Conservatives tout that we should just allow people to buy cheap catastrophic plans (i.e., with high deductibles and out-of-pocket expenses before benefits kick in). But a reform bill that does so is almost as bad as one that allows people to waive coverage and then re-enroll when they think they need to get health care. That of course leads to the phenomenon insurance actuaries call “adverse selection,” and it drives up costs for everyone while permitting “free riders” (those who get the same benefits while paying less or nothing). To see why, look at the following simplified example in the table below. Assume an insurance company insures a “pool” of two adults for very modest average annual costs of $1000 per person per year, but Person A has annual claims of $2000 and B has no claims. Disregard profits and administrative costs and assume that all premiums go to pay claims.

In Scenario 1, the insurance provides standard plans and charges each enrollee $1000, sufficient to cover its total annual costs for the pool. In Scenario 2, Person B, knowing he is generally healthy, is allowed to elect a catastrophic plan that only costs $600. The insurance company comes up short in its premiums by $400. So in the second year (Scenarios 3 and 4), the insurance company could try to double the premium for Person A if they could get away with it and make a clear profit on B. Otherwise they either have to impose a 40% rate increase on A and no change on B (Scenario 3), or else, if they are required to be community-rated, they have to impose a 25% increase on all policyholders in the pool (Scenario 4).

Note that this example does not even assume the usual annual cost trend increase; it assumes actual medical charges are held flat, and yet the pool of insured people gets a 25% increase! This example of course is exaggerated, since usually there are more very and moderately healthy individuals in the group, compared to those with high claims costs. But the actuarial principle holds true. Further, what actually happens in this situation of large increases is that more and more people either drop coverage or go to the catastrophic plan, further driving up costs for those with the regular plan. This is why many employers who introduce high deductible plans as an option often end up eliminating the other options and forcing everyone to take the high deductible plan (e.g., General Electric’s program for 2010).

It’s easy to pick on insurance company profits as the reason for rising costs. While their profits may or may not be too high, generally the reason high rate increases is adverse selection. As the Associated Press reported on the 12th (click here), insurance carriers are now coming out with huge rate increases for the individual coverage market, where coverage is not subsidized by employers and people have the option (or in many cases of course it’s not an option) to drop coverage. Increases in 4 states are ranging from 15% to 39%. For example, “Anthem Blue Cross plan in Maine is asking for increases of about 23 percent this year for some individual policyholders. Last year, they raised rates up to 32 percent.” One would think Republican Senators Susan Collins and Olympia Snowe would be more interested in solving this problem for their state’s citizens.

Echoing our point above, the article states:

“Premiums are far more volatile for individual policies than for those bought by employers and other large groups, which have bargaining clout and a sizable pool of people among which to spread risk. As more people have lost jobs, many who are healthy have decided to go without health insurance or get [a] bare-bones, high-deductible policy, reducing the amount of premiums insurers receive….

You’re going to see rate increases of 20, 25, 30 percent” for individual health policies in the near term, Sandy Praeger, chairwoman of the health insurance and managed care committee for the National Association of Insurance Commissioners, predicted Friday.

Another recent article in the New York Times reports on the same rate increases occurring in California (click here): “In statements and letters, Anthem and WellPoint have explained what the industry calls a recessionary death spiral: as unemployment and declining wages prompt healthy people to drop their insurance, the remaining risk pool becomes sicker and more expensive to insure, which in turn forces up prices and pushes more people out of the market.”

Unfortunately, these insurance underwriting issues are not readily grasped by most people. But controlling adverse selection and spreading the high health care costs for the sick across the premiums for everyone is the point of insurance in the first place. And that is why the Democrats’ bills have both a mandate for everyone to have coverage and, at least in the house bill, a requirement for a reasonable minimum benefit plan. Mixing a choice between a catastrophic plan and richer plans would work in theory if the people electing coverage had no idea about their health needs in the coming year. But most people do. Many types of treatments and tests, and of course having babies, can be targeted to happen in a year when one elects a good health plan, or put off for a year when one waives coverage or takes that low cost catastrophic plan.

Finally, health savings accounts, which typically are paired with high deductible plans and shelter income used to pay for medical costs, obviously favor those with higher incomes. Instead of making coverage more affordable for those with low or no incomes, they help exacerbate costs by encouraging the adverse selection that drives up premiums.

Showing how much farther to the right Republicans have moved since the 1990s, a Feb. 15th National Public Radio story pointed out the irony that Republicans back then proposed and fully advocated the idea of an individual coverage mandate, including four Senators - Orrin Hatch of Utah, Charles Grassley of Iowa, Robert Bennett of Utah, and Christopher Bond of Missouri, who are still serving (click here):

So why the change in attitude?

While the health care reform effort itself lies on the operating table in critical condition, Democrats and Republicans are going through the motions of trying to be bipartisan, since that seems to be what the voters want.

