Private Health Insurance Exchanges––Will They Save Money? Will the Idea Grow?

Private health insurance exchanges will save employers money but not make health insurance cheaper.

Because private health insurance will save employers money, they will grow.

Will Private Insurance Exchanges Reduce Health Insurance Costs?

There's lots of buzz these days about private insurance exchanges. The idea is to give employees more choice in purchasing their own individual coverage from a big menu of insurance companies and plan alternatives, and as a result, create more robust competition and thereby help control costs.

But I think private insurance exchanges will have just the opposite effect on the price of large employer health insurance plans.

Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

House Budget Chair Paul Ryan (R-WI) and Senator Ron Wyden (D-OR) have embraced a Medicare reform plan that in concept borrows heavily from one championed by former New Mexico Senator Pete Domenici and former Clinton budget chief Alice Rivlin.

Specifically, Wyden and Ryan are proposing to alter the earlier Ryan Medicare plan by:

1. Continuing to offer the traditional Medicare plan—Ryan would have eliminated it—in addition to a range of private Medicare plans offered by health insurers.
2. Tying federal Medicare premium support to an amount equal to the second lowest cost Medicare plan—public or private—available to seniors in each market. Ryan would have set a flat premium support amount in year-one and increased that only at the rate of inflation.
3. Instituting a series of consumer protections and medical underwriting rules designed to protect seniors.
4. Instituting an annual cap on what the federal government could pay for Medicare at an amount equal to the increase in the nation’s GDP + 1%—Ryan would have capped annual increases in the federal premium support amount at the increase in the consumer price index.
   

On this blog I have been arguing that the risk for health care costs rising too quickly should not be borne entirely by seniors--that the stakeholders who really run the system should be most accountable. And, that is what the Wyden-Ryan plan would do: "Any increase over that cap will be reflected in reduced support for the sectors most responsible for cost growth, including providers, drug companies, and means-tested premiums,” their plan states.

The Wyden-Ryan plan would begin in 2022.

Under Wyden-Ryan, if Medicare costs increased at a rate greater than the cap, the Congress would have to determine where to make reductions in spending—they could not directly cut senior benefits. Just what would force them to do that is unclear.

The new Wyden-Ryan Medicare policy proposals accomplish an elegant combination of key progressive and conservative health care reform principles. Their proposal also produces an enormous political bombshell on the eve of the 2012 elections.

Wyden and Ryan also propose to improve the under-age-65 employer health insurance market by allowing businesses with fewer than 100 workers to move to a defined-contribution model without tax penalties—something that is very similar to the earlier Wyden-Bennett health reform plan.

An Elegant Policy Compromise
Republicans have supported a defined contribution approach to Medicare reform. Already, House Republicans have voted in favor of the first Ryan proposal. That proposal would eliminate the traditional Medicare plan and replace it with a premium support system, or voucher, with which to buy from a range of private Medicare offerings. Any annual increase in the value of the premium support under the first Ryan plan would be capped at the rate of annual inflation as defined by the consumer price index—health care costs have consistently risen at much faster levels.

On this blog, I have been very critical of that proposal because it would shift all of the risk for the adequacy of any future federal premium support entirely onto the shoulders of seniors.

Democrats generally believe in the current Medicare plan, that seniors should be guaranteed a defined Medicare benefit and that the government pay a fixed portion of all Medicare costs as it does now—a defined benefit plan.

The problem is that the defined benefit Medicare plan we now have, and the government’s guarantee to pay most of its costs, is literally bankrupting the country.

So, something has to give.

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

The Political Bombshell
Frankly, the way Washington normally works, I would have expected this kind of compromise a year from now—after the 2012 elections.

But if an idea like this is ever going to make it into law, the right thing to do is to get it out there now so that the coming election debate over Medicare has all of the good ideas on the table.

