Reconciliation and “the Political Climate”

I’ve been so upset about the Democratic response to the Massachusetts special election, I don’t really know where to begin. Plus, it seems most other people have already written what I would argue anyway, so I’ll just start fresh by reacting to Chuck Schumer’s comments on using reconciliation to clear negotiations with the House.

Reconciliation is one of a few options under discussion, Schumer said. But he said that “concerns about the political climate” make that plan less than appealing to some Democrats. “It’s one of the considerations,” he said when asked if Democrats worry voters will react badly to a health care bill passed with through reconciliation.

It actually seems to me this method has the benefit of being both politically necessary and the most attractive. Using reconciliation — which only requires a majority vote in the Senate — House and Senate Democrats can work out their differences without forcing vulnerable members to vote for health care reform again. That is, when you only need 50 votes (plus Joe Biden), all the wishy-washy moderates get to take their principled stand, and the Democrats who need votes from liberals won’t alienate their base. Everybody wins.*

More to the point, I’m not sure what the attractive alternative is. Conservative groups are already encouraging challenges to vulnerable Democrats, explicitly targeting them for their votes in favor of health care reform. Since both chambers of Congress have already passed bills, their members are already prone to this attack. Failing to pass final legislation won’t change their vulnerability on this score. What it will do is alienate the Democratic base, turning what could be merely a bad 2010 cycle into total electoral anathema.

Finally, what on earth makes Democrats think fumbling here will improve “the political climate”? Barack Obama is regularly compared to Hitler already. Republicans already obstruct everything they possibly can. It’s almost impossible to make this situation worse.

The House passing the Senate bill and fixing differences through reconciliation is simply the only way to pass the bill. Failing to pass the bill will lead to many more elections like Massachusetts where liberals don’t come out to vote. It’s the only available political option, and it’s the only available procedural option. It’s time to pass the damn bill.

*By the way, I don’t think this is a winning strategy for centrists, who are bound to be attacked from the right for supporting the bill in the first place and then being flip-floppers. They’re socialist flip-flopping weak-kneed liberals! They’re going to get creamed! The only chance they have is to support the bill and sell it.

Transparency of Closed Door Negotiations

So there’s been some debate about whether or not C-SPAN should be permitted to cover any informal negotiations that work to merge the House and Senate health care bills. It sounds obvious that we should strive for maximal transparency, but I agree with this:

Consider the Senate floor debate.[…]Senators from both party played to the cameras. Grandstanding, launching unnecessary rhetorical attacks, but barely tweaking the bill on the Senate floor. The real substantive change, if you’ll recall, came in the form of Reid’s amendment (and when he merged the two Senate bills). At times, the rhetoric on the floor sounded like cable news chatter. The real discussions and compromises — Sens. Lieberman’s and Nelsons objections, for instance — were reserved for private discussions; incidentally, the two Senators didn’t appear on the Senate floor until the 60-vote deal was struck.

One way or the other, there are going to be backroom negotiations. As Ezra Klein argues, televising these will ensure that participants eschew candor for fear of reprisal from opportunistic political opponents and result in negotiations between staffers (who are unelected). What’s more, there will unquestionably be leaks during closed door negotiations and the final bill will be released to the public before a vote, so it’s not even clear how much this increases transparency. What it will do will further delay reform and boost ratings for cable news networks who make hay out of day to day legislative grandstanding.

Finally, the argument that C-SPAN is merely attempting to hold President Obama to his campaign promise of increased transparency is clever, but doesn’t really apply. President Obama didn’t campaign to be princeps, this is an issue of the legislative branch.

Whack-A-Mole and Priorities

It seems like the newest hot spot in Terrorist Whack-A-Mole: Global Edition is Yemen. I’m pretty confident there aren’t a lot of observers in the United States who know much about it, as evidenced by the strange framing of this article in the New York Times on the diplomatic challenges of working with the country.

SANA, Yemen — The United States is quickly ramping up its aid to Yemen, which Washington sees as a revived new front against Al Qaeda. But one of the most delicate tasks will be managing the relationship with the president of Yemen, Ali Abdullah Saleh, who has filled his government with numerous members of his family and who wants to ensure that his son Ahmed succeeds him, Yemeni officials, analysts and Western diplomats say.

Well, certainly that’s not helpful, but we don’t get to the real rub until several paragraphs later.

Mr. Saleh presents the Obama administration with a problem that is all too familiar in Afghanistan and Pakistan. He is amenable to American support, but his ineffective and corrupt bureaucracy has limited reach. And his willingness to battle Al Qaeda, which he does not view as his main enemy, is questionable.

