5 Key Fights We Face Against the Insurance Industry in the Push for Better Health Care

Last week, after almost a year of tumult, the final act of the health care reform drama began as House Democrats unveiled their final legislative package, and Senate Majority leader Harry Reid, D-Nev., challenged conservative Democrats in the upper house to fall in line by promising to bring a bill with a public health insurance option to the Senate floor.

In the House, the ball's rolling. Speaker Nancy Pelosi, D-Calif., is confident the bill worked out by her caucus will pass now that she has made some steep concessions to conservative Blue Dog Democrats (irking progressive lawmakers and health reform activists). Final touches are being put on the legislation, and it may come up for a vote as early as this week.

Although it's far from certain that Reid has the votes to pass his bill, which is yet to be finalized, the announcement moves us closer to getting a plan with a public option out of both the Senate and the House.

There's rare momentum to finally bring some sanity to our fractured health care finance system. That offers an opportunity to create a real shift in the balance between public and for-profit health care in this country, something that has largely eluded progressive health care activists since the 1960s.

But within the Democrats' "Big Tent," an incredibly significant game of chicken is being played.

While the corporate media pays rapt attention to those "moderate" Dems who have threatened to join Republicans in blocking the creation of some kind of public insurance option (in spite of the fact that a majority of Americans and most Democratic voters support it), they represent just one side of the divide that congressional leaders have to bridge.

Their opponents, rushing toward them head-on, are a bloc of House progressives who have vowed to vote down any bill that doesn't contain a "robust" public option.

Whether both sides will stay the course and blow up the Democrats' majorities in a spectacular collision, and if not which side will swerve first, will depend to some degree on the pressure put on lawmakers.

In the final push, it will be the energy of activists -- or lack thereof -- that helps determine the shape of reform.

Yet, most progressive reformers have long favored a national single-payer health care system. Throughout the legislative process, they have faced a choice: either jump on a moment of rare opportunity and support a proposal that while compromised, and perhaps deeply so, would bring significant new regulation to the out-of-control health insurance market and, more importantly, extend affordable coverage to millions who now lack it, or they could hope for a better day for reform in the future and oppose the final product, leaving a disastrous status quo to stand untouched.

So as the legislation is completed, the question is: How much should champions of substantive reform concede to the Blue Dogs -- or the odd moderate Republican like Maine's Olympia Snowe -- to get a bill passed that does some real-world good in the midst of a serious crisis?

For most reform activists, it's not an easy question to answer, in large part because the devil is in the often-mind-numbing policy details. There are many, and how they all get hammered out will determine if this reform effort is worth supporting -- whether it's a crucial incremental step on a path toward a less-perverse health care delivery system, or merely a bailout for an employer-based insurance industry with a business model looking increasingly shaky over the long term.

Keeping the Reform in "Reform"

The reform package Reid will try to bring to the Senate floor -- a "compromise" approach that takes elements from the more progressive legislation passed out of the Health Education Labor and Pensions committee and the industry-friendly, and markedly flawed, approach adopted by the Finance Committee -- is still being cobbled together. He sent a number of alternative measures to the Congressional Budget Office for cost estimates.

But we know what was in the bills passed by the two Senate committees with jurisdiction and in the House bill released last week. With leaks about what approach Reid favors filtering through the press, the broad shape of the Democrats' final approach is coming into sharper focus.

All of the proposals before Congress expand the number of insured by creating regional insurance "gateways" through which people who currently lack access to decent and relatively affordable health insurance on the job will be able to purchase a plan, and those plans will offer a standard set of relatively comprehensive minimal benefits.

They all require most individuals to carry insurance and provide subsidies for those who couldn't otherwise afford it to buy insurance through the "gateways." All require employers who don't contribute to their workers' health costs to help pick up the burden.

The Good, the Bad and the Compromised

The goals of health reform are twofold. The first is to bring relief to tens of millions of Americans who lack access to all but emergency care and the millions more who are driven to, or risk, bankruptcy as a result of sky-high costs or who stay in deadbeat jobs and loveless relationships to keep their coverages. The second is throwing a lasso around out-of-control health care costs that squeeze down all working Americans' wages and threatens our companies' competitive edge.

