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Magazine / POLITICAL CONNECTIONS

The Health Care Crossroads

The paths Democrats choose will determine the coalitions that align for reform.

March 7, 2009

President Obama's recent flurry of health reform events -- culminating in Thursday's White House summit -- underscores his determination to quickly move forward on an issue that has frustrated every Democratic president since Franklin Roosevelt.

In many ways, the prognosis is unusually favorable for reform aimed at insuring all Americans. But Obama and congressional Democrats still face key policy decisions that will shape the legislative debate. Policy makers will face five major crossroads; the path Democrats choose at each one will determine the coalitions that align for and against reform.

Congressional Democrats estimate that a universal coverage plan would cost double or triple the $634 billion Obama has proposed to set aside.

 

The first two choices concern mandates. The health insurance industry led the opposition that killed President Clinton's universal health care plan in 1994. But last December, America's Health Insurance Plans, the industry trade association, said it would accept Democratic demands to sell coverage to all applicants regardless of prior health conditions in return for a mandate that all Americans be insured (with help from government subsidies to limit their costs). The problem: Organized labor staunchly opposes the individual mandate, and Obama rejected it during the campaign. The Left would grumble if he embraced a mandate now; but Senate Democrats appear comfortable with it, and some around Obama believe he would accept it, too, if it can cement a deal that requires insurers to cover those with pre-existing health problems at affordable rates.

Less clear is whether the eventual proposal will require employers to contribute to the cost of insuring their workers. Candidate Obama proposed such a mandate, and liberals like it. But any requirement that included smaller employers would enrage the small-business lobby, the other principal obstacle to Clinton's plan. One compromise might be a sliding-scale mandate that ties employer contributions to the size of their payroll -- an idea that California Gov. Arnold Schwarzenegger used to maintain some business support for his universal coverage proposal in 2007.

The next big choice revolves around the Left's top priority: creating a public insurance plan -- a Medicare for all -- as a competitor to private insurance companies. Candidate Obama endorsed that idea, arguing that public competition would compel private insurers to improve service and cut costs. Most insurers worry that a government competitor would enjoy unfair advantages (particularly in setting reimbursement rates for doctors) that could stampede consumers toward it. But other insurers might quietly welcome a government plan as leverage to force price cuts from doctors and hospitals. Precisely for that reason, the public plan might face more opposition from "the providers than [from] the insurers," notes health economist Jonathan Gruber of the Massachusetts Institute of Technology. A public plan is also, he notes, an ideological red flag for Republicans.

Providers will again be the flash point on the next choice: how deeply to rearrange existing treatment patterns in the hope of saving money. In his budget, Obama praises experiments to discourage unnecessary treatment by linking provider payments to patient outcomes, not just volume of care. One idea, initially being tested in Medicare, would offer providers a fixed sum to manage both hospitalization and posthospital care and penalize them if too many postsurgical patients require hospital readmission. The most ambitious approach that some have discussed would establish a public board to identify, and potentially even ban federal reimbursement for, ineffective treatments. The most aggressive interventions into treatment would generate the most savings, but they could also provoke charges of rationing from the medical community and compromise Obama's pledge not to disrupt those who are satisfied with their current health coverage.

Cost presents the final big challenge. Congressional Democrats estimate that a universal coverage plan would cost $1.2 trillion to $1.7 trillion over 10 years, double or triple the $634 billion Obama has proposed to set aside. Any option for filling that gap will be controversial, but the most incendiary might be limiting the tax exclusion that allows workers to avoid paying income taxes on the money their employers contribute toward their health insurance premiums. Obama condemned Republican rival John McCain's proposal to eliminate that tax break, correctly arguing that it could undermine employer-sponsored insurance. Both Senate Democrats and Obama administration officials, though, appear open to capping the exclusion because doing so could substantially reduce the financing hole. Yet that would antagonize organized labor, which believes that any cap threatens union health care benefits.

These are all tough calls. The common theme across them is that Obama cannot achieve universal coverage without demanding flexibility and concessions from all interests, including his closest allies.

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