Obama's Health Care Speech a High-Stakes Political Game

Several Democratic senators from red states are saying publicly they will not support a health care reform package that includes a public option.  The progressive and ethnic caucuses in the House are belligerently staking out their  ground, saying that they will not support a package without a “robust” public option.

MSNBC broadcaster Keith Olbermann is discussing with Eugene Robinson the possibility of a progressive challenger to Obama in the 2012 Democratic presidential primary if Obama caves to moderates in the health care reform fight. Perhaps Olbermann and his supporters can rally progressives around Van Jones, whose views may more clearly mirror their own. There does not appear to be much common ground within the Democratic Party as the president prepares for an address to a joint session of Congress on Wednesday night in which he hopes to regain the momentum for passing health care reform legislation this year.

The president is undoubtedly aware that his approval ratings have dropped to around the 50% mark, and a majority of Americans do not support the reform package that has worked  its way through four committees in the Senate and House, with only Max Baucus’ Senate Finance Committee still at the drafting stage.

So what should the president say, and where is the reform packaged headed?

To be sure, the president’s approach at this stage is certain to be political -- meaning the only goal, given how he has staked his presidency on passing health care reform, is finding a way to get the votes needed in the House and Senate to pass something that he can sell to the public as real reform.  At a minimum, that package will have to include some insurance market reform that significantly whittles down the number of uninsured and provides greater security to individuals that they will be able to buy insurance (regardless of pre-existing conditions) and can keep their insurance if they become very ill.

With new estimates of federal deficits averaging close to a trillion dollars a year for the next ten years, unemployment hovering near the 10% level, and polling data suggesting that twice as many Americans are concerned about addressing  the federal deficit as  health care reform, the administration is almost certain to scale back the size of the package it will accept. That means that the goal of universal coverage may be scrapped and federal subsidies to assist the uninsured to purchase insurance will be provided to those at  lower income levels and not become the broader middle class entitlement the administration sought (higher income levels for subsidies helps create an expanded class of voters feeling allegiance to the party that has delivered the “goodies”).

The fight over the public option is now a loser for Obama. The left wing of the Democratic Party wants a single payer public system.  A public option was a way station to that goal, with the left fully expecting that tens of millions of currently insured Americans would shift from private insurance to the public option, given the structural advantages the public option would have, allowing it to under-price private insurance alternatives. A new federal program could set rates to providers, unlike private insurers who have to negotiate  rates.

Maine Republican Senator Olympia Snowe, one of three GOP senators working with Senator Baucus to craft a bill,  has offered a face-saver for Obama to deal with his left-wing zealots on the public option. Snowe’s proposal is for a trigger -- giving insurance companies the chance to prove they can reform their practices, with the public option as a fallback  if they don’t.  The supporters of a public option do not want  the private insurance industry to reform; they want it to disappear. One would think that private insurers faced with such a trigger would behave rationally.

What has to irk the Obama team and Democrats in Congress is that the right  won the messaging war over health care reform when Sarah Palin attacked the concept of death panels. While her characterization contained hyperbole, there was enough in the language of the bills and in the public statements of the president, his health care advisor Ezekiel Emanuel, and others in the administration to suggest that significantly reducing expenditures on end-of-life care was a primary vehicle the Obama team believed  could help bend the cost curve. When the expert panels of advisors, funded in the stimulus package, meet to draft the guidelines for cost-effective, quality care, it was hardly unreasonable for seniors to suspect that cost/benefit calculations would adversely impact them as opposed to younger Americans.

Regrettably, there is almost nothing in the bills the Congress has drafted, and there is likely to be almost nothing in a bill the Obama team itself offers, that begins to address the structural deficiencies in the current delivery system that have created the cost curve that everyone wants to bend. Former Senator Bill Bradley audaciously suggested that to get a reform bill through, the left needs to accept tort reform, including special medical courts to hear malpractice cases. The liberal Brookings Institution has also endorsed the idea.

No one knows how much of the care now provided reflects defensive medicine, related to protecting physicians and providers against legal liability. But it is not trivial.  There is, unfortunately, zero chance of the Democrats turning  their backs on a loyal and substantial campaign funding source -- the trial lawyers.

While there has been much attention to Senator Snowe’s trigger approach, she has also pushed for tort reform among the gang of six senators convened by Senator Baucus, as well as insurance market reform allowing insurers to sell across state lines and limiting the state mandates that make comprehensive care packages so expensive. In Massachusetts, the state with the highest insurance premiums in the country, the requirement that insurers cover infertility treatments alone adds an estimated 5% to the cost of policies in the state.  In a long article in the current issue of the Atlantic, David Goldlhill makes the best  case against such comprehensive insurance policies (mandated coverage).

Many of the skeptics of the current reform packages, including Atul Gawande in an article examining the wide disparities in the cost of Medicare  coverage among various communities, have pointed to the inherent problem in a fee for service system, where providers control demand.  The public option approach is based on a foundation that the real problem with the health care system is high price. Hence advocates for this approach seek to allow government to set prices far more broadly than it does now. But if the real problem is volume -- over utilization -- then the reform packages working their way through Congress now do not address this and will only exacerbate the problem, adding comprehensive coverage to tens of millions more Americans, which will significantly increase the amount of care delivered .

The cost of health care is price times volume. When the insurance system  provides enormous incentives for more, you get it.  Providers get paid more for doing  more. Patients do not see the cost of care as an issue at the time they receive it. So they think health care is free at the point of service and want more.

Imagine if corporations and the government started to provide insurance to purchase shoes. The policies would be comprehensive -- all shoes would be covered -- with $1 co-pays per pair of shoes. In a short time, many Americans would have closets like the late Imelda Marcos. Shoes as a share of GDP would soar.  The parallel to health care insurance and volume is not that far off. President Obama has advertised the goodies -- comprehensive insurance for all -- and postponed the pain, claiming everything will be paid for and costs will drop. But for costs to drop, then incentives have to change and market forces brought into this sector of the economy, which is currently 17% and climbing.

Do not expect to hear any pitch for market forces, tort reform, or real insurance market reform Wednesday night. The president will try to calm the nation, drive away their fears (which he will claim are due mainly to conservative scare mongers), and provide some soothing music that all will be well or better if the nation just follows his lead. This is nonsense.  The odds of a big package passing at this point are, I think, slightly better than 50-50, given the Democrats’ control in Congress and the desire not to embarrass Obama with a big defeat.  The odds of passage for a more incremental approach (which will still not address any fundamental cost problem, but will not cost as much) are much higher.

I think Obama is an ideologue who  believes in and wants bigger government. So I think he will try for the bigger package first.  The brute force required to pass such a package could be worse than embarrassing for Democrats who go down in 2010.  A real high stakes political game within the Democratic Party is underway.