SENATE HEALTH CARE REFORM: TWO HUGE PROBLEMS, ONE GIANT RED HERRING

Pity poor Senator Harry Reid. Not only is he facing an uphill reelection fight in Nevada, but as Majority Leader, he must reconcile the health care reform bills from the Finance and the Health, Education, Labor and Pensions committees so as to attract sixty Senate votes. He’s guaranteed support from the more partisan Democrats, but to attract Democratic and one or two Republican centrists without losing liberals, he has to find ways to deal with two huge problems with the bills—and one giant red herring.

The giant red herring is the public option, THE big stumbling block for reform, mostly thanks to the efforts of lazy-thinking doctrinaire politicians of both parties—especially in the House. (Yes, Speaker Pelosi and Minority Leader Boehner, I mean you.) The reality is that for a public option to provide an adequate network, its payments to hospitals and physicians must be at least at Medicare levels. As experience with Medicare Advantage shows, this means its costs will be close to those of private coverage or higher, especially if it adopts Medicare’s uncontrolled fee-for-service structure and attracts the least utilization-conscious providers and patients. All this makes nonsense of liberal claims that the public option is necessary to control costs, and equally, of conservative allegations that it will destroy the insurance industry—and leaves Senator Reid’s “opt-out” solution looking merely perverse.

Unfortunately, the quasi-religious war over the public option has taken attention away from the two huge real problems with the Senate bills.

Huge Problem #1 is the conflict between mandated coverage and consumer affordability. Even with penalties of $750 or more per person, and with subsidies that limit premiums to 13 percent of income, the Congressional Budget Office estimates that 16 million eligible individuals will fail to be insured. (Rather than paying $4,000 for coverage, a $750 penalty may seem a good risk for someone earning $30,000 a year.) Since those taking the non-insured gamble are most likely to be young and healthy, the result will be a huge adverse selection impact on insurers required to guarantee issue—followed by the giant jump in premium costs that insurers (reasonably, for once) are forecasting.

With the Senate Finance Committee insisting on its approach of grafting more and more new rules onto the present health care system (remember, these are the guys who brought you the United States tax code), is there any way to deal with Huge Problem #1? Aside from big increases in penalties (politically unacceptable) or major increases to the subsidies (unaffordable), possible approaches include exceptions to guaranteed issue for those who fail to acquire coverage (the insurers will like this), allowing buy-in to Medicaid (a better deal than private insurance, so long as you don’t need care), and tying coverage selection to tax return filing (a pre-emptive strike approach that conservatives will erupt over). None of these, however, seems likely to appeal to sixty senators.

Huge Problem #2 is the need to slow the rate of increase of national health care expenditures. The Senate Finance bill assumes that slashing Medicare expenditures is the primary way to do this—ignoring the likely resulting cost shift to private payers. Can we do better? With Democrats unwilling to offend supporters by proposing real penalties for excessively generous employee coverage (unions will fight this) or nationwide tort reform (trial lawyers will resist), or effective limits on provider resources (the Obama administration has cut deals with docs and the drug industry) the best bet ought to be the insurance exchanges. Unfortunately, the Senate bills allow insurers to continue to sell directly to any employer, with all the potential for cherry picking (and resultant adverse selection and ultimate bankruptcy for the exchanges) that this implies. It’s not surprising that the insurance industry has been relatively subdued in its comments on the Senate’s efforts to date.

The sad conclusion: even IF Senator Reid manages to cobble together a reform package that attracts sixty Senate votes AND can be made acceptable to the House, we should be prepared for more of the same: lots of uninsured, skyrocketing premiums, a continuing exodus of providers from Medicare, bigger deficits (remember those premium subsidies), and a series of defeats for the party in power—but the Dems, this time.

Or, perhaps Senate Democratic leaders will suddenly see the wisdom of what CBO Director Doug Elmendorf told them in July: to control the costs of United States health care (and begin to make it affordable to individuals) will take fundamental change.

But don’t hold your breath.