Maybe a good sign is that both sides are claiming victory. Ezra Klein at the Washington Post says, "But the secret of these types of premium-support platforms is that they are, in essence, a vindication of the Affordable Care Act." The Wall Street Journal is out with an editorial on Thursday claiming the Wyden/Ryan proposal is a Republican victory “because it shows that the serious entitlement debate is taking place within the camp of choice and incentives, not the Obama status quo.” Nice try guys.

But politically, it is unavoidable to conclude that Ryan has given all of those Republicans in the House, who have already voted for his first Medicare plan, a severe case of heartburn—not to mention all of those Republican presidential candidates who have made the first Ryan Medicare plan a virtual litmus test for who really is a conservative Republican.

To say Ryan’s first Medicare plan was controversial and a huge political risk is a pretty big understatement. And, many Republicans, particularly in the House, unconditionally embraced it.

But, here is what Ryan said in Politico on Wednesday:

“If you wait and allow the political paralysis to stop us from fixing and saving this program then you’re not going to be able to grandfather people. Then you’re not going to have severe disruptions in seniors lives that would just be, I think, morally wrong because we see this problem coming. What Ron and I are trying to do is to prepare the ground for a consensus to be accomplished as soon as the politics allow it to happen.”

Can’t disagree with that logic—that bipartisan logic, in fact.

But what does that do for all of the House Republicans who stepped out on that risky Medicare limb for Ryan and now have to defend their vote on the eve of an election? A vote that would have “killed Medicare as we know it?” Or, those Republican presidential candidates who couldn’t wait to out do the other candidates with their zealous support of it?

Gingrich and Romney embraced the Ryan Medicare plan—albeit with the key modification that the Ryan plan should keep Medicare as one of the options. Smart on their part. But Ryan goes a lot further than that in his bipartisan proposal with Democrat Wyden by, among other things, increasing the rate at which premium supports—and therefore the federal entitlement—would increase and by creating a defined benefit Medicare floor in the new proposal as well as conceding consumer protections to Wyden (make that more regulation than most Republicans would like to see).

Democrats may now be mourning the loss of the first Ryan plan they thought was a big fat political target going into 2012. But, by coming on board with Wyden, Ryan has all but conceded his first proposal wasn’t politically acceptable. Democrats who said they would never alter the Medicare entitlement, an unrealistic promise in the face of the debt crisis, can't be happy a leading progressive has found a way to do it.

Democrats jumped all over Gingrich’s original rejection of the Ryan plan, when he called it “right wing social engineering.”

You have to believe they are now going to have a better time jumping on all those Republicans who voted for, or have unconditionally supported, that first Ryan plan now that that key parts of that idea have been abandoned by its author.

But that analysis focuses on the partisan politics that are sure to follow in this town.

I will suggest that this proposal represents something above all of that.

Who is the winner here?

Bipartisanship. This compromise carefully recognizes and balances important principles from both sides toward a solution to a major problem and I hope people who really want to fix things will appreciate that.

This is a good day for the country—and we haven’t had one in a while.

The Super Committee Failure—What’s Next?

The stock market today was shocked, simply shocked, that the Super Committee didn’t come up with a debt deal.

I don’t know why. Republicans can’t vote for more taxes unless they're willing to get “primaried” from the right and risk losing their seat. Ditto for Democrats who would face the same punishment from their base if they voted to change the sacred defined benefit entitlements without at least getting tax concessions from the Republicans.

Obviously, neither side has a lot of statesmen in their ranks who would actually be willing to compromise.

In this hyper-partisan environment, where both parties are effectively in the control of their far left and far right bases, it is simply not possible for any meaningful bipartisan compromise.

Some time ago on this blog, I said that we wouldn’t get any meaningful effort to deal with the federal debt and entitlement challenge until there was a bond crisis—when investors would no longer be willing to lend to the U.S. government at reasonable rates without our first getting our unsustainable debt under control. Right now the U.S. government is borrowing about forty cents of every dollar it spends!

We are now watching just such a bond crisis force government into action. But it isn’t our government—it’s happening before our eyes in Europe.

