A Wild Pitch: HR3200 Brushes Back Health Reform

Barack_Obama_addresses_joint_session_of_Congress_2-24-09 On May 12, the flame throwing Chicago White Sox pitcher Bobby Jenks was fined for throwing behind an opposing player, Texas Rangers second baseman, Ian Kinsler. When Jenks, who can throw a 102 MPH fastball, was asked about the pitch, he said, “Yeah, I wanted to go in and send a message and I think the message was sent.”  When asked later if he would do it again, he said, “We’ll have to see.”

Rarely do you see that kind of candor in baseball, let alone politics for that matter.  When Speaker Pelosi and House Leadership released their version of a health reform bill, HR 3200, America’s Affordable Health Choices Act of 2009 (AAHCA), she pulled a Bobby Jenks.  Rather than put the ball over the plate, and help frame a broad consensus for health reform, Speaker Pelosi “sent a message” to the President, which was:  “We’re in charge and we will do exactly what we wish.”

HR3200 is an arrogant, tone deaf and yet oddly cowardly bill that creates, among other things, a Health Choices Commissioner to help us with our health choices.  Its message to the voters seems to be, as David Brooks put it, “98% of Americans can party on, with the latest and costliest health care imaginable, no matter how ineffectual, and the top 2% will pay for it all.”

Just as she did with her “stimulus” pork fest back in February, Pelosi has created a huge problem not only for Obama, but moderate Democrats in her own chamber. Not only does the bill, under the best of circumstances, still leave nearly 17 million people without coverage.  It will greatly handicap any chance for recovery in our country’s ailing economy.  HR3200 is a recipe for a one-term Obama Presidency, and presents a nearly insuperable barrier to moderate House or Senate members seeking to run for re-election in a scant fifteen months.

The House bill lays a huge burden for financing health reform on the nation’s businesses, through a thinly disguised payroll tax (oops, I meant “Shared Responsibility payment”) and employer mandate, as well as a surcharge on the top tax rate that will have the effect of hitting many small businesses twice (in the worst business climate in 28 years).   If the CBO honestly scored the employer mandate as a tax, the tax increase part of the House bill’s financing scheme would far exceed the seemingly modest $544 billion advertised.

For businesses with payrolls over $400 thousand who presently do not offer health coverage, AACHA would raise their payroll tax (including Social Security and Medicare) to 23% or require them to purchase insurance for their workers, at a price which will not be a dime lower than it is today because of this bill.  Only businesses with a payroll less than $250 thousand would be exempt, and only those with low wageworkers will be eligible for any meaningful subsidy to defray the cost of complying with the mandate.

The economic context is worth reviewing briefly for those who have been living in a cave or were otherwise off the grid.   The US has lost 2.1 million jobs since President Obama took office. Financial services, manufacturing, retailing, light industry, even pharmaceuticals and biotech firms, are all shedding jobs at a pace not seen since the end of World War II.  Though the pace of job loss has slackened somewhat in the past two months (losing “only” 492 thousand jobs in June, for example), there is little likelihood of actual employment growth this year.

If you want job growth to resume next year, the last thing you do is make it more expensive to hire back workers, which is, unfortunately, precisely what the House bill does.  If you want wages to grow, so people can resume buying things (70% of our GDP!), the last thing you do is divert employer money from wages into a federally defined and managed health benefit.

One way or another, it isn’t wealthy Americans, the intended target of the House bill, who will pay the price for the House bill.  Who will actually pay: those American workers presently unemployed, or working involuntarily part time, or struggling to dig themselves out from under a mountain of debt, whose wages will not grow enough to offset their increasing cost of living. And though the bill explicitly forbids employers from lowering wages to pay for the mandate, it does not constrain employers from simply ceasing to increase their workers’ wages, or declining to hire back all the people they’ve laid off in the past ugly twelve months of collapsing sales and declining cash flow.

In addition to the payroll tax increase, for sole proprietorships and Sub S corporations, who pay taxes on their profits as ordinary income, after the expiration of the Bush tax cuts, the House bill moves the top tax rate to 46%, a rate we haven’t seen in the US since Jimmy Carter’s time.  Tax avoidance will experience a sudden and unwelcome renaissance, particularly in places like New York and California that could REALLY use a recovery, where, when you add in state and local taxes, the marginal tax rate is suddenly a Sweden-like 57%.   Party on, California!

What do we get for this steep price?  Well, we get an insurance industry that is regulated within an inch of its life.  It will be told the benefit package, its underwriting policy, the permissible amount of cost sharing each insured can bear, the medical loss ratio they are permitted to run, the ratio of premiums between highest and lowest cost enrollees (a 2:1 ratio is actually written into the bill, dramatically increasing the cost for ten million young people who are uninsured), and a whole bunch of other things, all managed by the Health Choices Commissioner (actually, Commissar).

