Enter: Health Reform

This post originally appeared on The Finance Buff.

Last week I argued that Geithner’s bank rescue plan (PPIP) preserved Obama’s political capital for other parts of his agenda. While the alternative, nationalizing some banks, may be more effective and ultimately necessary, for now Obama has judged the political cost of doing so to be too high. For what, then, is Obama saving his political capital?

Enter: health reform.

For the first time since early in the Clinton Administration, the President and Congress seem likely to take up the issue of comprehensive, national health care reform. For any reform to be meaningful and lasting it will have to make significant progress toward covering all Americans and reining in health care spending. Both are daunting technical and political problems.

Addressing these issues will require substantial adjustments to government programs and accommodations by interest groups. Indeed, a tremendous allocation of political capital will be required for success, more relative to the level of opposition than our last two Democratic presidents had or were willing to invest (one reference and another).

Where do things stand now with respect to health reform?

President Obama campaigned on the idea, and the fundamentals of his plan have not changed. His late February address to Congress and his remarks before a White House summit on health care in early March signal a serious health reform effort. Key members of Congress share the President’s vision.

Senator Baucus has also proposed a plan to achieve universal coverage. Both the Obama and Baucus plans encourage coverage with income-related individual and small-business subsidies and a requirement that large employers offer insurance. Under either plan, large employers would offer coverage or contribute toward the cost of a public plan. Non-group insurance available through regional health marts would more closely resemble current group coverage. Baucus’ proposal also includes a requirement that individuals have insurance (an individual mandate) with tax penalties for noncompliance.

Another plan proposed by Senators Wyden and Bennett offers a different approach. Their Healthy Americans Act would replace the current employer-based system with state or regional insurance pools. Like the Baucus plan, the Wyden-Bennett proposal includes an individual mandate and subsidies.

Meanwhile key members of Congress and stakeholders have shown signs of cooperation. Senator Baucus and three vital House committee chairmen—George Miller (Education and Labor Committee), Henry Waxman (Energy and Commerce Committee), and Charles Rangel (Ways and Means Committee)—aim to produce a bill this summer (see this and this). Senators Baucus and Kennedy wrote to President Obama “to affirm our continuing commitment to enacting comprehensive health care reform this year.” And members of Senator Kennedy’s staff have been holding regular meetings with stakeholders on issues pertaining to health reform since late 2008.

All key Democrats in Congress agree that health reform should include an individual mandate and that a government health plan should be available as an alternative to private insurance. Both issues are likely to be controversial. While the insurance industry appears to welcome a mandate, making insurance affordable to all may prove too costly. Senator Grassley (the top Republican on the Senate Finance Committee) is “adamantly opposed” to a public health insurance plan. (See also this NY Times editorial.)

President Obama’s FY2010 budget proposal includes a number of components of reform. It would establish a $630 billion reserve fund for health reform, offset by increased taxes on wealthier Americans and efficiencies found elsewhere in the health care system. So far, budgets passed by the House and Senate support parts of Obama’s health reform agenda, but differ on how to pay for it.

Obama’s budget proposal also calls for major changes in areas of health programs, law, regulation, or practice such as reduced payments to private Medicare plans achieved through a competitive bidding system, lower prescription drug prices for federal health programs, expansion of comparative effectiveness research, and accelerated use of electronic health records.

Though not part of Obama’s budget, creeping into the debate is the idea of partially removing the tax deductibility of employer-provided health benefits. Doing so could provide a way to pay the expected one-trillion dollar cost of comprehensive health reform.

I’ve only touched on a few of the more controversial issues related to health reform. In future posts I expect to comment further on them as they arise in the debate. To lay the groundwork for those pertaining to Medicare (e.g., competitive bidding, drug price negotiation), in an upcoming series of posts I will summarize and explain the structure and payment systems of that large and important health care program.

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