Ironically, and it’s a huge irony, U.S. government bond prices continue to rise and interest rates continue to fall because as bad as our problems are, Europe looks worse. But with the latest American failure to govern, how long will that last? The flight to American “quality” that is propping up our deficit spending is as irrational and unsustainable as any of our other recent economic “bubbles.”

To fix the American debt crisis we will need to fix our entitlement problems. To do that, there will have to be major changes to the biggest entitlement driver—health care costs in Medicare, Medicaid, and even federal employee benefit costs.

As long as we have a divided government we are stalemated—not only over what to do with Medicare and Medicaid but over what we will eventually do about implementing the Affordable Care Act as well.

All of this will now effectively be on hold waiting for the results of the 2012 elections. If the outcome of those elections continues to be a divided government it is hard to see how we’ll have a solution even after 2012—short of an American bond crisis forcing things to change.

I can’t realistically see a Democratic sweep in the next election—that they recapture the House and hold the Senate and the White House.

But it is possible that Republicans will win all three. That would end the deadlock and likely mean the effective repeal of the Affordable Care Act (at least 51 votes in the Senate could gut it), as well as serious efforts toward the Republican “solution” to the entitlements and the under-age-65 health insurance market along the lines of the Ryan defined contribution proposals.

It is also possible that Obama could be reelected and have to face a Republican House and Senate—and even more political confrontation with a Republican Congress sending a Democratic President their health care and debt fixes. Maybe, after the election, both sides would be willing to deal. Maybe not, the current political environment that abhors compromise would have to change dramatically.

Layer on top of all of this the sharp cuts the defense and homeland security budget will now get because of the debt deal fallback provisions—defense will have to sustain $600 billion in cuts. I don’t consider myself a deficit hawk but it is hard to see how these defense cuts can be implemented. Combat forces are already at half of 1990 levels and the defense budget spending is already on its way to the lowest level as a percentage of GDP since 1940.

That the defense cuts are unsustainable likely means the Congress will find a way to reverse them and make the federal debt situation even worse than it is today.

This country is facing one of the greatest domestic political and economic challenges in its history—our debt level as a percentage of GDP is double what it was at the end of the Great Depression! The modern economic way of life we have become accustomed to is literally hanging in the balance. But our political institutions are now clearly unable to confront the problems. The 2012 elections could finally give one side or the other the ability to confront these issues in a way that is starkly different than the way the other guys would have. Or, the election could just give us another divided government still unable to deal with the growing crisis.

More stalemate would leave only one outcome I can foresee—a global U.S. bond crisis that would literally stop the federal government in its tracks and the entire American economy with it. Such a sobering crisis could well force political moderation and compromise—hopefully before it was too late.

The 2012 elections are a big deal. But it will likely take even more—lots of something we haven’t seen in a long while—statesmanship.

The Ryan Health Care Proposals—Not Your Congressman’s Health Plan

Update: The New Wyden-Ryan Plan - Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

In a speech at the Hoover Institution today, Representative Paul Ryan (R-WI) argued again that his proposal to reform Medicare, and now his tax credit proposal for replacing the Democratic health care law for those under-age 65, would guarantee to citizens “options like the ones members of Congress enjoy.”

His proposals would not give people the guarantees members of Congress, and all other federal employees for that matter, now enjoy.

This is not a small point.

Previously on this blog, I have argued that many of the defined contribution reform proposals, Ryan’s included, should be faulted for putting all of the future risk of health care costs on beneficiaries.

Ryan’s Medicare plan would create a premium support system for seniors. The premium support amount would increase each year by the rate of basic inflation, even though health care costs have historically increased much faster. Seniors would then take this premium support payment to the market and buy their own private health insurance policy. Another recent Medicare reform proposal by the health care industry would increase a similar health care premium support payment each year by the rate of increase in the gross domestic product (GDP) +1%.