To call it “health insurance” anymore is technically inaccurate because there is no longer any risk to patients. This risk is completely, comprehensively shifted to employers. Private health benefits will be, under AAHCA, a politically managed entitlement. Cost sharing will be reduced from today’s levels, in some cases dramatically.  “Consumer responsibility” is not part of the program. There is nothing in this bill that will make the bill for employers a dime cheaper than it is today, and a potential for their cost being a lot higher.

While the initial benefit package is comparatively modest, there is no insulation between a thousand hungry provider and patient advocacy groups and the employer’s health insurance premium except a Health Benefits Advisory Committee and a single political appointee, the Secretary of Health and Human Services.  Tom Daschle’s wisdom about the potential rapid expansion of the benefit package given the political realities in Washington has been lost on his elders in the House.  Congressional health barons are obviously disinclined to surrender any of their present power.

The eight hundred pages of the bill not devoted to the new entitlement make remarkably few substantive changes in our inflationary Medicare and Medicaid programs.  Despite Atul Gawande’s repellent portrait of rampant greed and self-dealing in McAllen, the bill declines to tighten meaningfully our existing Medicare fraud and abuse laws.  It extends a prohibition on new physician owned specialty hospitals, but only after carefully grandfathering in the money machines already on the ground and billing.

This is particularly disappointing given that the godfather of fraud and abuse enforcement, Pete Stark, is a cosponsor of this bill. This is prime time, Pete, a once-in-a-generation chance to do the right thing. There is clear and compelling evidence of abuse in imaging, surgery, radiation therapy, etc., so ripe you can smell it. If you don’t have the guts to clean up the program you’ve helped run for over thirty years, it’s time to go home to Piedmont and clip coupons.

Primary care physicians get a Medicaid pay increase; the rates are brought up to the inadequate Medicare levels that are driving out a whole generation of family practitioners, and then, only over a period of years.  Though primary care residencies are expanded and a medical home demonstration program is authorized, there is nothing in this bill that will meaningfully alter the economic choices of young doctors presently choosing to become dermatologists or cardiologists.  Those are your waiting lists now, Speaker Pelosi.  Radiologists do get clipped twice, and the updated Part B fee caps (under so-called SGR) are going to be split, between evaluation and management services, which may be increased someday, and procedure payments, which may be cut someday.

Hospitals will see modest reductions in their subsidies for caring for the uninsured, some reductions for those with excessive readmissions, a small nip in their DRG updates, and that’s about it. That and a demonstration project on post acute bundling, and otherwise, there are no meaningful changes in hospitals risks or responsibilities under Medicare, at least in this go-round anyway.   At least in the House, anyway, a huge bullet has been dodged by the industry.  And the do more/make more incentives to hospitalize Medicare patients, and for doctors to treat the heck out of them, survives for another, probably, five years.

Serious money is flung at community health centers (guess where those undocumented people will queue up), and at a black box labeled “Prevention and Wellness”, details to follow.  But there is nothing in this bill to deliver on the President’s bold promise to lower everyone’s health costs by $2500 a year, or to make the future year liabilities for Medicare any more affordable.  If someone can assert with a straight face that this bill is going to save money anywhere in the health system, they deserve to have their mouths washed out with soap.  It certainly didn’t fool Douglas Elmendorf, the head of CBO, who inconveniently said as much in Congressional testimony on July 16. .

The health reform financing problem with which we began is, sadly, of the President’s making.  He promised during the campaign what is turning out to be a $1.6 trillion extension of health coverage that 97% of Americans would pay nothing for.  With the crystalline clarity of hindsight, this was a costly political mistake.  He also explicitly promised not to tax health benefits, even for the wealthy that disproportionately benefit from the current exemptions, because it was a centerpiece of John McCain’s inadequate health platform. (Campaign’s over, everyone)

And on returning from his triumphal European tour to an increasingly skeptical United States, the President crisply reaffirmed both campaign promises, as well as his support for the troubled “public option”.  In a sense, all the House bill did was put into legislative form what Obama incautiously promised during his campaign. In other words, Pelosi narrowed his political options and dragged the whole process about sixty feet to the left at the very time financing options needed to be broadened and centered.

Unfortunately, it did so in a markedly more adverse economic climate, and in a country with rapidly narrowing economic options and a markedly diminished fiscal capacity.

