Economist's View

Does Doing Nothing Cost Nothing?

Failure to enact health care reform will be costly:

The cost of not enacting health care reform, by Linda J. Bilmes and Rosemarie Day, Commentary, Boston Globe: Much of the health care debate is focused on whether the country can afford the $850 billion the Congressional Budget Office estimates it will cost. ... This debate ... assumes that doing nothing will cost nothing. It turns out that not expanding health insurance is a pretty costly option...

Several major medical studies have determined that people with health insurance have lower death rates compared to the uninsured, fewer medical ailments, and better all-around health. This means more individuals contribute to the economy for longer. Not having health insurance means these economic benefits are lost.

For example,... Americans ... die each year because of a lack of health insurance. These deaths are largely because of failures to diagnose illness and to limited access to good quality care. ... A new study ... puts the number of deaths among Americans between the ages of 18 and 64 associated with lack of health insurance at 44,789 a year.

The premature death of thousands of Americans can be translated into monetary terms using the economic “value of a statistical life." ... US government agencies typically use a figure around $7 million to represent the lost economic output from each death. If we conservatively use only half of the government figure, or $3.5 million, it suggests that the ... cost to the US economy of 40,000 deaths is ... more than a trillion dollars over a 10-year period - even taking future inflation into account - well above the cost of enacting a health care package.

A second way to estimate the cost of not enacting health care legislation is in terms of life expectancy. US life expectancy - at 78.11 years, ranks around 40th in the world and well below countries with universal health care. If we were to match Canadian life expectancy, for example, that would translate into an extra two years and 1 month of life expectancy for every American.

Economists use another measure for the value of an additional year of life, adjusted for the quality of life. ... Most insurance companies, and many countries around the world, ... implicitly ascribe the value of an additional year of human life at $50,000... If the United States ... were able to ... insure at least 15 million more Americans, ...[r]aising the US life expectancy to match Canada ... would translate into $150 billion in economic value over three years.

Less health insurance ... also impairs the quality of life - and hence the productivity - of those who are living. This is evident in comparing the health of Americans who live in states with high levels of insurance with those who do not. ... People living in states with the highest insurance levels have better health indicators, including fewer low birth weight babies, lower infant mortality, and lower death rates from diabetes, heart disease, strokes, Alzheimer’s, and some types of cancer (cervical, colorectal). ... Moreover, the annual death rate ... was lower... It is tricky to put a precise number on the economic loss from poorer life quality, but we can be sure the economic loss is substantial. ...

Without health care reform, the economic cost imposed by premature deaths and avoidable illnesses will continue to grow... Congress needs to weigh carefully the substantial cost of doing nothing.

Paul Krugman: The Defining Moment

Centrists have a choice to make:

The Defining Moment, by Paul Krugman, Commentary, NY Times: O.K., folks, this is it. It’s the defining moment for health care reform. ...[L]egislation ... will almost surely pass. It’s not a perfect bill, by a long shot, but it’s a much stronger bill than almost anyone expected... And it would lead to near-universal coverage.

As a result,... politicians, people in the news media,... whoever is in a position to influence the final stage of this legislative marathon — now has to make a choice. The seemingly impossible dream of fundamental health reform is just a few steps away..., and each player has to decide whether ... to help it across the finish line or stand in its way.

For conservatives, of course, it’s an easy decision: They don’t want Americans to have universal coverage, and they don’t want President Obama to succeed.

For progressives, it’s a slightly more difficult decision: They want universal care, and they want the president to succeed — but the proposed legislation falls far short of their ideal. There are still some reform advocates who won’t accept anything short of ... Medicare for all... And even those who have reconciled themselves to the political realities are disappointed that the bill doesn’t include a “strong” public option, with payment rates linked to those set by Medicare.

But the bill does include a “medium-strength” public option, in which the public plan would negotiate payment rates... It also includes more generous subsidies than expected, making it easier for lower-income families to afford coverage. And according to Congressional Budget Office estimates,... 96 percent of legal residents too young to receive Medicare ... would get health insurance.

So should progressives get behind this plan? Yes. And they probably will. The people who really have to make up their minds, then, are ... the self-proclaimed centrists.

The odd thing about this group is that while its members are clearly uncomfortable with the idea of passing health care reform, they’re having a hard time explaining exactly what their problem is. Or to be more precise and less polite, they have been attacking proposed legislation for doing things it doesn’t and for not doing things it does.

Thus, Senator Joseph Lieberman ... says, “I want to be able to vote for a health bill, but my top concern is the deficit.” That would be a serious objection to the proposals ... if they would, in fact, increase the deficit. But they wouldn’t, at least according to the Congressional Budget Office...

