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.

Saving Health Care--Saving America

Saving Health Care--Saving America

By BRIAN KLEPPER, DAVID C. KIBBE, ROBERT LASZEWSKI and ALAIN ENTHOVEN

So far, Congress' response to the health care crisis has been alarmingly disappointing in three ways. First, by willingly accepting enormous sums from health care special interests, our representatives have obligated themselves to their benefactors' interests rather than to those of the American people. More than 3,330 health care lobbyists - six for every member of Congress - contributed more than one-quarter of a billion dollars in the first and second quarters of 2009. A nearly equal amount has been contributed on this issue from non-health care organizations. This exchange of money prompted a Public Citizen lobbyist to comment, "A person can reach no other conclusion than this is a quid pro quo [this for that] activity."

Second, by carefully avoiding reforms of the practices that drive health care's enormous cost growth, Congress pretends to make meaningful change where little is contemplated. For example, current proposals would not rebuild our failing primary care capabilities, which other developed nations depend upon to maintain healthy people at half the cost of our specialist-dominated approach. They fail to advance the easy availability and understandability of information about care quality and costs, so purchasers still cannot identify which professionals and organizations are high or low performers, essential to allowing health care to finally work as a market. They do little to simplify the onerous burden associated with the administration of billing and collections. The proposals continue to favor fee-for-service reimbursement, which rewards the delivery of more products and services, independent of their appropriateness, rather than rewarding results. Policy makers overlook the importance of bipartisan proposals like the Wyden-Bennett Healthy Americans Act that uses the tax system to incentivize consumers to make wiser insurance purchases. And they all but ignore our unpredictable medical malpractice system, which nearly all doctors and hospital executives tell us unjustly encourages them to practice defensively.

Most distressing, the processes affecting health care reflect all policy-making. By allowing special interests to shape critically important policies, Congress no longer is able to address any of our most important national problems in the common interest - e.g., energy, the environment, education, poverty, productivity.

Over the last four years, a growing percentage of individual and corporate purchasers has become unable to afford coverage, and enrollment in commercial health plans has eroded substantially. Fewer enrollees mean fewer premium dollars available to buy health care products and services.

With diminished revenues, the industry is unilaterally advocating for universal coverage. This would provide robust new revenues. But they are opposing changes to the medical profiteering practices that result in excessive costs, and which often are the foundation of their current business models. And these two elements form the troublesome core of the current proposals.

Each proposal so far contemplates additional cost. But we shouldn’t have to spend more to fix health care. Within the industry's professional community, most experts agree that as much as one-third of all health care spending is wasted, meaning that a portion of at least $800 billion a year could be recovered. There is no mystery about where the most blatant waste is throughout the system, or how to restructure health care business practices to significantly reduce that waste.

Make no mistake. A failure to immediately address the deep drivers of the crisis will force the nation to pay a high price and then revisit the same issues in the near future. It is critical to restructure health care now, without delay, but in ways that serve the interests of the nation, not a particular industry.

Congress ultimately must be accountable to the American people. The American people must prevail on Congress to revise the current proposals, build on the lessons gleaned throughout the industry over the last 25 years, and directly address the structural flaws in our current system. True, most health industry groups will resist these efforts over the short term, but the result would be a more stable and sustainable health system, health care economy and national economy, outcomes that would benefit America's people, its businesses and even its health care sector.

Finally, the American people should demand that Congress revisit and revise the conflicted lobbying practices that have so corroded policymaking on virtually every important issue. Doing so would revitalize the American people's confidence in Congress, and would re-empower it to create thoughtful, innovative solutions to our national problems.

Brian Klepper is a health care analyst and industry adviser. David C. Kibbe is a family physician and a technology consultant to the industry. Robert Laszewski is a former senior health insurance executive and a health policy analyst. Alain Enthoven is Professor of Management (Emeritus) at the Stanford University Graduate School of Business.

The Health Care Bills, the Fine Print, and a Troubling List of Budget Gimmicks

Julie Appleby has an important article today at Kaiser Health News.

She has identified an important and before unreported issue in the Senate Finance health care bill.

In order to keep the cost of the plan down, the Senate Finance bill literally locks in the erosion of insurance subsidies for middle class families.