Actually, as we reported in the January 13th Bucks Voices update and previously, it’s not clear what the voters want. Many want very contradictory things: unlimited health care and no additional taxes or higher premiums to pay for it, an end to preexisting conditions limits but no requirement to have continuous coverage, high quality care but no collection and distribution of comparative effectiveness research to doctors, government out of their medical care but keep its hands off “their” Medicare, preventing Medicare from bankrupting the federal budget but no premium increases or cuts to Medicare to achieve this, understandable health care benefits but no government regulations to require standards on covered benefits, disclosure, communications, etc., etc. The fact that voters show much ignorance over the proposed bills and contradictory wants about reform, suggests that if the Democrats can get a bill passed and then explained to the public, public opinion about it could turn around quickly.

On January 25 the AP reported on a Robert Wood Johnson Foundation survey taken between Nov. 28 and Dec. 20 which showed increased anxiety that the reforms would make things worse off than doing nothing. The facts of course say that doing nothing is by far the worst that could happen. (See the following AP story published on the msnbc site on Feb. 14: click here).While still reflecting a minority of respondents, the survey showed an increase in concerns over reforms in these areas, compared to a similar poll done last September:

− 33% said they believed their access to care would be worse if a health care overhaul occurred, a jump from 25 percent in the poll released last month. Thirteen percent said they thought they would have better access to care in a remade system, about the same as last month.

− 30.5% said their personal finances would be worse under a health care overhaul, compared to 24.5 percent last month. Eleven and a half percent said their personal finances would improve, compared to 14 percent last month.

− 35% said the country’s access to health care would be worse under a health care overhaul, compared to 30 percent last month. Around 38 percent said it would be better, around the same as last month.

− 42% said the country’s finances would suffer under a health care overhaul, compared with 34.6 percent last month. Thirty percent said matters would improve financially, compared to 32 percent last month.

It’s clear from these results that many people don’t understand (or don’t believe) that both the House and Senate bills would provide a huge expansions of cost subsidies to individuals and small employers, greatly expanded Medicaid coverage, guaranteed coverage from insurance carriers, greater competition through regulated insurance exchanges, better prescription and prevention benefits to at least the 75% of seniors under regular Medicare coverage, and many initiatives to improve quality and control long term costs.

President Obama has agreed to one last bipartisan effort by hosting a health care summit on Feb. 25. The invitation list includes House and Senate leadership, and the chairmen and ranking members of relevant committees. The House and Senate leaders, Pelosi, Reid, Boehner and McConnell to each choose another four members and one staffer specializing in health care policy to attend the meeting. C-Span junkies note: the meeting starts at 10:00 a.m. and will be broadcast live on TV.

Democrats claim they are trying to resolve the key differences between the bills already passed in the House and Senate and then post the “new” proposal on a website. They’ve asked the Republicans to do the same. However, not much progress seems to be occurring. According to the February 16^th New York Times:

“…the White House hinted on Tuesday that President Obama might post his own bill on the Internet before the bipartisan health care summit he is planning for Blair House next week…

During a news conference last week, Mr. Obama said he envisioned posting a merged House-Senate bill that would address his goals of controlling costs and expanding coverage…

But Mr. Obama may be running out of time. His press secretary, Robert Gibbs, was asked Monday if the president would simply post his own bill if the House and the Senate cannot come to terms. “Stay tuned,” Mr. Gibbs said.” (click here)

At the meeting, the President will moderate a discussion through four major topics: insurance reforms, cost containment, expanding coverage, and the impact health reform legislation will have on deficit reduction.

Republicans are trying to figure out what they might gain or lose as a party before deciding if they should commit to the meeting, despite the claims that they were always willing to work on a bipartisan solution (so long as it meant merely their own baby steps approach). If they accept the offer, they would have to make the agonizing decision of actually committing to specific proposals that could be also criticized by the experts, media pundits, and the public.

Many Republicans of course are speaking out against participating, at least not until the Democrats agree to “start over” with a blank slate. As reported on msnbc on Feb. 8:

“If we are to reach a bipartisan consensus, the White House can start by shelving the current health spending bill,” said Senate Minority Leader Mitch McConnell, R-KY

But House Majority Leader Steny Hoyer, D-Md., said his earlier efforts to reach out to Republicans “did not result in any serious follow through to work together in a bipartisan fashion.” (click here).

According to New York Times editorial writer, Ross Douthat, on Feb 15 (click here), there is not much incentive to compromise. “…both sides believe they’re on the verge of a comprehensive victory. The Republicans are convinced they’re inches away from killing off a fundamentally misguided piece of legislation, and the White House believes it’s still this close to passing the centerpiece of its domestic agenda. In that environment, all the incentives favor posturing and finger-pointing, rather than serious negotiation.”

Further, as Douthat points out, the two sides define bipartisanship and compromise differently. If the Democrats want to pass A through F major health reform elements, the Republicans want to do A and B. So the Democrats see compromise and doing A through perhaps D. But the Republicans see it as doing just the A and B things that “all sides can agree on.” We’ll leave it to you to decide which approach sound like compromise or meeting the other side half way.

