There Are Four Health Insurance Renewal Cycles and Two Elections Between Now and 2014—Could be Sort of Like a “Death By a Thousand Cuts” for the Dems

The Congressional Budget Office (CBO) issued a report today saying that if the Reid bill becomes law the price of non group policies would be about 10 percent to 13 percent higher in 2016 than it would be under current law. The CBO projects that small group and large group premiums would be about the same in 2016 as they would have been anyway as the benefits of the bill would offset some of its new costs.

But what is likely to happen to health insurance rates in 2010, 2011, 2012, and 2013 before any of the bill's benefits occur for both the insurance markets and consumers?

I would suggest Democrats not overlook the potential for political fallout in those years.

By delaying the start of most health insurance reform benefits—including insurance subsidies and underwriting reforms—until January 1, 2014 the Reid health care bill creates a real risk of unintended political consequences for the Democrats.

Or, maybe I should have said almost certain consequences that Reid may not have thought of.

On the front end, figuring out he could bring his bill in for under a trillion dollars by collecting ten years of taxes and only providing six years of the most costly benefits sounded good. May not sound so good as the years to 2014 begin to seem like an agonizingly long time.

Over two national election cycles in fact.

Having run a health insurance operation let me suggest I can give you some insight into how a health plan manager is going to have to look at this.

Even before any health care bill, annual health insurance rate increases are back in the 8% to 10% range—and often more for small businesses and individuals. That kind of rate increase has been the norm over the past ten years and, particularly with health care providers facing cuts and under-reimbursement from government plans because of the pending legislation, there is no reason to see that abating.

To that 8% to 10% baseline, you can add a number of reasons to expect even higher health insurance rate increases each year on the way to 2014:

• All of the new taxes and fees the bill creates that begin in 2010. Most notably, the $6.7 billion annual tax on health insurance premiums and the 40% excise tax on “Cadillac health plans expected to hit almost 20% of consumers in group health plans right away. The $6.7 billion tax alone is likely to increase the baseline health insurance trend rate of 8% to 10% by an additional 1.5%. Additional taxes on medical devices and drugs will also just get added to those products’ costs and will eventually be passed through to consumers in the form of higher insurance premiums and out-of-pocket costs.
• The $6.7 billion premium tax, as well as the 40% “Cadillac,” tax are scheduled to begin on January 1, 2010. While insurance companies are sure to eventually pass these annual taxes on to their customers they will most often not be able to do so upfront because most health insurance contracts renew early in the calendar year. Posting here a few weeks ago, Wall Street analyst Carl McDonald of Oppenheimer and Company had this to say about the dilemma health insurers will face in 2010 because they are responsible for a tax they will not yet be able to pass on:

“Take Blue Cross Blue Shield of Rhode Island. The company seems pretty well capitalized at the end of 2008, with a risk based capital level of almost 745%, well above the Blue Cross industry average of 700%. However, on a dollar basis, the excess capital held by the Blue amounts to only about $205 million relative to the minimum capital allowed by the Blue Cross Blue Shield Association. In 2008, the Blue generated about $1.76 billion in premiums, or about 0.35% of the total estimated revenue for the industry. That implies that the Blue in Rhode Island would be responsible for paying about $23.5 million of the $6.7 billion tax. With this legislation, over 10% of the excess capital of the Rhode Island Blue would be wiped away.

“And that's for a plan that's extremely well capitalized relative to the rest of the industry. Coventry just bought a plan in Kansas this week called Preferred Health Systems. If we look at the larger of the two subsidiaries that was bought, called Preferred Plus of Kansas, it had a risk based capital ratio of 320% at the end of 2008, as it held about $11.6 million of excess capital at the end of the year above the minimum 200% RBC ratio requirement. With $285 million in revenue, Preferred would be responsible for 0.06% of the $6.7 billion tax, or almost $4 million. So the legislation would eliminate about a third of the excess capital of the plan, and reduce its RBC ratio to 280%.