If I were Tom Daschle and Peter Orszag, I’d barge my way into those political meetings, and help their President salvage this thing.   Way more savings need to come from the health system itself (50% isn’t enough), particularly from the rich matrix of subsidies and inappropriate incentives which sustain the industry’s inflationary cost curve, and the tax burden needs to be spread across consumption, particularly unhealthy consumption, and removed from the wage base.  Health insurance also needs to be much more affordable for ten million uninsured young people, or they’ll simply blow off the individual mandate and remain uninsured.

Otherwise, we’ll hate ourselves in the morning. The House bill is a sad reminder of why Americans detest Washington politics as usual.  AAHCA is right! (Say it again).  This bill is a bone in the throat for the Obama administration, and will divert vital political energy needed to bring the health reform process to a responsible conclusion.

If there is no job growth next year, the Democratic ascendancy in Congress will be bitter and short lived, and Obama, for all his bright promise, will have a very steep hill to climb to remain in office in 2012. If this recession is not over in less than a year’s time, it will be the President’s and Speaker Pelosi’s recession, and Lord Help Them politically.  They won’t be able to blame the Republicans either.  The Democrats will have squandered a veto proof majority in the Senate, and a seventy-vote margin of safety in the House.  And for what?  Mostly for more of the same, more broadly shared, at a huge cost to American workers.   Shame on the House!

Jeff Goldsmith is president of Health Futures Inc. He is also the author of a book released this year titled “The Long Baby Boom: An Optimistic Vision for a Graying Generation.” Health Futures specializes in corporate strategic planning and forecasting future health care trends.

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24 replies »

  1. Just an quick alert that, if you haven’t, check out today’s Opinion section of the Wall Street Journal. They discuss the impact of the proposed legislation on ERISA – basically how it undoes a very successful, useful piece of regulation in order to give the “Commissar” more control and open up opportunities for trial lawyers.
    The more I digest this legislation the more my stomach hurts.

  2. I’m always a fan of Hannity and O’Reily and those guys (and thehealthcareblog of course), but the media coverage of all of this health reform is just getting to me. So I went searching and came across Stephen Hyde author of “Cured! The Insiders Handbook for Health Care Reform” (it’s en-route so I can’t give a book report yet) but the blog posts are sound. Why won’t the media feature more “planners” and suggestions rather than the gloom and doom?

  3. Jeff – Great summary. Basically this is one of the worst bills to come out of Congress since the last major agricultural bill. Quick Summary:
    – Increase tax rates on small businesses to a point which likely will have some real negative impacts on expansion and job creation in the near future.
    – Very meek and modest attempts to drive toward a more primary-care oriented system.
    – Too heavy a hand on the private insurance market.
    – No real reform on Medicaid & Medicare.
    – Illusionary/vague cost controls at best.
    This bills essentially keeps the status quo on many under performing parts of the HC system or doesn’t make the necessary tweaks, introduces a ton of new taxes to marginally expand access, and has no real cost controls. It is a complete dud and a terrible piece of legislation.
    It mystifies to me to this day how Pelosi rose to the head of the House Democrats or enjoys such overwhelming support in her district. Then again the Democrats in the Senate aren’t much better. Reid is largely incapable of leadership and if the economy continues to really stay in the doldrums next year there is a shot that he will lose his seat in Nevada (and this isn’t necessarily a bad thing).

  4. The leaders are there because of us….we got what we wanted…good and hard. Tolerance=enablement.
    So, the ideologues should address this……or else get with the audacious program! Yes, you can!

  5. Jeff –
    Great job once again. This bill is trash and all but guarantees much of the work put into reform – by real thinkers in groups like The Commonwealth Fund and Health CEOs for Health Reform – will have been simple shouting at the night sky…no one listening. What a waste of great talent, intellect and thought.
    I’m sad. Deeply sad.
    Last week I was inspired as I sat in rural Minnesota and saw first hand how the Mayo Health System, through it’s integrated delivery system ISJ Regional Medical Center, was transforming care; using IT to improve care pathways in critical access communities, bringing top-notch specialists and clinical trials to people throughout a large geographic region and positioning itself to function as a true medical home capable of profitably taking on case rate risk.
    Now that work will go on, in spite of our leaders’ efforts, not motivated and enhanced by them as it could have been.

  6. Jeff, I think hospital budgets require over treatment for them to stay in the black – under their present mind set at least. If you force (I think we’ll need to ) them to treat only what is required then there will be job losses – not necessarily a bad thing for an industry living in the delusion of it will never end. Yes Canada does not cover dental (other than in a hospital), physio, and mental health, drug costs are more regulated and many employers provide at least some dental. But Canada does enforce universal budgets and hospitals are community owned, a step I think we’ll have to adopt.