Many of course argue that the Democrats, by chucking the single payer idea and later, even emasculating the public option in the House bill and scrapping it in the Senate bill altogether, have already compromised significantly. Douthat, a conservative, spouts the usual criticisms about the Democrats’ overly regulatory solution, but also notes that the Republicans have to come up with something more than tort reform and interstate purchasing and show some real interest in covering and subsidizing the uninsured.

At least three substantially different Republican approaches have been offered up, making their own effort to coalesce around one of them just as difficult as what the Dems have had to go through:

(1) Senator Judd Gregg’s recent proposal (which resembles that reduced-sized box of soap in the grocery store that’s labeled “new and improved”). It mandates individual coverage but only a minimum catastrophic plan. Otherwise, as Jon Walker at the FireDogLake website notes, the plan is very similar to the Senate bill, suggesting he is trying to have Republicans claim credit for the same thing and that if they are so similar, then they should be able to work out a compromise. (click here).

(2) Rep. Paul Ryan’s “now for something completely different” proposal, that might please some economists but which the public would never tolerate. A key element’s of Ryan’s proposal is replacing Medicare for those now under age 55 with vouchers only adjusted to general cost-of-living increases, as well as similarly capping annual increases to the government’s subsidy for those who still do get Medicare.

(3) House Minority Leader Boehner’s proposed bill from last November, which the CBO said would hardly make a dent in covering the uninsured, not end pre-existing conditions restrictions by insurance companies, nor get Medicare costs under control, or much else.

We’ve pointed out the flaws in this before, but conservatives keep harping on one of their centerpiece ideas - supposedly reducing costs by increasing competition among insurance companies across state lines (due to less regulation by state insurance commissions). The Feb. 13 New York Times has yet another article on the pros and cons of the subject: (click here).

What a change a week makes!  Since the Massachusetts election on January 19, pundits this past week have been having a field day trying to explain why prospects for passing the House and Senate Democrats’ bills are coming perilously close to failure. There are no one or two single reasons, but several:

• Bad luck The administration was dealt a bad hand from the outset. Financial deregulation, thanks to Republican Senator Phil Gramm and buddies back in the 1990s, and the “starve the beast” strategy adopted since the Reagan administration (running up huge deficits when in power and turning them over to Democrats who are blamed for not reducing them and thwarted from spending money on their own priorities). What if they hadn’t inherited a near depression and didn’t have to help expand on the Bush administration’s bail-outs of the financial and other industries?  What if they could have passed a better and larger stimulus bill (as many called for) that would have put us on recovery sooner? What if Ted Kennedy didn’t die early in the effort to attain the political goal of his life? What if Martha Coakley ran even a so-so campaign, instead of a feeble one?
• Millions and millions of dollars spent by stakeholders to keep the status quo. “Just like in any political campaign, if you’ve had millions of dollars thrown against you, it creates a negative impression that tends to be very harmful, and that’s what happened to the healthcare bill,” former Senate Majority Leader Tom Daschle said. “Millions and millions of dollars have been directed in a negative campaign to distort and to mislead the American people, and that’s going to have an effect.”
• Wishful thinking by Senator Max Baucus Even though it was obvious back in July that the Republicans were not interested in passing any health reform bill, Senator Max Baucus, chair of the important Senate Finance Committee that needed to weigh in on any legislation presented to the Senate, kept pushing to get Senator Snow to support the committee’s bill even though her vote was not needed to get it out of committee. The result was an unfortunate delay through the recess month of August and September that helped the opposition. The Committee finally produced its bill in mid-October.
• Obama’s strategy to let the Congress design the bill based on the Administration’s principles alone This strategy pushed health care reform legislation further than ever in over 50 years of trying but it also had Congress trying to guess what the White House wanted in the details. Congress, the branch of government under our Constitution that is suppose to make the laws, has become accustomed to the executive branch of government being more of a leader in legislation development instead of only the implementer once Congress passes the laws. Even the public has come to expect more emphasis of importance on the presidency than on the equal branch of Congress. This emphasis is clear in election years when more voters come out to cast their ballot for a president than for Congress. 2010 is a congressional election year.