“So while paying the tax in 2010 probably wouldn't put many smaller plans out of business, it would create some capital issues that would have to be rectified through higher premium rates in the ensuing years in order to build the capital base back up, which would likely result in further market share gains by the larger plans in the market, resulting in less competition, a direct contradiction to one of the goals of the legislation. So, add more on to the underlying health care trend rate so these health insurers can restore the capital they lost having to absorb taxes they could not pass on.”

• The Democratic health care bills also make huge cuts to the Medicare Advantage products—$118 billion in the Senate bill of which $34 billion is reduced through 2014. Medicare Advantage is very profitable for the insurers. Particularly the publicly traded plans will need to prove to their investors that they can maintain their overall margins in the post health care legislation world. Those lost Medicare Advantage margins will have to be replaced by compensating from their mainstream business—another reason why health insurance trend will have even more reason to be higher than the baseline.
• The proposed 2014 underwriting reforms are controversial. While the CBO downplays their impact, it is generally believed in the health insurance industry that there will be increased anti-selection as some consumers wait until they are sick to buy coverage. That means no insurance executive is going to want to go into 2014 under-reserved, short on capital, or with thin pricing margins—every reason to get those rates up as high as the market allows before the new rules take effect. Another reason to increase health insurance trend yet again above the underlying base of 8% to 10%.
• Beginning in 2014, under the legislation there will be a three-year $25 billion reinsurance assessment health insurers will be responsible for collecting from all customers and paying to the government. This assessment is designed to cushion the impact of millions of consumers being able to buy health insurance policies without having to face pre-existing condition and medical underwriting. Any prudent health plan manager will begin to put the money away for that monster hit sooner rather than later. Another reason for health insurance rate increases to be higher than the baseline in the years leading up to 2014.

What I am outlining here is not some draconian plot to just pump health insurance rates up. The fact is that every health plan manager—publicly traded or not-for-profit—has a fiduciary responsibility to keep their health plan in the black and meeting insurance department minimum capital requirements—not to mention shareholder expectations.

The Reid bill—as well as the House bill—treats the insurance industry like a piggy bank with one revenue cut, tax, assessment, or mandate directed at them after another. As I have said before, insurance companies don’t pay premium taxes—they pass them along. As the McDonald comments attest, insurers will have no choice but to pass all of this along, they simply do not have the margins to absorb any of it.

So, when the day is done, come the 2010, 2011, 2012, 2013, and 2014 health insurance renewal cycles there will be lots of bad news passed on to health insurance customers in the form of new assessments and taxes—not to mention as much risk margin as can be loaded in to offset the expected anti-selection under the new underwriting rules.

Some politicians might see this as a reason to “control prices.” But the fact is that these are just the consequences of these bills that someone is going to have to pay.

For the Democrats, waiting until 2014 to point to any real gains from their health insurance bill, it just might begin to seem like a “death by a thousand cuts” as every bit if this just gets passed on—year after year.

But for right now, they’ve got themselves a health care bill well under $1 trillion!

We may need to remind them of that in November 2010 and November 2012 and November 2014.

Talk about a potential for a political hangover.

The Senate Democratic Health Care Bill is a “Milestone” on the Road to Cost Containment—If It Is It's a Pretty Small One

The Obama administration is reportedly pleased with a recent Ron Brownstein article in the Atlantic.

In it Brownstein praises the Reid Senate health care bill for the steps it takes toward containing costs. He quotes MIT economist Jonathan Gruber who says, “My summary is it's really hard to figure out how to bend the cost curve, but I can't think of a thing to try that they didn't try. They really make the best effort anyone has ever made. Everything is in here.... I can't think of anything I'd do that they are not doing in the bill. You couldn't have done better than they are doing."

You can see why the White House liked the column.

But reality is a little harder on them.

While the Reid bill does begin down a road toward better value, that road is a very brief and incomplete one. A few of the things it does to "bend the curve" or not:

• The Reid bill does establish a Medicare board with the power to focus payments more on value than quantity. But then the Reid bill pointedly excludes the commission from even touching hospital costs until 2019. According to the CBO, the way it is structured it would have little if any impact on physician costs. After 2019, the commission would only have the power to deal with Medicare costs that grew faster than overall health care costs—not growth greater than the economy generally.
• The Reid bill does include a public option health plan that proponents argue would provide existing health insurers with more competition. But the CBO says its premiums will likely be even higher than those in the private market.
  