Much of Yemen is in turmoil. Government forces on Monday killed two militants suspected of being with Al Qaeda. There is another round of rebellion in the north and a growing secessionist movement in the south. In important provinces where key oil resources are and where Al Qaeda in the Arabian Peninsula is strong, government troops and the police largely remain in their barracks or in the central cities. Order outside the cities is kept by tribal chiefs, with their own complicated loyalties.

In other words, our objective interests in Yemen do not align well with those of Yemen. This, much more than Ali Abudal Saleh’s penchant for promoting family members, dims prospects for fruitful cooperation. While it’s likely the U.S. can entice Yemen to more vigorously pursue Al Qaeda within it’s own borders by significantly boosting aid, it’s not really clear what this gets us in the long term when you consider that one of Al Qaeda’s motivating principles is fighting corrupt governments that are supported by the United States. Finally, it’s not like there aren’t any number of other failed states to which Al Qaeda can head to hatch their next crotch bomber.

I’m not suggesting that we should simply ignore our interest in Yemen, but it does highlight the difficulties inherit to a highly activist foreign policy. If the United States seeks to project its power all across the globe, we will have to understand that the trade offs, both in terms of resentment bred abroad and in the actual cost of these undertakings, which divert resources from domestic priorities to arguably minimal concrete gain. Think about health care. Studies show that 45,000 Americans die annually owing to lack of health insurance, yet there’s considerable disagreement about the value of a universal health bill that would cost $87.1 billion per year and actually lower the deficit. Now consider that that in 2010, we will spend literally 10 times that figure funding the Department of Defense — not to mention even more time and money towards TSA — to what demonstrated value, exactly? The crotch bomber doesn’t hold a candle to the suffering and death caused by our health care crisis.

Bruce Bartlett Should Understand This

Former Reagan official turned sensible human being Bruce Bartlett holds forth on health care reform:

I don’t dismiss health reform. I just thought it was unwise for the Obama administration to take it up while the economy was in the tank.

For both political and substantive reasons, I thought it should have focused like a laser beam on the economy and related issues like reform of the financial sector.

Secondly, I thought its proposals were ill thought-through and that it would have been better to take the time to develop something more coherent, rather than making things up on the fly, which appears to be the case.

I also believe the administration has done a poor job of addressing what I think is the biggest problem with the American health case system: it costs too much for what we get. We spend in total twice as much of our gross domestic product on health as most other major countries without getting much in return for the extra spending.

Finally, I think the goal of universal coverage is a good one, but the Obama proposal is not properly financed. I think a broad-based new government benefit should be financed with a broad-based tax that is to a large extent paid by the beneficiaries, as is the case with Social Security.

There’s really quite a bit to respond to here, but the first weird thing is that in a prior paragraph Bartlett acknowledges that dramatic spending cuts to entitlement programs (i.e., Medicare and Social Security) are simply infeasible from a political perspective. This is quite true, so it’s not really clear why he doesn’t seem to be able understand how politics have shaped health care reform in the same way. For example, even if you accept the premise that an administration can’t work on more than one issue at a time, it should be obvious to anyone that has worked in politics why Congress isn’t going to take up a massive legislative overhaul in an election year. If health care reform drifts into 2010, it’s going to become even more politicized than it already is, and vulnerable legislators up for reelection are going to have even more whacky incentives than they already do.

Similarly, Bartlett wonders why the administration hasn’t done more to address the efficiency of the system. Of course it’s easy to level these sorts of charges from the outside, but just take a look at where we spend the additional money (from McKinsey).

The dark blue areas illustrate excess spending relative to other countries. So obviously you can see we spend way more proportionally on “health admin & insurance” (the benefit of a private insurance system) and we spend way more on drugs, but by far the biggest quantity is spent on “outpatient care,” or as it’s more commonly known, doctors. Therefore, the easiest way to reduce overall spending in a dramatic fashion would be large, across the board cuts to physicians. First, it’s not clear how you could really do that outside of instituting a single-payer system, and second, if you think entitlement cuts are politically unrealistic, try proposing massive overhaul to institute single-payer health care that would literally halve doctor’s incomes.

Finally, you can say what you like about the harebrained approach to some of the proposals, but it’s worth noting this is a product of the legislative process. Well considered ideas about how to reform the health care system have been around for a long time, but legislators have found they’re difficult to implement cleanly without drawing the ire of powerful interest groups. Thus, you get ideas like non-profit co-ops or a tax on millionaires instead of ending the employer benefit tax exemption.