• A smear campaign driven largely by nothing other than blatant political opposition President Obama reached out to Republicans and John McCain in particular at the beginning of the year in the hope of bi-partisan cooperation. But Republican strategists early on issued warnings about the Democrats finally achieving a “victory” on such an issue that has defied Congress for decades. As we noted back in early May, Republican pollster Frank Luntz guided Republicans on sound-bites to use to disparage the Democrats’ proposals, based on his focus group research. And William Kristol repeated the same stop-it-at-all-costs counsel he gave Republicans back when the Clintons tried to get health care reform passed. What might be best for the country in general and the uninsured in particular was less important than the party’s own fate for allowing passage, even if seen as bipartisan.Republican Mitt Romney, known as the man who just happened to be governor of the Commonwealth of Massachusetts when the health reform program he endorsed was enacted there in 2006, even last week had to tell three whoppers to disparage the final House and Senate bills and protect his disassociation from a very similar approach. When asked on January 11 if his Massachusetts program was really all that different from the approach being proposed by Democrats, the man “from Michigan” said with a straight face that the Democrats’ approach was a “one-size fit-all plan,” “raises taxes on people,” and that you shouldn’t put a mandate on businesses (see Slate, January 20, click here). The Democrats’ plan is hardly one-size-fits-all (though one could argue, what’s wrong with that anyway?), it does not raise taxes on the vast majority of people, and the Massachusetts plan itself mandates that all employers with 11 or more employees provide coverage or pay for some of it. Likewise candidate Brown backed up Romney and disingenuously claimed that Massachusetts citizens would end up paying for both their state program and additional costs to cover those in other states.The full-press partisanship, couple with the Senate’s 60-vote filibuster rule, which the Republicans have now exploited as the new normal, meant the will of a modest majority can no longer prevail.

• Broadcast media that were irresponsible in at least three ways:
  

1. While all news networks have certain biases, Fox News has perfected the art and easily brainwashes viewers who do not bother to check other sources. Their “fair and balanced” doublespeak was clearly foreseen by George Orwell in his novel 1984. On one day in 2009, a reporter cataloged 16 negative stories in a row about the Democrats’ health care reform bills. According to media watch web site, Media Matters (click here) “In our poll, 72% of self-identified FOX News viewers believe the health-care plan will give coverage to illegal immigrants, 79% of them say it will lead to a government takeover, 69% think that it will use taxpayer dollars to pay for abortions, and 75% believe that it will allow the government to make decisions about when to stop providing care for the elderly.”  And Fox News played a central role in organizing and promoting the Tea Party rallies in Washington, including passing along the highly exaggerated attendance estimates. Read the following article and you will know that Fox News has been out to get the administration from the outset on all fronts (click here). Fox News, essentially an arm of the Republican Party, has been trying to kill health care reform, just as they are trying to kill climate change legislation and other initiatives of the Democrats.The Wall Street Journal

   (owned by Rupert Murdoch’s News Corp, the same big-business favoring, anti-regulation organization that owns Fox News) also provided a consistent, almost daily feed of negative editorials and guest columns from such “experts” as Karl Rove on the faults of the Democrats’ bills. One would have thought the drafted health bills had nothing positive to offer - that universal lifetime coverage, affordability subsidies, better prescription drugs for seniors, insurance company protections, and competition-enhancing exchanges were just minor provisions to lure people to accept a big government take-over, raise taxes, tell doctors how to practice medicine, or encourage the elderly to cooperate with those death panels. One need not even mention all the lies and fearsome “Nazi” speculations fomented by the likes of Rush Limbaugh and Glen Beck.

2. Surveys and our own meetings with citizens around the county last year showed overwhelming ignorance and false impressions of the bills. But the fault is not just with Fox News but also with CNN and the other major networks for failing to cover the actual issues at hand and instead focusing on the political contact sport and intrigues. In part, the many issues contained under the umbrella of health care reform do not easily lend themselves to TV talking heads or radio. Newspapers and web sites sponsored by organizations like the Commonwealth Fund, Kaiser Family Foundation, and Robert Wood Johnson Foundation are more able to lay out analyses and comparisons among alternative provisions.  Still, PBS’s Frontline programs, “Sick Around the World” and “Sick Around America,” and several editions of Bill Moyer’s Journal provided very informative and in-depth analyses of health care reform issues. Unfortunately, these sources are generally ignored by those who prefer the black-and-white clichés from Fox News, have more important Twitter and Facebook feeds to attend to, or get headaches from reading multiple paragraphs of nonfiction.
3. News show hosts and interviewers on all networks did not follow up on erroneous and ridiculous claims by guest politicians, because they were either too reticent to make their guests sweat or else themselves had only a superficial understanding of the issues. Politicians were constantly mixing annual health care costs of the current program and 10-year total costs of the proposed bills, leaving the impression that the latter would dramatically increase costs. Likewise, they’d leave out key details, like the fact that the gross costs of the enhancements would be offset by savings and tax increases to produce a net savings. Or they’d overlook the fact that the Congressional Budget Office’s projections were very conservative regarding possible savings and had way overestimated costs for the last three major changes to Medicare. Or they would not be challenged for their solutions when accusing the Democrats’ bills of not cutting costs, while also saying they themselves would protect Medicare (by far the biggest health care cost for the federal government) from any “cuts.”

