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Enron’s Ghosts Capture Health Insurance Reform

9:39 am in Uncategorized by Scarecrow

Last July, I wrote a post on how Enron’s free market views influenced the original design of the California electricity market and contributed later to its collapse. I pointed out the parallels between Enron’s flawed market designs and the debate over the public option in the proposed health insurance reforms.

It’s worth revisiting, because matters are now much worse than they were then.

So what kind of structure and rules did Enron demand? First, it needed to eliminate competing institutions that might be able to connect producers and consumers more directly and efficiently. It argued for, and got, a structure that tended to require middlemen.

There was a proposal for a quasi-government "power pool" — a public pool in which producers could sell and consumers/buyers could purchase power directly without a middleman. For a year of debates, Enron and other marketers did their best to eliminate that "socialist," government-controlled concept, but the small band of bureaucrats and allies convinced the state to keep the pool.

Second, once the pool was accepted, Enron’s next tactic was to limit access to the pool. Enron argued for rules that required all non-utility buyers to arrange private contracts to cover their needs, instead of relying on the public pool. That would result in many more opportunities for Enron to be the middleman in those private contracts. The small band of bureaucrats argued against that limitation with some success, but Enron got concessions that tended to discourage many parties from using the public pool.

Enron’s third tactic was to demand operating rules that would force the public pool to operate at higher costs. The bureaucrats objected to these rules and took the dispute all the way to the Governor’s office, but they lost to the Governor’s largest campaign contributors (he still had debts from a failed Presidential run). It was an important defeat.

The Power Pool was eventually created, but it’s rules hobbled it and forced it to operate at higher costs. One particular rule required the public pool to ignore feasible cost-savings and instead deliberately choose higher cost energy when serving customers of the public pool. That made non-pool contracts more attractive and drove non-utility buyers/sellers to Enron’s traders.

Enron and its gullible supporters convinced state and federal regulators that since they were market competitors, their competition would always achieve the lowest cost results, so the public plan should be deliberately forced not to achieve the lowest cost, because that would drive marketers out of business, and they should be protected. California’s largest electricity customers, and federal regulators, bought this ridiculous argument.

Finally, Enron demanded, and got, rules that required the grid system operator to be separated from a part of the public pool — the market separation fallacy. When combined with other ill-advised rules, this meant that the public plan and system operator were often flying "blind," unaware of grid conditions when Enron and other parties were manipulating the market. The result: Enron and others manipulated the market with virtual impunity, raking off hundreds of millions (and some claim billions) of dollars.

If you recognize this pattern, it’s because we’re seeing analogous tactics and strategies in the current health care reform debates.

We see a powerful group of middlemen, the insurance industry, trying to structure the market to require that they remain in the middle of, and extract a rent from, all money flows between providers and patients, as though that’s the only logical structure, even though it’s not.

We see efforts to eliminate any public alternative — the public plan (operating inside a public exchange) — that might be more efficient in reducing and covering costs.

And we see the middlemen and their political supporters in Congress deliberately hobbling the public plan, raising its costs, and restricting access to that public option, on the theory that we shouldn’t do anything to undermine the current private insurance industry. After all, they argue, private markets are always more efficient than a government operation.

That was how I saw the parallels last July, when the public option was still a possibility, but I warned that differences between products, markets, institutions, etc, made such comparisons risky. Yet the sad and astonishing part is that as the health care debate has evolved, the Enron free market view from 15 years ago has triumphed in the proposed health insurance reforms.

There is no public option, so there will be no public insurance altenative and safety net to protect consumers from private insurance discrimination, excessive rates, and other abuses. The insurance market now embedded in the Senate bill is worse that what Enron and its political allies helped design for California’s electricity markets.

We can now see other parallels and predict what might occur in this new insurance market. In California, state and federal regulators failed to pay attention to the concentration of producers — only a few large firms controlled most of the generation, even after the utilities were induced to divest much of their generation monopolies. The predictable problem of market power would then combine with the ability of Enron and other financial marketers to manipulate Enron’s flawed rules. They would then create artificial shortages, exacerbate real shortages (from droughts, nuclear outages, etc) and then bilk consumers for hundred of millions of dollars. And on top of that, state regulators imposed a mandate on utilities to purchase all their residual power from the new flawed "exchange" market. Sound familiar?

