Thursday, June 4, 2009

The Health Care Reform Meter--Do the Dems Have the Money to Pay for It?

If I knew anything about computer graphics I'd post this really neat picture of a meter--sort of like a your car's gas gauge.

The full point would represent the cost of a health care bill--somewhere in the $1.2 trillion to $1.5 trillion range.

Each time someone put up scoreable savings I'd post it toward achieving the ultimate objective.

So, you will have to imagine my meter.

Here's where I think we stand today.

First, the President's original budget proposing to cut $309 billion over ten years from providers--including a lot from Medicare HMOs and elder care providers--looks to me to be on track to end up in any final bill and scoreable.

So, I feel pretty confident about posting $309 billion on my health care reform meter--the tank is about a quarter full.

The President's proposed tax increases, as part of his health care "down payment," that would affect charitable and home deductions for high income folks are dead--can't post that one.

Then there is the $2 trillion in "savings" identified by the stakeholders this week. Nothing but empty boxes because none of the stakeholders are willing to take any risk they will happen (put their money where their mouths are). That one has already been lost in the shuffle here in Washington--doesn't budge the meter.

The big one everyone is talking about is the proposal to limit the tax exemption for health insurance benefits--either "Cadillac" plans in excess of a standard plan or just phasing out the exemption for high-income earners. The most likely method would be hitting the high earners out of a Democratic fear of taking the unions on (just ask the Chrysler and GM bond holders about that one). The latter version would be worth about $550 billion over ten years.

Being able to post this one would push the meter way up to almost three-quarters of a tank.

The President, in a letter to Democratic committee chairmen this week, was non-committal on the benefit tax but all the signs are he'd sign a bill with such a tax for high income earners in it despite his sharp criticism of John McCain last fall for another version of health benefit tax changes. Just so long as it looks like the Congress made him do it.

However, I am also told that such a tax is not a slam-dunk among all Democrats. After all, the loss of the health insurance exemption for a family would probably mean $3,500 - $4,000 in new taxes. That will not be popular in many high-income states--New York for example.

It's too early to post this one to the meter but if a health care bill is to be had this is the type of thing it will take.

It is important to note that the White House has been talking about "evenly" paying for health care from both cuts to the system and new taxes. The tax on high-income earners' health benefits gets the job done almost all by itself.

There is also talk about tax increases not directly related to the health care system--a tax on sugary soda and alcohol for example, that would provide some modest additional money. These aren't automatic either--their powerful lobbies are in high gear.

In the President's letter it is also important to note that he called for $200 billion to $300 billion in additional Medicare and Medicaid provider cuts. The President specifically said he would be "open" to Jay Rockefeller's idea of putting MedPAC in charge of Medicare and Medicaid provider reimbursement--the Congress would have to overrule their decisions under a base closing-like model. That would definitely provide the scoreable savings they need but it would also be very contentious--I am not sure Congress is willing to give up that power and I know the providers would fight it to the death given the easy touch Congress has been on the doctor cuts in recent years. It smacks of the "cost board" so many oppose.

The President's interest in it may only be a negotiating tactic--"Give me something scoreable or you get MedPAC."

Well, $309 billion in already announced cuts, plus $550 billion in taxes from limiting the health care exemption, and $300 billion more in Medicare and Medicaid cuts would take us to $1.16 trillion. That about hits the "full" mark on my meter.

Does that mean we will have health care reform?

Neither the $550 billion tax increase nor the $200 billion to $300 billion in additional provider cuts are in the bank yet or on my meter.

There are also a number of non-financial issues that could wreck health care reform.

The big one is the fight over a public plan.

As I have told you before, I do not see a Medicare-like public plan option making it to the finals. Too many moderate Democrats are worried about the "unintended consequences" and even the providers have come to understand it wouldn't be just the insurance companies that would take it on the chin from a Medicare-like public plan. Proposals to require a public plan to pay 10% more than Medicare won't be enough to placate those concerns.

The fact that less than half of the Senate Democratic caucus signed a letter supporting a public plan last week says it all.

Yes, I know the President has once again endorsed the idea and it looks like Baucus will even include it in the Senate Finance draft. But that will likely endanger a health care bill because it will attract widespread stakeholder opposition. It is hard to see how the Democrats can force something as big as health care reform through all by themselves.

I also thought the President's support, in the letter to the Chairmen, for an individual mandate so long as it did not create a hardship on consumers was important. As I have posted before, I do not expect an individual mandate to survive but a soft mandate--mandating only those who can truly afford coverage or are eligible for an employer plan--might make it.

I do not see an employer mandate surviving--there is too much opposition from employers worried about losing the benefits of ERISA for that one to make a final bill.

But, all of these issues are what the debate is about.

Getting a health care bill will require navigating one giant minefield--and we haven't even entered it yet.

But soon.

Recent post: Too few reductions in health care spending and too many taxes, We Are On Our Way To Confusing Entitlement Expansion With Health Care Reform
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