under control.
For larger businesses and their employees, already facing higher than CPI annual premium and out-of-pocket cost increases, the bill provides little help. In fact, the increase in demand for care resulting from expanding coverage is likely to mean—in accordance with normal economic laws—even higher premiums.
For government budgets, the draft bill implies ever-increasing crises. If Medicaid eligibility is expanded to all those with incomes below 150 percent of FPL, the ten-year cost will exceed $500 billion—even assuming implementation is not immediate—to be financed somehow by cash-strapped states and the federal government, on top of expenditures that are already growing far faster than revenues. And while the draft bill includes numerous provisions relating to Medicare, the CBO scoring of an earlier draft concluded that only a $160 billion reduction would be achieved over ten years—a very small bite out of a projected growth in expenditures of over $2.2 trillion (and with the Medicare Trust Fund exhausted by 2017).
Perhaps not surprisingly, the House Democratic leaders in their Capitol Hill announcement chose not to address either the direct cost of the draft bill’s provisions or—the real elephant in the living room—the continued enormous growth in government and private health care expenditures that the bill would do so little to control—and that seem likely to bankrupt us all.
The sad conclusion—notwithstanding the howls from business groups— is that the bill’s Democratic drafters have chosen to duck the really tough decisions (and the Republican opposition has succeeded in being both evasive and intransigent in trying to protect the profit interests of its own financial supporters). So, politics as usual.