• Messy and ultimately embarrassing special deals to secure support of key stakeholders and key votes in Congress First it was agreements with the AHIP (America’s Health Insurance Plans) organization and then PHARMA (representing the major pharmaceutical companies) to gain some savings and avoid stirring a cranky Harry and Louise up out of the crypt. Then, as the bills worked their way through Congress, it became apparent that the Democrats “big tent” super majority wasn’t all that big or super. The public option, which studies showed would have generated significant savings, increasingly was pruned back from a large tree to a small bush. Finally, lest it grow back at all, the four ponies of the apocalypse, Senators Lieberman, Nelson, Landreiu, and Lincoln chopped it down altogether.To secure enough votes in the House, Bart Stupak and friends demanded higher priority for the unborn than the uninsured, forcing pro-choice Democrats in the House and Senate to threaten not to vote for the bills. In the Senate, Ben Nelson worked on a special deal with Majority Leader Harry Reid for Nelson’s Nebraska Medicaid program, which then caused huge embarrassment for Democrats. Finally, in trying to minimize the impact of the so-called “Cadillac” employer-paid health plan tax, union groups forced a seemingly unfair deal to defer the tax on their collectively bargained plans.These “deals” are all part of the ugly legislative process (often despairingly called sausage-making) that this time was much more transparent than past legislation, when we learn of the deals after the fact, as was the case with Medicare Drug deals in December 2003. Since Obama ran on changing Washington, this was viewed as business-as-usual and angered a lot of people both Democrats and Republicans.

• Proposed bills that had to preserve a very complicated patchwork of current health care approaches in order to allow people the choice to “keep your current plan if you like it.”
  The result was an inevitably messy mix of provisions laid on top of Medicare, Medicaid, large employers, small employers, hospitals, community health services, states, pharmaceutical and medical equipment companies, insurance companies, and individuals in order to achieve universal coverage, insurance reforms, affordability, and cost savings. Not surprisingly, the bills were very long, left the potential for many gaps and unintended consequences, and were difficult to explain and justify to the many affected parties. An ideologically “pure” solution, like either the liberals’ single payer approach on the one hand, or the conservatives’ elimination of employer-coverage and replacement of Medicare and Medicaid with tax credits and individual policies offered through exchanges, on the other hand, would have been more coherent and easier to explain.

• A natural human bias against change Psychologists have long known that humans have a built in resistance to change and rather hang on to what they know than face the unknown or make a change. For this reason, for example, employers are enrolling employees into their 401(k) savings plans by default. Employees have the choice of opting out, but most stay in. When not enrolling was the starting point, most don’t bother to enroll or don’t think they can afford to (see the following Time Magazine article on the “science of change” click here).

This has been a tough week for health reform. As we have emphasized all last year, the consequences of doing nothing are truly scary:

• Costs will continue to rise at 7-10% per year, compared to skimpy pay raises if any. Take a spreadsheet and assume health care now equals about 30% of your income (e.g., your income is $50,000 and your health care costs are $15,000, which either you pay for directly or you somehow think your employer pays for it out of its own generosity). Then assume your income goes up at about 2% per year and health care rises at 8% per year. In 9 years (2019) health care equals 50% of your income. If your health care goes up by “only” 7% per year, or your income goes up by 3% per year, then health care equals 50% of your income shortly after the 10th year. Either way, much more of your pay or retiree income is going to go to health care, vs. food, housing, entertainment, transportation, travel or whatever you’d rather spend money on - sooner that you realize or are prepared for.
• More employers will continue to drop active employee health care coverage as too costly or force employees into very high deductible plans (as GE recently did). Note how over the last 10-15 years most employers have dropped retiree health care coverage, except those in the public sector or with bargained plans.
• Already 45,000 uninsured people die each year from lack of health care (15 times the number who died in the 9/11 attacks). This number will rise dramatically as more people lose employer-based coverage, are laid off, find work only as contingent workers, can’t afford individual policies, or buy high deductible or limited policies and can’t pay the out-of-pocket costs for preventive care and controlling for chronic conditions.
• Even more millions each year will go bankrupt, and millions more become at risk for it, due to lack of insurance, or policies with big gaps.
• Insurance companies will expand their underwriting rules and rating provisions to segregate people according to health risks and age (see our last e-mail update on the letter from the PA state insurance commissioner).
• More hospitals will close or move farther into the wealthier suburbs because they cannot afford the increases in indigent care.
• Medicare deficits will plow the federal government deeper into debt, as the baby boomers start becoming eligible for it, and as costly new treatments become available and people continue to expect unlimited care, regardless of whether its effectiveness has been demonstrated. Seniors will continue to resist anyone “touching my Medicare or Medicare Advantage” and certain politicians remain more than willing to pander to them. Meanwhile, China no longer agrees to be our creditor and the nation defaults.

As we’ve noted before, there’s an ongoing debate about the individual mandate in both the House and Senate bills. Here are the main criticisms:

− From conservatives: government should not require you to buy a product.

− From some liberals (e.g., Democracy for America, run by Howard Dean and his brother Jim): government should not require you to buy a for-profit insurance company product (since no public option is also available.)