From her report:

"The first year the legislation would take effect, people getting subsidized coverage would be required to pay from 2 to 12 percent of their incomes for insurance. The government would pick up the rest of the tab. People with lower incomes would pay less and those with higher incomes more.

"But in the second year, it changes. From then on, it is based on a percentage of the premium that was paid the first year, no matter how far premiums rise.

"For years, health insurance premiums have risen faster than wages, and the trend is expected to continue."

"Let's assume in subsequent years that the family’s income kept pace with inflation and they remained at 220 percent of the federal poverty level. They would continue to pay 29 percent of the cost of the premium. But because premiums are likely to rise faster than inflation, Solomon’s analysis found, the family’s cost would soon rise above 8 percent of their income.

"Since 1999, insurance premiums have jumped 131 percent, while wages increased 38 percent, according to the Kaiser Family Foundation. (KHN is a program of the Foundation.) This year, the average premium for all family policies rose about 5 percent, to $13,375 annually, the foundation reported, while workers’ wages rose 3.1 percent."

“They did this to make subsidies a little cheaper,' says Karen Pollitz, director of the Health Policy Institute at Georgetown University. 'But it means that if you’re [a low-income policyholder] struggling in the first year, it will get harder and harder … unless we have some massive breakthrough in cost containment' and the growth of premiums slows."

This isn't the only example of the Senate Finance authors using the same gimmick to lower costs. The 40% "Cadillac" benefits tax has the baseline for calculating the tax tied to the CPI plus 1% while the cost of health insurance has historically risen three to four times inflation. The result will be that more and more people will get caught in this AMT-like tax trap as the years go on.

This from an op-ed in yesterday's Washington Post by Harold Meyerson regarding this gimmick in the "Cadillac" benefits tax:

"The Senate's tax would initially apply to all individual policies costing more than $8,000 a year, or $21,000 for a family. Those thresholds are to be indexed to the overall consumer price index (CPI) plus 1 percent. Problem is, medical costs and health insurance premiums increase a good deal more than the overall CPI. Since 2000, they have risen three to four times faster -- which means, more policies will be subject to the tax with each passing year. The congressional Joint Committee on Taxation has calculated that in 2013, when the reforms kick in, the tax will apply to 19 percent of individual plans and 14 percent of family plans, but that by 2019 it will sock 34 percent of individual plans and 31 percent of family plans."

While the word is that Senate Majority Leader Harry Reid is going to increase the baseline--to $23,000 for a family for example, the same principle would apply--the baseline for calculating the tax will almost certainly rise much slower than the cost of the insurance trapping more people into the tax every year.

These gimmicks that would take advantage of higher health insurance cost inflation when compared to general inflation or similar wage rates have the effect of making the health care bills cheaper by tens of billions of dollars keeping the cost under the $900 billion objective the President has set.

This gimmicky approach to health care reform isn't terribly different from failed Democratic attempts to peel out the $250 billion Medicare physician fee fix last week, arguing the Medicare physician fee problem is not really part of what comes under health care reform.

By trying to add that $250 billion to the deficit last week and their apparent ongoing attempts to keep this physician fee issue out of the health care bills, setting an AMT-like tax trap in the "Cadillac" benefits tax scheme, and now setting up middle class families for significant erosion in their subsidies as another budget gimmick, all to keep the ten-year price of the bill under $900 billion, Democrats are making a mockery of the President's claim when he said "we can't just keep kicking this [health care fiscal] can down the road."

“The Public Option Is Back in Play”—That Depends Upon Your Definition of the Word “Is”

It appears that Harry Reid is going to include a robust Medicare-like public option in his Senate draft. Speaker Pelosi is also doing her best to put as robust a public option in her House version as she can get the votes for.

One press report after another has proclaimed the return of the public option.

I’d like to see some of these reporters to do a vote count.

No doubt the hype over the public option is at an optimistic level. No doubt Reid and Pelosi’s opening bid will be aggressive on the public option issue.

But the reality?

In the Senate you will find the only health care game in town that in the end will matter--how to get to 60 votes.

There haven’t been anywhere near 60 votes for the robust public option all year, or even something close to it, and there are not today.

Reid is reportedly going to include a robust Medicare-like public option with a state opt-out. That means there would be a federal Medicare-like public plan but that a state could opt out. Opting out would mean that both houses of a state's legislature and its governor would have to agree to opt out. That’s a pretty high hurdle and it is not going to appease the moderate Democrats in the Senate, or any Republicans including Snowe, who oppose a robust public option.