• The bill would penalize hospitals that infected their patients—but only by 1%.
• A provision to encourage more cooperation among doctors would not apply to chronic diseases!
• The bill does tax high cost "Cadillac" health plans. However, it provides no incentives for the vast majority of consumers with premiums below the $8,500/$23,000 threshold to encourage them be more discreet purchasers of their health insurance.
• The Reid bill does spend money on more comparative effectiveness research. But it provides no significant incentives for either providers or consumers to take advantage of it.

It looks like we are in the “yes it does", "no it doesn’t" phase of the political health care end game.

That the Reid bill hardly starts down the value for what we pay road is underscored by a November 23 statement from the National Coalition on Health Care—a group of 85 diverse stakeholders. They aren't buying the spin that Reid has achieved a cost containment "milestone:"

“As we move closer to a final bill, Congress must act to strengthen the systemic cost control and quality improvement provisions of the pending legislation. Without immediate and system-wide reform more and more American families and businesses will face uncertain financial futures due to escalating health care costs. America needs real, affordable, fiscally responsible health system reform.”

Perhaps the best hope for real systemic change could come from a robust Medicare commission that takes the recrafting of the health care system out of the hands of the Congress. In my mind, the cost containment/value answer lies in the integrated delivery of health care—systems such as Mayo, Marshfield, Cleveland, and Kaiser Permanente.

Getting the system to move in that direction will likely take a series of iterative steps based upon pilot projects and trial and error that give providers good reason to want to be part of these kinds of systems or figure out ways to provide comparable care. But it will have to be a slow, deliberative, and iterative process as we learn what we don’t know today. In the early 1990s the market tried to quickly move the system in that direction when we introduced capitation and about blew it all up.

The longer-term trial and error process that it will likely take to finally move the system toward one of value is not something that is going to be driven in the political arena. The best chance is for a robust independent and expert Medicare commission with the ability to make the hard decisions year after year.

Whatever the best way to do that the incentives are not in the Reid bill--or the House bill for that matter--to get us on that road.

Under the Reid approach, a cost commission that can’t even touch hospitals or doctors is not the result of an effort I would have described as one in which, “You couldn't have done better than they are doing.”

Comments like that do provide for some political cover for one “budget buster” of a bill though.

Don't Rationalize Busting the Budget--Start Over

I detect a growing rationalization among supporters of the Democratic health care bills: The recent flare-up over when a woman should have a mammogram proves we are nowhere near ready to pass a health care reform bill that will actually control costs. So, why bother?

You would be hard pressed to find any health policy expert who isn’t disappointed that cost containment has fallen off the health care “reform” express. In fact, it’s more commonplace to hear the term “budget-buster” when these bills are discussed.

Now, even many proponents of the bills are conceding there isn’t a lot of cost containment in them and beginning to argue that since the American people aren’t ready for real reform let’s just get on with passing what’s on the table.

But this rationalization misses something very important.

Read the rest of this op-ed at Kaiser Health News.

The Democratic Health Care Effort--A Political "Charge of the Light Brigade?"

The latest polls are an unmitigated disaster for Democrats even as they're on a fast track to get their health care legislation passed.

This from Rasmussen this morning:

“Just 38% of voters now favor the health care plan proposed by President Obama and congressional Democrats. That’s the lowest level of support measured for the plan in nearly two dozen tracking polls conducted since June.

“The latest Rasmussen Reports national telephone survey finds that 56% now oppose the plan.

“Half the survey was conducted before the Senate voted late Saturday to begin debate on its version of the legislation. Support for the plan was slightly lower in the half of the survey conducted after the Senate vote.

"Prior to this, support for the plan had never fallen below 41%. Last week, support for the plan was at 47%. Two weeks ago, the effort was supported by 45% of voters.