The significance of this moment in time is that the reforms likely to end up being reconciled by Congress go a very long way toward the first goal.

In terms of access and affordability, the approach would fall short of the mark, but within a decade it would provide decent, portable, relatively comprehensive health care at an affordable price for millions of Americans who would otherwise lack it. It would impose new regulations reining in the worst of the insurance industry's abuses, sharply limit the number of medical bankruptcies and force all employers to take at least partial responsibility for their workers' health care.

That would be no small victory and is why many veteran reform activists are hailing this moment as the opportunity of a lifetime -- the best chance at substantially expanding coverage to a portion of the population that needs it since Medicare and Medicaid were established in the 1960s.

But, in order to appease industry-friendly Blue Dog Democrats -- and in an appeal for bipartisan support from moderate Republicans that now appears to have been futile -- congressional leaders have let the insurance industry and its allies in effect kill off the potential for reaching the other goal of reform: cost control.

A final product that falls short of its promise -- that doesn't change the way the insurance industry does business and fails to bend the health care cost curve downward -- will discredit progressive health care reform in the future and leave us with little in the way of "change," other than a relatively small population of Americans with subsidized coverage.

This is why other health care activists, especially those who have strived for a single-payer system, are less sanguine about the Democrats' current approach.

If Reid can coax a bill through the Senate, it will be more industry-friendly and less progressive than the House's version. In the House and in the Senate -- but especially the Senate -- an influential group of business-friendly Democrats have threatened to derail the process if they're not appeased, and in the House a bloc of progressives have also threatened to vote against a bill if its reforms aren't deep enough.

When (and if) the two bills are combined into something that can be passed by both camps, in both chambers of Congress, the resolution of a series of contentious issues will determine whether the views of the skeptics or optimists are justified.

Here are five broad flash points, among many more details, that people should watch carefully as the final legislative sausage is made.

The Public Option: How Watered Down?

Last week, a Congressional Budget Office analysis of the House bill concluded that insurance purchased in the publicly run nonprofit plan would actually cost slightly more than comparable coverage sold by private insurers. The news was a setback to reformers, whose core argument has long been that a public insurance plan competing with private insurers would drive down prices for everyone.

But a deeper look at the CBO's report (PDF), shows that the bad news was at least in part a direct result of concessions made to conservative and rural Democrats in order to get their support for the legislation.

First, the so-called robust public option had been removed as part of a deal cut by leadership. Much-discussed and rarely explained, "robust" just means that the rates a public insurance plan would pay for fees and services would be linked to the rates that Medicare pays (but a bit higher).

That's about "purchasing power" -- the bargaining ability that comes when administrators speak for a large pool of patients. But providers didn't like that purchasing power in the hands of the government, insurers didn't want to compete with it, and rural Democrats complained that the Medicare rates in their districts were too low and adopting them would drive doctors away from the program.

So in the final bill, the secretary of health and human services will negotiate rates with providers on a state-by-state basis, which will result in little more purchasing power than large insurers enjoy.

The CBO report found -- and this is key -- that "the public plan would have lower administrative costs than those private plans" offering the same benefits. But "a public plan paying negotiated rates" would end up paying the same on average as private insurers.

Losing the "robust" public option is the latest in a series of compromises that have severely undermined the potential for cost containment that the wonks promised us would result from greater competition in the insurance market.

While Democrats on the campaign trail talked about a health plan "for all," even in the most expansive version of the plan to make it out of committee in the House, only about 1 in 10 Americans would be eligible to buy regulated private insurance with government assistance, and around 1 in 30 would be eligible to buy into the public insurance plan itself.

Only 1 in 50 -- 2 percent of the population -- are expected to buy into the public option as it's written into the final House bill (this is the "government takeover of health care" you've heard so much about).

The Senate's approach is still up in the air, but based on news reports, it appears likely that if the final product does have a public option, it will be set up with even less bargaining power than that envisioned in the House bill.

When looking at these or any of the other proposals that have kicked around over the past year, it's important to remember that when it comes to containing costs, size matters. Specifically, the size of the "insurance pool" -- or pools -- created by a given scheme is of primary importance.

It's not just that having more people under a single umbrella results in more bargaining power with providers and greater economies of scale.