Or consider the remarkable exchange that took place this week between Peter Orszag, the White House budget director, and Fred Hiatt, The Washington Post’s opinion editor. Mr. Hiatt had criticized Congress for not taking what he considers the necessary steps to control health-care costs — namely, taxing high-cost insurance plans and establishing an independent Medicare commission. ... Mr. Orszag pointed out, not too gently, that the Senate Finance Committee’s bill actually includes both of the allegedly missing measures.

I won’t try to psychoanalyze the “naysayers”... I’d just urge them to take a good hard look in the mirror. If they really want to align themselves with the hard-line conservatives, if they just want to kill health reform, so be it. But they shouldn’t hide behind claims that they really, truly would support health care reform if only it were better designed.

For this is the moment of truth. The political environment is as favorable for reform as it’s likely to get. The legislation on the table isn’t perfect, but it’s as good as anyone could reasonably have expected. History is about to be made — and everyone has to decide which side they’re on.

"Will the Super Rich Evolve Into a Separate Species?"

I can't say I stay awake at nights worrying about the super human part, but inequality in health care is an issue:

Will the Super Rich Evolve Into a Separate Species?, Discover Blog: As medicine becomes super advanced, and super expensive, the super rich may evolve into a completely different species from everyone else, according to American futurologist Paul Saffo. He thinks medical technology such as replacement organs, specially tailored drugs, and genetic research tools to alert the moneybags of any possible hereditary health dangers, could all lead to a new class of rich, elite, and longer-living humans.

Here are Saffo’s thoughts on the advantages this would give the rich, as reported in the Guardian:

“I sometimes wonder if the very rich can live, on average, 20 years longer than the poor. That’s 20 more years of earning and saving. Think about wealth and power and the advantages that you pass on to your children.”

At the very least, they’ll be able to afford health care—and keep opposing it for the rest of is.

Paul Krugman: After Reform Passes

One health care reform passes, and it looks more and more like it will, is there any reason to be optimistic that the highly politically compromised reform bill will actually help people?:

After Reform Passes, by Paul Krugman, Commentary, NY Times: So, how well will health reform work after it passes? There’s a part of me that can’t believe I’m asking that question. After all, serious health reform has long seemed like an impossible dream. And it could yet go all wrong. But ... it looks highly likely that Congress will, indeed, send a health care bill to the president’s desk. Then what?

Conservatives insist (and hope) that reform will fail, and that there will be a huge popular backlash. Some progressives worry that they might be right, that the imperfections... — what we’re about to get will be far from ideal — will be so severe as to undermine public support. And many critics complain, with some justice, that the planned reform won’t do much to contain rising costs.

But the experience in Massachusetts, which passed major health reform back in 2006, should dampen conservative hopes and soothe progressive fears. ... It ... has gone a long way toward achieving the goal of health insurance for all..., only 2.6 percent of residents remain uninsured.

This expansion of coverage has tremendous significance in human terms. The Kaiser Commission on Medicaid and the Uninsured recently ... reported that “Health reform enabled many ... individuals to take care of their medical needs, to start seeing a doctor, and in some cases to regain their health and control over their lives.” Even those who probably would have been insured without reform felt “peace of mind knowing they could obtain health coverage if they lost access to their employer-sponsored coverage.”

And reform remains popular...: an overwhelming 79 percent of the public think the reform should be continued, while only 11 percent think it should be repealed. Interestingly, another recent poll shows similar support among the state’s physicians...

There are, of course, major problems remaining in Massachusetts. In particular, while employers are required to provide a minimum standard of coverage, in a number of cases this standard seems to be too low, with lower-income workers still unable to afford necessary care. And the Massachusetts plan hasn’t yet done anything significant to contain costs.

But just as reform advocates predicted, the move to more or less universal care seems to have helped prepare the ground for further reform, with a special state commission recommending changes ... that could contain costs by reducing the incentives for excessive care. And it should be noted that Hawaii, which ...[has] a long-standing employer mandate, has been far more successful than the rest of the nation at cost control.

So what does this say about national health reform?

To be sure, Massachusetts isn’t fully representative of America as a whole. Even before reform, it had relatively broad insurance coverage, in part because of a large union movement. And the state has a tradition of strong insurance regulation, which has probably made it easier to run a system that depends crucially on having regulators ride herd on insurers.

So national reform’s chances will be better if it contains elements lacking in Massachusetts — in particular, a real public option to keep insurers honest (and fend off charges that the individual mandate is just an insurance-industry profit grab). We can only hope that reports that the Obama administration is trying to block a public option are overblown.

Still, if the Massachusetts experience is any guide, health care reform will have broad public support once it’s in place and the scare stories are proved false. The new health care system will be criticized; people will demand changes and improvements; but only a small minority will want reform reversed.