Will something analogous happen in health insurance markets? We don’t know, and all crises are different. But we know the health insurance and provider markets are egregiously concentrated — one or two mega-firms control most of the market in most states. We know the industry is still protected from anti-trust laws; until that’s fixed, there’s no way for state or federal governments to bust up the firms with the most market power or prevent collusion to fix prices. And we know consumers will be forced to purchase insurance within this concentrated market and given subsidies to help them do it.

We know there won’t be any meaningful rate regulation. That is what the demise of the rate regulator means. Insurers and providers are essentially free today to raise rates at will; there is nothing to change that. This Administration and Congressional leaders are apparently content to throw up their hands and have this important public policy decided by a virtually unknown "parliamentarian," but it’s their sin, not his.

And we know that the very nature of health insurance is such that the theories of efficient competition and competitive pricing simply do not apply. Economists since Ken Arrow have told us this. Yet we still have governments and institutions enthralled by the virtues of free enterprise.

Without rate regulation, without anti-trust enforcement, without a viable public option as escape hatch, without a credible theory of competition, and with virtually no constraints on the industry’s ability to bribe and control the Congress and the White House, there is no way consumers can win in the new health insurance markets. Only an idiot [e.g., a member of the Texas School Board] would believe this will turn out well.

The only question we have left is how the inevitable market collapse, consumer crisis and government bailout will occur. And they will occur.

A reconciliation bill could have fixed much of the Enron-designed market structure in the Senate bill, but the White House didn’t want that. It cut its deals, just as California’s Governor cut his deals in 1996. But no one remembers Pete Wilson.


Updates
: And now a word about Dr. Jekyll:
Ezra Klein, Democrats get the bill, and the score, they needed
Jonathan Cohn, Guilty of practicing good government
Brad DeLong, on Marjorie Margolies . . .

Rachel Maddow Gets a Clue on Who Killed the Public Option

6:58 pm in Uncategorized by Scarecrow

Watching Rachel Maddow’s recent reporting on efforts to create momentum to include a public option in the health care reconciliation, I had assumed she realized Congress was just pretending and only a miracle would get them to behave responsibly.

But Friday night’s discussion suggested Rachel did not know, or had forgotten, that neither the Senate nor the White House ever seriously considered allowing a public option to be part of the reform bills.

Chris Hayes correctly described the scene as a game of Clue, in which the game is structured to conceal who killed the idea. But unlike the board game in which you gradually eliminate suspects, Congress the leadership seems dead set on making everyone in the Democratic Party look guilty.

We have the Speaker of the House unable to explain why, when she controls the content of the initial reconciliation bill, she can’t include the public option because the Senate won’t vote for it.

We have the Majority Whip in the Senate issuing conflicting clarifications that it will whip for a bill without the PO, or no, with the PO, even as the Senators secretly urge Ms. Pelosi not to force them to vote either way.

And we have the President of the United States hiding from his own dishonesty in both publicly promoting the idea with his supporters while directing his aides to prevent it from ever coming to pass.

I guess next we’ll hear it was Jane Hamsher, in the blogger room, with the whip.

It’s all disheartening to watch. I’m frankly more sympathetic to the predicament imposed on Nancy Pelosi by this unprincipled White House and the feckless Senate leadership. But make no mistake. Not one of the Democratic leaders in Congress or the White House has been honest or courageous enough to be straight with us. Is it too much to ask they stop lying?

The current plan is for the House to take a dive. They’re expected to vote for an unpopular Senate bill at the risk of their careers. In exchange, they get to vote on a reconciliation fix they fear will not be sufficient to save them, while leaving out key elements they know they’ll need to sell the plan.

They know most of the "liberal" Obama supporters expect them, not the Senate, to take the risks, since no one is demanding the Senate pass the original House bill and fix that if needed. Once they adopt the Senate bill, House members have no assurance the Senate will follow through and enact the promised fix, and they suspect many in the Senate, and probably the White House, don’t care if the House takes the hit.

The truth is, the Senate and White House will force the liberal House to bear all the risks, but no matter what happens, Rahm Emanuel will call it a "win."

Rachel is right: Nancy Pelosi should call the bluff and put a strong PO — a Medicare buy-in available through the exchanges — in her reconciliation bill. Then let the White House carry the burden and the risks of getting its signature agenda proposal through the Senate. That would be a great "win" for Rahm and his boss, but they need to earn it.

