Senate Health Care Reform: Two Huge Problems, One Giant Red Herring

Pity poor Senator Harry Reid. Not only is he facing an uphill reelection fight in Nevada, but as Majority Leader, he must reconcile the health care reform bills from the Finance and the Health, Education, Labor and Pensions committees so as to attract sixty Senate votes. He’s guaranteed support from the more partisan Democrats, but to attract Democratic and one or two Republican centrists without losing liberals, he has to find ways to deal with two huge problems with the bills—and one giant red herring.

The giant red herring is the public option, THE big stumbling block for reform, mostly thanks to the efforts of lazy-thinking doctrinaire politicians of both parties—especially in the House. (Yes, Speaker Pelosi and Minority Leader Boehner, I mean you.) The reality is that for a public option to provide an adequate network, its payments to hospitals and physicians must be at least at Medicare levels. As experience with Medicare Advantage shows, this means its costs will be close to those of private coverage or higher, especially if it adopts Medicare’s uncontrolled fee-for-service structure and attracts the least utilization-conscious providers and patients.  All this makes nonsense of liberal claims that the public option is necessary to control costs, and equally, of conservative allegations that it will destroy the insurance industry—and leaves Senator Reid’s “opt-out” solution looking merely perverse.

Unfortunately, the quasi-religious war over the public option has taken attention away from the two huge real problems with the Senate bills.

Huge Problem #1 is the conflict between mandated coverage and consumer affordability. Even with penalties of $750 or more per person, and with subsidies that limit premiums to 13 percent of income, the Congressional Budget Office estimates that 16 million eligible individuals will fail to be insured. (Rather than paying $4,000 for coverage, a $750 penalty may seem a good risk for someone earning $30,000 a year.) Since those taking the non-insured gamble are most likely to be young and healthy, the result will be a huge adverse selection impact on insurers required to guarantee issue—followed by the giant jump in premium costs that insurers (reasonably, for once) are forecasting.

With the Senate Finance Committee insisting on its approach of grafting more and more new rules onto the present health care system (remember, these are the guys who brought you the United States tax code), is there any way to deal with Huge Problem #1? Aside from big increases in penalties (politically unacceptable) or major increases to the subsidies (unaffordable), possible approaches include exceptions to guaranteed issue for those who fail to acquire coverage (the insurers will like this), allowing buy-in to Medicaid (a better deal than private insurance, so long as you don’t need care), and tying coverage selection to tax return filing (a pre-emptive strike approach that conservatives will erupt over). None of these, however, seems likely to appeal to sixty senators.

Huge Problem #2 is the need to slow the rate of increase of national health care expenditures.  The Senate Finance bill assumes that slashing Medicare expenditures is the primary way to do this—ignoring the likely resulting cost shift to private payers. Can we do better?  With Democrats unwilling to offend supporters by proposing real penalties for excessively generous employee coverage (unions will fight this) or nationwide tort reform (trial lawyers will resist), or effective limits on provider resources (the Obama administration has cut deals with docs and the drug industry) the best bet ought to be the insurance exchanges. Unfortunately, the Senate bills allow insurers to continue to sell directly to any employer, with all the potential for cherry picking (and resultant adverse selection and ultimate bankruptcy for the exchanges) that this implies. It’s not surprising that the insurance industry has been relatively subdued in its comments on the Senate’s efforts to date.

The sad conclusion:  even IF Senator Reid manages to cobble together a reform package that attracts sixty Senate votes AND can be made acceptable to the House—and Senator Reid’s chances of sixty-vote success aren’t good—we should be prepared for more of the same: lots of uninsured, skyrocketing premiums, a continuing exodus of providers from Medicare, bigger deficits (don’t forget those premium subsidies), and a series of defeats for the party in power—but the Dems, this time.

Or, perhaps Senate Democratic leaders will suddenly see the wisdom of what CBO Director Doug Elmendorf told them in July: to control the costs of United States health care (and begin to make it affordable to individuals) will take fundamental change.

But don’t hold your breath.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE [].

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13 replies »

  1. We’re never going to achieve anything as long as lobbyist continue to pay of higher officials . its been about money who cares what the people are going through right ?

  2. Shame-Shame on any Senator who receives contributions from the insurance industry and votes against the health bill

  3. shame-shame on any senator who receives contributions from the insurance companies to vote against the health bill.

  4. MG you missed the part;
    My clients
    Other TPAs clients
    These are people that make an effort to control their cost, they don’t sit back and just pay what ever the doctor bills or insurance company charges in premium. When insurance was cheap companies didn’t manage the expense, now that it is more costly companies are making an effort to spend wisly and manage risk. Far from all companies are doing this though that is why overall inflation is increasing, their are thousands of succesful examples of companies that have flat trend. Liberals don’t like to discuss those cases though cause people might start to think we could solve this without washington’s help and taxes.

  5. Excellent article. From my memory it seems that most public programs like this are proposed at seemingly low cost (even thought this is a huge price tag) and they end up costing two, three or more times ten years later. There are too many low-hanging fruit that could have been addressed and improved national health care rather than this political approach to control rather than assist.

  6. Health care reform is not about health, it’s about politics. It’s the Democrats trying to extend government control over us. Even their supporters agree that the numbers do not add up. They will not be able to cover the supposed 46 million uninsured (a fuzzy # that is repeated ad nauseum as fact). Their plan does nothing to rein in rising medical costs. Tort reform is AWOL for them? As for medical quality, they would rather pursue medical mediocrity for all than strive for excellence. If you were a college student now, would you be likely to pursue a medical career? See

  7. In an answer to a letter I sent our Senator Kay Hagan she responded with this; “In order to ensure that the Community Health Insurance Option competes on a level playing field, I insisted that it meet federal and state solvency requirements, that payment rates be negotiated, rather than tied to Medicare as some suggested, and that doctors and hospitals be free to choose whether to participate.”
    Here is the classic political constituent double cross, pretend to support a popular bill of reform but craft it so that it will be toothless and play to your corporate donors, in this case BCBS of NC and it’s executives. Why would Democrats think that a “level playing field” provision would do anything to control costs. As I predicted the “Public Option” will be a big dissapointment. Look for it to be run by insurance executives.

  8. “Washington doesn’t outlaw lifetime max and cap annual out of pocket private insurance is fine.”
    Nate, would please explain how these things will affect the subscribers, particularly the seriously injured and diseased ones. Will they be fine too?

  9. Nate – Those numbers contrast to what I have generally seen and healthcare premium inflation is still outpacing general inflation (whether you used CPI or the more realistic inflation numbers from the Cleveland Federal Reserve) by at least 2-3 percent. Not exactly “holding the line” on costs.

  10. I don’t think it will turn out that bad, their are huge improvements taking place in the employer market. I see Medicare and Medicaid collapsing but private insurance will be fine. Our clients that invest the effort have flat to low single digit inflation. When I was at a conference a couple weeks ago most payers where saying the same thing, with work we can hold cost flat. As long as Washington doesn’t outlaw lifetime max and cap annual out of pocket private insurance is fine.Eventually those employers that refuse to put in the work will either go broke or fall in line.
    There are some amazing transparency efforts taking place as well as more efficencies found in drug and administrative cost. If EDI and EFT take off first part of next year like we expect the post office might not survive the year.

  11. Regarding Huge Problem #1, I assume that the 16 million young and healthy that will opt for the penalty are not currently in the system. Is that correct? If so, do we have any hard numbers for the desperately ill waiting on the sidelines for the guaranteed issue, other than “huge” and “giant”?