Why “Health Reform Lite” Is Hard

Whittling the bill down is no easy task.

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Sen. Arlen Specter (right) listens during a town hall meeting

Even before members of Congress went home to town hall meetings where they were shouted down by rude, sometimes violent right-wing protesters against “death panels,”publicly funded abortions, and other bugaboos, health reform had hit a few speed bumps. The Senate finance committee, once regarded as the lead panel on health reform, has been unable to produce a bill. Because Sen. Max Baucus, D-Mont., fetishizes bipartisanship to the point of excluding from his “gang of six” negotiators the chairman of finance’s own health subcommittee, it has been laughably easy for obstructionist Republicans like Mike Enzi of Wyoming to impede progress. On the House side, health reform squeaked through the energy and commerce committee, 31-28—but only after the committee agreed to rebates for the Medicare drug program that the White House has promised PhRMA it won’t support. Clearly, comprehensive health reform will be hard to achieve.

Why not, then, health reform lite?

Writing in Slate, Jacob Weisberg has suggested that Congress scrap current health-reform efforts and adopt a proposal by Sen. Ron Wyden, D-Ore., to eliminate the current tax exclusion for health insurance and instead supply individuals with a generous tax deduction for the purchase of health insurance. The Washington Post’s Ruth Marcus and Ezra Klein and the New Republic’s Jonathan Cohn have also written favorably about Wyden’s plan, and Charles Krauthammer (who, in addition to being a conservative columnist, is a nonpracticing medical doctor) has proposed an alternative that resembles the Wyden plan with a dollop of tort reform.

Under the Wyden plan, everyone would have to buy health insurance. But the government would use revenue from taxing health benefits, which currently are not taxed, to extend additional subsidies to low- and lower-middle-income families, and insurers would have to take all comers and (with a few minor exceptions) charge them the same premiums. The Congressional Budget Office estimates that Wyden’s plan would have zero effect on the budget deficit in the short term and might actually reduce it in the long term.

But the Wyden plan lacks a persuasive mechanism to keep individuals’ out-of-pocket payments from rising. Mainly it assumes that brisk competition between private health insurers to sign up individual policyholders will keep premiums down. But private health insurers compete to sign up companies (and some individuals) now, and premiums are skyrocketing. Eliminating employers as middlemen between insurers and consumers might make this market perform more efficiently, or it might not. The government could try to fine-tune incentives by lowering premium subsidies, but to whatever extent families became more market-sensitive, they would also find it harder to purchase health insurance—which under the Wyden plan would be their lawful duty.

A more obvious problem with Wyden’s plan is political. Eliminating the tax exclusion for health insurance would quickly and a bit too obviously chase employers out of the health care business—a result much to be desired but one that could turn the town hall crazies into a lynch mob.

All right, then, why not just require insurers to take all comers (“guaranteed issue”) and charge everybody the same (“community rating”)? These are two of the most popular health reform ideas. Even the insurers have agreed to them. But they’ve made it conditional on the imposition of an “individual mandate,” i.e., a requirement that everybody purchase health insurance. Otherwise, they argue, “free riders” will avoid purchasing health insurance until they become seriously ill. An individual mandate would be constitutional, and the black-helicopter paranoiacs thus far don’t seem to have glommed onto it. But if you’re going to force people to buy health insurance, you have to make it possible for them to afford it, and that costs money.

Health economist Uwe Reinhardt calls this the “three-legged stool” of health reform. Eliminate any one leg, and the stool collapses. Jacob Hacker has argued that the individual mandate may not be economically necessary if health reform prods employers into expanding health coverage; what is necessary, he argues, is a government insurance program to exert downward competitive pressure on private insurance premiums (or at least give people a safe harbor where they can buy decent and affordable health insurance).

By the time you make all these necessary adjustments to a stripped-down version of health reform, you end up with all the basic components of the health reform bills passed by three House committees and one Senate committee. You want simple? Enact single-payer.