Senate smothers the life out of health care reform

I shouldn't be surprised. Mark Twain himself once said, "Imagine that you are a senator. Now imagine that you are an idiot. But I repeat myself." (or something like that). Why did I think that the Senate would produce a health care reform bill that would accomplish what President Obama set out to do?

I hope I am wrong in predicting that the Senate will fail to pass meaningful health care reform legislation this year. But here's why I think I'll be proved right:

1. The Republican bloc has chosen to derail health care reform, rather than to work to bring to a vote a package that they could live with. Their motivation can be only short-term political gain, and their act is one of destruction, rather than edification. The Republican bloc is not acting on behalf of American citizens, but on their own political behalf. For that reason, every one of them should be voted out of office at the very next possible chance.
2. Liberal Democrats have been surprisingly willing to compromise, but I suspect that they're tired of (in their eyes) selling out and will soon tire of compromise and will return to demanding more socially inclined legislation, led by their party chairman Howard Dean, who is now publicly calling for the current Senate bill to be thrown out.
3. Joe Lieberman is becoming drunk with the delusion of power, and will insist on his way, which in summary is to defeat any and every idea and amendment offered by the liberal Democrats.

The result will be a compromise that nobody is happy with.

Here's what I would be happy with: a private health care plan chartered and managed by the Office of Personnel Management and priced by market forces. Subsidies will be awarded to purchasers based on their income level. Don't expand Medicaid. Don't offer Medicare to persons aged 55-64. Instead, put all of these folks in the OPM-managed health plan. While ostensibly more expensive than the Medicare and Medicaid options, it would in fact end up being more affordable, because both government insurance plans (Medicare and Medicaid) are priced on misconceptions and are not adjusted by the market.

Without a "semi-public" option, as some are calling this, the private sector will not deliver affordable health plans for the currently uninsured. And without some form of public option, the bill won't pass the Senate.

But, for the sake of argument, let's say the Senate does pull itself together and passes a health care reform bill. Whatever squeaks out of the Senate will be a far cry from what the House generated, and the Conference Committee will have a herculean task pulling a mash-up out of these two disparate pieces of legislation.

President Obama, may I make a suggestion? While the clowns of Congress are performing on the current three-ring circus, bring your staff together in the West Wing and write a Health Care Reform Bill that accomplishes what you set out to do. As soon as the current effort flops, bring your bill to both houses, and commence twisting arms until they break or pull off. You won't have to water it down like the current bills because you'll be able to leverage Congress' failure to empower your negotiating position.

The pundits say that your presidency will live or die by the success or failure of health care reform. Pundits are stupid. They said the same thing about Bill Clinton, and his presidency, though sullied by failing to reform health care, was nonetheless very successful. BUT, if the pundits are right, and health care reform will define your presidency, wouldn't you rather be responsible for what ultimately passes?

Senate Finance bill will become the centerpiece of reform

The health care reform bill being crafted in the Senate Finance committee, chaired by Sen. Max Baucus, will become the core of whatever bill ultimately passes both houses of Congress. We will all need to read the bill (I haven't started yet) so that we know for ourselves what the bill puts forth, rather than trusting the pundits to explain it for us.

By now everyone should realize that virtually everyone has an axe to grind when it comes to health care reform. You're not going to get a straight presentation from any major information outlet. So read the bill for yourself.

What I have picked up from reading the Wall Street Journal (still, in my mind, the most objective and accurate reporting on health care reform), as well as other news sources, is that the Finance bill has effectively killed the public option. As I have said before, I think that's a good thing, because the public option was going to start at Medicare payment rates. Most physicians aren't very good businessmen, but those who are will undoubtedly have refused to contract with the public option plan. They are already losing money on Medicare patients and can't afford higher volumes of patients at those payment rates.

Hospitals are even less adept at business than physicians, so most of them probably would have signed on with the public option. The hospital where I work is losing money on Medicare patients. For every dollar we spend to care for a Medicare beneficiary, the government is reimbursing us 90 cents. We can't afford more health insurance plans that pay at Medicare's rates.

Nancy Pelosi and other liberal Democrats will raise cain over the Senate's rejection of the public option, but in the end they will not be able to reverse the direction that Congress is moving.

There is a moderate possibility that the public option will be retained as a "trigger" option; that is, the public option will be retained in reserve and will be activated if the market fails to provide an acceptable level of coverage at a reasonable price for lower income individuals. I would support using the public option as a "poison pill" of sorts. Without the threat of austere action, the players in the health care market will not be sufficiently incentivized to produce the necessary reductions in cost (and economic profit) required to bring health care spending in line.

Let me be so bold as to suggest that you write your senators and ask them to support a delayed public option health plan to be activated only upon the failure of the market to generate the necessary reforms.

The Public Health Insurance Option

The public health insurance option is a component of the House health care reform bill (HC 3200) created to, in the words of the President, keep the insurance companies "honest" by engendering price competition. It has been criticized by some as unfair competition, and others believe it to be creeping socialism.

We don't know, of course, what impact the public option will have. We can be sure that there will be significant unintended consequences arising from the public option if it survives public debate, and currently it looks very much like it will not survive in whatever final form health care reform legislation takes.

The President betrayed his true feelings about the public option when he so quickly signaled, at the first sign of stiff opposition, that he was willing to surrender on that point. Current posturing about the public option is an exercise in backpedaling designed to unruffle the fur of the far left. The Senate bill does not contain a publicly funded, government-sponsored insurance plan, opting instead for non-profit cooperatives, a clear signal that the public option won't survive a Senate vote.

