improvements to the current health care reform proposals

The health care debate is ramping up.  We now have a bill going forward in the Senate and one in the House, and pretty soon the twain shall meet.  In the midst of all of this, Senator Ron Wyden is finally coming out swinging. In fact, he has a very smart, very important piece out in the New York Times today which I’d like to excerpt (skip ahead if you want, it’s a long excerpt):

I believe there is a way to work with the present employer-based system to guarantee that all Americans have choices, and I am proposing it in an amendment to the latest Senate health care bill. My amendment, called Free Choice, would let everyone choose his health insurance plan.

It would impose only one requirement on employers — that they offer their employees a choice of at least two insurance plans, one of them a low-cost, high-value plan. Employers could meet this requirement by offering their own choices. Or they could let their employees choose either the company plan or a voucher that could be used to buy a plan on the exchange. They could also simply insure all of their employees though the exchange, at a discounted rate.

All payments that employers would make, whether in the form of premiums or vouchers, would remain tax-deductible as a business expense. Reinsurance and risk adjustment mechanisms already in the bill would balance the costs of employers who end up with disproportionately sick pools of workers, and this would avoid any disruption to existing employer coverage. Any employers that did not offer either their own choices or insurance through the exchange would be required to pay a “fair share” fee to help support the system.

My plan would actually strengthen the employer-based system by making it possible for even more employers to afford coverage than can today. Employers who offer high-quality health insurance to attract first-rate employees could continue to do so. And employees who like the coverage they have could keep it. Those who don’t, however, would be able to shop elsewhere.

According to one estimate, injecting this kind of competition into the employer-based system would save people and businesses more than $360 billion over 10 years. At the same time, it would improve the quality of health care.

Americans could take advantage of this change, or ignore it if they like; it would not be forced on them by government mandate. Ultimately, by empowering people to select the health insurance that makes the most sense for them and their family, we could end up with a system that works better for everyone.

Turns out, also, that the President has recently met with Senator Rockefeller and with Senators Bennett and Wyden at the Whitehouse, which may be a good sign that the President is taking seriously – if not their bill – then at least Wyden’s Free Choice Proposal which he’d like to add to the  Senate bill.  This is a good idea, even though the CBO has given the current Baucus proposal a pass, and Stan Collender thinks it’s fiscally sound.  Wyden’s proposal would help make it even more fiscally sound, not just for the government, but for consumers of health care.

Ezra Klein discusses the five things he’d do to change the Baucus bill – and I pretty much agree with each of them:

1) Kill the “free rider” provision. Kill it now. The employer mandate in the HELP bill raises more money and hurts fewer people. If that’s too onerous, then you can lower the penalties. But whatever you do, do not let this provision survive. It’s one thing to see a policy spin off the rails because of unintended consequences. It’s a whole other thing to build in a time bomb that will inflict completely foreseeable damage.

The unintended consequences of the free rider provision are bad – really bad – and actually have similar consequences to raising the minimum wage.  In this case, though, the free rider provision will incentive employers to hire part time workers over low-income workers, teenagers over single moms, and will end up doing just the opposite of what you’d think health care reform ought to do.  If we’re going to be stuck with a mandate, it should be across the board.  Of course, this can lead to some really expensive health care for people who fall outside the subsidies so….

improvements to the current health care reform proposals

  • Monthly savings required to cover average net cost of 4-year private university expenses, starting from birth: $475/month
  • Fully-loaded Honda Accord or Toyota Camry, 7% interest over 5 years: $575-600/month
  • Average tuition at a Catholic school: $675/month
  • Baucuscare for a family of four: $700/month
  • USDA/DOL estimate per-child spending for middle-income households: $800-1100/month

(Graph and numbers via Nicholas Beaudrot)

2) Increase the subsidies, and in particular, put more money toward out-of-pocket caps. The bill does a lot for the truly poor, and quite a bit for the nearly poor, but it doesn’t do enough to protect working families from the costs of illness. This costs money, of course. But that’s money you can get from implementing fail-safe policies like those advocated by David Cutler and Judy Feder. And it’s money that will prevent a massive backlash when struggling, sympathetic families are told they have to buy insurance they can’t really afford to use.