“Intensity remains stronger among those who oppose the push to change the nation’s health care system: 21% Strongly Favor the plan while 43% are Strongly Opposed.”

But it is not just Rasmussen that is measuring a dramatic slip in approval ratings for the Democrats on health care. Here are the last five consecutive polls released in the last week:

• Fox - Favor 35% Oppose 51%
• Quinnipiac - Favor 35% Oppose 51%
• CBS News - Favor 40% Oppose 45%
• CNN - Favor 46% Oppose 49%
• PPP - Favor 40% Oppose 52%

(Source: http://www.pollster.com/polls/us/healthplan.php. Polls taken November 13 to 18)

On Sunday, in his column "A Budget-Buster in the Making," David Broder had this to say:

"I have been writing for months that the acid test for this effort lies less in the publicized fight over the public option or the issue of abortion coverage than in the plausibility of its claim to be fiscally responsible.

"This is obviously turning out to be the case. While the CBO said that both the House-passed bill and the one Reid has drafted meet Obama's test by being budget-neutral, every expert I have talked to says that the public has it right. These bills, as they stand, are budget-busters."

I keep asking the same question: How can the Democrats ram anything so big and complex through as these health care bills with approval ratings--now in the 35% to 40% range--so low?

They seem intent on showing us.

How Can Harry Reid Keep a Straight Face Telling Us His Health Bill Will Reduce the Deficit?

The accounting gimmickry in Harry Reid’s Senate health bill is astounding even by Capitol Hill standards.

Reid says his bill will cost $850 billion and reduce the deficit by $130 billion—all over ten years.

Based upon the outline Reid gave the CBO that could well be right. But let’s look at it further:

• Reid delays most of the spending in the bill to 2014—a year longer than in the House. More importantly, his new taxes start in 2010. That is ten years of taxes and only six years of the expensive entitlement expansion! Who wouldn't want to use that gimmick to balance their books?
  
• He once again avoids the $250 billion Medicare doc fee fix—apparently he didn’t get the message when the Senate voted down his attempt to pay the docs off with the $250 billion but just add it to the deficit. Since everyone knows the docs will get their money just add $250 billion to his $850 billion cost. (Unless you are one of those who says since the SGR was wrong in the first place so we shouldn't count it--and I want my capital losses back from last year because the financial crisis was wrong.)
  
• He collects billions in new long-term care program premiums—a program that will have relatively low first year outlays—and lets that income offset the bill’s costs elsewhere making the overall bill’s net costs far better than they really are. That gimmick gives Reid about $70 billion of his $130 billion "deficit reduction." Sort of like spending the kids' college savings and claiming your family budget is balanced.
  

But maybe the real sleeper is this from the Congressional Budget Office’s (CBO’s) letter to Senator Reid regarding his bill (from page 17):

Key Considerations. These longer-term calculations assume that the provisions are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress.

The legislation would put into effect a number of procedures that might be difficult to maintain over a long period of time. Although it would increase payment rates for physicians’ services for 2010 relative to those in effect for 2009, those rates would be reduced by about 23 percent for 2011 and then remain at current-law levels (that is, as specified under the SGR) for subsequent years. At the same time, the legislation includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). The projected longer-term savings for the legislation also assume that the Independent Medicare Advisory Board is fairly effective in reducing costs—beyond the reductions that would be achieved by other aspects of the bill—to meet the targets specified in the legislation.

Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades—well below the roughly 8 percent annual growth rate of the past two decades (excluding the effect of establishing the Medicare prescription drug benefit). Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decades—much less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear.

Basically, the CBO is saying its estimate that this thing would cost $850 billion and reduce the deficit by $130 billion is based upon unrealistic assumptions.

But Reid got the answer he was looking for!

We started the year in search of health care reform and this--so far--is what we get.

Why Isn't the Press Talking About Affordability--For "Ordinary Folks"?