File under Amazing Kreskin:
Jane, Countdown to Lieberman
Jane, Obama passes the public option hot potato
Jane, Steny Hoyer passes the hot potato

Orszag and DeParle Spin Insurance Reform Whopper

11:00 am in Uncategorized by Scarecrow

The Administration’s OMB Director Peter Orszag and Health care adviser Nancy-Ann DeParle use the Washington Post’s op-ed page to pitch the deficit reduction and cost-cutting advantages of the President’s health care reforms. It’s the standard pitch we’ve seen before, offering a necessary response to many of the false statements made by the bill’s detractors.

There are undoubtedly worthwhile cost-cutting/efficiency measures in the current bills. Predictably, the authors once again neglect to mention what the President’s proposals should have done but didn’t.

Other than ignoring the industry provider market power, concentration and price-fixing elephants in the room — and thus not having to explain why Medicare can’t reimport or negotiate drug prices, the US can’t shorten anti-competitive patents and non-compete agreements, can’t end off-shore tax havens for PhRMA’s largest drug companies, and can’t confront the private insurers with more budget-saving, premium-reducing public insurance alternatives — Orszag and De Parle slip in one giant whopper with extra cheese and mayo when describing the excise tax escalation rates:

And, just as with the version in the Senate-passed bill, the president’s excise-tax proposal would increase that threshold more slowly than the rate of health-care cost growth. As a result, firms would have a gradually increasing incentive to seek higher-quality and lower-cost health plans.

Uh, no. When the insurer’s and employer’s incentives are to avoid the tax by reducing the premium, the inevitable result — because it’s the easiest tax-avoidance path — is to provide lower-quality insurance to employees based on higher co-payments (or less coverage) for the employees.

But hey, turning the logic up-side-down to obscure that you’re increasing economic insecurity for America’s middle class is just what the political advisers would tell the policy advisers to say, right?

More:
HuffPo/Sam Stein, Insurers set to raise prices, walk away from consumers

Wasserman-Schultz Tells Latest Whopper About Public Option

6:31 pm in Uncategorized by Scarecrow

Short Debbie Wasserman-Schultz: "Gosh, a majority of us would like to do this public option thing, and we’re supporting a process in which majority rules, but darn it, we can’t figure out how something that could reduce federal deficits by $25 to $120 billion over ten years could possibly be relevant to budget reconciliation."

I can only assume that Ms. W-S’s closest friend is being held somewhere by interrogators advised by John Yoo. Otherwise I cannot account for her.

Bonus tutorial: Senator Harkin explains that reconciliation has been used repeatedly to introduce or expand public health insurance programs. Huh.

On the other hand, Senator Harkin apparently believes that amending the unpopular Senate bill by including the persistently popular public option would doom the bill, because, you know, that’s how the Senate thinks.

So he argues on the Ed Show that the public option can’t be included in this reconciliation, since it doesn’t have the votes, because, you know, Senators like Harkin who support it won’t insist on it or vote for it. Oh.

Health Summit: Nancy Pelosi Reminds Obama About His Support for Public Option

3:07 pm in Uncategorized by Scarecrow

Speaker Pelosi used her closing comment at today’s Health Care Reform Summit to remind the President that he once claimed to support the public option.

She then calls out Reps. Boehner and Camp on their misstatments.

Speaker Pelosi:

Mr. President, I harken back to that meeting a year ago. At that time, Senator Grassley questioned you about the public option.

And you said the public option is one way to keep the insurance companies honest and to increase competition. If you have a better way, put it on the table.

Well, I bring that up because we have come such a long way….As a representative of the House of Representatives, I want you to know that we were there that day in support of a public option which would save $120 billion, keep the insurance companies honest, and increase competition.

She closes with this:

Yes, it’s hard to do this. The misrepresentation campaign that has gone on about these bills, it’s a wonder anybody would support them, as Mr. Waxman said. But the fact is, as the President said, many of these provisions on their own are largely supported by the American people.

So this will take courage to do. Social Security was hard. Medicare was hard. Health care for all Americans, insurance reform is hard. But we will get it done.

And as we leave this debate, I think that many of the differences that we have are complicated, and they’re legitimate. They’re differences of opinion about the role of government and the rest. But I think it’s really clear on one point that the American people understand very clearly: They understand that there should be an end to discrimination on the basis of pre-existing conditions.

The proposals that we have put forth end discrimination on the basis of pre-existing conditions. The Republican bill does not.