This is a fear I’ve had coming into the reform debate, actually – that reform measures would have too little benefit for the working middle class.  Real competition could help with this problem (see #3) but so could other measures, like a value-added-tax to help fund the higher subsidies possibly combined with meeting somewhere in between on income tax hikes between the Senate and House proposals (the House bill has higher taxes on high-income earners which, within reason, makes sense to me.)

3) Phase in Ron Wyden’s Free Choice amendment. This has three effects. The first is that it makes the bill better for the currently insured, as it gives them a clear benefit: the freedom to change their health-care coverage if they don’t like it. Second, the Lewin Group estimates that it raises more than $300 billion over 10 years, as workers choose more affordable plans and the government loses less tax revenue through the employer tax deduction. Third, it makes the system better by building out the alternative to the employer-based system. What’s not to love?

Seriously – what’s not to love?  This alone would make the Democrats’ health care reform proposals palatable to me.  As Dave Schuler points out, with health care costs projected to rise to rather epic proportions in the next decade or so, we have to do something now.  The status quo is simply not acceptable.

improvements to the current health care reform proposals

Yglesias thinks it’s quixotic to try to implement the Free Choice Proposal now, and he might be right – but it’s a shame that something that really ought to appeal to just about everyone on the right and the left should be so bafflingly controversial.

4) Create real competition in the insurance industry. Baucus’s plan doesn’t include a public option, doesn’t include a public option trigger, and even neuters the co-op option. I’m among the few who think there’s a real possibility that the new regulations will lead to a much more efficient and humane private insurance industry, but it is, after all, only a possibility. It’s much likelier to happen, however, if they’re protecting themselves against real competition in the market. And if it doesn’t happen even in that scenario, then at last people will actually have somewhere to go.

I’m of the opinion now that to make all this work – and to safely include a public option – we need to move away from the 50 states/50 regulations model and on to one national regulatory body, with interstate trade and competition.  With that in place, I see no reason to fear the public option, especially in its rather limited form.

5) Create incentives for bipartisanship. This bill was built amid a long, bipartisan promise. Baucus made real concessions to attract votes from his Republican colleagues. He made the bill cheaper, and eliminated the public option, and strengthened the protections against federal funding of abortions and benefits for illegal immigrants, and built in hard funding mechanisms that actually improve the deficit. Everything Republicans originally wanted is in this bill. It is, in fact, a moderate Republican bill. It looks like nothing so much as the bill Republican Senator John Chafee Sr. proposed in 1994.

This confuses me.  If the bill is actually a moderate Republican bill – why do we need to add bipartisan incentives?  Aren’t they already there?  I mean, yeah, increase competition – you can do that by changing the regulatory system we have in place and by adopting the Free Choice Proposal – but beyond that, I don’t see that the Democrats can move much further toward the center.

I’m really crossing my fingers at this point that we’ll get a few of these changes in the final bill.  I want reform to pass both for fiscal and moral reasons, and I think we’re on the verge of something very good if we can nudge it in the right direction.  Otherwise we might be left with something either very ineffective or something very bad, that actually doesn’t rein in costs and makes insurance even more expensive for American families.  I’m not quite as optimistic as Andrew is, but I hope my cynical side loses out this time.

We shall see.
See Also:  The Atlantic Wire on the 5 Worst Parts of Baucuscare

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18 thoughts on “improvements to the current health care reform proposals

  1. Ditto on national regulation. This is the one idea that Obama should take from the GOP and run with. Regulation in many states is corrupt if not broken, anyway, and the Feds have to double check everything since half the money being spent is theirs. I suspect this is where you might run into actual constitutional issues, though.

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    • Also, an obvious problem with this is that increasing the regulatory burden on the Feds would raise the cost of the bill substantially… at least a few billion. Of course it would save states that are now going broke way more than that, but it’s still a hurdle.