I thought Trudy Lieberman hit the nail on the head in a post she did yesterday at the Columbia Journalism Review entitled, "Missing Persons--How Will Reform Affect Ordinary Folks." Here is a small part of it:

The media have talked about affordability mostly in the context of whether the country can afford reform, not whether individuals can afford it. It’s easier for a reporter to write about humongous numbers like $900 billion or $1 trillion, and give the arguments that those sums will or won’t add to the federal deficit, than it is to spend several hours with the Joneses in Peoria finding out where in the family budget they will find $8,000 to pay for health insurance. And the advocates—reform’s uber-cheerleaders—who see victory at hand aren’t terribly eager to point out that mandatory insurance might be unaffordable after all. Making that too transparent might undermine all the work they’ve done to advance legislation this far.

But what could be easier for a reporter than to write about the impact the current bills will have on a typical reader's checkbook?

Take a look at this chart and explain to me how a middle class family will be able to afford to purchase health insurance under either the Senate or House bills? This indicates the amount a family would be expected to pay for health insurance after any new federal premium subsidies:

The Outlook for a Health Care Bill in 2009

Readers of this blog know of my yearlong pessimism over our getting a trillion dollar health care bill in 2009.

With the historic passage of the House bill, are we now on our way to a big health care bill in 2009—or even by early 2010?

Clearly, Democrats desperately want to pass a bill. Given their compromise over abortion and the neutering of the public option in the House legislation—things most liberals said they would never agree to—it is clear the Democratic leadership will take any deal they can get.

But there are still some giant obstacles on the way to a Rose Garden bill signing late this year or early next:

1. Getting and keeping 60 Senate votes across a wide spectrum of complex issues. Senate Majority Leader Reid has not achieved a 60-vote consensus on any of the dozen or more contentious issues. In the wake of Pelosi not being able to get more than a two-vote margin for the neutered public option, some Democratic Senators will have no interest in the “robust” version with the state opt-out Reid has been talking about. He has made even less progress on all of the other contentious issues--and you can put abortion on the top of that list. Figuring out the “sweet spot” on each issue that keeps the same 60 votes on side for the entire bill would take a super computer—if that were even possible.
2. The growing angst over these health bills not bending any cost curves and actually getting the savings from Medicare that is projected. With the demise of the robust public option even a lot of "sympathetic voices" are having second thoughts. How many op-eds and editorials can you have announcing this is not health care reform and it is likely to continue adding to deficits before everyone wants out?
3. The latest blow was the report from the CMS actuary that says Medicare beneficiaries will suffer from the program cuts in the bills and health care costs will more likely continue to add to the deficits. I expect opponents are cutting new ads using the CMS report against the Democratic bills at this moment.
4. The polls are still showing opposition well ahead of support for the Democratic bills. Pollster.com combines a number of polls finding 42.5% favor and 48.6% oppose. How do you pass so big a piece of legislation with approval ratings in the 40% range?
   

If Reid finds a way to keep 60 Senators onside it will be an example of a political master performance. If he fails it will be the more likely outcome.

More than anything else, I sense a rising tide of anxiety particularly among people who understand this issue and want a health care bill: Somewhere we lost our way on the road to health care reform and we now find ourselves headed to an entitlement bill that falls far short of achieving universal access and a bill we still can’t afford. This will eventually spill over to mainstream voters already anxious about a trillion dollars in new spending in the midst of an economic crisis.

That is not the place Democrats would have wanted to be just when they need to overcome what would have been stiff resistance under the best of all circumstances.

The End of the "Robust" Public Option and the Potential for "Robust" Cost Containment?

Two things happened this week that in tandem have the potential to lead to a compromise over a health care bill.

First, there are unconfirmed reports that Senate Majority Leader Reid is leaning toward offering the neutered version of the public option like that in the House--not tied to Medicare rates, providers not required to participate, and provider reimbursement rates negotiated.

The second development is the growing call for a bipartisan commission to offer solutions to entitlement spending (Medicare, Medicaid, and Social Security) that the Congress would have to vote up or down via a super majority vote.

No health care bill will pass either the House or the Senate with a robust Medicare-like public option--as I have been telling you since spring. But this neutered variety, which the CBO said would likely develop rates higher than in the commercial market, has passed the House (by a very slim margin) and could potentially pass in the Senate. That is by no means certain with at least a couple of the Senators Reid needs to get to 60 votes indicating they wouldn't support most if not all versions of a public option.