While all the focus has been on the public insurance battle, analysts say less-frequently discussed pieces of the package have the capacity to save the health care system trillions, and if they're right, then a large number of people benefiting from those savings will serve as a bright example for future reformers to illustrate that a little more government involvement in health care isn't such a bad thing.

Small insurance pools -- especially at the start -- and limited market clout are the main reason nonprofit regional "co-ops" -- often offered up as an alternative to deeper reforms (but likely to be included as an additional option for states in the final bill) -- have been unable to live up to their cost-cutting promise and would likely be demolished in competition with large, established private insurers.

Democratic leaders in the Senate, in an attempt to get the votes they need to bring a bill to a vote -- it's uncertain if Harry Reid even has the "ayes" he needs to begin debating its provisions -- seized on what they hope is a compromise that conservative Democrats can live with: a plan with a public option from which states can opt out.

A (perhaps surprising) number of activists appear willing to live with this compromise -- despite its potential to further weaken the public option -- arguing that even legislatures in the reddest states would be hard-pressed to deprive their citizens of a health care option those in neighboring states are able to choose.

As the final legislation takes shape, some key questions are: how many people will be eligible to join the "public" part of these programs, and how much buying power will they have to help reshape the health insurance market -- to "bend" the ever-climbing "cost-curve" for coverage?

Will it Be an Expanding Universe?

Given the small universe of people who would be eligible to buy insurance through the public gateways, the ease with which lawmakers could expand the number of people covered in the future is also critical to the long-term prospects of this reform effort.

Part of the promise of the hybrid, public-private approach to health reform Democrats have adopted is that it might serve as a model for future reformers; at its best, it could be a laboratory of innovation and a demonstration of the potential to save dollars and improve outcomes that can result from gently tipping the balance between public and private health care.

And if it were to succeed in competing with private insurers on a fair playing field, its advocates have long argued, the model could be expanded until we had reached something approaching a single-payer system without directly challenging the political might of the health care industry.

In the House bill, eligibility in the public "gateways" would be sharply limited when they come on line in 2013 -- only the underemployed and unemployed, the underinsured and employees of firms with fewer than 25 employees would be eligible.

In the following three years, eligibility would extend to employees of companies with as many as 100 on their payrolls. But the provision was written so that, theoretically, with adequate political pressure in the years to come, the doors can be thrown open to virtually everyone who doesn't already qualify for a program like Medicare. This is by design.

In the Senate, no explicit provision to expand eligibility to large employers exists in the legislative drafts from which Reid will draw his chamber's final bill. Whether the House provision prevails will depend on what happens in conference committee, after both the House and Senate pass a bill.

A Bailout for the Insurance Industry?

If, as the CBO report suggests it might, the public insurance plan in the House bill charges higher premiums than its private competitors, it's important to understand why. Noting that the public plan would in fact have lower administrative costs than private insurers, the CBO still estimates that it will do little to change cost-drivers.

What the plan would save in greater administrative efficiency would, according to their analysis, be more than offset by two factors: 1) a nonprofit entity would be less likely than private insurers to deny care to sick people; and 2) it would likely attract an older, less healthy population (at least at first).

According to an "English translation" of the relevant chunk of the CBO score by Ezra Klein of the Washington Post, the ability to contain prices would not only be limited by a watered-down public option's weak bargaining power, but also the potential for the insurance industry, presumably through nefarious but legal means, to steer sicker, and costlier, patients into the public option and continue skim its cream off younger, healthier customers (with an assist from Uncle Sam for those who can't afford their prices):

But because the public option is, well, public, it won't want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won't try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more.

The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else.

The nightmare scenario, then, is that private insurers cotton onto this and accelerate the process, implicitly or explicitly guiding bad risks to the public option.

That could spell disaster for the whole project. Supposedly, administrators will prevent this scenario through "risk adjustment," which would compensate the public insurance plan with extra dollars if its customers are significantly costlier to insure than average.

But, Klein notes, "it's hard to say how that will function in practice." In order to avoid "the nightmare scenario," he adds: "the most important factor here will be the strength of the risk adjustment in the exchanges, so keep an eye on that."