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  2. You realize E.D. that merits of this bill aside it’s a giant bucket of liquid death for the Republicans. If the Dems manage to pass substantive legislation like this, especially with fiscally responsible proviso’s that make financial libertarians take another look at the Democrats in a favorable light, the Republicans could be looking at an absolute blowout in the next election. Especially if the economy puts up more green shoots. Merits aside the short term political calculation says that the Republicans need to kill this thing more than ever.

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    • I’m not terribly concerned about short-term political outcomes. I care a great deal more about structural outcomes, and health reform is simply necessary at this point. Whatever short term benefits the Democrats may gain, they’ll lose again through hubris.

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  3. Amidst all the talk about how to reform health care, I find it astonishing that so little attention has been paid to the one factor that every one of us has some control over: our lifestyles. Eating well and exercising regularly don’t guarantee good health, but everyone knows that there are a few relatively simple steps that we can take that improve the odds. Shouldn’t this knowledge be built into any approach to health care in the 21st century?
    Much of the opposition to Democratic proposals for reform is based on visceral dislike of government running our lives—at least, that’s the message being made loud and clear in most of the protests. There seem to be two aspects to this resentment of big government: 1) critical decisions over what doctors we can see, and when, and where, and for what reasons will be taken out of the hands of individuals; and 2) tax money will go to provide care for those who otherwise can’t afford it.
    But if people really want to control their own lives, shouldn’t that begin with taking better care of their bodies? Isn’t it hypocritical to demand more individual control over medical decisions while pursuing dietary and exercise habits that increase the odds that one will get heart disease or cancer? Isn’t it equally hypocritical to resent public money helping the poor when poor lifestyle choices help drive up the costs of health care for everyone? By one estimate, for example, obesity adds several hundred billion dollars to the total. Aren’t people who knowingly persist in unhealthy habits the new welfare queens?
    How about a credit for health insurance payments according to the efforts one makes to take care of one’s health? If this sounds radical, consider that poor health habits amount to a pre-existing condition, for which there are already massive penalties. Someone who eats a lot of junk food, and/or doesn’t exercise regularly, and/or smokes or drinks heavily is increasing the odds of needing medical attention just as surely as someone with a family history of some form of cancer.
    Yes, I know that evaluating what is and is not a healthy lifestyle is not easy. Which foods count as healthy, and which don’t? How much exercise is sufficient, and what kinds? While there is quite a bit of scientific information bearing on these questions, there would nonetheless be very heated arguments over them. I also know that it would be exceedingly difficult to enforce such a provision–to validate that someone is, or is not, for example, sticking to the diet he claims to be following. Opponents would have a field day over scenarios in which health cops probed into every aspects of our daily routine.
    Yet there are some easily measured parameters, like body mass index, blood pressure, cholesterol level, white blood cell count, et al. that could be used. We know what healthy levels of these and other physiological processes are. Why not build into the insurance program incentives to improve these parameters?
    The ultimate goal, of course, would not be to credit or penalize people, but to use peer pressure to persuade people to make better choices about their health. And in the meantime, whenever someone raises the specter of government control, ask her, how well are you exercising the one form of control you have over your medical future right now?

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  4. I had to reread #5 a couple times myself. What Ezra means re: bipartisan incentives is to make it obvious that compromise counts. Baucus created a bill that gave Republicans most of what they want at the cost of things his own guys want, and he got nothing out of it. What Ezra wants is to make it clear to Republicans that, if they aren’t willing to provide votes, the Democrats aren’t willing to compromise. And, conversely, that if they’re willing to provide votes, the Democrats are willing to compromise.

    So the incentive mechanism looks like this: either Grassley and Bennett and Snowe, et al, starting actually signing on to the bill or we’re going to jack up subsidies, stick in a public option, and otherwise cram a whole lot of crap down the GOP’s throat. If they aren’t going to vote for the thing, who gives a crap about appeasing them? Let’s just have a liberal bill. Again, conversely, if they’ll actually vote for the damn thing, we’re willing to have a much less liberal bill.

