Health Care Reform FAQ

What we argue about when we argue about health care policy.

Sen. Max Baucus. Click image to expand.
Democratic Sen. Max Baucus 

President Obama returned home from Europe this week determined to fix America’s ailing health care system. Republicans just hope he didn’t pick up too many ideas about European-style “socialized medicine” while he was away.

Obama says he wants the bill on his desk by Oct. 1. But between now and then, a lot has to happen. Even the most basic questions about what the bill will look like remain unanswered. The White House seems newly determined to include a “public option”—that is, a government-run health care plan that will compete with plans from private for-profit and nonprofit groups. But what about an “individual mandate” (requiring everyone to get care), or “guaranteed issue” (prohibiting companies from rejecting beneficiaries), or taxing health benefits to pay for reform? Sometimes it’s hard even to follow the debate, let alone fix the problem. So here’s a rundown of some of the most pressing questions looming over health care reform and a sampling of answers.

Should the plan include a public option?

A government-run health-insurance program would be more affordable, portable, reliable, fair, and secure than its private-sector counterparts. Affordable because it wouldn’t pay billions of dollars for advertising and unnecessary overhead. Portable because people could use it in all 50 states. Reliable because the public insurer isn’t going to pull out of a region because it isn’t making money—as some Medicare Plus Choice providers did in 2003. Fair because it would not deny coverage for pre-existing diseases. And secure because the government won’t go bankrupt (at least not anytime soon).

Plus, a little competition is a good thing. The government plan will be better at reducing costs—through comparative effectiveness evaluation, digitizing records, and improving preventive care, for example—than profit-driven private insurers. Yes, the private sector promised just last month to make all these changes. Why believe them, when they’ve had decades to make such fixes? In its recent letter to Obama, the health care industry acknowledged that the reforms can’t be voluntary—they need to be forced.

No. It will destroy private health insurance. Instead of competing on a level playing field, a public plan would undercut private companies by offering lower rates subsidized by Uncle Sam. Sure, the government says the public plan would compete just like any other company. But does anyone really think it would let a public option fail? It might not drive out every private plan, but the nation would probably end up with a private oligopoly alongside a public monstrosity.

The whole notion of a public option that competes on a level playing field is bunk. If the purpose of a public plan is to offer options that private insurers don’t, such as coverage for pre-existing conditions or portability, why not just require that private companies change their ways instead of introducing competition? If the purpose is to goad the private insurers into reforming, that’s fine—just don’t pretend it’s a level playing field.

How do we pay for it?

Cut costs.
This sure sounds good. But it’s unlikely to be enough to cover the estimated $1.5 trillion cost over the next 10 years of expanding health coverage to every American.

Tax the rich. Obama’s original plan was to raise taxes on the wealthiest Americans by eliminating a series of tax deductions, particularly on charitable giving. But the dismayed response by charities and philanthropic groups, whose giving could decline about $4 billion per year as a result, has all but quashed the idea.

Tax employer health benefits. Right now, employees get all their health benefits tax-free—a policy called the employer tax exclusion. But there are problems with this setup. For one thing, it’s regressive—people with jobs are generally wealthier than those without, yet they get the tax break. It also reduces transparency, since employees don’t know exactly what their premiums are paying for. Not to mention, it gives employers an incentive to offer high-cost health care plans, which don’t get taxed, instead of higher wages.

This proposal would cap the amount of untaxed benefits at, say, $12,000 or by income level. That would reduce or eliminate the preferential treatment described above. The best part: The feds would collect an estimated $200 billion to $300 billion a year. Over 10 years, that’s potentially more than $2.5 trillion—way more than the government is going to need to pay for health care reform.

Republicans and moderate Democrats have been pushing this idea for a while. Sen. Max Baucus included it in his original white paper on health care reform. Sen. John McCain made it the centerpiece of his campaign health care plan. The downside for Obama is that he adamantly opposed this policy during the campaign. But budget director Peter Orszag has refused to take the option off the table, and economic adviser Jason Furman has supported the policy in the past. Obama himself has signaled that he would allow it—but he doesn’t necessarily want to propose it.

Should it include an individual mandate?

Uninsured people don’t have insurance because they don’t want insurance. Forcing them to buy it is a violation of personal liberty. Meanwhile, individual mandates don’t actually achieve universal coverage. Just look at Massachusetts, where there is an individual mandate but where 2.5 percent of the population is uninsured. A better alternative would be auto-enrollment you could opt out of. Some people may simply not want coverage: They don’t get sick often, or they figure it’s not worth the cost. Give them the choice.

Yes. The whole point of insurance is that everyone benefits most when everyone buys in. When a small number of people don’t participate and then get sick—and hospitals still have to treat them—the costs are enormous. So there’s a strong economic case for requiring everyone to have health insurance. There’s also a public-health argument: More people going to the doctor means more prevention, which in turn means less sickness in general.

As for objections that invoke individual liberties, Princeton health care economist Uwe Reinhardt put it this way: “I would say, you’re free to not be insured. But we will owe you nothing. That’s to say, if you hit a tree, have accident at home, don’t come to emergency room. We won’t treat you.”

Should we model it on the Massachusetts plan?

The Massachusetts plan has been hugely popular in the state and has succeeded at expanding access to nearly everyone. The plan has all sorts of goodies—an individual mandate, subsidies, and an effective “connector” system to help people buy individual insurance. Also, no public option, which so far has not been an impediment to getting nearly everyone insured.

No. The Massachusetts plan has been a disaster, starting with coverage—all but 2.5 percent is not universal, is it?—and ending with cost: Since the program was implemented, premiums have risen by 10 percent to 12 percent. (That’s after proponents said costs would drop 25 percent to 40 percent.) Part of the problem is too many benefits—or rather, the wrong kind of benefits. Not everyone needs coverage for chiropractor visits, yet many people still have it. If the United States is going to model a national plan on the one in Massachusetts, it should at least learn its lesson: Cover the basics—hospitalization, prevention, prescription drugs—and stop there.

Will health reform actually help the economy in the long run?

Better care may cost more now, but it will save more later. The Obama administration is betting its reputation on the notion that reining in health care costs is essential to the country’s fiscal future. If the current 3 percent annual spending growth continues, the administration projects that health care costs will be 34 percent of GDP by 2040. (Scary graph here.) The Council of Economic Advisers has produced a report called The Economic Case for Health Care Reform, arguing that universal care will increase household income by $2,600 by 2020 and increase “net economic well-being” by $100 billion a year.

No. Just because people will get better and more health care doesn’t mean they’ll get cheaper health care. Many of the mechanisms that are supposed to save money—comparative price analysis, digitizing records, and bundling treatment into “episodes”—are unproven.

Should the Senate use “budget reconciliation”?

In the Senate, process is sacrosanct. Budget reconciliation was originally intended to speed along budget bills to prevent government shutdowns. Using it for such political fare as health care reform would be improper.

Yes. The difference between the reconciliation process and the usual route is the difference between needing a 60-vote filibuster-proof majority and a simple 51-vote majority. That’s huge. The moderate senators who fall between 60 and 51 are pro-reform but skittish on some of the details. Reconciliation could therefore mean the difference between having a public option and not. As for process: Please. Republicans used reconciliation to pass the Bush tax cuts.

Does it really matter if reform happens this summer?

Even if Obama signs a bill in October, reforms won’t kick in until 2012 or so. Get cracking!

No. Even if Obama signs a bill in October, it won’t kick in until 2012 or so. So, no hurry.