In both cases, neither insurers nor health care providers would have any of the risk, and therefore responsibility, for keeping costs under control. The entire burden for the adequacy of these premium support payments would be with the beneficiary. If health care costs rose faster than these premium supports, tied to these indexes that have always trailed health care inflation, too bad for the beneficiary. Any excess cost is borne by the individual.

Ryan and his colleagues would argue that this is just what we need to create—a market so robust we can finally begin to control costs. Beneficiaries struggling to make their health care dollars stretch would seek out those health insurance plans that really did control costs. From his speech at the Hoover Institution today:

“The growth of these [health care] defined contributions should be capped, to reduce the inefficiencies that have led health-care costs to spiral out of control.”

As I have said before, after more than 20 years of defined contribution health insurance experience in the market there is no evidence this will occur. The Ryan school of health care thought argues that, “By putting the power into the hands of individuals, we can let competition work in health care just as it does everywhere else.”

I am continually amazed at those who argue the health care market can work, as Ryan put it today, “as it does everywhere else.” They are right that the health care system is too much driven by third-party pay and its beneficiaries have historically had too little incentive to be prudent buyers. But the health care market is also a one driven by complex science, major and legitimate philosophical differences about treatment choices, and enormous supply-side powers.

In short, grandma, or you or me for that matter, is no match for the American health care system.

That aside, Ryan is wrong when he says his plan is just like the plan members of Congress have. These schemes to cap health care premium support are fundamentally different from the Federal Employee Health Benefit Plan (FEHBP) that members of Congress enjoy.

From the federal employee handbook:

“The [federal employee health insurance] premiums for your enrollment are shared by you and your Federal agency or retirement system. The government pays the lesser of: 72% of the average total premium of all plans weighted by the number of enrollees in each, or 75% of the premium for the specific plan you choose.”

So, the federal government guarantees to Congressman Ryan, all of his Congressional colleagues, and all federal employees, that it will pay for at least 72% of the average cost of the health plans offered to and selected by federal workers—no matter how much the cost of the program rises over the years.

Ryan’s proposal would make no such guarantee.

I am not arguing that the federal government must guarantee that everyone should have 72% of his or her health care costs underwritten by the federal government year after year—or by anyone else for that matter. Nor am I arguing that defined contribution health care should not be part of any solution.

What I have consistently argued on this blog is that everyone—individuals, health care providers, and insurers—must all have some skin in the game in order for us to have the systemic change needed to finally reform our health care system.

The problem I have with the Ryan plan, and those plans similar to his, is that they give beneficiaries 100% of the risk and then just tell them to trust the market. If costs grow faster than the inflation indexes that underlie these premium supports, as they always have, tough luck.

For the Ryan plan to really be effective, and fair, he and the others proposing this kind of solution must put the same kind of responsibility on everyone else—particularly the most powerful in the health care system.

More, I will suggest that hospitals, doctors, drug companies, and insurers have the potential to affect the cost of health care far more than your grandmother will ever have.

The Health Leadership Council Medicare Proposal: Too Much Responsibility on Beneficiaries and Not Enough on Providers

The Health Leadership Council (HLC), a coalition of CEOs from many of the leading health care companies, has created a list of Medicare reform recommendations for the Super Committee tasked with finding at least $1.2 trillion in budget savings.

As we begin the national debate over what to do about Medicare's unsustainable costs, I will suggest that the HLC proposal gives us one, of what will have to be many, outlines for discussion.

Their recommendations include:

• Creating a new Medicare Exchange, beginning in 2018, where beneficiaries would have the choice of private Medicare plans as well as the traditional Medicare plan. The HLC proposal would be a defined contribution program much like the Republican Ryan plan but would differ from Paul Ryan’s in a couple of key ways. First, in the HLC proposal traditional Medicare would continue to be one of the options. Second, the annual increase in the beneficiary support premium would be more generous—the HLC is proposing an annual premium support increase equal to GDP plus 1%.
• Gradually increasing the Medicare eligibility age from 65 to 67—starting in 2014.
• Reforming Medicare’s cost sharing structure by increasing deductibles and co-pays as well as requiring high-income beneficiaries to pay the full cost of Medicare Part B.
• Implementing medical liability reform including a cap on non-economic damages, a one-year statute of limitations, and a “fair share” provision that would limit damages commensurate with responsibility for the injury.