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  5. Ezra Klein has never made any sense to me about the reasons for a public option, other than it exists as a compromise on the Left on a single-payor system. At least I understand the virtues of a single-payor system: the government has monopolistic power to set price and it has compete discretion to charge (or not charge) premiums based upon public equity. It also solves portability and removes the employers from the role of primary decisionmaker.

    If the public option increases competition, it is not likely to reduce healthcare costs. It may increase them because healthcare insurance monopsonies have leverage to demand price reductions from healthcare providers. (Competition may promote some better insurance practices, i.e. competition in those services that the insurance company actually provide, but where the insurance company is acting as agent to negotiate cost reductions from third parties, it would appear to work the opposite)

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    • If the public option increases competition, it is not likely to reduce healthcare costs. It may increase them because healthcare insurance monopsonies have leverage to demand price reductions from healthcare providers.

      This is actually not true. Insurance companies are presently used by healthcare providers to make up the shortfall in revenue (they believe) they have relative to the fees they charge Medicare.

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      • My insurance provider has negotiated with local healthcare providers to pay 80% of approved charges; IIRC the House government option would have something similar. As I see it, the principle is similar. The government or dominant insurance companies in a given market can demand cost reductions due to leverage.

        Now you are probably right that these savings are passed on, but I assume they are passed on proportionately to those with less leverage.

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  6. In re your comments on point four, urging for national regulation of health care: It ain’t gonna happen, and in all likelihood, you don’t know what you’re asking. There are two things going on here. First, what you suggest is almost certainly unconstitutional, and second, even if it were legal, you really, really don’t want that.

    On the constitutional issue, there’s this pesky thing called the “Commerce Clause” which gives Congress the ability to regulate interstate commerce, but has largely been constructed to prohibit regulation of purely intrastate commerce. Medicare and Medicaid may seem like national health plans, but in reality, what they really do is fund 50 individual programs administered by state governments. Insurance is and has always been exclusively regulated by the states, and I highly doubt that the Supreme Court would permit the federal government to assume responsibility for such regulation, no matter how badly it might want to.

    This is a different argument than the one which has been advanced against single-payer. I’m not addressing that at all. All I’m saying is that insurance regulation is a classic example of an economic issue which has always been regulated by the states without any federal interference, and as such, the Supreme Court is likely to strike down any attempted federal regulation of health insurance.

    In addition, even if such were possible, you really don’t want the federal government to regulate insurance, as attractive as the idea may sound on the surface. I’m an attorney in the insurance industry. I regularly research the requirements for P&C insurance in 50 states, as my company currently writes in 42 of them and is working on being admitted to the other 8. I’ll be the first one to say that this is kind of a pain in the ass and that it would make my job a lot easier if there were a single regulatory environment in which we had to operate.

    But this would be terrible for our insureds. State insurance regulations tend to reflect the overall environment, cultural, political, and economic, of their respective states. Health care is more expensive in some states than others, as property values, tax rates, energy prices, transportation costs, the desirability of various locations and the like all factor in to determining costs. There is no single rating plan that can adequately represent the interests of both, for example, New York and Missouri: either New York will have a woefully inadequate level of care, or Missouri will go bankrupt trying to match New York rating structures (actually, this very nearly happened as Missouri attempted to comply with Medicaid regulations), or, what is more likely, neither state will wind up with health insurance that meets its needs. The only way to avoid this is to create 50 different rating systems… which is basically what we have now.

    So national regulation of health care might sound like a good idea, but you really don’t know what you’re asking, and if you did, you wouldn’t want it.

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    • This single comment does a better job answering some basic questions about why insurance regulation is done at the state level, whether it is in fact ‘illegal’ for insurance companies to operate “across state lines,” and what the pros and cons of the status quo and of changes to the arrangement might be than a number of posts and subsequent comments discussions here and elsewhere have done. Very helpful commentary.

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