61 Most Important Words In The HELP Health Care Bill

The goal of many reformers is for the majority of Americans to get health insurance from something similar to the Federal Employee Health Benefit Program. It is an exchange where federal employees choose between several good insurance plans which meet a strict set of minimum criteria.

While this may be a good idea, it is politically impossible because it would cause the CBO to conclude that "millions of Americans would lose their current health insurance". (Even though the vast majority would get a better insurance plan of their own choosing, that is one of the many finer points that will be lost in the political attacks against reform.)

As a result, the HELP committee wanted to write a bill that would allow most Americans to get their health insurance via an exchange without the Congressional Budget Office (CBO) saying as such. They wrote the bill so that only individuals without insurance and employees of "qualified employers" can buy health insurance in the exchange. In the bill the "default" definition of a "qualified employer" is a business with 10 employees or fewer.

Using this default definition, the CBO determined that ten years from now only 27 million Americans will get their insurance through the exchange. But there is an very important clause dealing with the definition of a “qualified employer”: It gives states and the Secretary of Health and Human Services the power to change how few employees a “qualified employer” must have.

According to the HELP Bill, “the term 'qualified employer' means an employer that … meets criteria (including criteria regarding the size of a qualified employer) established by such State; or” by the Secretary of HHS defined as

NUMBER OF EMPLOYEES.— (i) ESTABLISHMENT.—The Secretary may by regulation establish the number of employees described in subparagraph (A)(ii)(II)(aa).
(ii) DEFAULT.—If the Secretary does not establish the number described in subparagraph (A)(ii)(II)(aa), such numbers shall be deemed to be 10.

I have no doubt that once the exchanges are up and running successfully that number will dramatically be scaled upward by individual states and/or the Secretary of HHS. While the CBO claims only 27 million Americans will get health insurance through the exchange 10 years from now, if things go as planned that number will probably be closer to 127 million. This is a fairly brilliant piece of CBO slight of hand.

Kennedy Gaming The CBO To Promote A Strong Public Option

Previously, I described how Ted Kennedy could structure the subsidies for individuals buying private health insurance in a way that would make a powerful case for a strong public health insurance option. The first draft of the HELP committee's bill has been released, and it seems that I was right on the money.

Individuals making less than 500% the poverty line will be given subsidies to help them buy health insurance. The amount of subsidies individuals will receive will be based on their income level and the cost of the “reference premium”. The reference premium with be the “weighted average annual premium of the 3 lowest cost qualified health plans” in the area. The cheaper the plans offered, the less the subsidies will be.

The public health insurance option in the HELP bill will almost always be among the three cheapest plans, if not the cheapest qualified plan offered. The public option will bring down the price of the “reference premium”. Offering a cheap public plan reduces the cost of subsidies the government will need to provide people.

When the CBO (Congressional Budget Office) scores the HELP committee's bill with and without the public option, it will score the bill with the public option as being dramatically cheaper than the cost of the plan without the public option. If the subsidies being offered to individuals were based on anything else (a flat number, consumer price index, federal poverty line, etc), the CBO would not score the public option as reducing the cost to the government.

Since the HELP draft bill does not contain a number, it is currently impossible to determine how much cheaper the public option will make the bill. Using some back of the envelope calculations, I would not be surprised if the public option made the HELP bill around $15 billion cheaper in year one, with the amount of savings increasing each year.

The take away message is this: Kennedy's plan structures health care reform so that if the average American saves money on health insurance, the government saves money. Anything which drives down the cost of premiums for individuals drives down the cost for the government. The government will now have a huge financial interest in reducing everyone's health care premium.

What Obama's Health Care Letter Really Says

Barack Obama sent a letter to Senator Kennedy and Senator Baucus providing some details about how he wants health care reform to be structured. I will go through the letter line by line to tell you want he is really saying.

Cost:

“At this historic juncture, we share the goal of quality, affordable health care for all Americans. But I want to stress that reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach”

This line is pretty straight forward. Health care reform must primarily reduce cost for most Americans to get a majority of the country on board. He says “reduce the growth rate” -- not bring down the cost. Some argue that America dramatically overpays for health care, and we should be able to actually reduce cost and not just slow its increase. He is saying health care reform must be real but not a truly dramatic overhaul. Also implied is that the metric to judge reform will be cost and not coverage. Like in Massachusetts, coverage will not be truly universal; a small percentage of people will be left out for now (mainly a few hard-to-reach individuals and illegal immigrants).