The other growing discomfort with the current health care bills--particularly among the Democratic moderates and conservatives Reid and Pelosi need on their side--is the lack of any cost containment in the bills. That anxiety probably has more potential to derail a health care bill than anything else.

But now at least 15 Democratic Senators are saying they will not vote to increase the federal debt ceiling without an entitlement commission.

With the Congress facing the need to vote an increase in the federal debt ceiling by mid-December, we could see such a commission enacted before any final vote on health care.

I will suggest that if we had that entitlement commission in place many Democrats would be far more comfortable voting for a health care bill. While I doubt many Republicans would be enthusiastic about the health are bill itself, they would feel a lot better if there were such a commission.

Of course, all of this depends upon just how robust that entitlement commission would really be. There are few if any details now on the table. It would also depend upon the final details in any public option--there are still fears even the more neutered variety could have unfair market advantages or later be converted to the more powerful model.

Would such a commission be more focused on tax increases to narrow the entitlement programs' impact on the deficit? How much power would it have to implement systemic health system change? Would it end up being a one-time effort or more focused on the likely need for ongoing systemic change as it became clear what was working and what was not?

And so far Pelosi and her powerful House committee chairs have been more than just unenthusiastic about the ceding a huge part of the federal budget to an independent entitlement commission (not to mention losing a source of lots of campaign contributions).

In the end, a health care bill might just hinge more not on how "robust" the public option would be but on how "robust" an entitlement commission would be.

The Best Health Care Idea All Year

Out of almost nowhere has come momentum for a proposal to create a bipartisan entitlement and tax commission to draft proposals to control the long-term costs of Social Security, Medicare, and Medicaid. The idea would require the Congress to quickly vote the recommendations up or down via a super majority vote.

The idea isn't new--proposals for a such a commission have been around for a longtime.

What is new is the bipartisan enthusiasm that is growing--particularly in the Senate. Coming out of the Budget Committee, and Chairman Kent Conrad and Ranking Republican Judd Gregg, the idea is picking up bipartisan steam with, among others, Republican Senate Minority Leader Mitch McConnell expressing general support for the idea.

A number of Senators have threatened to tie their votes to raise the deficit ceiling to establishing such a commission.

If the recent Democratic health care bills have made one thing crystal clear it is that the Congress is wholly incapable of dealing with cost containment under present circumstances.

The House Health Bill--Loading More People Onto the Titanic

Our health care system is truly titanic, in more than one sense of the word.

Not only is it huge, but it's also growing at unsustainable rates that undermine our health care security and fiscal stability - and threaten to sink the system under its own weight.

When the health care debate began in earnest just after the November 2008 election, it was supposed to be about reform-moving the nation toward universal coverage in a system that could be sustained in terms of costs. We could no longer "kick this can down the road."

Read the rest at Kaiser Health News.

AMA Supports the House Democratic Health Care Bill--Take Another Look

The AMA came out in support of the House Democratic health care bill this afternoon—sort of. From their press release:

“The American Medical Association (AMA) today announced support for concurrent passage of H.R. 3962 and H.R. 3961, U.S. House of Representatives health system reform bills."

I would suggest the operative word is "concurrent."

HR 3962 is the big House health care bill. HR 3961 is the standalone bill that would spend $210 billion (latest CBO score for the bill) to cancel the Sustainable Growth Rate Formula cuts and pays for it by adding the full cost to the deficit. That proposal failed in the Senate a few weeks ago when only 47 Democrats supported it.

In short, the AMA is saying we’ll support the House bill but it is going to cost $210 billion in additional federal debt to get our vote.

At least they know exactly what they want!

What will be really interesting is to see where the AMA stands on the Democratic health care bills when they finally figure out there isn't another $210 billion in the bag for them.

What's worse? That the AMA would so blatantly put a $210 billion price tag on their support or that they are gullible enough to be played by a Democratic leadership that only had 47 votes on the Senate floor two weeks ago for the very same thing?