We could have a public option only if a “trigger” occurs. That is Senator Snowe’s general idea. OK, define that trigger. Do you think for one moment a liberal’s definition of a trigger will come close to a moderate’s definition of a trigger? It is the last week in October and we’ve been hearing about a trigger for months. Have you seen a definition of it yet?

Then there is the possible course in the House—a public option that has to negotiate with providers just like a private health plan does—“arms’ length negotiations.” For liberals, how is that different than a co-op and its inability to gain any real kind of traction? For moderate Democrats, it will likely be seen as the “wolf in sheep’s clothes.” Maybe a place to compromise but hardly the robust government plan its proponents are looking for and there is no evidence that this idea will attract those moderate Senate Democrats that don’t like the public option.

Then there is the state opt-in. The idea is that both the state’s legislative branches and the governor would have to agree to opt-in. This could well win moderate Democratic support because very few states would do it and it is attractive to states' rights moderates who would like to see state experimentation. This is a possible place for compromise but hardly a robust public option.

As I have said many times before, there will not be a robust Medicare-like public option or any form of a thinly veiled Medicare-like public option. When the day is done liberals will be satisfied to get what they can to get a bill across the line.

In my mind, the bigger issue continues to be how Democrats will balance individual affordability and paying for the thing.

Doing the Right Thing--The Doc Fix Vote and the CMS Report

Predicting the outcome of yesterday's Senate vote on the $245 billion deficit adding doc fix was easy.

Democratic Senate Majority Leader Reid was going to sail this thing through the Senate with almost all Democrats and even a bunch of Republicans onside.

Senators are afraid of the docs—after all they have voted for years to waive any cuts. Democrats needed to get this $245 billion cost out of the final health care bill to have any chance of coming in under a trillion dollars in cost and make their bill "deficit neutral." Lots of Republicans would even join the Democrats in approving it overwhelmingly having no courage to face down the most powerful health care lobby of all.

Here is how Senate Democratic Leader Harry Reid put it just after the vote:

"I don't bring anything to the floor unless I think I have the votes," Reid said to reporters while answering a question about the big lack of support for the Medicare doc fix. "I was told by various people that we'd have 27 Republican votes, which seemed reasonable since Senator Jon Kyl was the co-sponsor of this legislation. So I was stunned when I was told by his co- sponsor, Senator Stabenow, that, no, he wouldn't support it"

The final vote was 47-53 killing the measure with Independent Lieberman and 12 Democrats joining all of the Republicans.

Why?

Because when the day was done the swing votes on this just couldn’t bring themselves to vote in favor of cynical politics and adding another $245 billion to the deficit instead of putting this back where it belongs—a key part of health care reform.

That was yesterday.

Then today this: A report from the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) carried an unusual disclaimer, saying that; “it does not represent an official position of Health and Human Services or the rest of the administration."

I guess not. Here is what it said: "While health spending as a share of gross domestic product would grow to 20.8% under current law, the study found that the House bill would cause it to grow to 21.3% of GDP."

Why? Because covering more people in essentially an unchanged system will cost more. Dah. The Administration quickly pointed out the report doesn’t reflect recent updates to legislation designed to save money—a controversial contention in its own right.

So much for bending any curves.

There was no word on whether the Obama administration would move to revoke CMS's anti-trust exemption in retaliation for getting off message.

In a town steeped in the cynical traditions of politics a bunch of Senators and some career federal health care experts both chose to do the right thing during the last 24-hours.

If they keep this up we just might find our way to real health care reform some day!

The Senate Finance Insurance Reform Rules Have to Be Fixed in Spite of the Gang That Can’t Shoot Straight

Last week the health insurance trade association (AHIP) released a report it sponsored, and was authored by PricewaterhouseCoopers (PwC), that claimed the Senate Finance bill would be problematic for the insurance markets only leading to much higher costs.

As I posted last week, my own analysis of the Finance bill gives me big concerns about what it would do to health insurance costs and the integrity of the small group and individual health insurance pool.

When you are going to issue a report of the kind AHIP and PwC did—in terms of its intended consequences on a national political debate--you better be sure you can back-up everything you say in simple and unambiguous terms.