Health Insurance Exchange:

“The plans you are discussing embody my core belief that Americans should have a choices for health insurance, building on the principles that if they like the coverage they have now, they can keep it. But for those who don't have such options, I agree that we should create a health insurance exchange – a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that's best for them, in the same way the Members of Congress and their families can.”

Health insurance exchanges have wide bipartisan support from basically everyone, including Obama. There are two other subtle points here. First he uses the phrase “don't have such options,” which implies he is willing to not make it easy for people who currently have employer health insurance to opt out of it. The exchange might be only for those currently without insurance from an employer. If you want to opt out of your employer's health plan, you may not get any help from your employer or the government in buying your own insurance plan.

There might also be a “don't reinvent the wheel” message here. There is no need to write news rules governing a health insurance exchange. Just use the same rules for the current federal employee health exchange or one of the state employee exchanges.

Public Option:

“I strongly believe that Americans should have a choice of a public health insurance option operating alongside private plans. This gives them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

This is good but not great news for progressives who support a public plan. “Strongly believe” and “should” is relatively week language. He could have said, “...(must and/or need) to have a choice of a public health insurance option” He could have also said “I will not accept reform without a public plan”.

He wants a public option available now (not a trigger that might put a plan in place depending on future events), but there is still some wiggle room. “Should” still leaves him room to break his campaign promise about a public health insurance option. It is a statement which sets the public option in quickly drying concrete but not in stone. He does not give any indication about how he wants the public option to be structured. I believe that the fix is in for Senators Schumer's compromise public plan.

Mandates:

“I am open to your ideas on shared responsibility. But I believe if we are going to make people responsible for owning health insurance, we must make health care affordable. If we do end up with a system where people are responsible for their own insurance, we need to provided a hardship waiver to exempt Americans who cannot afford it. In addition, while I believe that employers have a responsibility to support health insurance for their employees, small businesses face a number of special challenges in affording health benefits and should be exempted.”

On employer mandates, it is clear that big companies will be required to provide health insurance, small businesses will not.

On an individual mandate, despite campaigning against it, Obama is prepared to accept it now. A “hardship waiver” for Americans “who cannot afford it” is a nice piece of legal-ese to give Obama an out. The message is that he wants any subsidy to help people buy health insurance to be based on their ability to afford it. This will allow him to have a “hardship waiver” that is meaningless. For example, the waiver could allow people to not buy insurance if it cost more than 15% of their income, but the bill could fully subsidize the cost of insurance when it is goes over 10% of their income.

Savings:

“I am also open to your ideas about giving special consideration to the recommendations of the Medicare Payment Advisory Commission (MedPAC), a commission created by a Republica Congress. Under this approach, MedPAC's recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress.”

Ezra Klein explains how important this is for reducing the cost of health care and as entitlement reform. The message is that the structure of Medicare health care payments are too important, too wonky, and too open to special interest lobbying; Congress can't be trusted to be involved in the nitty-gritty of it any longer.

Bipartisanship:

“I know that you have reached out to Republican colleagues, as I have, and that you have worked hard to reach a bipartisan consensus about many of these issues. I remain hopeful that many Republicans will join us in enacting this historic legislation that will lower health care costs for families, businesses, and governments, and improve the lives of millions of Americans.”

These lines should be the most encouraging to progressives. Bipartisanship is nice but not at the cost of completely watering down reform. He does not need Republicans to join the Democrats; he is only “hopeful” that they will. There is also an implied threat. Republicans may claim that they will vote against the Democrats' health care bill, but when it comes time to publicly denying millions of Americans health insurance, they will think twice. Those who vote against health care reform will be hammered on their vote in the next election.

Will The CBO Be Used To Force A Strong Public Plan?

What is overlooked in all the talk about the creation of a public health insurance option is cost. Most of the debate has been centered on governing philosophy. There is reflexive disdain for the government running anything on the right and hatred of for-profit insurance companies on the left. But all this may not matter as much as what the Congressional Budget Office (CBO) has to say on the matter. Having a strong public plan could save the government billions, if not trillions, of dollars.

