David Coates

Chapter 6: Introduction

The Issues

Over 2009 as a whole progressed, a potential consensus emerged on what President Obama referred to as at least 80 percent of what was needed: no denial of coverage because of pre-existing medical condition, help to the low paid and the small business sector to buy basic health care for themselves and their employees, and a resulting mandate on both individuals and companies to participate in the health care system (to “pay or to play”). The House bill agreed as early as July expected individuals to pay 12% of their income on health care insurance before subsidies kicked in. It also exempted businesses from contributing to a common fund if they had an annual payroll of under $500,000, and applied the maximum rate of contribution to a common fund by employers not offering health care directly, 8% of wages, only to employers with payrolls of $750,000 or more.

But two major stumbling blocks remained unresolved well into the fall of 2009: the issue of the public option, and the issue of costs

The Public Option The voluntary offer on cost cutting that the White House won in May was made by insurance companies determined to block the public option; and that opposition could not be talked away, no matter how hard the White House pressed the case Progressively, the issue of the public option divided the leadership of the Democratic Party in Congress – as a vital element in all the bills passed by the House, and a conspicuous absentee from the bill designed by Max Baucus in the Senate. His finance committee twice voted down in September amendments to include such a public provision – conservative Democrats (including Baucus himself) joining with minority Republicans to produce that result. Opponents of a public option regularly presented it as the precursor of a single-payer system, one that would inevitably shrink employer-provided coverage and force health insurance companies out of the market. Advocates of a public option dismissed that as hysteria: a cover to avoid what a public option would do, which is stop insurance companies overcharging for services and denying coverage to the genuinely sick. Into that impasse then flowed a series of different alternatives, not least the idea of a “trigger” – a public option only to be created if the insurance companies failed to deliver extensive coverage that met other criteria – a trigger that liberal Democrats believed was being offered by people determined never to trigger it. Add to that the notion of non-profit-based co-operative insurance exchanges to compete with private insurance providers, or the idea that individual states could chose/not chose to have a public option; but still the danger was obvious. Without either competition or tight regulation, the insurance companies stood to gain massively from any federally-funded expansion of the numbers of those insured; and as the President told the AMA in June, what he “refused to do was simply to create a healthcare system where insurance companies have more customers on Uncle Sam’s dime but still fail to meet their responsibilities”. (The Financial Times, June 16 2009)

Health Costs The Obama position throughout 2009 was that any reform had to be “deficit neutral” over a ten year period – meaning that any upfront costs had to be fully paid by cost reductions or revenue generation elsewhere. The administration’s first budget proposed $300 billion less to Medicare and Medicaid, through cuts in subsidies to private plans participating in Medicare and by cuts in payments to drug companies and hospitals. Later proposals from the president raised that number to $600 billion. Proposed cuts of this kind mobilized resistance. The administration continued to seek good models from within the existing system – the Mayo Clinic became an early Obama favorite, Green Bay Wisconsin became another – and there was much talk of how dramatically health costs varied by state ($9564 in New York in 2006, but only $5311 in Hawaii – The New York Times, June 9 2009), with all the promise that held of cost-saving through the sharing of best practice.

  • But there was no avoiding the thorny issue of tax rises: could some of the extra cost be offset by taxes on the very rich (the House bill added $1500 to the taxes paid by those earning over $500,000 a year), or by taxes on things that make people ill (soft drinks were a popular liberal target by mid-summer) or by taxes on generous health care packages (the gold-plated Cadillac packages also favored as a tax target by some on the Left). Neither would sit easily with the Obama campaign promise not to raise taxation of people earning less than $250,000 dollars a year!
  • Nor could legislators easily escape the dilemma of making insurance affordable. The CBO’s regular estimates of the cost of each bill as it emerged continued to make the choice clear: coverage or costs. The wider the coverage, the larger the price-tag, on each bill in turn; yet without subsidies, people on low income could never afford the coverage they will be mandated to buy. But scaling the subsidy has the classic welfare trap problem: that as you phase out the subsidy as income rises, the effective income tax rate can reach 100%.
  • Beneath this tax discussion is the thorny issue of rationing. Conservatives like to claim that Obama and the reformers are introducing rationing, but the status quo rations anyway: allowing those with generous coverage to get what those without cannot. But the reforms are bound to change the rationing system: raising issues of whether, by widening access, the reformers will lower either the speed of delivery, or the quality, of medical coverage for the rest. the Centers for Medicare and Medicaid Services (the non-partisan watchdog institutions similar to the CBO) warned on November 14 that the Medicare cuts contained in the House bill “are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether”. The CBO estimate that Medicare spending per beneficiary would have to grow at half the rate it has over the last 20 years to meet the measure’s saving targets. Politicians are unlikely to live with that – grey power being what it is – but increasing Medicare payments will erode much of the claimed savings.