The House Bill Should Be Defeated on Saturday

Here's the email I just sent my Congressman, freshman "Blue Dog" Frank Kratovil of Maryland:

Please vote no this weekend on the House bill.

This is not health care reform.

This is at least a $1 trillion entitlement expansion paid for half with only modest provider cuts and $500 billion in taxes.

Real cost containment would bend the curve and produce the savings needed to accomplish universal access.

Being roughly deficit neutral, as its sponsors claim, is not enough. We are at 17% of GDP today and we would still be spending at least 22% of GDP in 2018 if this "deficit neutral" bill were to be passed. Real reform would begin to bring costs down to affordable levels.

The bill's subsidies do not deliver affordable health insurance to the middle class. A family of four making $65K would still have to pay $6,500 a year toward their health insurance net of subsidies. How many such families have that kind of money in their checking account?

This is not health care reform. It does not bend the cost curve. It does not deliver affordable health insurance to the middle class!

I also call your attention to an excellent column today at Kaiser Health News by James Capretta. A couple of excerpts:

"Then, last week, along came the long-awaited revision to the House's July bill. The Speaker asserts that the new version stays within the president's $900 billion budget, but that is plainly not the case. The Congressional Budget Office estimates that the Medicaid expansion, the new subsidies for insurance premiums in the exchange, and the tax credits for small businesses offering coverage will cost $1.055 trillion over 10 years. In addition, the bill has scores of other spending provisions that would add to the government's costs. There's an expansion in the program that subsidizes the premiums and cost-sharing for low-income seniors, costing $13.5 billion over a decade. There's also a new program to pay primary care physicians more in Medicaid ($57 billion), increase the Medicaid matching rates in 2011 ($23.5 billion) and much, much more. All totaled, these other spending provisions add well over $200 billion more to the bill's total spending.

"The only way House Democrats can claim to stay within the president's stated budget is by ignoring the non-coverage spending in the bill and by netting the cost of the coverage expansion with new taxes collected from those who decline insurance and employers who "pay" rather than "play." But this kind of accounting makes no sense. If the spending budget set by the president can be met by netting out taxes, it's essentially meaningless, because any level of expenditure could be acceptable if coupled with an offsetting tax increase. That's not what the president meant to convey in his speech. And Democrats have yet to explain what could possibly justify all of the other spending in the bill.

"Then there's the issue of physician fees in Medicare. The "sustainable growth rate" formula calls for a 21 percent cut in physician fees in 2010, which no one supports. However, the 10-year cost of full repeal is nearly $250 billion. In July, House Democrats proposed to include a full repeal in their health care plan, along with scores of other Medicare provisions. Now, however, they want the SGR repeal to pass in a standalone bill so they can claim the costs of health care reform are lower. It doesn't matter to taxpayers if Congress passes all of this in one bill or two. The total cost is the same either way.

"Overall, then, the House plan, including the SGR fix, is to spend about $1.5 trillion over the period 2010 to 2019 on health care, well in excess of the $900 billion budget the president promised to the American people...

"So what does the House bill do to cut costs? Orszag touts the inclusion of more bundled payments, incentives for hospitals to cut back on preventable readmissions, and other similar changes. But these are minor adjustments that are doomed to get watered down as time passes. In the main, the House bill would simply reduce payment rates in Medicare and Medicaid to save money, including large cuts in reimbursement levels for hospitals, nursing homes, and home health agencies. These cuts are not calibrated to reward quality or encourage more integrated models of care. They are applied across the board. And they certainly do not constitute delivery-system reform. On paper, they appear to reduce Medicare's per capita cost growth rate. But if payment rates were the answer to the cost problem, it would have been solved long ago.

"The president built high expectations at the beginning of this year that health-care reform would finally tackle the difficult entitlement and cost issues necessary to building a sustainable system of insurance coverage. But the House plan has devolved into a large tax increase (about $725 billion over 10 years) and entitlement expansion, with very little by way of "reform." It's not too late for a serious course correction. But if the president and his aides continue to signal that House bill is acceptable, they will never be able to deliver the real reform the president has promised."