A Lewin Group study determined that a Medicare buy-in public plan's premiums would be 23% cheaper than private health insurance. That means a family of four would save $2,500 a year if they could sign up for a Medicare-like public plan. It's been reported that Ted Kennedy plans to introduce a strong public plan based on Medicare. It would use the same network and infrastructure but would pay doctors 10% more for services than Medicare. With Kennedy's payment change, the savings for a family of four would be slightly less but still substantial.

I reason to suspect that Ted Kennedy plans to use the CBO to make the case for a strong public plan. His health care reform bill will have some sliding scale of subsidies and/or tax rebates to help people buy insurance based on their income. If he is smart, he will tie the level of subsidies to the cheapest qualified plan (one that must meets all coverage critical), which would inevitably be the public plan.

For example, if the cost of the cheapest plan exceeds 10% of your after-tax income, the government will pay for the difference. (If the cheapest qualified plan cost $5,000, and your after tax income is $30,000, you get $2,000 to help buy health insurance). By tying subsidies to the cost of individuals' health insurance, it means offering a low cost public plan would make the whole health care reform legislation cheaper.

I think Ted Kennedy will have the CBO score his health care bill with his strong public plan and without it. If he uses a subsidy mechanism like the one I laid out, the plan with his public option should cost billions less a year. Using some back of an envelope calculations, I beleive having a public health insurance option would reduce the cost by roughly $20 billion in the first year, with even greater savings in subsequent years.

The divide in cost between private insurance and a public plan is expect to only grow in the coming years. According to a study by The Institute for America's Future, from 1985-2002 premiums for the Federal Employees Health Benefits Program (a model for a regulated health exchange without a public option) grow annually by 7.3%. During the same time period, Medicare (a model for a Kennedy's public insurance option) grow annually by only 5.8%.

Ted Kennedy Brings a Giant Stick To The Health Care Fight

It has been reported by the Washington Post and Bloomberg.com, that Ted Kennedy plans to release an outline of his health care reform legislation next week, with the bill to be marked up soon afterwards. If reports are correct, this is not a bipartisan bill negotiated behind closed doors. It is a very strong, progressive piece of legislation -- the kind of bill which fills the grassroots with hope and the for-profit insurance companies with fear.

It is a bill which would never overcome a filibuster in the Senate; a bill Obama might be able to force through using reconciliation if he is willing to spend a lot of political capital. It is a bold and clear warning to the health insurance industry. If you fight the compromise we offer, we will let the progressives write a bill you will hate.

From reporting I've seen, Kennedy's bill contains not one but two very strong progressives proposals, either of which the for-profit health insurance industry is sure to fight tooth and nail. Kennedy's bill is reported to contain a strong public health insurance option, based on Medicare, and a very large expansion of Medicaid. Families making up to 500% of the federal poverty level ($110,250 a year) would be eligible for Medicaid. Individuals would also be able to buy a public plan managed like Medicare.

The goal of many progressives is to allow Americans to free themselves from for-profit health insurance. Either proposal alone could do just that. It would take a lot of grassroot lobbying and pressure from the president to keep even one of them. I suspect both proposals will be heavily watered down to create a compromised bipartisan bill. This is not likely to be the final bill; this is the stick which Democrats will use to threaten anyone who is unwilling to play ball.

Ted Kennedy Abandons Liberals on Health Care Reform

This is probably the worst sign yet for the public health insurance plan. Ted Kennedy has abandoned liberals on the issue of his career. On his senate website, Ted Kennedy no longer publicly supports providing all Americans with the choice of a public health insurance option. He continues the trend started by the Obama administration of trying to whitewash over support for a public plan.

Only a week ago, Ted Kennedy's website still promoted giving all Americans the choice of signing up for Medicare. Now, under the issue of “health care” there is no longer any reference to offering people the choice of a public health insurance plan.

I highly respect Ted Kennedy and his long career of fighting for what he believes in. But now is the time for health care reform. Important health care reform legislation is being written as we speak. To see Kennedy quietly abandon a core principle of the progressive agenda is very disappointing.

See what Ted Kennedy's website said about health care reform last week and now.