− From insurance companies and large employers: the financial penalties in both bills for enforcing the mandate are too weak relative to the cost of coverage, encouraging many to waive coverage and then enroll only when the need to use it (driving up costs for everyone). In the Senate bill the penalty is the greater of $750/year or 2% of income. (Note: those with no or low income would get coverage through Medicaid anyway or large premium subsidies.)

But the defenders of the mandate argue that:

− Everyone must contribute to the pool in order to make it affordable.

− If we are going to ban insurance company pre-existing conditions restrictions and recidivism (canceling coverage after enrolled), then the trade-off is preventing individuals from signing up to use coverage when they need care (adverse selection), and paying only briefly into a system that others have funded for them. This is a version of what is known in economics as the “free-rider” problem.

− The penalties need to be small, at least at first, to get people used to the requirement. Plus small penalties still work, as the coverage mandate in Massachusetts has shown (achieving a 96% enrollment level).

− The requirement to get coverage and pay premiums to buy a universally necessary and highly regulated benefit (when you supposedly can afford to) is more like a tax and not a requirement to buy typical optional private product.

− The only other “fair” alternative to thwart the free-rider problem, which is not practical, is to have those who waive coverage sign a voucher that they will not rely on “free” emergency room or other care, funded by others. They only get care to the extent they can pay for it in cash or a loan.

As usual, the distinguished professor Uwe Reinhardt of Princeton notes a sharp contrast here in the attitudinal differences between the US citizens and those of “old Europe” (to borrow Donald Rumsfeld’s memorable phrase) and the Far East. In his blog post in the January 8 New York Times he describes how the universal health care programs in Europe, Canada, Japan, Korea, Australia, and elsewhere include everyone in the insurance pool and use community rating (charging them the same regardless of age, gender or health status). Reinhardt observes (click here):

“Community rating is so acceptable in these countries because citizens there view it not only as part of a larger social contract, but also as a vehicle for life-cycle economic planning.

The vast majority of citizens in these countries view health care as a “social good” that is to be shared on the basis of need by all on roughly equal terms and is to be financed largely on the basis of ability to pay.

By contrast, Americans have never agreed on a shared social ethic that should govern their health system, as the current debate over health reform has made visibly and audibly clear.

Furthermore, younger and healthier people in these countries realize that, but for the grace of God, they might become chronically ill only a few years hence and that, in any event, one day they, too, will be older and sicker. By paying more than their actuarially expected cost for health insurance, young and healthy people in these countries join a club, so to speak, that offers them a valuable call option. That call option allows them to procure at age 55 health insurance at a premium much below their actuarially expected cost.

By contrast, Americans have been taught that health insurance is largely a private consumption item purchased year to year and customized to the individual’s circumstances…. With the exception of Medicare, all health insurance in the United States is basically temporary.

Curiously, however, although Americans often flatter themselves with the image of being self-reliant, rugged individualists, they actually tend to rely more than citizens in many other countries on government-run health insurance and pensions in their old age, or when they fall on hard times. It is what makes the creature called “American” so perplexing in the eyes of foreigners.”

While the Congressional Budget Office (CBO) provides the official cost projections for congressional bills, the chief actuary for the federal Centers for Medicare and Medicaid Services (CMS) has also been giving forth financial projections, since the bills of course involve changes to Medicare and Medicaid. This analysis says the bill passed in the Senate, according to the New York Times (click here), “would increase total national health spending from 2010 to 2019 by $222.3 billion, or 0.6 percent.” Opponents of reform of course cite that as another red flag.

But the projection methods differ in some ways. As the Times notes, the CMS approach “does not take into account a number of the proposed tax provisions in the bill that would increase government revenues.”

Interestingly, the CMS projection estimated that 36 million more people would get coverage under the Senate bill, compared to an estimate of 31 million by the CBO.

According to the Times article:

While it is happening in private consultations, Democratic Party leaders of the House and Senate are supposedly making progress on resolving many of the differences between the bills passed in each house of Congress. The biggest issues and likely outcomes are:

−Public option (in the House bill): likely to be removed, in order to secure passage in the Senate. But the trade-off is stronger insurance regulations, such as eliminating the anti-trust exemptions for insurance companies (in the House bill but not the Senate one).

− A national insurance exchange (House bill) instead of, or in addition to, state-based ones (Senate bill). A national exchange would enable tighter and more uniform regulation of the insurance industry.

− The 40% excise tax on high cost insurance plans provided by employers: since proponents claim it will bring in a lot of tax revenue and control costs by pushing people into plans with higher cost-sharing, the provision may stay in, but with a higher plan cost threshold (e.g., $25-28,000 annual cost for family coverage, vs. the initially passed $23,000).

− Tax increase on high incomes (House bill) and Medicare payroll tax increase on higher incomes (Senate bill): both may be adopted but with a reduced increase or higher threshold, if the excise tax is preserved.