Read the rest of Capretta's column here.

The Neutered Public Option—Where’s the Rage?

The public option contained in the House Democratic health care bill is hardly more than a neutered version of the “robust” public option one House Democrat after another said was a minimum requirement to keep their vote on health care reform. After threatening for months to fall on their swords if they didn’t get the “robust Medicare-like” version, there was nothing but enthusiastic support for the neutered version from almost all Democrats when the bill was unveiled last week.

Readers of this blog know that I don’t think the Medicare-like public option would be good policy because it would focus on provider price suppression as its primary cost containment tool when value based-purchasing is really the objective we need to be after. I have never understood why proponents thought cutting both the best and the worst providers payments exactly the same 20% to 30% was going to put us on a course toward better health care value.

So, what have they settled for?

From the CBO: The House version of the public plan “would typically have premiums somewhere higher than the average premiums for the private plans” in competition with it.

The House version is little more than the Senate’s co-op idea. At least Senate Finance wants to spend $10 billion setting those up. The House bill claims to be able to set up a national insurance plan for $2 billion!

But then what kind of value-based purchasing would you get from the new version of that public option. “60 Minutes” recently did a report on Medicare fraud pointing out that Medicare’s approach to cost management—pay all bills in 15 days without checking anything—has led to a rampant fraud problem as crooks, who steal lists of seniors, just bill Medicare for things that never happened, quickly get paid, and move onto their next location with literally millions of dollars in their pockets before Medicare finally catches on.

And, just which providers would contract with this House version of the public plan? The House bill makes provider participation voluntary and requires provider payments to come in no lower than Medicare and no higher than average commercial insurance reimbursement. Which doctors and hospitals would voluntarily take less than the commercial rates they already complain about? Likely not the best or most attractive providers.

If the public option has to pay the same rates commercial insurers do to get the best providers what price advantage would it develop?

But, you might argue, even this kind of public option will be cheaper because of its Medicare-like expense factor? Guess again. Just who processes health claims for Medicare in those 15 days Medicare mandates? Health insurance companies as Medicare contractors.

Move away from a universal program covering 40 million seniors and into a voluntary individual insurance program that will require marketing costs, individual policy issue, individual monthly billing, claim paying, the need to build a stabilization fund, raise money to build, negotiate and manage provider networks, and all of the rest, and what do you have? An insurance company.

To be sure the government insurance company will have a lower expense factor—it won’t pay taxes or pay shareholders. But now we are talking about a single digit expense difference all the while the public plan grapples with perceptions it is more like Medicaid than Medicare and likely saves little money actually managing anything.

But sick people might like the plan. If all the public option is going to do is pay claims in 15 days, patients looking to get away from the “hassle of managed care” might find it a lot more convenient!

Don’t expect any of the business interests to support the neutered House version. Their perspective is that it is set up to fail so that when it does it will need to be “rescued” in the form of converting it to the same Medicare-like plan that went nowhere in 2009.

While I have disagreed with proponents on the effectiveness of the public option as a cost containment tool, I have been gratified to see many of these same people point out the health care bills have little in the way of cost containment. Their response was that the public option was a necessary means to that end. Without the public option, many said, there was no hope for long-term affordability.

Now that the public option has been neutered in the House, and in that context an even more reluctant Senate is more unlikely to take any bold public option steps, just what will all of these people who saw it as the tool to manage costs say now?

As I have been saying for months, we are not on our way to health care reform or any real cost containment result. Maybe we are on our way to a trillion dollar entitlement expansion paid for half with modest provider cuts and half with $500 billion in new taxes. Undoubtedly a new infusion in the health care system of a trillion dollars, paired with cost containment “lite,” is a prescription for even more health care inflation.

I wonder what the robust public option proponents—beyond their outward enthusiastic support for the new House bill—really think about that?

So much for anybody falling on their swords.

On the issue of a public option being able to competitively manage the cost of care see also today's story: "Medicare Experiments To Curb Costs Seldom Implemented on a Broad Scale" at Kaiser Health News.