The HLC estimates that its recommendations would generate savings of $410 billion over ten years—about a third of what the Super Committee is charged with finding.

The HLC’s suggestions have merit but, I will suggest, make the same fundamental mistake the Republican adopted Paul Ryan proposal made: They put all the onus for Medicare savings on the beneficiary—not the providers and not the insurance companies.

No Medicare reform proposal can be enacted if it does not protect Medicare beneficiaries by assuring them that it can achieve affordable costs.

The HLC would create a Medicare premium support based upon the average cost of a Medicare plan—and then increase that by GDP+1% in each subsequent year. That makes sense—the beneficiary support starts where costs are at inception and then increases by a factor (GDP+1%), which is reasonable for beneficiaries and providers and sustainable for the country.

In fact, I will suggest, that any final Medicare reform proposal will likely contain a cap of GDP+1% both because it gives the country an affordable objective and because it preserves spending at current levels plus a reasonable rate of growth.

But the problem with the HLC proposal is just what risk and responsibility does it transfer to health care providers and insurers? If the government premium support isn’t enough, providers can just demand more from insurers, and insurers in turn can just make up the difference by increasing premiums for seniors. There is certainly some upward limit on what people can pay, but the tension will always be to shift costs to the beneficiary as costs escalated.

More, the system would almost certainly become even more tiered than it is today. The Medicare option could easily look more and more like Medicaid as those able to afford better coverage fled to the more expensive private plans and those unable to pay the free market increases would have no alternative but the Medicare fee-for-service plan that stayed viable by paying providers less—and as a result looked more and more like Medicaid.

The HLC’s suggestion to increase the eligibility age for Medicare beginning in 2014 is a non-starter. The Congress might end up increasing the Medicare eligibility age at some point. But it won’t be done for people nearing retirement age—who have done their retirement planning presuming an age-65 eligibility. The Super Committee must come up with savings in the 10-year budget window—and that is too soon for any Medicare eligibility age change.

There is also growing evidence that pushing back the retirement age simply shifts costs to the pre-retirement market at an even higher cost than what it costs for Medicare to cover these beneficiaries.

The HLC's means testing recommendations call for more cost sharing as a strategy to focus seniors attention on cost control. As a concept, this makes sense and could well be part of any final Super Committee plan--but it all depends upon the details.

The HLC’s tort reform ideas are far too incremental—they call for capping payments on what is a fundamentally flawed system. Why not fix the system rather than Band-Aid it? Proposals for health courts and no-fault resolution that emphasize data collection and quality improvement would have been more the kind of proposals I would have expected from the HLC.

The Health Leadership Council’s recommendations do create a structure that gives seniors more incentives to purchase the most efficient health plans, put a reasonable limit on what our country can spend on the Medicare entitlement, and recognize that more cost sharing, particularly for higher income beneficiaries, and a later eligibility age, will ultimately be part of the solution.

But just what are all the insurance companies and drug companies that are part of this group willing to do to put some of their “skin” in the game?


For those convinced that just putting the market in charge will control costs and produce affordable premiums, a recent post: Inconvenient Facts for Both Republicans and Democrats—Neither Side’s Health Care Proposals Are Supported By Past Performance

Neither the Republicans Nor the Democrats Want to Face the Provider Cost Problem But Both Want to Dump the Problem on the Consumer

A key piece of Paul Ryan’s deficit reduction plan is to change Medicare as we know it. It appears his bold Medicare premium support proposal is failing to gain traction--it is dead as part of any deficit reduction deal this year. Worse, his Medicare proposal looks to be giving Democrats lots of political ammunition for the 2012 elections.