− Low income subsidies to help pay for coverage and limits on plan out-of-pocket expenses: they are leaning towards the House bill, which provides higher subsidies and tighter limits on the out-of-pocket cost. But the consequence of course is higher costs, requiring higher taxes to cover them.

− A higher eligibility threshold for Medicaid (the House bill’s 150% of poverty level, vs. the Senate’s 133%) and a higher share of federal funding of the increase in order to reduce the states’ burdens - also bring a higher cost.

− An independent Medicare Advisory Council to change how we pay providers for care under Medicare, and indirectly all health plans (in the Senate bill).

− The effective date for many of the provisions, such as the exchanges (2013 in the House bill, vs. 2014 in the Senate bill).

The outcome of other controversies, such as restrictions on abortions, are not yet clear. But it is very unfortunate and historically myopic that such a huge effort to improve the financial security and health of Americans has to bend through so many contortions set up by a few representatives and senators in order to win passage.

The theme in most of these changes is the need to increase the 10-year cost of the bill by about $50-100 billion, threatening to miss President Obama’s target of keeping it under $900 billion over 10 years (before using taxes and other controls to produce a net savings and reduction in the federal deficit). It seems like a big problem. But keep in perspective that the projected 10-year costs of the current health care system is $35.3 trillion (according to a projection by the Centers for Medicare and Medicaid Services. Adding another $50-100 billion over 10 years is an increase of 0.14% -0.28% in total national health care spending and 0.33-0.67% in federal health care spending. According to the American Gaming Association (gambling industry) we spent $94 billion in just 2007 alone (likely over $100 billion a year now). Think we can afford better health care, like the rest of the industrialized world?

You can read more about the attempts to resolve the House and Senate bill differences in these articles:

Washington Post (click here)

Politico (click here)

As you know, the Senate passed its final bill on December 24th by 60 to 39 votes, just sufficient to overcome the Republican filibuster. Now the House and Senate leadership are working on a combined bill, designed to pass both houses of Congress, ideally in time for the President’s State of the Union Address at the end of January or beginning of February. But because there is even less “margin for error” in getting the final bill passed in the Senate, the final draft is more likely to reflect the Senate bill than the House one. There are several sources for comparing the final Senate and House bills. Here are two sources, one at a high level and the other with a lot of detail:

• Comparison in the Washington Post (note: you may find it easier to download the PDF file than tab through the comparison on the web page): (click here)
• Kaiser Family Foundation Comparison of just the Medicare provisions in the two bills (use the first link on the page): (click here)
• Kaiser Family Foundation Comparison (available as a very detailed PDF file, or you can check off only the provisions that you are interested in comparing and get a web page summary): (click here)

Not only Republicans but also some liberal Democrat interest groups and bloggers are angry with the Senate Democrats, but for different reasons of course. For example, see NY Rep. Louise Slaughter’s December 23rd article on the CNN web site “The Senate Bill Is Not Reform” (click here). These liberals are upset at two issues in particular: the failure to include a public option in the Senate bill (forcing people to buy insurance company products) and the fact that it does include a tax on “high cost” health plans provided by employers.

The House bill still has a public option in it, available only to those having to get coverage from an exchange (non-employed individuals under age 65 and those working for small employers). But as noted, the fear is that it will be “compromised” out of the final bill, as some House Democratic leaders are admitting.

We’ve discussed the public option and its potential advantages ad nauseam. But to throw in the towel in hopes of getting a future bill with the public option or getting to a single payer system in the foreseeable future in our culture is not very realistic. Those liberals who want to start over because the final bill might lack a public option or has other annoying provisions had better read Nate Silver’s “20 Questions for Bill Killers” on his well-respected politics web site, FiveThirtyEight: (click here)

Here are two of his questions specific to the public option:

Even Yale professor Jacob Hacker, who first promoted the idea of a public option, says that we need to pass a bill, even if the public option is dropped. In his December 20th article in The New Republic (click here) he says the final bill will still contain three critical reforms: the exchange(s) for individuals and small employers to compare and purchase coverage, subsidies to make coverage more affordable, and insurance reforms. We would add a fourth: health delivery system reforms, which perhaps need to be made stronger and implemented more quickly than the current provisions allow for, but which still finally put us on track to save long term dollars.

If a public option is omitted from the final bill, Hacker urges that it at least include a national health exchange, rather than the state-based ones provided for in the Senate bill, since a national exchange will give government more influence in regulating the insurance companies, and requiring financial transparency and reports.