  7. Peter- I’m not talking about healthcare job losses, just income reductions from reducing incentives to overtreat. As Uwe Reinhardt reminded us years ago, something like 80% of health costs are incomes. Some of those incomes are coming down or we did this wrong. Healthcare employment probably isn’t shrinking because us boomers are coming, and sooner or later, we’ll all be a lot sicker.
    Remember, in Canada, the government pays only about 75% of the cost of care, and insurance operates around the fringes (drugs, dental care, etc.). So even if we adopted your system hook, line and sinker, private insurance isn’t going to be 6-10%.
    The big problem with Medicare and the white knight “public option” is that, for political reasons, public insurance is just as much of a sieve for health costs as private insurance is (see my blog on Health Affairs: “The Public Option: Not Worth the Risks” for a discussion of how debatable the proposition that the public sector is better at saving money. Take a look at the Medicare cost trend in that blog, and if it weren’t for the accidental excursion below the line after BBA 1998, Medicare would actually have performed worse than private insurance in the past thirty years.
    The real problem Congress is having just now is that it is constitutionally incapable of reducing peoples’ incomes, even if they are stealing. . .

  8. “Way more savings need to come from the health system itself (50% isn’t enough)”
    “If you want job growth to resume next year,…”
    Jeff, as a voluntary uninsured who will not meet any subsidy qualification or tax free company health benefit, I don’t like or want THIS bill as it does nothing to lower my premium or health use costs, and it continues to put me and others in financial jeopardy. Congress has lost sight of the purpose of this reform. I agree that the industry which brought us this financial mess should pay, but how do you reconcile where you want the job losses (in this economy) – healthcare or other industries?
    “What do we get for this steep price? Well, we get an insurance industry that is regulated within an inch of its life. It will be told the benefit package, its underwriting policy, the permissible amount of cost sharing each insured can bear, the medical loss ratio they are permitted to run, the ratio of premiums between highest and lowest cost enrollees…”
    Well, I don’t want an insurance industry regulated within an inch of it’s life, I want one regulated out of about 90% of all healthcare coverage. We are getting nothing from insurance except pass through 6% – 10% yearly compounded price increases coupled with the risk of arbitary recission and fights for cost coverage. As long as we let the insurance industry set health budgets we will not see cost reductions.
    As the new reality of more living within your means with more savings and less debt is the price we’re paying for living the high life over the last 30 years, Americans will have to live with less healthcare if they want healthcare to be there at a price they can afford when they need it in the future. Call it rationing or comparative effectiveness, it’ll mean you can’t get want you want when you want it and expect someone else to pay for it.

  9. Medicine is a business. Capital must seek the highest means of profiting….even if that means cutting citizens off from care and denying benefits when folks need them badly. The stocks I am invested in boast loss ratios that have dropped from 95% to about 80% (on the dollar). I am very angry that they are destroying the free market place where investors like me have made a fortune…..which, of course, pays for my lofty premiums and cash visits to Mayo Clinic.
    Believe the news, because it has never fooled you before. Nothing will change….they are bought and paid for….hahahahahaha!
    Raise your glasses:
    “Let them eat cake!”

  10. Jeff,
    I guess everyone gets to give up something except the pols who created this mess?

  11. Actually, what I advocated in The Long Baby Boom was reducing the intergenerational subsidy for high income seniors, so that they pay more for their Medicare benefit out of their own resources. I also advocated encouraging people who are able to work longer, e.g. well past age 65 ( so they pay more taxes later in life). I also advocated changing how Medicare pays for health services to shift more of the cost risk onto hospitals and doctors, encouraging them to economize in treating Medicare patients, reducing future program costs.
    People who bought into Medicare at age 55 would pay their own way, with only the lower income folks receiving a subsidy for their portion of the costs. This would reduce the present huge disparity in Medicare spending at age 65 for those who enter the program from being uninsured, at least partially offsetting the cost.
    There are nearly 11 million uninsured baby boomers, and few of them will have the resources to comply with the individual mandate in HR3200. It isn’t going to be of much help to them.
    I also advocated enabling about 25 million more fortunate boomers to defer receiving Social Security and Medicare into their late 70’s or early 80’s to reduce their fiscal drag. The goal was to reduce deficits, not increase them.
    You can find a pdf. of the Medicare chapter of the Long Baby Boom on my website: http://www.healthfutures.net.
    Thanks for the compliment on my writing. It’s a work in progress.