What lies at the heart of Ryan’s Medicare difficulties is that he would all but abandon future seniors (those now under age-55) to a health care system whose age-adjusted premium support would increase each year only at a rate equal to the increase in the consumer price index while their health care costs would likely continue to increase far faster.

Simply, Ryan just shifts the future burden of uncontrolled Medicare health care costs from the federal government to the senior. That will solve a big part of our federal deficit problem but hardly help people.

Yes, he offers a defined contribution health care solution with the promise of invigorating the markets and making costs lower. But we have had a form of Medicare premium support and private competition for years (Medicare Advantage) and there isn’t a lot of evidence the market can get the cost control job done on its own. (See: Defined Contribution Health Care—The Conservatives' Silver Bullet)

The Democrats have had a field day scaring people over the Ryan proposal because, quite frankly, the Ryan plan gives them a lot of legitimate ability to do so. I guess the definition of a terrible policy proposal is one your opponents can successfully attack without having to mislead people.

But Ryan isn’t the only one guilty of trying to put consumers into a health care system that limits federal spending by shifting the excess cost burden from the government to the consumer.

I call your attention to Jim Capretta’s recent column at Kaiser Health News. Here is a key paragraph:

Ryan's critics have focused particular attention on his plan's indexation of the Medicare "premium support credits" to the CPI in the years after 2022, suggesting that this idea is somehow beyond the pale. But this is sheer hypocrisy on their part because the indexing of government-financed premium credits below cost growth is in the president’' plan too, and yet not a complaint has been heard about that from its advocates. That's right. After 2018, if the aggregate governmental cost of premium credits and cost-sharing subsidies provided in the state-run exchanges exceeds about 0.5 percent of GDP (a condition that the Congressional Budget Office says will be met), the recently-enacted health law requires the government's per capita contribution to health plan premiums in the exchanges to rise more slowly than premiums. The administration actuaries interpret the law to mean that the government's contributions toward coverage will rise with GDP growth after 2018. CBO appears to have a different interpretation. Still, under all interpretations and projections, it's clear that the exchange credits in the new law will not keep pace with expectations of rising health costs. And that's exactly what the president is now saying is so wrong with Ryan's Medicare plan.

In fairness, Capretta also makes the broader point that he believes the Ryan plan would create the rigorous competition Medicare needs to control costs.

But in my mind, the real issue here is that both Ryan and the Democrats have made the same mistake.

Both are mostly avoiding the fundamental health care problem in the first place—chronic escalation in costs much higher than either GDP growth or the consumer price index. Neither side has offered a bold plan designed to change the current fee-for-service provider payment incentives that just keep fueling these unaffordable costs. Neither side seems either willing or capable of taking on the provider.

But both are willing to control future federal spending by dumping the excess health care cost problem on the consumer.

I don’t think we are going to have a real health care debate in this country until the voter/consumer/patient comes to understand the long-term threat they face from health care costs that show no sign of abating and they demand that the politicians aim for a solution not on their backs but on the backs of the people sending them these bills.

Recent post: What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game

The Republicans Had Better Get Organized on Health Care

If the past week is any indication, the Republicans will have real trouble come 2012 trying to convince voters they have a plan to fix the American health care system.

Last weekend, President Obama endorsed the Wyden-Brown bill that would give the states the opportunity, in 2014, to take their share of the almost $1 trillion the new health law collects and use it to craft an alternative health care plan to their liking.

With Republicans now controlling the “trifecta” in 16 states—the governorships as well as the state legislatures—it is a very interesting offer.

I found an editorial this week in the Wall Street Journal criticizing the offer puzzling.

In an editorial titled, “Obama’s Health Waiver Gambit—the White House offers the mirage of state flexibility," they wrote:

Mr. Obama's new faith in federalism is trailed by his customary rhetorical asterisk. Any state that the Administration decided deserved a waiver would still need to cover the same number of uninsured, and its coverage would still need to include the same comprehensive benefits and be as "affordable" as the Administration says it should be. That is, it must be as heavily subsidized.