On the outside chance that the public health insurance option does make it into whatever legislation is finally passed, let's review what HR 3200 actually creates.

What's good about the public option:

• The public plan will allow physicians to participate on the same two levels currently seen in the Medicare plan; that is, they can participate as "preferred" providers, who will accept the payment rate as set by the public option plan (analogous to "accepting assignment" in Medicare), or they can sign up as "participating, non-preferred providers," analogous to Medicare participating providers who do not accept assignment. This latter designation allows the non-preferred physician to charge more than what the public option allows, but caps that additional amount, probably at the same rate as Medicare, which is, I believe, 120% of Medicare's rate.
• Physicians will not be forced to participate. There will be an opt-out clause.
• Physician reimbursement will increase at least 1% per year. This is in contrast to Medicare, where physician pay rates have been scheduled to be cut significantly each year, according to a schedule created by Congress years ago, which Congress has overridden every year since.
• Premiums will be set according to actuarial realities; that is, contrary to what many fear, the Commissioner of the plan will be required to charge premiums at rates set to actually cover the cost of providing insurance. This means premiums will not be artificially low, consequently gutting the insurance industry, as well as causing market disequilibrium (artificial supply/demand construct).
• The public option will exist only on the individual health insurance exchange. It will not compete with group health plans. This is good because individual plans are currently priced to favor the insurance companies (oligopoly market, creating economic profit at the expense of the consumer). The public option will move the market toward perfect competition. On the other hand, the group insurance market is probably too fragile to compete with the public option, mostly because employers would leave their current plans in droves to purchase cheaper rates from the government.
  
• Perhaps the best aspect of the public option is that the Commissioner of the plan will have the freedom to experiment with reimbursement mechanisms in order to incentivize improvements in quality and patient outcomes; for instance, increasing reimbursement for primary care physicians who create "medical homes" (that's a whole 'nother blog).

What's wrong with the public option:
Aside from the general caveats, which, prejudiced as they may be, are probably accurate , there are specific problems I can point out. In terms of the general caveats, they are the charges being lobbed at "government-run" health care by its detractors; for instance, the government has a penchant for breaking everything it tries to fix. In attempts to make health care more efficient the government will create layers of bureaucracy, and run the business like a courtroom or a legislature instead of like a business, ironically increasing the cost astronomically rather than saving money. Charges like these are unsubstantiated only because they are predicting a future as yet unrealized. However, the government's track record is dismally clear. Even President Obama himself pointed out that the government-run postal service is imploding while private enterprise mail delivery (FedEx, UPS, DHL) is thriving.

Now onto the specifics:

• The legislation sets initial reimbursement rates at current Medicare rates. The government really believes that Medicare reimbursement is generous. I know because I read the outpatient hospital payment updates published in the Federal Register every year (you think HR 3200 is bad at 1018 pages . . . the proposed 2010 updates to the outpatient prospective payment system was over 1800 pages this year!). But I can tell you that no physician in his/her right mind will accept 100% of Medicare. Most contracts with private insurance plans peg reimbursement as a percentage of Medicare, usually somewhere between 110% and 130%. Why would a provider, who successfully negotiates with Aetna and Blue Cross for, say 115% of Medicare, agree to accept straight Medicare rates from the public option? Unfortunately for the public option, the law creates a provider escape clause, and I predict most providers (at least the good ones with full waiting rooms) will exploit.
• Providers other than physicians (e.g. hospitals, nursing facilities, ambulance companies) have a take-it-or-leave-it reimbursement option: they can agree to accept Medicare rates or they can opt out. Big providers like hospitals are used to taking Medicare rates, and they will generally feel intimidated by the government's market dominance to accept these rates.
• From an economic perspective, setting rates artificially at Medicare reimbursement levels will cause supplier shortages. As I said above, Medicare rates are too low already. In a real free market, suppliers would stop producing if the price was set artificially below the cost of production. In the whacky health care world, we adjust our losses by shifting costs onto our paying customers, in this case, the private health insurance plans. This in turn creates artificially high prices for these customers. Or, another way to look at it is as a hidden tax tacked onto your health insurance premium.
• The plan will truly be run by the government, including the Dept. of Treasury creating a special bank account for the plan. As we said above, the government does not know how to do anything efficiently. It creates additional layers of bureaucracy, and regulatory hurdles, and a slavish devotion to process with complete disregard to outcome. The government would be better off hiring private insurers as contractors to deliver these services, just as they already do with Medicare (NOTE: you may think Medicare is a pure-bred government-run health care plan, but in all actuality, it's only government-funded. CMS pays private companies, like Blue Cross, to administer the program for seniors).
• I am afraid the the most devastating unintended - but certainly not unforeseen - consequence of the public option will be the demise of employer-sponsored group health insurance plans. American industrialists are a creative bunch, getting where they are in part because of their problem-solving skills and their stick-to-it-iveness. Employers will find a way to bump their employees off of group plans and into the individual insurance market, where they will pick up the public option. Let's face it: the dreaded 8% (of payroll) penalty that will be levied against employers who do not provide health insurance to their employees is a BARGAIN compared to the true cost to employers of providing health insurance in the first place. For this reason, if for no other, I would prefer the Senate's solution of creating non-profit coops to compete against the private insurance industry.

The Public Option introduces some good ideas to the health care reform debate, but as a complete package, I am afraid that the dangers outweigh the promises. This is probably a moot point, since I predict the public option will be excised from the final bill.