Growing Public Unease As the debate stretched out, and as Republican stridency intensified, public opinion surveys showed rising popular unease: a continued commitment to health care reform – the status quo being widely recognized as problem-ridden – but now with growing unease about soaring costs, the danger of diminished quality, a fear of rationing, even a reduction in choice. The craziest fears – of death panels and fully-socialized medicine – struck home only in the depths of the Republican base; but fear of cost inflation and quality loss were more general. Fear too, on the Left, that the reform in its final version would just be an insurance providers’ paradise: subsidized health care provision without genuine insurance regulation. In June the Kettering Institute issued a report on Public Thinking about Coping with the Cost of Health Care that showed US citizens agreeing “that the issue of cost – the cost of providing both health care and health insurance – poses the greatest threat to the system” while also agreeing that “the nation’s health care system is in dire need of complete overhaul”. The fullest analysis of popular opinion as decision-time approached came from the Brookings Institution on October 9. (Steven Kull et al, Battleground or Common Ground: American Public Opinion on Health Care Reform).

  • They found 60 percent of Americans believing that government had a responsibility to ensure basic health care for all, and treating health care as a right not a privilege.
  • They found majority support for nearly all the major reform proposals: public option for all (57%); public option for those without insurance (75%); cross-state purchasing of health insurance(65%); insurance industry regulation to ensure no exclusion by pre-existing condition (82%); no dropping people who become sick or who fill in their details incorrectly(86%); tort reform(55%); employer mandates(54%); and individual mandates(52%).
  • 60% anticipate tax increases, and an overwhelmingly majority believes it possible to save money on health care by cutting waste (77%).

The Lobbies and the Parties

The London Guardian newspaper reported on October 2nd that the US healthcare industry had spent $380 million on lobbying in 2009, including $1.5 million to Max Baucus’s political fund and $120 million on adverts supporting the watering down of legislation. By mid-summer, typical blue-dog Democrats were reportedly receiving on average 25 percent more healthcare industry funding than their less conservative Democratic colleagues (The Washington Post, July 31 2009); and the nation’s largest insurers, hospitals and medical groups suddenly added 350 former staffers and retired members of Congress as lobbyists (ibid, July 6 2009). The Guardian reported the ration of health lobbyists to Congress members by October as 6.1:1!

That lobbying against health care reform operated against the backcloth of an intense grass roots and right-wing media onslaught against each and every one of the reform bills emerging from the Congress. Rush Limbaugh, Glen Beck and Sean Hannity were all heavily involved in condemning proposed reforms as a government (‘socialist’) take-over of the health industry that Limbaugh at least regularly lauded as “better than anywhere else in the world” (see, for example, his July 23 2009 interview with Greta Van Susteren on Windows Media Player). Limbaugh regularly treats the case for reform as one threatening to individual liberties, accusing the President of “lying through his teeth” when telling people they can keep their existing plan if they like it. In August both Sarah Palin and NC Representative Virginia Foxx gave credence to the notion that the Obama administration was planning death panels to eradicate the old; and very famously Congressman Joe Wilson called the President a liar when Barack Obama told the joint session of Congress that illegal immigrants would not be covered by the legislation. But beyond these red herrings (literally!) serious conservative arguments were developed and propagated throughout 2009 by all the major conservative and libertarian think tanks.