So perhaps states could opt out of some consumer or employer mandates, which is a minor release valve. But they would still need to find other mechanisms to achieve the same liberal priorities, which in practice leaves little room to innovate—especially for a straight tax deduction or credit to purchase individual coverage or alternative insurance designs like high-deductible or value-based plans.

Say what? Getting rid of the individual mandate—the thing Conservatives are focusing their Constitutionality challenges on—is only an offer to jettison “a minor release valve?”

It looks to me like the WSJ is saying conservatives would not be able to cover as many people as well as the Democrats are on their way to doing under the Affordability Act.

First, let me remind you that the CBO has estimated that the new law would only cover about two-thirds of the uninsured. And, that the standard of coverage demanded by the new law sets the “Silver Plan” as the standard—essentially a typical comprehensive major medical plan with a $1,000 deductible. And, let’s not forget that the Affordability Act would require a family of four making $65,000 a year to pay $6,175 in out-of-pocket annual premiums net of any federal subsidy—hardly what the WSJ called, “heavily subsidized” premiums.

The WSJ laments that there isn’t enough “room to innovate” with tax credits and high deductible plans.

Why not? Why can’t a Republican tax credit plan be devised using the Democrats money pot? I see no reason an actuarially equal conservative high deductible plan that gave any excess Democratic cash to consumers in the form of deposits to Health Savings Accounts can’t be crafted that is financed with tax credits. And, all of those Republican governors’ complaints about Medicaid? Here is the block grant of all block grant offers!

Could a Democratic HHS Secretary play games and deny a state an actuarially sound conservative alternative? Sure but after the offer the President put on the table this week, suffer lots of political consequences doing it.

Could the Democrats rig the game by demanding things like too rich a definition of the standard benefits? Sure. But a Republican governor could also put a more reasonable plan on the table and dare a Democratic HHS Secretary to reject it.

Just how would a Democratic HHS Secretary deny a state any reasonable health care alternative experiment that had just passed both houses of the state legislature and had been signed by the governor?

It is notable that more liberal states like Vermont and Oregon look like they are ready to take up this challenge by crafting even more liberal health plans for their states. You have to give the liberals credit--at least they walk their talk.

By embracing Wyden-Brown, President Obama has offered the Republicans a put up or shut up political challenge: Show me how you can cover as many people as well as we did.

The Republicans are afraid of this challenge? The Republicans don’t think they know how to cover two-thirds of the uninsured for the same money the Democrats are spending? The don’t think they can craft a consumer-driven plan with a health savings account for the same money it will take to provide the “Silver Plan?” They think telling a family of four making $65,000 a year that still has to pay $6,175 for a plan with a $1,000 deductible that they are still too “heavily subsidized”?

If I had been advising the Republicans this week I would have told them that focusing on criticizing the benefit side of the new health care law, as they all did, was the wrong strategy.

Where they could have been critical of the President’s challenge, and still been consistent with their past arguments and objections to the new law, would have been to point out that the $1 trillion Democratic money pot they would have to use to fund their alternative comes from the new law’s tax increases and Medicare cuts they opposed last year. In essence, they could have pointed out that they still oppose having to fund their version of health care with the “fruit from an objectionable tree.”

I still think it’s tantamount to immoral to raise $500 billion over ten years in taxes to pay for this, and not go after the real problem of cost, when about everyone believes there will be many trillions of dollars of waste in our health care system over those same ten years.

But for one Republican after another to admit that they couldn’t take their state’s share of a trillion dollars and use it to craft a health care system that covered their portion of the 32 million more people, using the new law’s modest “Silver Plan” as the standard of coverage, and still leaving big gaps in premium support for the middle class, that was startling to watch.

They better have a health care plan they believe in come 2012.

They also had better be able to explain it.

Defined Contribution Health Care—The Conservatives' Silver Bullet

Conservatives are in a full court press these days telling us the answer to America’s out-of-control health care costs—and our fiscal crisis—is to move Medicare, Medicaid, and the tax code subsidy for private insurance to a defined contribution system.