Overhauling a sixth of the economy is a difficult and messy task, but that doesn’t mean the status quo is preferable.

Mechanics of the Senate Public Plan

I still haven’t seen this question answered yet, but Robert Pear and David Herszenhorn’s article in this morning’s New York Times offers a pretty good hint at what the “opt-out” mechanism of the Senate’s public plan will look like.

His proposal came with an escape hatch: A state could refuse to participate in the public insurance plan by adopting a law to opt out. Even so, the announcement was a turning point in the debate over how much of a role government should play in an overhauled health care system, and it set the stage for a test of Democratic party unity.

If this is the case, it’s pretty good news for reformers. If a Governor could unilaterally act to opt-out of the public plan, it’s likelier that conservative Governors could withdraw without much fear of electoral backlash. But if opting out requires that a bill pass both houses of a state legislature and be signed into law by a Governor, the process becomes much more difficult, and much more responsive to hyper-local politics.

That said, it seems the public option that’s emerging from the Senate really won’t be the fantastic price control mechanism reformers hoped for. Check out Igor Volskly for more on this, but one important thing to note would be that since the Senate bills don’t create a national exchange, it’s likely that the “public option” would in fact be 50 or so different public options administered at the state level. And since the plan will be a so-called “level playing field” option (and thus unable to piggyback off Medicare rates), it’s unlikely the plan will be able to successfully exert downward pressure on private plans on the exchange. Still, by excising some administrative costs and cutting profit margin, it will save somewhere around the $25 billion over 10 years the CBO estimates for the public plan in the Senate HELP legislation.

Finally, it’s important to stress that the Senate public option is still very much in its infancy, and CBO scores could push political will one way or the other, but I’d expect the plan to look very close to the “level playing field” option outlined above. Moderates have been tepid at best to even the most neutered plans, so I don’t see how the vote counters predict continued support with a plan that’s more liberal than what’s been proposed from the outset.

AP Bravely Defends Insurers From Gross Calumny

Ron Fournier, Washington, DC Associated Press Bureau Chief who has been accused of inappropriate partisanship tweets this Calvin Woodward “Fact Check,” commenting “Think of insurance companies as rapacious profiteers? Think again.” Thank goodness someone finally decided to debunk this most pernicious and perfidious myth:

WASHINGTON – In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making “immoral” and “obscene” returns while “the bodies pile up.”

But in pillorying insurers over profits, the critics are on shaky ground. Ledgers tell a different reality.

Health insurance profit margins typically run about 6 percent, give or take a point or two. That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

It might be true that of health care industries, insurers make the least money, and it might be true that relative to other types of insurance, health insurance isn’t wildly profitable. But the point isn’t the level of profits, the point is that in order to make a profit, private health insurers deny care out of hand, exploit preexisting conditions, and through a particularly unseemly practice called “rescission,” pour over medical histories to find previously unreported — and frequently totally unrelated — conditions to invalidate insurance contracts when patients need them most. Studies have found some 12.3 million Americans were discriminated against for pre-existing conditions in the past 3 years, and roughly 20,000 Americans had policies canceled through rescission over the past 5 years (foisting on individuals a total of $300,000,000 in medical bills they expected insurance to cover).

So, is it true that margins on private health insurance aren’t astronomical? Sure. But reformers’ contention has always been that the margins that do exist owe substantially to denying medical services and care to people who actually need it. As the “Fact Check” itself notes, the words used by Democrats are “obscene” and “immoral,” which believe it or not, don’t actually connote a level at which profiting from denying medical care is just, virtuous, or good. Perhaps someone would like to venture an acceptable profit level for contributing to the bankruptcies of 930,000 Americans per year, or worse, the 45,000 Americans who die each year because they lack health insurance?

Someone Tell Ben Nelson What “Opt” Means

So you may have heard that Supreme and Glorious Leader Olympia Snowe’s preference for a public option “trigger” notwithstanding, things are looking pretty good for some form the public option. However, as with all legislation, so-called moderates are feeling a bit of doody in their underpants. Take it away Ben Nelson!

NELSON: Well, I certainly am not excited about a public option where states would opt out or a robust, as they call it, robust government-run insurance plan. I’ll take a look at the one where states could opt in if they make the decision themselves. Look, I’m a Jeffersonian Democrat. I think the states can make decisions on their own about their own citizen. And so I certainly would look at that. But I’m not sure where this is going. I don’t think we know at this point in time. So I don’t think I can make any decision about anything until I’ve seen everything.

