Health Care Reform Stalling

President Obama’s vision may still be carried out – but only in part.... and maybe not at all.

The nearly 100 year saga to provide health care to all Americans, free of charge, seems likely to make some progress, but far less than many expect. The Administration’s goal of expanding government sponsored health care to the 30-50 million uninsured seems likely to result in another round of limited modification of the current private system. This suggests that health care stocks, on average, are likely undervalued.

Compromises, compromises
The most controversial aspects (and where the substance lies) of the bill seem likely to be watered down. Part of that has to do with cost; part of it has to do with appeasing the private sector. The Senate and House must reconcile different versions of the bill. In the House version, 95% of Americans would be eligible for health coverage; in the Senate version, 97% of Americans would qualify.

A government-run option now seems off the table
The most challenging task for the bill’s proponents has been explaining how anyone could compete with a truly functioning public health option. Private insurers have portrayed themselves as in a struggle for their lives and this legislation as tantamount to completely socializing the health care sector.
Most polls recent and historic strongly suggest that Americans prefer private insurance and generally like their current health plan - which suggests that public support for a public option will be lukewarm - as most Americans would prefer not to need it. (Must be something about their experience with other government services...) Consequently, an increasing number of Democrats have started to break ranks.
Last week, Senate Finance Committee members Sen. Max Baucus (D-MT) and Sen. Chuck Grassley (R-IA), worked in late June to whittle down the House’s $1.6 trillion version of the bill to less than $1 trillion. Baucus, who is Chair of the Committee and Sen. Kent Conrad (D-ND), another Committee member, have let it be known for several days that talk was shifting away from that concept of a "public alternative" in the Senate and toward ‘nonprofit cooperatives’. This is likely a consequence of poll numbers that show weak public support rapidly deteriorating as the $1.6 trillion+ price tag became increasingly discussed (and criticized) in the media.
However, the House version of the bill still includes the government-run plan component – which is not a good sign for proponents – as this means negotiations will need to be complicated and contentious with the Senate. This will allow for attention to pass on the issue. The parallels between current events and the Clinton Administration's 1993 efforts are uncanny. Death by debate and a transition to greater fiscal discipline seem in the cards here.

And so does a mandatory employer offering…
As originally conceived, most major backers saw the private sector as bearing the majority of the burden in any major reform. Sen. Clinton’s (D-NY) presidential campaign plan largely proposed that businesses would pay federal fines in the future if they refused to provide health coverage to workers.
Increasingly concerned about poll numbers expressing greater concerns about economic issues, and in the face of a resurgent lobbying effort by industry, congressional Democrats are concerned about seeming anti-business. What employer expectations remain seem to be rapidly deteriorating. According to Sen. Conrad, the Senate version of the bill would now ask businesses to shoulder a portion of the cost of Medicaid coverage received by their workers, or 100% of the Medicaid tab for certain workers poor enough to qualify for a tax credit that could help them buy health insurance.
If the bill passes, the amount of employer-provided health benefits exempt from income taxation might be limited. Sen. Max Baucus (D-MT), current chair of the Senate Finance Committee, has suggested a $15,000-$17,000 ceiling on that tax exclusion, which would likely have a minimal impact on employers at present (at least outside of the executive suite.)

Reforms to Medicare are also losing steam from unlikely bedfellows…
Ironically, the Administration has helped ally two old enemies – health care companies and physicians. President Obama’s June 15th speech to the American Medical Association in Chicago, while at times incurring thunderous applause, seems to have had little effect in generating new support from doctors.
Ultimately, physicians understand that greater government involvement in health care will eventually result in loss of prerogatives and income and this places them firmly (and permanently in the camp of the private sector.) The AMA’s resistance is a product of reformers’ efforts to require that doctors participating in Medicare also be required to participate in the new government plan.
The Administration has, as part of it's package, set goals of ending ‘overpayment’ to Medicare Advantage, which it has claimed would save the government $177 billion over the next ten years. In that same time frame, it also wants to use Medicare reimbursements to reduce preventable hospital re-admissions – for a projected $25 billion in additional savings. The reforms would also give Medicaid members a bigger prescription drug discount, while reducing that discount for high-income Medicare members. But all of these changes will ultimately result in less flexibility in Medicare benefits, particularly for upper middle class Americans who access them most frequently. This erodes some of the grass roots, fundraising support of the Democrats and encourages apathy in the ranks.
The popularity of Medicare Advantage, and the AMA’s hostility to linking the plan with Medicare (while officially providing statements suggesting endorsement) are helping to derail any meaningful proposals on this front as well. And while drug companies like the increased benefit – managed care organizations are resentful of efforts to destroy Advantage.
In testimony before the House energy and commerce panel, Blue Cross and Blue Shield Association senior VP Alissa Fox contended that any cuts in Medicare funding “would cause millions of Medicare Advantage enrollees to lose their coverage and lead to significant reductions in benefits or increases in premiums for millions more.” In addition, Blue Cross, Blue Shield and the industry-sponsored America’s Health Plan recently presented a letter to the ailing Sen. Ted Kennedy (D-MA), referencing a study that found the average family of four pays $1,700 a year more than they should in health insurance premiums due to Medicare and Medicaid underpaying hospitals and physicians.

The problem is taxes…
Obviously, tax increases would fund the majority of reforms. More specifically, the President has talked about cutting back the value of the itemized deductions available to the wealthiest American taxpayers. But recent revolts (tea parties and the voters in California’s response to budget propositions seen as “tax increases”) have got many congressional Democrats scared and looking for alternatives – causing a breaking of ranks and division between the two houses. House Ways and Means subcommittee chair Rep. Richard Neal (D-MA) said other ideas a payroll tax and a value-added tax. The Senate seems to prefer the idea of taxing employee health benefits.

Something coming, but likely very watered down
This chapter in the saga of health care reform is hardly over, but we’re already seeing signs of capitulation by the President. “We are still early in this process," he noted Thursday. “We have not drawn lines in the sand.”
Expect those sands to shift further. Much further.