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.

UPDATE 10/22: BAD NEWS FOR REFORM?

Hopes for Senate passage of a health care reform bill were further dented last night when the Democratic leadership’s proposal for eliminating the Medicare physician fee reductions required by the sustainable growth rate formula was soundly defeated.

A dozen Democrats and one independent senator joined Republicans in opposing the change proposed by Senate Majority Leader Harry Reid, which would have cost an estimated $247 billion over the next ten years. Backers of the change had hoped that it would be possible to treat the increased costs as a simple addition to the deficit, separate from other health care reform costs, but opponents refused to allow it without offsetting savings or increases in revenue.

The vote sends an ominous message to health care reform advocates: Democratic senators are unwilling to hang together behind their leadership just to facilitate the passage of reform. At the same time, since physician groups had considered passing the “doc fix” vital to their support of reform, it must be assumed that they will now shift more visibly into the opposition camp, making reform supporters’ efforts even more difficult.

UPDATE 10/8: GETTING CLOSER TO A SENATE FINANCE BILL

Publication of the CBO’s scoring of the final Chairman’s Mark version of the Senate Finance Committee’s draft reform bill at $829 billion over ten years, while covering some 94 percent of American residents, has given a big boost to Chairman Baucus’ efforts.

The CBO number is rather better than expected, and well below the $900 billion figure set by President Obama as a maximum acceptable amount. The CBO forecast that the draft bill would reduce the federal deficit by some $81 billion over the next decade, also a better-than-expected number, and one that has left Republican opponents struggling to find persuasive arguments against the bill. The CBO also estimated that the deficit would be further reduced over the subsequent decade (starting in 2020) at a rate of between one-quarter and one-half of GDP, as reform-related revenues and savings continue to exceed expansion costs.

A number of caveats are included in the CBO scoring letter and accompanying tables, including the effect of the proposed Medicare Commission’s efforts and that the forecast is based on an “English-language” version of the Finance Committee draft bill, rather than on actual legislative language. Other important cautions not specifically stated are the validity of assumptions about national health trends and the overall economy.

Chairman Baucus has now scheduled a vote on the legislative-language version of the draft bill for Tuesday, October 13. Assuming that the Democratic-majority Finance Committee votes to approve this version, it will then be combined with the version already created by the Senate Health, Education, Labor and Pensions Committee—a process that will involve some fierce horse-trading over inclusion or exclusion of a public option. Meanwhile, House Democrats are working to finalize a single version of the bills that emerged from the three House committees with responsibility for government health care programs—a version that will definitely include a public program option.

UPDATE 10/2: A FIRST FOR BAUCUS (ALMOST)

Skeptics (like this blog author) were dumfounded last night when—for the first time in the excruciatingly drawn-out health care reform saga—the Senate Finance Committee came close to meeting a deadline set by Chairman Max Baucus. The deadline—completion of markup of the Committee’s draft bill—wasn’t quite met, but missing it by a mere couple of hours seemed like a major achievement given the more than five hundred amendments that had been proposed.

Of the changes to Baucus’ original draft, most are tweaks, with the most notable being reductions in penalties for non-compliance with the individual mandate (intended to gain support from Senator Olympia Snowe)—along with (thanks to Senator Charles Grassley) a requirement that members of Congress get their own coverage through insurance exchanges.

The next step will be a formal vote next week by the full Finance Committee—with the big question being which way Senator Snowe will go.

And then, the Finance and HELP bills must be merged prior to Senate floor debate—something that will tax Senate leadership, who must struggle to reconcile the public option preferences Absolutely NO versus absolutely YES) of the two committees.

And then, if it survives, the bill faces reconciliation with the House versions…

UPDATE 10/1: “A BILL BY NIGHTFALL” (BELIEVE IT OR NOT)

In the latest of a long series of optimistic pronouncements, Senate Finance Committee Chairman Max Baucus stated this morning that he wanted to complete markup of the Committee’s health care reform bill “by nightfall” today.

If the Committee were indeed to meet this schedule, the next move would be up to Senate Majority Leader Harry Reid, who would work to combine the Finance Committee and Health, Education, Labor, and Pensions (HELP) Committee bills into a single bill to be brought to the Senate floor for debate, a process that could take weeks, and one that Senator Reid is already shifting recess schedules to allow for.

More realistically (and reflecting Senate Finance’s failure to meet any of Senator Baucus’ previous timing hopes), markup will take at least a couple more days, followed by review of the CBO’s preliminary scoring of the bill, followed by a final Committee vote.

Best guess? A combined bill will reach the Senate floor in two or three weeks’ time, to be followed by a multi-week debate.