I understand that Senator Nelson represents a conservative state and all, but this notion that a national public option to which states could opt out is somehow incompatible with the belief that “states can make decisions on their own” is really pretty stupid. Whether the construction is “opt out” or “opt in,” the operative word is “opt,” which in English, can roughly be interpreted to mean “make a decision on their own about their own citizen.” Moderates don’t like it because it would put politicians in the position of directly denying a popular initiative to constituents rather than being able to blame someone else for denying a popular initiative to constituents. But this also gives away the whole game. The fact that moderates fear this position demonstrates that the public option is a popular idea that a lot of people want, and that opposition to its creation really stems from a) political incentives for conservatives or b) undue deference to corporate interests. After all, if the public option were unpopular, couldn’t a politician lead the “opt out” movement without fear of reprisal? Of course, it’s difficult to demonstrate capture by industry or conservative politics in a popular way, so instead you get people like Ben Nelson masking their opposition in the form of wishy-washy bullshit about the American character that doesn’t even withstand the lowest level of scrutiny.

By the same token though, the limited practical difference between an “opt-out” and “opt-in” public option means that I’d definitely accept an “opt-in” plan as part of reform. So I guess if this is how soi-disant centrists need to make their mark, then it’s something I can live with. But still, it’s pretty stupid. 

More Wonkery on the Excise Tax

So of course yesterday I do a big wonky post on the excise tax proposed by the Senate Finance Committee, and today Ezra Klein hits it twice and CBPP does a nice, detailed examination. For some serious detail, I’d check out the CBPP piece, but knowing that my readers probably won’t do this, I’ll just hit on a few things I didn’t touch yesterday.

First, and most important, it’s worth stressing that the reason the Joint Committee on Taxation expects the measure to raise some $200 billion over 10 years is because people won’t actually pay the tax. Instead, policy makers are counting on the fact that rather than subject employees to a 40 percent marginal tax on highly generous benefits, employers will instead opt to provide lower cost plans. Accordingly, employers will plow a greater share of compensation into wages, which will in turn be taxed as income, fueling Federal revenues. This is also precisely the reason policy makers expect the tax to slow cost growth in the health care system. By limiting incentives for people to seek more and more inefficient or wasteful care, total costs will come down.

Second, the reason the tax is politically attractive — at least inasmuch as it is attractive at all — is because it’s a tax on the providers of the plans themselves. Basic economic logic suggests that insurers will simply pass the cost on to employers and consumers, much in the way we the gas tax is passed to consumers, but it allows policy makers to plausibly say it’s just a tax on the evil insurance industry. If more Americans had a better understanding of public policy, I doubt legislators would be able to get away with this, but then, if my aunt had balls, she’d be my uncle and so on and so forth.

Finally, it’s true that this tax is in some ways regressive as a union member with a dangerous job and thus generous benefits will be taxed at the same rate as a Goldman Sachs employee, but it can still be viewed as a broadly progressive measure. For example, Ezra Klein (gotta stop with this — that’s 3 links in one post) posts a commenter’s point that those people who don’t currently receive benefits through employers are already paying taxes on their health care, and what’s more, are funding the tax exempt insurance of people who do get coverage through their employers. This wouldn’t remove that problem, but in conjunction with subsidies and access to insurance exchanges, should go a long way towards leveling the playing field. Finally, there are a number of provisions to exempt people who have dangerous jobs which you can read about here.

Rural Incentives Are Inefficient

Keith Rural Subsidies would be a more accurate name.

Keith Rural Subsidies would be a more accurate name.

Every country music fan and Sarah Palin supporter understands that real America lies thriving and vibrant somewhere between the immoral coastal cities and other places that with disproportionate shares of minorities. What is less known is how frequently Congress uses tax money to make the rural lifestyle more practical. For example, via Kaiser Health News, we see there’s plenty of support from a cadre of bi-partisan, “fiscally responsible” rural Senators to encourage significantly higher Medicare payment rates for rural hospitals that aren’t actually far from other medical institutions.

Congress created the “critical access hospital” category in 1997 to ensure access to care in isolated parts of the country. Under the law, hospitals that are at least 35 miles away from other health facilities can be deemed “critical access” hospitals; those hospitals can collect 101 percent of their costs from Medicare, for a maximum of 25 beds, rather than the usual 95 percent of allowable costs.

Growth in such hospitals exploded, and by 2006, there were 1,280 critical access facilities. And many of them won the designation despite being located within 35 miles of other medical facilities; state officials routinely waived the requirement with federal acquiescence.