  • Heritage campaigned regularly throughout 2009 for reforms that empowered states rather than federal authorities, and against a public option as a slippery slope towards a single-payer system. They warned of inevitable tax rises associated with federal assistance to people currently unable to afford health care, and the creation of an ever widen culture of dependency. Already convinced that the problems of Medicare and Medicaid were rooted in lack of consumer choice and empowerment, they rejected bills that extended employer and individual mandates – seeing them as as job destroyers, price inflators, barriers to economic growth and a hidden tax hike on the young and healthy, especially among the poor They anticipated a major move away from employer provided health care coverage if the reforms proposed were implemented – a typical piece of ‘crowding out’ of private provision by publicly funded provision. They wanted tax reforms (to end the privileged status of employer-provided health care) but no tax hikes.
  • Cato Very similar themes from regular publications of the Cato Institute, but with even stronger emphasis on how Obama-like reforms will increase wait times and deficit levels, how reformers overstate the numbers of the current uninsured, and how the public option will actually kill competition in the insurance market by driving out private insurers. Cato strongly urges reform packages built around market-based, deregulation-focused principles. Their solution: end Medicare, use vouchers and deregulate insurance. They concede that rationing goes on now – by insurance companies – but deny that rationally by a government monopoly would be any better. Their solution: empower people to make informed personal medical choices, and let them buy insurance across state lines. For them, a government plan is still socialized medicine: and that means less choice, more cost and lower quality.

Not that all the lobbying was all one way. The AFL-CIO led the charge in July against the proposal, floating around the Obama administration, to tax generous employer-sponsored premiums (those over $15000) – this in spite of the fact that the tax-free treatment of employer-provided health insurance is the biggest loophole in the US tax code (at $1.2 trillion a year) and the second largest federal health care cost after Medicare. The case for a public option was pressed repeatedly by a broad coalition of liberal think tanks and activist groups that included the Center for American Progress, the Economic Policy Institute, MoveOn.org and the Progressive Change Campaign Committee, and The Huffington Post (regularly put by luminaries such as Robert Reich, Michael Moore, Robert Kuttner and Adrianna Huffington herself). The Centre for American Progress made the case in a report by Peter Harbage and Karen Davenport, Competitive Health Care published in March 2009. The Economic Policy Institute matched that with Alexander Hertel-Fernandez’s Why A Public Insurance Plan Is Essential For Health Reform published in April 2009. The case was also made by Howard Dean in his Prescription for Health Care Reform (White River Junction, Chelsea Green Publishing, 2009) and by Tom Daschle in his Critical: What We Can Do About the Health Care Crisis (New York, Thomas Dunne Books, 2009). Recognizing the importance of mandating full participation (by the young and healthy as well as the old and sick) for a financially viable universal coverage system, the inadequacy of the Baucus bill’s handling of the free rider issue is well discussed in the CEPR’s Reimbursement Roulette,published in their September 2009 Issue Brief.

The New Data

The administration countered all this lobbying partly by having the Department of Health and Human Services issue a string of reports canvassing the need for reform, and its benefits. (all at HealthReform.Gov). A typical example would be the September 3 issuing of Strengthening the Health Insurance System: How Health Insurance Reform Will Help America’s Older and Senior Women.Similarly directed has been a steady stream of reports from the Engelberg Center for Health Care Reform at Brookings, the Center for Economic and Policy Research, the Urban Institute and the Commonwealth Fund. The pick of the crop was the study by the Kaiser Family Foundation and the Health Research and Education Trust, in September 2009, on Employer Health Benefits, which found the average family policy offered at work now costing $13,300 – up from $5,800 in 1999. The average employer contribution to that was $9,800, with workers contributing $3,500+, for policies with bigger co-pays and fewer benefits. That was matched for significance by the US Treasury’s report (The Risk of Losing Health Insurance Over a Decade: New Findings from Longitudinal Data), also in September, that between 197 and 2006 48 percent of non elderly Americans went without health coverage for at least one month, 41 percent for six months and a staggering 36 percent for a year or more.
One final thing: the fierce debate over health care reform in 2009 brought increasingly to the surface the issue of self-inflicted illness – costs to health care caused by the live styles we adopt and the food we eat. The allocation of blame in this key dimension of health care costs can be equally divided: to those who decline to eat well and exercise properly (the obesity issue best addressed by preventive medicine and educational initiatives); and to corporate America, whose food industry steadily poisons us with industrially-made food and perennial up-sizing of portions. For the latter, see Michael Pollan,The Omnivore’s Dilemma and David Kessler, The End of Overeating.For progress on the former, see the Congressional initiative (June 2009) giving the FDA sweeping new powers to regulate tobacco use; and the report from the Centers for Disease Control and Prevention that the direct medical costs of obesity now total $147 billion a year, 9 percent of all American medical costs!

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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