Last August, I wrote a post based on a Dean Baker article, explaining how the key insurance elements of the health reform bills fit together. Baker’s point, which I expanded, was that one had to view the elements of the insurance reforms as a whole, and that removing any pillar made the entire structure collapse.

The deal included concessions to and from private industry, but there was also a safeguard — a government-guaranteed alternative to hold the industry in check and protect the public interest. If those safeguards were removed, the social compact collapsed and the deal would become unacceptable.

The White House and Senate have now broken that compact with the public, or betrayed the fact it was only a ruse. I don’t know which is worse.

Their capitulation to Joe Lieberman, and the insurance/health industries that have enriched him, removed the public safeguards. Worse, the White House and Leadership have made extraordinary efforts to preserve the industry portions of the insurance and PHARMA deals, while betraying their promises to protect the American people from the abuses of industries that have become too big to regulate, too powerful to reform.

I think it’s important to restate what the deals were about, and why the social compact was so important, so . . .

Scareccrow
August 19, 2009

No PO? Okay, No Mandates or Subsidies for Private Insurance

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. . . .

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.

The White House has broken faith with the American people, and the polls are showing that in spades. They have no one to blame but themselves that health reform champions from single-payer advocates to Governor Howard Dean are demanding the Senate bill in its present form be defeated. They are not irrational or radical; they have the backing of a majority of the American people.

Related:

Jon Walker/FDL, This is nothing like the Netherlands (responding to Jon Cohn’s defense of mandates)
Marcy Wheeler/Emptywheel, My BarackObamaTax
Blue Texan, KO Special Comment: Strip the Mandate
Jon Walker, Answering Nate Silver’s 20 Questions, and Nate responds
David Sirota/Open Left, Howard Dean, Movement Leader (updated)
Scarecrow, This Isn’t Health Reform: It’s Extortion for a Protection Racket
Scarecrow, Trading Off the Public Option
Video, WH Press Secretary Gibbs responds to Howard Dean