  12. Jeff,
    In The Long Baby Boom you advocate:
    Opening Medicare to 55 year olds
    Eliminating taxes for oldsters who make <200K
    Wouldn't that create deficits too? I'm so confused!
    Another thing: comparing your post vs. the book, I'd have to say your writing has made a remarkable improvment. Much more dense and allusive. Congrats on the skill upgrade.

  13. Rich,
    Last time we had wage and price controls in this country there was no product available for the price. I see a long spiral towards cash and carry. I also see a huge black market potential. I also see Congress exempting themselves from the new program, which is only intended for the common-folk. The Washington elite will have their own brand of healthcare: Obama 2009, a very special vintage.

  14. During the election, democrats laughed at the Bush tax cuts, with the question “how will we pay for these cuts?”. The same question exists for healthcare ‘reform’. If you lower costs, where will those savings come from? If this bill, or a version of it, is passed, I see a long downward spiral for medical professionals and their wages.

  15. There are tons of ways for small businesses to avoid buying health insurance. So that should not be an issue. When it comes to that, those who are interested call me and we can talk strategy.
    So what is the issue…the issue is create a world class system. I am not going to go into the problems…but solution is screwed up because we are trying to patch up. It is relatively easy to create a healthcare system that is better that today, covers all and stll there is few bucks saved.
    Why are we not doing that? God only knows. But let me give you one possibility – look into the amound of people employed in healthcare industry that supports tehse wastes….you get rid of the waste….WELL BE ready to add more to unemployment line.
    I can guarantee that. SO health care reform at the gross root has to be step by step. And which is OK. What we have not done is define what we want to achieve.
    Let us define success in clear measurable terms then we can debate about solution.
    By forcing all to buy insurance, is basically putting more money in the sytem…so business grows, more employment and all that…but the quality does not change by much unless the fundamentals are changed.

  16. A power struggle pure and simple. Did you see Obama’s face in his remarks this afternoon? He is not a happy man. He slapped Nancy around and thery are both getting slapped around by the Blue Dogs and Senate Finance.
    These are very smart people, and they know that the support for Health Reform is skin deep. Here’s what the population really thinks:
    And when these sentiments become commonly accepted public knowledge, there will be no appetitite for a major federal solution. Reform is ABSOLUTELY needed-but it has to include major reforms in Medicare and Medicaid reimbursement, individual mandates, taxes on ultra rich benefits not ultra rish people, and NO PUBLIC PLAN. “Let me keep what I have, and don’t ask me to open my wallet any further!)
    That’s why they want this done so FAST, and why there is so much push back from moderate and conservative Dems.
    Thats what the public wants. So put your money on the Blue Dogs-Not Obama and certainly not Pelosi. They get it.

  17. I expect further modification, perhaps in reconciliation.
    Today we read conservative democrats are joining with republicans on “costs”.
    “Cost” has been used 2 ways — for the bill itself, and for the far more critical overall health care cost inflation.
    But not this fog is starting to clear.
    I’ve summarized 2 months of work on the best reforms to control health care cost inflation here:

  18. Forgot to mention, any potential savings will be met with howls of “THAT’S RATIONING”.
    Well played R’s, let’s make sure we keep wasting.

  19. I’d note that: “Health Futures specializes in corporate strategic planning…”
    If the corporate strategic planners don’t like this, I’m even further reassured.
    I’d also note the bit of karma in play. The upper tiers of our society have preached to the lower folks for years how taxes are the root of all evil. They needed some foot soldiers and cannon fodder for their cause. Now, the only politically feasible way to raise revenue is to target them precisely.
    If you cry foul about the revenue structure in this bill, then you should really blame the Grover Norquist’s of the world. They made it all necessary.
    More blood from a stone? http://www.cbpp.org/cms/index.cfm?fa=view&id=69

  20. President Borg Obama knows healthcare deform is dead once the 2010 campaign really begins. Look at the democrats already crossing over in committee votes to see where the weakness in the dem majority is starting to show. Once the dam leaks it will crumble.
    Sen. Dodd said “if you don’t have insurance, this bill is for you.” Well, America, most of you have insurance. And you definitely will foot the bill.
    Are you crazy enough to think your care will stay the same if 50 million more people are using the same system capacity as the day before this loser plan goes into effect? God help us if it does.
    Bankruptsy of the USA: who would have ever thought it possible. But that’s what was thought of GM, too…

  21. Also we need also to understand that creating and providing jobs IS health care.
    They are not separate silos as we have been led to believe. Rather they are intimately connected.(studies available upon request)
    Not all health interventions are bio-medical.Actually the very best are not.
    We need to learn that lesson for many reasons.
    Dr. Rick Lippin