The ineptitude on the part of AHIP and PwC is startling. That either organization was not able to clearly and decisively defend their conclusion in the midst of the health care reform finals is one thing. That they couldn’t defend a conclusion that is generally right and consistent with common sense is even more startling if not aggravating.

But then AHIP starts from way behind anytime it has tried to do anything in this town. You will remember AHIP as the organization that briefly got the NAACP to support the extra payments to Medicare Advantage arguing paying the HMOs more was a way to improve benefits to poor seniors. Then there was the Congressional hearing this summer where three of their members told a House committee that they planned to continue retroactively canceling individual health insurance contracts even when they found only inadvertent and immaterial errors on the original applications.

Then, of course, there was the silly $2 trillion cost savings offer they spearheaded at the White House this spring, which Republican Chuck Grassley dismissed as nothing more than “fairy dust.”

When you have that kind of track record and lack of credibility and you want to issue a game-changing report you better have every duck in line. I swear, if AHIP issued a press release on a crystal clear day telling DC the sun was shining no one would believe them.

In spite of AHIP's and PwC's failings the fact is that the Senate Finance bill’s insurance market reforms are severely flawed and have to be fixed or costs will be much higher than they would have been anyway and, more importantly, efforts to make the health insurance market more accessible for the uninsured to guaranteed coverage will be undermined.

Here is a table produced by the Center on Budget Priorities (via Thursday's WSJ) comparing the net cost of health insurance families would be expected to pay for coverage under each of the three pending bills (you can click on it to enlarge).


Under the Senate Finance bill, coverage for the poor and near poor would be pretty accessible and affordable—a family of three making $27,465 a year would have to pay only $1.236 a year, or $100 a month. Fair enough.

But look at what happens when you get close to the median American income ($52,000 a year). At $54,930 a year in income that family would be required to pay $6,592 net of the subsidy. How many families making $54,930 have an extra $500 in their monthly household budget?

A family of three making $73,240 a year—middle-class as it gets—would have to pay $8,789 for a policy that would have a deductible of $3,000 a year! Know any families like this with an extra $9,000 in their checking accounts?

Now consider the Senate Finance penalties for going without coverage.

In 2013, for example, there would be no fine for not having insurance. By 2014 the penalty would be $200 per adult and it would rise to $400 in 2015, $600 in 2016, and $750 by 2017.

But the Finance bill also eliminates medical underwriting and pre-existing conditions in 2013—anyone could go to the insurance exchange and at any time and demand a health insurance policy at normal rates that would begin paying their medical bills immediately no matter how sick they were.

Faced with no fine in 2013, why would lots of these families pay $6,592 or $8,789 a year in premiums when they could just skip coverage until they needed it and it was clear they could make money on the deal?

Even in 2017 when the penalty was just a total of $1,500 for mom and dad they would be thousands ahead waiting until they got sick to buy coverage. Given normal health care trend, the required family's share of premiums would likely rise by thousands of dollars more over the years.

While the House and Senate bills have stiffer penalties that would discourage families gaming the system you will note that their premiums aren't much more affordable for the middle-class.

Critics of the PwC report often point to the fact that PwC did not take into account the value of the new federal insurance subsidies in doing their evaluation. The family costs I just gave you are net of the subsidies.

Critics point to the fact that PwC did not assume that insurance costs could be lower given the efficiencies the insurance exchanges would likely bring to the market. That is fair. But any efficiency gained by lower marketing costs, a relatively small part of the overall cost pie when compared to medical costs, will quickly be swallowed up and overwhelmed by much higher prices wracked by an insurance market plagued by gross anti-selection that can only occur in this scenario.

It has been argued that the Senate Finance bill sets up a $20 billion reinsurance pool to reimburse health insurers in the individual market for unacceptable claims experience. That is right but the $20 billion is collected from the insurers themselves and is really a mechanism to smooth results between insurers and among product lines--it will not fundamentally lower costs if the entire individual pool is coming in higher because of systemic anti-selection problems.

Some have argued that things are running just fine in Massachusetts. Really? I hear the insurance exchange trend rate is pushing 15% (price increases and offsetting benefit cuts together). Harvard Pilgrim recently told us that, "Between April of 2008 and March of 2009, about 40% of the people who purchased individual insurance from Harvard Pilgrim stayed covered by us for less than 5 months. Even more amazing, they incurred, on average, about $2,400 per person in monthly medical expenses - roughly 600% higher than what we would have expected."

