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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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