The rapid growth slowed three years ago when Congress, worried about billions of dollars in added Medicare costs, eliminated states’ rights to waive the 35-mile rule. Since then, only a couple of dozen new critical access hospitals have been designated. The total is currently about 1,300.

Now lawmakers from rural states want to ease the rules, partly by making it easier for hospitals to qualify for “critical access” status even if they are less than 35 miles from another facility. Supporters note that the hospitals, besides providing emergency and limited inpatient treatment, are often the mainstays of small-town economies. “Hospital reimbursement systems that work well in larger cities do not necessarily work in rural towns, where people still need health care,” Pryor’s spokeswoman said, “but the same volume of patients is not present.”

The point here is that there are serious economic incentives to living in urban, more densely populated areas. One such benefit is close access to emergency medical care. I don’t posit that rural Americans should be condemned to die, but where you choose to live actually is a matter subject to at least some individual preference, and using Federal policy to tilt the scales in an inefficient, impractical, and anti-majoritarian direction really doesn’t seem like an appropriate use of  tax money. If people want to live in more remote urban areas, then that’s fine, but they should at least have to accept that there are significant trade offs to doing so (or maybe send us urban folks picking up the tab a thank you note or something).

Ending these sorts of policies, which build on a long tradition of funneling Federal money towards poor, rural states (whose politicians often bristle at the mere hint of Federal spending), would ultimately encourage more optimal use of resources while — wait for it — using the magical powers of the free market.

The Baucus Excise Tax

So apparently Senate HELP Chairman Tom Harkin has been making some noise that there will be modifications to the excise tax on so-called “Cadillac” plans

In a conference call today hosted by Families USA, Harkin said the Democrats were likely to make “modifications” to the excise tax. Harkin said that the starting point for taxing such plans–currently $8,000 for individuals and $21,000 for families—was “too low” and said the minimum levels would rise. In addition, Harkin said that there were going to be exemptions to the tax made for individuals who had expensive plans because they had long-term chronic illnesses that required a lot of care, such as dialysis or certain cancer treatments.

For those of my readers who don’t religiously follow changes in health care legislation, the Senate Finance Committee’s bill removes the tax exemption on employer sponsored benefits at relatively high levels (as noted above, $8,000 for individuals and $21,000 for families). Currently, employer sponsored insurance isn’t taxed at all, which means that each dollar your employer pays in the form of health insurance is more valuable than a dollar paid in wages (these are taxed for Medicare, Social Security, and Federal and State taxes). The upshot is that companies offer increasingly generous benefits as a way of attracting employees, and drive health costs upward in the process by creating incentives for expensive and inefficient care.

The change proposed by the Finance Committee would simply reinstate the tax at the aforementioned levels, which would push employers away from offering these plans, thus serving as an effective cost control. In fact, it’s one of the key reasons — in addition to stingier subsidies and minimum benefits — that the Finance bill continues to control costs past the 10 year CBO window, and the House Tri-Committee bill explodes. What’s more, considering the average family health insurance plan is $13,375, this measure really wouldn’t impact a lot of workers. It would, however, impact union members who have increasingly bargained for generous health benefits, and accordingly, labor has been the most outspoken opponent.

Unfortunately, labor’s opposition is fairly short sighted. While this change could have negative consequences in the short term for certain unionized workers, part of the reason that unions have resorted to bargaining with benefits is because rapidly growing insurance premiums mean businesses can’t afford to increase wages. So by continuing to let health costs grow, the problem of wage stagnation will only continue — something decidedly not in the long term interest of unionized workers.

Back to the point at hand, Tom Harkin has suggested that Congress might “go outside the health care system for some revenues,” as the House has done with it’s tax on millionaires. Don’t get me wrong — I’m all for soaking millionaires — but the only way to make sure revenues stay apace with health care costs is to tack financing mechanisms to cost growth itself. Of course, the political calculus is a bit more difficult with 2010 elections coming up, angering organized labor is not a winning Democratic strategy, and considering health reform legislation won’t be enacted for several more years, the snub will ring with more salience than future savings in the health care system.

I guess I’m a little bit conflicted about all of this. Unquestionably, the Finance Committee is pursuing the right policy here, but on the other hand, going outside the system will only delay getting serious about cost control. That is, at some point, we’re going to need to address this — so if this is the only way to get health reform through in a politically palatable fashion, then so be it. Still, legislators who bleat about budget deficits — I’m looking at you, GOP — ought to consider insisting on this point.