Health Reform Preview: The Obama Plan

Health Reform Preview: The Obama Plan

Pete Souza/Official White House Photo

At the outset of the health care reform debate, the incoming Obama administration and the Democratic leadership in Congress made two strategic decisions.

First, they made covering the uninsured and wringing the worst anti-consumer abuses out of the insurance marketplace a higher priority than stringent measures to reduce overall health care costs.

Second, they avoided transformational reforms including single-payer "Medicare for all" — a preference of the left — and purely individual policy-based insurance, which is favored by the right, backed by some centrists, and embodied in legislation sponsored by Senators Ron Wyden, D-Ore., and Robert Bennett, R-Utah.

Obama decided that employer-based coverage would remain the centerpiece of the U.S. health insurance system for the working-age population. To use the president’s formulation: If you like what you have, you can keep it.

The legislation that passed the House and Senate embodied those choices. Just one Republican, Louisiana Rep. Joseph Cao, voted yea. And on the eve of Thursday’s bipartisan summit, there’s nothing in the president’s latest proposals that changes either the underlying legislation or the political dynamic.

Everyone who opposed the legislation before the new plan came out has, if anything, more reason to oppose it. The insurance industry faces a national rate regulatory authority. Small businesses face greater penalties if they don’t provide insurance for their workers. High-income individuals face greater taxes to pay for reform. None of the groups affected by those changes are core Democratic Party constituencies.

Meanwhile, the administration bent over backwards to hold its own votes in place. The tax on high-cost insurance plans is delayed. While the tax hits mostly small businesses with older, sicker beneficiaries, it is also anathema to unions, who have high-cost plans because they sacrificed higher wages to pay less money out-of-pocket for skyrocketing premiums.

The president’s proposal also gives states more resources to cope with the expansion of Medicaid, a program that accounts for more than half of the newly insured under the plan. No state will have to absorb additional costs during the first four years of expanded coverage, which doesn’t go into effect until 2014, and they won’t pay their full 10 percent share until 2020. In effect, the president extended the Cornhusker compromise (the Nebraska exemption added onto the Senate bill to win Ben Nelson’s vote) to everyone.

And the individual mandate, which requires everyone to buy insurance or face a tax penalty, is made more progressive. It lowers the minimum fee that everyone must pay to $695 from $750 (except those whose income is so low or deductions are so high that they needn’t file income taxes), but adopts the higher House-passed flat tax of 2.5 percent of income in 2016 and beyond if that amount is higher than the $695.

None of the proposed changes to the Senate bill are significant and some are less than meets the eye. After the White House entertained union leaders in early January, the Senate raised the limit  of a family plan to $24,000 from the $23,000, preventing the so-called Cadillac tax from kicking in.    Raising the line to $27,500 as the president now proposes would seem to be a major concession.

However, the cap was always slated to be indexed for inflation. By 2018, when the higher limit now kicks in, the $24,000 would have increased to $27,500 or thereabouts anyway.  So the proposal is just a delay, not a change in kind.

More significantly, it still embodies the near universal belief among health care economists that most employers will hold their plan costs below the cap, and return the additional money to workers in the form of higher wages. This is supposed to hold down health care costs by forcing consumers to pay for more of their coverage.

Will it work? It will be much better at raising revenue than controlling costs. There are some consumer preference items that may get eliminated — like some unnecessary imaging tests that are currently covered by generous plans. But with 75 to 80 percent of health care costs consumed by the 20 percent of the population with chronic disease, most medical decisions are made by physicians and hospitals.

The only thing more skin in the game accomplishes for such sick, older patients is making them pay more out of pocket. That shifts the payment from tax-exempt insurers to those individuals’ after-tax income. That’s a good thing if you’re looking to raise revenue to balance the budget and don’t care whom you tax. But as far as holding down costs are concerned, there’s no benefit. 

The proposed rate-setting board for the insurance industry is also of limited use as a cost control measure. Nearly half the states already have insurance commissions that set rates. They rubber-stamp rising costs; they don’t prevent them. Still, it’s a good idea since national rate review will provide greater transparency and allow everyone to see exactly why premiums are rising.

The Congressional Budget Office analysis of the Senate-passed bill, which the Obama proposal mirrors, said health care’s share of the economy under reform would decline by just one-tenth of one percent compared to doing nothing. However, more people — but not everyone — would have health insurance.

It’s not as if there is no cost control in the bill. CBO counted nearly half a billion dollars in Medicare savings through various reforms in the program, including a sharp curtailment in the extra benefits that come with Medicare Advantage plans. The Obama administration says the overall plan will save a trillion dollars in the decade beyond 2020.

Ultimately, this legislation is what it started out to be: a serious down payment on the goal of expanding coverage, paid for mostly by higher taxes, a modest proposal for limiting the growth in Medicare, and a layaway plan for controlling overall costs. If you are an elected official not driven by the political passions of the moment, where you stand on those priorities ought to determine how you vote on this latest version of health care reform.