Health Care Reform End Game Emerges

Their threats seem less real than the chance that moderate Democrats, whose political careers  could depend on their vote on this bill, decide the safer course is to vote no if a bill seems to be too much a product of the progressive caucuses in both Houses and if it seems to threaten the private insurance system while running up the deficit .

A head count in the House, where Democrats have a near 80-seat margin, suggests that Speaker Pelosi did not have even 200 votes (218 needed) for a bill that resembles the one passed by the three committees in the House, with a public option paying rates of Medicare plus 5%. Some moderate Democrats in the House voted for the committee bills, expecting that the Senate would save them and force a more moderate final bill to the floor after a conference committee compromise was reached. Now it appears Speaker Pelosi has compromised and the public option will have payment rates negotiated with providers rather than set according to the Medicare rate scale.

No one is sure exactly how this will work or why it will save money for individual insurance purchasers, but it will create a lot more jobs for new government rate negotiators. Most important, Pelosi will claim it is a robust public option.

It is possible that Reid’s gambit was more directed at energizing the progressive base nationally to support his re-election effort in 2010. (He currently trails several of his potential opponents.) If Reid is forced to cave later and accept a Baucus-like bill without a public option, he can point to his statement this week as proof he fought the good fight first. For a day, Reid is the champion of the left.

I continue to think that Democrats have too much invested in this effort to let it die. So a very complex and not very tasty sausage will be made to get 218 votes in the House and 60 in the Senate, and that suggests the moderates will get enough to make it at least palatable. The progressives will hold their noses, rant about the opportunity that was missed, and vote yes.

Lost in all of the skirmishing is the fact that no major piece of domestic legislation that changes so much of the economy has ever passed Congress on a straight party-line vote. The media seem to be unaware of this or reluctant to discuss it. Some Democrats seem aware of this, which is why there has been so much courting of Senator Snowe in order to provide a veneer of bipartisanship to what has been from the beginning a highly partisan effort.

Even more important is that all of the versions of the bill will, in short order, significantly increase costs in  the private insurance market and likely run up much bigger federal deficits. Two serious studies have made the case for such an impact on private insurance premiums

In short, if the penalties for not buying insurance are small with an individual mandate (only $750 in the Baucus bill), then the healthy will pass on buying the new policies, but the unhealthy will buy them.  It is not hard to figure out what happens to premiums in that case, though administration media hack Linda Douglass is unhappy with the conclusions of the studies. If there is a public option that only pays Medicare rates plus 5%, private insurers will be charged more by providers (cost shifting).

With an employer mandate, since it is far cheaper to pay an 8% tax for not providing insurance than to provide insurance to employees, many companies now providing insurance may opt to pay the 8% penalty and drop their coverage. That means the amount of subsidies paid for by the government could be far larger than estimated. The members of the House and Senate are hanging on every CBO estimate scoring a new version of the bill, but how does one score a bill with an opt-in or opt-out public option, not knowing which states will be part of the system?

Democrats have also become concerned that the alleged budget neutrality of the various bills (achieved by not including the cost of the $250 billion ten-year fix for physician payments under Medicare) results from front-ending of new fees and taxes and back-ending of new benefits, a toxic political formula for Democrats running in 2010 when the economy may still be very weak. So expect to see more front-ending of benefits, which will increase the cost of the package, requiring even more new fees, taxes, and phantom savings in the Medicare program (more waste, fraud, and abuse to be identified and wrung out of the system).

While the odds still slightly favor  passage of a reform bill this year, the juggling act that is going on at the moment includes lots of balls in the air and jugglers with less than world class skills.