4. Does a Mandate Put the Squeeze on Working People?

The Democrats' scheme will require most individuals to carry coverage; those who don't will pay a relatively modest tax into the system, which will help pay for their emergency care and other costs that the uninsured impose. (In various drafts in the Senate, penalties maxed out at $750-$950 per year for a family; the House hits people up for the lesser of either 2.5 percent of adjusted income, or the average price of a policy in the gateway.)

It's good policy; a central tenet of the reform package is to require that insurers take on customers regardless of pre-existing conditions. Without mandating that everyone carry coverage, healthier people would just wait until they needed expensive treatment to buy a policy, and the system would collapse.

But it's only good policy if the burden of paying the premiums isn't too onerous for the working poor and lower-rungs of the middle class. (The destitute are eligible for Medicaid.)

The House bill offers generous subsidies for those making up to 400 percent of the poverty line. In the Senate, after a push by GOP members and conservative Democrats, the Finance Committee adopted stingier subsidies with lower cutoffs for eligibility.

If Reid gets his bill passed, it will likely be these standards that Senate negotiators take into the reconciliation process.

A related question -- one especially germane in this economy -- relates to the expansion of Medicaid coverage for the poor.

Right now, families beneath the poverty line can apply for the program, but one of the very few proposals on which everyone agrees, even most Republicans in Congress, is expanding the program for those limping along just above the poverty line.

In the House, progressives got the limit for eligibility raised to 150 percent of the poverty line in exchange for supporting the watered-down public option. The Senate bill will reportedly lift the line to 125 percent of the poverty line.

While there has been relentless focus on the fight over the public insurance option, the outcome of these issues is crucially important where the rubber meets the road and would ultimately determine the scheme's success if it were enacted.

Ordinary Americans may not follow all the ins and outs of health care policy, but they'll know it if they're crushed under the weight of premiums that are beyond their means.

Who'll Get the Tab: Millionaires or Autoworkers?

As I've argued before, looking narrowly at the direct costs of reform to the federal government obscures the bigger picture, in large part because much of the spending should more accurately be viewed as an investment, a down payment for systemic fixes that would presumably have broader economic benefits over the long term.

But it would require an investment of somewhere in the neighborhood of a trillion dollars over the next decade -- or about what we've spent in Iraq and Afghanistan over the past eight years.

President Barack Obama promised a bill that was "deficit neutral," and in the House, the costs are covered by a variety of sources -- through premiums paid into the public gateways, penalties paid by employers and those who refuse to buy coverage, cuts to Medicare payments to doctors and other nips and tucks.

And then the remainder is financed through a "millionaire's tax" -- a 5 percent surcharge on couples with adjusted income of more than a million dollars per year (and individuals over a half-million).

With all the animosity toward high-flying CEOs these days, one would think it would be easy for Democrats to make the case that those who benefited so much from George W. Bush's lavish tax cuts for the wealthiest over the past eight years should give a little back in the midst of a national health care crisis.

But in the Senate, conservative Democrats on the Finance Committee joined Republicans in opposing a "millionaire's tax." Instead, they cooked up a surcharge on "Cadillac" health care policies provided by employers.

According to the Finance Committee's bill, they would kick in on policies that cost more than TK dollars, and the idea is that if you don't want something -- in this case, very expensive comprehensive health benefits -- tax it, and demand will decrease.

There are two problems with this. First, the cutoff for what constitutes a "Cadillac" plan would be indexed to inflation, but insurance premiums have risen faster than inflation for decades, so unless that changes, more and more policies would fall under the tax.

Second, whatever its actual merits might be as far as policy goes, taxing employer benefits is bad politics. During the campaign, Democrats attacked Sen. John McCain, R-Ariz., for a vaguely similar plan that also would have taxed health benefits, and with great effect.

This will be among the more contentious points of negotiation if the House and Senate manage to get to reconciliation.

The Final Act

And so begins a final series of legislative fights, first a battle royale to get a bill with some form of public option passed in the Senate, and then later in conference, when it is combined with a much more substantial set of reforms expected to be passed by the House.

It's here, after all the loud invective of the summer of 2009, where the rubber will ultimately meet the road. If in the end this Congress is able to get a bill to Obama's desk, the outcome of these battles will determine whether the legislation represents the first small step toward a system where all Americans have access to decent care without breaking the bank or is so watered down that it represents little more than a trillion dollars in life support for a terminally ill health care system.


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