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Why "Health Reform Lite" Is HardWhittling the bill down is no easy task.

By Timothy NoahPosted Tuesday, Aug. 11, 2009, at 6:56 PM ET

Click here for a guide to following the health care reform story online.

Sen. Arlen Specter (right) listens during a town hall meetingEven before members of Congress went home to town hall meetings where they were shouted down by rude, sometimes violent right-wing protesters against "death panels," publicly funded abortions, and other bugaboos, health reform had hit a few speed bumps. The Senate finance committee, once regarded as the lead panel on health reform, has been unable to produce a bill. Because Sen. Max Baucus, D-Mont., fetishizes bipartisanship to the point of excluding from his "gang of six" negotiators the chairman of finance's own health subcommittee, it has been laughably easy for obstructionist Republicans like Mike Enzi of Wyoming to impede progress. On the House side, health reform squeaked through the energy and commerce committee, 31-28—but only after the committee agreed to rebates for the Medicare drug program that the White House has promised PhRMA it won't support. Clearly, comprehensive health reform will be hard to achieve.

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Why not, then, health reform lite?

Writing in Slate, Jacob Weisberg has suggested that Congress scrap current health-reform efforts and adopt a proposal by Sen. Ron Wyden, D-Ore., to eliminate the current tax exclusion for health insurance and instead supply individuals with a generous tax deduction for the purchase of health insurance. The Washington Post's Ruth Marcus and Ezra Klein and the New Republic's Jonathan Cohn have also written favorably about Wyden's plan, and Charles Krauthammer (who, in addition to being a conservative columnist, is a nonpracticing medical doctor) has proposed an alternative that resembles the Wyden plan with a dollop of tort reform.

Under the Wyden plan, everyone would have to buy health insurance. But the government would use revenue from taxing health benefits, which currently are not taxed, to extend additional subsidies to low- and lower-middle-income families, and insurers would have to take all comers and (with a few minor exceptions) charge them the same premiums. The Congressional Budget Office estimates that Wyden's plan would have zero effect on the budget deficit in the short term and might actually reduce it in the long term.

But the Wyden plan lacks a persuasive mechanism to keep individuals' out-of-pocket payments from rising. Mainly it assumes that brisk competition between private health insurers to sign up individual policyholders will keep premiums down. But private health insurers compete to sign up companies (and some individuals) now, and premiums are skyrocketing. Eliminating employers as middlemen between insurers and consumers might make this market perform more efficiently, or it might not. The government could try to fine-tune incentives by lowering premium subsidies, but to whatever extent families became more market-sensitive, they would also find it harder to purchase health insurance—which under the Wyden plan would be their lawful duty.

A more obvious problem with Wyden's plan is political. Eliminating the tax exclusion for health insurance would quickly and a bit too obviously chase employers out of the health care business—a result much to be desired but one that could turn the town hall crazies into a lynch mob.

All right, then, why not just require insurers to take all comers ("guaranteed issue") and charge everybody the same ("community rating")? These are two of the most popular health reform ideas. Even the insurers have agreed to them. But they've made it conditional on the imposition of an "individual mandate," i.e., a requirement that everybody purchase health insurance. Otherwise, they argue, "free riders" will avoid purchasing health insurance until they become seriously ill. An individual mandate would be constitutional, and the black-helicopter paranoiacs thus far don't seem to have glommed onto it. But if you're going to force people to buy health insurance, you have to make it possible for them to afford it, and that costs money.

Health economist Uwe Reinhardt calls this the "three-legged stool" of health reform. Eliminate any one leg, and the stool collapses. Jacob Hacker has argued that the individual mandate may not be economically necessary if health reform prods employers into expanding health coverage; what is necessary, he argues, is a government insurance program to exert downward competitive pressure on private insurance premiums (or at least give people a safe harbor where they can buy decent and affordable health insurance).

By the time you make all these necessary adjustments to a stripped-down version of health reform, you end up with all the basic components of the health reform bills passed by three House committees and one Senate committee. You want simple? Enact single-payer.

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Timothy Noah is a senior writer at Slate.

Photograph of Arlen Specter by Chris Gardner/Getty Images.

COMMENTS

Community rating, in which the insurer must take anyone who applies regardless of age and health, is expensive because of negative selection. People who can get cheaper coverage through a group (usually employer) use that. Young, healthy people who think they don't need coverage don't buy it. Individual community rated insurance the coverage of last resort, so only the least healthy, most expensive to insure buy it. Since money coming in must cover money going out, that means higher individual premiums for any given level of coverage.

To avoid the problem of negative selection with community rating, you have to force everyone into the pool, including the young and healthy. That holds down the average loss experience per individual, which holds down the average premium. It also means, of course, that the young and healthy are paying for more and broader coverage than they are likely to need at that time, but of course they'll get older and get the benefit of the next younger generation.

That's how the German system works. Everyone must buy coverage. (The state subsidizes the premium for the poor and unemployed.) For people under an income threshold (currently E48K), that means coverage from one of numerous nonprofit insurance funds based on locality or industry, with standardized benefits fixed by law. People over the income threshold can buy better coverage; the premium is set at the time you buy in and doesn't increase with age or loss experience, which encourages the young and healthy to buy private coverage as soon as they can afford it.

-- jack_cerf
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The President and his supporters are out stumping for health care reform and are getting a lot of flack. The fundamental reason is that he has yet to identify what his plan is. He talks beautifully about what he wants it to do, but has yet to put a plan on the table. Without identifying his plan, he asks us to trust him. The people who are going to the town meetings are saying they do not.

President Obama should not take that personally. Our Federal Government has a long, sorry track record of mismanagement, fraud, waste, and unintended consequences in almost everything they do. Our Congress has a decades-long habit of passing laws which contain hidden provisions that act against our best interests and which we only learn about when it is too late. Our elected leaders cannot be trusted, even to read the bills they enact, let alone make sure the laws are good ones. And whatever they pass into law will never, never go away, no matter how bad it turns out to be. The people who are going to the town meetings may be unruly and loud, but they are also right to speak up now while they can.

How can we trust our government to give us a good plan for health care when the objectives stated by the President and the promises he has made appear to the most casual observer to be mutually exclusive? And unaffordable? And impractical? He has yet to offer anything other than airy assurances and vague generalities in response to such concerns. He needs to quit trying to thrill us with his rhetoric and begin trying to educate us on whatever his plan really is, explaining how each provision he wants to enact will solve the problems he says he wants to solve, and explaining what each provision will mean to us...to our taxes, our current health plan, our relationship with our doctors, our access to services, our care at the end of our lives, etc.

I would take the time to read and try to understand the President's health care plan if he would simply tell us what it is. In the absence of any facts, all our citizens can do is what they are doing.

-- fryed67
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