Instead of the federal government defining a benefit and then shouldering the cost of whatever that promise leads to (today’s defined benefit plan), many conservatives are suggesting that we gradually move to a system where the government only promises an annual payment (or tax credit) for health care in the form of a voucher and then the consumer uses it (arguably more efficiently) to buy one of many health plans competing for their business.

First, let me tell you that I think defined contribution health care is generally a good idea. For too long the federal tax system and Medicare policy has subsidized careless health care spending.

Many worry that defined contribution health care would lead to poor people getting second-class health care because they would not be able to afford more than the voucher allows them. That is a legitimate concern and while that outcome can be tempered it cannot likely be eliminated. But that also occurs today, as many seniors have nothing more than a combination of Medicare and Medicaid while the wealthier can afford much better supplemental insurance. And, it will occur in the future under the Affordability Act because the new federal health care subsidies are based on the more limited plans available.

But I will also tell you that it is naïve to think the way to control health care costs is to simply move to a more market-oriented defined health care system.

We’ve had forms of defined contribution health care in the health benefits business for at least 20 years. It has long been common for employers to fix their contribution and then offer a cafeteria-like set of health plan choices. Not only has that approach not controlled costs, it has become somewhat passé as many employers have been disappointed with the results and more recently gone back to consolidating their health plan offerings.

Many conservatives cite the Federal Employees Health Benefit Plan (FEHBP) as an example of a defined contribution program that has worked. It is very well run. But just where is the full cost of a federal worker’s health benefits under control, sustainable, and affordable or measurably lower than any other large employer?

The argument goes that if consumers have vouchers then health plans will compete with each other to control costs and make health care more affordable. Well, isn’t that what has been going on in all of these defined contribution employer plans over the years? And, just where are the affordable plans?

And, isn’t this what the Medicare Advantage program of private choices has been about? It has been operating in one form or another for more than 20 years. And, once again, where are the private plans that are less costly than Medicare? Hasn’t the recent health care debate been about the extra payments, above the cost of standard Medicare, that these plans have been receiving?

The health care industry actually took a pretty impressive run at offering health plans that worked hard to control costs back in the post-Clinton Health Plan period of the mid and late 1990s. The insurers did such a good job of screwing down the provider costs and limiting “unnecessary” care that we got the “Patient Rights Rebellion” (or maybe it was the “Provider Rights Rebellion”).

When employers and consumers actually had the chance to choose lower cost plans with more limited networks and tighter cost controls they rejected them. When that was all there was available to employees, they rebelled and employers ran from them. The result was a movement away from pure HMO plans in the late 1990s and a return to fee-for-service models.

What makes conservatives think the consumer/voter won’t rebel again when they figure out the voucher doesn’t give them the health care they think they are entitled to? What makes the conservatives think the politicians won’t chicken out and just keep increasing that voucher at unaffordable levels just like they now keep bailing out the less powerful physician lobby?

I think defined contribution health care is a productive tool that has a lot of potential to make consumers more careful purchasers and health plans more cost effective sellers of insurance—when it is part of a more comprehensive approach to unavoidable cost containment and value-based purchasing—when we also say no.

But then I guess I can be criticized for believing in “Death Panels.”

But defined contribution health care as a standalone strategy to fix what ails the American health care system without having to face real limits on what we pay and what we pay for? That is naïve.

But that argument does have some political appeal to the right (albeit not to the left) because it offers a somewhat painless solution—you still have the right to have whatever you want and no one is going to take away or limit anything you have today. Magically, we’ll all be enlightened purchasers happily cognizant of the health plan offering us both the lowest cost and the best brain surgery in town and everyone will have affordable health insurance.

To me, hearing a conservative say the answer to America’s health care (and deficit) problem is a defined contribution health care system that reinvigorates the markets is as naïve as hearing a liberal saying that a single-payer government-run health care system will magically give everyone the health care they need for an affordable price.