In spite of the AHIP/PwC “gang that can’t shoot straight” the Senate Finance bill is clearly flawed and needs to be fixed or it will drive health insurance prices up far more and make access even more problematic.

And, while the Congress is at it, the same middle-class subsidies need attention in the other bills as well.


Recent summary of the cost of health insurance in Massachusetts by Columbia Journalism Review:
Health Reform Lessons from Massachusetts, Part VII: Unintended consequences for small business

Apparently The "Games" Have Begun--Democrats Move to Fix Physician Fee Problem Off-Budget

Apparently, Democrats are getting ready to pay-off the physicians for their support of the health bills by quickly fixing the Medicare Sustainable Growth Rate (SGR) fee cut problem off-budget and ahead of the pending health care bills.

This in today's Kaiser Health News on a Congress Daily Report:

Physician lobbyists met with several key lawmakers and administration officials Wednesday to push for action. "Senate Democratic leaders made a procedural move Tuesday night that allows the chamber to bypass the usual committee process and take the $245 billion fix, proposed by Sen. Debbie Stabenow, D-Mich., straight to the floor. ... Leadership has indicated the merger will be swift. ... The fix faces three tough procedural hurdles that each will require 60 votes: a cloture vote, a budget point of order because the measure is not offset and a motion to proceed to the bill, a lobbyist source said."

How many times have you heard the President say that any health care bill must be "deficit neutral?" How many times have you heard conservative and moderate Democrats say they won't vote for a health bill that isn't paid for?

What are the Democrats about to try?

Peeling out one of the biggest components of health care and quickly spending $245 billion to bolster physician fees over the next ten years, doing it separate from the "deficit neutral" health bill, and just adding the $245 billion cost of this to the deficit!

To do it they will need 60 votes in the Senate and most of the "Blue Dogs" in the House.

We are about to see just how fiscally responsible these moderate Democratic senators are and whether or not the Blue Dogs aren't just "Yellow Dogs."

Unbelievable!

What’s Next? Follow the Money

With the passage of the Senate Finance bill the health care effort now moves to a critical stage with the Senate Majority Leader and the House Speaker now clearly in charge.

The more important effort will be Reid’s. Pelosi’s final product will be more predictable (very liberal) but Reid’s will have to be more practical. Every inch Reid moves away from the more moderate Baucus bill will cause problems.

The big issue is going to be money—just whose taxes are going to get raised to the tune of $500 billion to pay for it.

The Senate Finance bill has the $211 billion “Cadillac” benefits tax. Dead on arrival. No way the party that put the unions ahead of the Chrysler bondholders is going to cross their traditional allies on this one. The $40 billion tax on medical device makers is also under pressure and likely to at least shrink.

And, don’t think the insurance underwriting reform issue is behind us. That one is just beginning and it will create its own pressure to increase the cost of any bill by improving insurance subsidies so an individual mandate is workable.

The Finance bill also ignores the Medicare physician payment problem. Don’t fix that and you risk alienating the docs. The House did fix it and it cost them $240 billion they still haven’t found the money for.

The Senate Finance bill minus the “Cadillac” tax, fewer medical device taxes, the imperative to improve the subsidies, and in need of a doc fix has about a $500 billion hole in it.

The House solves that problem with a $500 billion tax on “millionaires”—defined as families making more than $500,000 a year. But lots of Democratic Senators think that is really just a tax on small business and job creators.

The Dems would have no chance holding Olympia Snowe's vote with a tax on small business given that the Maine Senator has a well deserved reputation for being one of the Senate's strongest advocates for them.

If the House tax could have passed the Senate yesterday afternoon Baucus would have had it in his bill rather than the “Cadillac” tax placeholder he did have.

Bottom line: The Democrats have to figure out a way to get 60 Senators to vote for a tax scheme that will raise at least $500 billion.

The public option, employer mandates, a turbo-charged MedPAC? These are not the biggest issues. The White House will take any deal they can get and will quickly pressure liberals to back off wherever necessary.

The biggest issue they face by far is just whose taxes are going to get raised $500 billion. This is the make or break issue.