Dean Baker has an important post at TPM, Are Mandates Mandatory?, in which he lays out the logic of how different components of health care reform fit together. Dean shows, in particular, that the justification for imposing mandates on business to provide insurance has now collapsed, given the distrust the White House inflicted on itself on whether there will ever be a viable public option.

Let’s review what the deal was about. The insurance industry tried to sell the insurance mandate as a necessary condition for their willingness to end their abusive practices, practices that should be outlawed in any event. As AHIP’s Karen Ignagni said months ago, and Aetna’s CEO Ron Williams (appearing tonight on PBS News Hour) explained, they would agree not to deny care for prior conditions, to stop the most egregious rescissions of those who became sick, and to limit discriminatory pricing. But in that deal, the government would force everyone to purchase insurance, and impose, with exceptions, pay or play mandates on both businesses and individuals to help cover the costs and discourage free riding.

Since reformers wanted to lower costs and make coverage universal, but realized insurance premiums under today’s system would be unaffordable for many, the federal government would offer subsidies to those with incomes up to 3 or 4 times the federal poverty level. While subsidies were necessary to pay the high premiums, they would constitute a windfall for the insurance companies, by increasing the chances that their high premium charges would be paid.

But from the public’s standpoint, that was not the end of the deal.

To help make premiums more affordable for individuals/businesses required to purchase insurance and to reduce the government’s exposure to subsidies, the government would also require the private insurers to compete against a government sponsored public insurance option (PO). With hoped for cost efficiencies via ties to Medicare, the PO would both pressure private insurers to lower their costs/premiums and provide a model for insurance behavior, thus reenforcing the reforms of insurer practices and giving consumers an alternative if the insurers evaded the rules.

I don’t know whether the Obama WH intended the PO as a bargaining chip or merely blundered into making it so; the fact is they have now undermined key elements of the overall "deal."

Given this breakdown, Dean Baker logically concludes that the imposition of employer mandates is no longer justified.

But it is important to understand that the mandates are not about extending coverage, they are about preventing free-riding. They are, in effect, a form of taxation, and a very regressive one. . . .

We know that it will be necessary to revisit health care in the not too [distant] future in any case. The lack of mandates will help to ensure that this date comes sooner. Then we can talk about measures that will allow us to control costs, like a robust public plan.

But, if we can’t get a public plan in this round, why should progressives be pushing for a regressive tax that will go into the pockets of the insurance companies and their overpaid CEOs? Let the insurance companies try to make a living in the market; when they grow up and feel strong enough to compete with a public plan, then we can have mandates.

I’d adapt that logic and extend it to the individual mandates as well. If the private insurance industry is not to be confronted on price competition by a strong PO, then there is no moral justification for forcing business or individuals to purchase insurance from an industry that works relentlessly to exclude any competition and as a result has become egregiously concentrated with market power to fix prices.

Even if competitive pricing were possible in the insurance industry — and Krugman/DeLong/Baker, citing Ken Arrow, Stiglitz and others, show it isn’t possible — then the existing insurance market concentration would certainly stifle it.

That leaves the problem of 46 million uninsured and millions more underinsured. There is a straightforward solution to part, but not all, of this problem, and it’s sitting in the existing bills. Expand eligibility to Medicaid and/or Medicare.

We would collect whatever federal revenues are necessary, via any less regressive tax and/or savings, including money from ending federal subsidies to private Medicare Advantage plans, and use it instead to pay down the costs of getting millions more covered by Medicaid and/or Medicare. Move as many of the uninsured as we can into those functioning programs.

Reforms should also have the feds fully fund Medicaid — most states won’t or can’t pay for this — and move to end any inadequacies in Medicaid coverage so that patients get the same basic coverage that Medicare recipients receive. Then fill in the gaps/doughnut holes in Medicare — and tell senior’s we are going to improve and preserve Medicare, not strip it. I don’t understand why preserving/improving Medicare hasn’t been part of the core messaging from the beginning.

Then move to reform Medicare provider payment practices, including adequate funding for rural areas, better allocations to primary care etc, and reforms of provider payment incentives using a stronger MedPAC.

Note that all of this can be accomplished through reconcilation, since we don’t need the exchanges or the PO. We need 50 votes.

The private industry and conservative are adamantly opposed to even a rigged "market" in which private insurers would compete only against a very limited, hobbled, slowly phased in PO with no initial provider networks. Fine. If they can’t confront even a severely hobbled PO, then there’s no reason to pour hundreds of billions into subsidizing them. To paraphrase the President, this is neither keeping what works nor fixing what doesn’t; it’s subsidizing what doesn’t work.

We should solve the problem of insufficient coverage in the cheapest way possible, through expansion of existing programs that people trust, using existing networks of doctor/hospital providers (who need to be fairly compensated). Subsidizing inefficient, uncompetitive, powerful insurers is the most expensive and least defensible solution.

Then work on a separate bill, which may require 60 votes, to impose regulation to end the industry’s most egregious practices, not as a substitute for a PO as Mike Lux suggests, but because those practices are outrageous and should end. If the Republicans and ConservaDems want to defend coverage denials, rescission and discrimination, let them take that vote into 2010.

If the Administration seeks to trade away the PO and undermine the social compact that justified the path they were on, then Baker’s logic is where progressives should move. The White House can either support these genuine reforms or explain why they blew the best chance for health care reform in decades. It would have been better to have a trusted WH lead this effort, but apparently that isn’t to be.

Arin Dube, via The Economist (and h/t DeLong), the WH letting the PO twist in the wind represents $32 billion to insurance investors.
Bob Herbert, NYT op ed, This is Reform?