Another and broader take on the need to pass a final bill with all its faults is found in Jonathan Chait’s December 24th article in the New Republic, “And the Rest Is Just Noise” (click here). Chait concludes:

Regarding the tax on “high cost” or “Cadillac” health plans, the debate rages on. The CNN News web site has a good article summarizing the different tax approaches that the House and Senate bills take: (click here). The Senate bill would impose a 40% excise tax on insurance companies or self-insured employers (which most large employers are) to the extent a plan’s value exceeds $8,500 annually for single coverage and $23,000 for family coverage. This value includes dental and vision coverage and reimbursements from flexible spending accounts or health reimbursement accounts, and employer contributions to health savings accounts (yes, these are three different types of accounts with varying tax rules). For example, a plan with a total value of $10,000 for single coverage would incur a tax of 40% x (10,000 - 8,300), or $680. If the insurance company had to pay it, they likely would spread it into the cost of all plans. If a large self-insured employer had to pay it, it would likely drop the plan or increase the cost-sharing provisions (co-pays, deductible, etc.) to lower the value.

The Senate bill does have provisions to increase the dollar threshold annually, but only at the rate of general inflation plus 1%. The bill also makes exceptions for high risk industries, higher costs regions, and employees over age 55. But as we all know, specific thresholds and exception rules tend to have sharp edges. Some survive and some are cut.

It is often reported that most economists don’t like the income tax exclusion given to employer-paid health coverage that is not given to others having to get coverage themselves. It’s inequitable, encourages providing rich benefits in lieu of pay, hides the real cost of these benefits, and locks them to employers rather than to individuals. But rather than start to take away this $250 billion annual tax loss, Senate Democrats tried the indirect trick of taxing the insurance companies or self-insured employers for “excessive” benefits.

Nevertheless, this approach is supported by some, like Washington Post columnist Ezra Klein and MIT health economist Jonathan Gruber, since it seems to partly redress the above problems and provides some revenue to help fund the health bill.

Gruber wrote a guest editorial in the December 28th Washington Post in support of this tax (click here). The tax is an important revenue source for helping to fund the overall bill, supposedly by bringing in about $150 billion over the next 10 years through either the excise tax itself or the higher wages that employers supposedly will offer in place of reduced health care benefits.

But New York Times columnist Bob Herbert said that’s hogwash, according to his December 29th column (click here). Employers may reduce the health benefits (or direct their insurance carriers to do so) in order to avoid the excise tax. But what’s the likelihood they will convert that to higher salaries, especially in an economy projected to have employees begging for work? Herbert cites a recent survey by the human resources consulting firm Mercer, in which only 16% of the surveyed employers said they would convert the savings from reduced health care costs into higher pay.

Health care reporter Maggie Mahar backs up Herbert in her Dec. 31st Heath Beat blog (click here). She makes a further argument that we will not save costs by increasing out-of-pocket cost sharing provisions:

Many of the individuals cannot afford high deductibles, etc. to begin with (also the reason why high deductible plan are not a good solution).
Patients generally rely on their doctors for advise on what to do, especially when it comes to deciding on further tests or procedures.
Higher cost-sharing only tends to reduce utilization in terms of filling or refilling prescriptions or going to the doctor-all of which we want to encourage, especially since most of our costs are from chronic conditions that need to be monitored and controlled.

Mahar makes a strong case that the best hope for cost control is not taxing health benefits but letting “an Independent Medicare Advisory Commission (IMAC) that uses medical evidence …encourage effective care… If Medicare follows IMAC’s recommendations, Medicare has the clout to change the way it pays for care, saving money and lifting quality by rewarding value rather than volume. Other insurers might then follow Medicare’s example.” This was the hope for the public option. Mahar sees it as also possible through Medicare itself, if empowered to change provider behavior. And to get the needed revenue, she backs the House bill’s approach of increasing taxes on high incomes, since they have made out the best with previous tax cuts and income gains over the last decade.

Finally, law professor Timothy Jost and health policy professor Joseph White echo Mahar’s ideas and suggest that if Congress wants to limit rich benefits, then they should do that by specifically defining them, rather than using a blunt instrument, like the dollar threshold (click here).

If you are eager for a recap of the flavor of the 2009 “debate” on health care reform, health care author and blogger, Maggie Mahar, reviews “The 10 Most Destructive Lies, and the 10 Most Constructive Insights, Suggestions, and Questions of 2009″ in her December 24th “Health Beat” column: (click here).

Overall, here’s one very sad lesson some of us have learned over the past year: the exponential increase in the casual willingness of so many politicians, media pundits, and average Americans to baldly lie rather than risk considering and being persuaded by others’ ideas. It used to be that democracy was about debating ideas in the hope that the best ones would emerge evident to most of us. Or if no ideas emerged with a clear consensus, then we at least give the benefit of the doubt to the will of the majority. Now politics for many is about the art of lying to put the opponent on the defensive and smearing attempts at constructive solutions without offering detailed alternatives of ones own (sorry, but “common sense” broad principles are specific legislative solutions). Even once a lie is called out, the damage is done, apologies are not made, or recants and “clarifications” are merely noted on the back of page 24. It started with discovery that dirty political campaigns work when the electorate is generally uninformed. Now it’s spread to 24/7 dirty legislative (or counter-legislative) campaigns.