This thing is going to work.

The Health Care Status Quo is Not Stable

The recession is accelerating the movement away from employer based health insurance:

How the Recession is Killing Private Social Insurance, by Noam Scheiber: The Wall Street Journal has a terrific piece today about how the recession is accelerating the fraying the post-World War II compact between workers and employers (which has, of course, been fraying for several decades now). Key nugget:

Two-thirds of big companies that cut health-care benefits don't plan to restore them to pre-recession levels, they recently told consulting firm Watson Wyatt. When the firm asked companies that have trimmed retirement benefits when they expect to restore them, fewer than half said they would do so within a year, and 8% said they didn't expect to ever.

Overall, the story really just affirms the president's central mantra on health care reform--that is, a rejection of the idea that the health care status quo is stable (if less than ideal). In fact, as Obama has stressed, the status quo gets significantly worse every year. From the Journal story:

Employers that offer health insurance spend an average of $6,700 per employee on it this year, nearly twice as much as in 2001, according to consulting firm Hewitt Associates. ...

The percentage of employers offering health-care benefits is 60% this year, down from 63% in 2008 and 69% in 2000, according to the Kaiser Family Foundation.

In a survey by Hewitt last winter, 19% of large employers said they planned to move away from directly sponsoring health-care benefits over the next five years.

In the meantime, workers' share of health costs is headed up. For next year, 63% of employers that offer health coverage plan to increase employees' share of the expense, according to a survey ... by another consulting firm, Mercer.

For what it's worth, the pension portions of the piece are pretty interesting, too.

If the government doesn't step in with an effective reform package, a lot of people who thought their health insurance would be there when they need it are in for a surprise.

Paul Krugman: A Hatchet Job So Bad It’s Good

The health insurance industry's recent "hatchet job" attacking health care reform may have actually done health care reform a favor:

A Hatchet Job So Bad It’s Good, by Paul Krugman, Commentary, NY Times: In the past, the insurance industry’s power has been a major barrier to health-care reform. Most notably, the industry paid for the infamous “Harry and Louise” ads that helped kill the Clinton plan. But times have changed.

Last weekend, the lobbying organization America’s Health Insurance Plans, or AHIP, released a report attacking the reform plan just passed by the Senate Finance Committee. Some news organizations gave the report prominent, uncritical coverage. But health-care experts quickly, and correctly, dismissed it as a hatchet job. And the end result of AHIP’s blunder may be a better bill than we would otherwise have had.

For 2009, it turns out, is not 1993. Once again, Republicans have tried to kill reform with smears and scare stories. But all they seem to have killed with their cries of “socialism” and warnings about “death panels” is their own credibility. Some form of health-care reform is highly likely to pass.

So it’s a different game than it was 16 years ago. And it’s a game that the insurance industry apparently doesn’t know how to play.

The motivation for the AHIP report seems to have been the decision by the Finance Committee to weaken the penalties for individuals who don’t sign up for insurance, even as it retains regulations requiring that insurers offer the same policies to everyone, regardless of medical history. The industry worries that some people will game the system, remaining uninsured as long as they’re healthy, then signing up when they get sick.

This is, believe it or not, a valid concern. Many health-care economists believe that a strong individual mandate, requiring that almost everyone sign up, will be needed to make health reform work. And the Finance Committee probably did weaken the mandate too much.

But AHIP, apparently unable to help itself, didn’t stop there. Instead, the report threw every anti-reform argument the authors could think of at the wall, hoping that something would stick. ...

Which brings us to the ways in which AHIP may have done health reform a favor.

As I said, the individual mandate probably should be stronger than it is in the Finance Committee’s bill. But there’s a reason the mandate was weakened: fear that too many people would balk at the cost of insurance, even with the subsidies provided to lower-income individuals and families. So why not address that cost?

Aside from making the subsidies larger, which they should be, there are at least two changes to the legislation that would help limit costs. First, health exchanges — special, regulated markets in which individuals and small businesses can buy insurance — can be made stronger, in effect giving small buyers a better bargaining position. Second, the public option — missing from the Finance Committee’s bill — can be brought back in, giving private insurers some real competition.

The insurance industry won’t like these changes, but that matters less than it did a week ago.

There’s also another point, which House Speaker Nancy Pelosi has stressed. Part of the opposition to a strong individual mandate comes from the sense that Americans will be forced to buy policies from a greedy insurance industry. Giving people, literally, another option — the right to buy into a public plan instead — would defuse that opposition.

Even with stronger exchanges and a public option, health reform would probably increase, not reduce, insurance industry profits. But the insurers wanted it all. The good news is that by overreaching, they may have ensured that they won’t get it.

Should Health Care be a Human Right?

William Easterly says defining health care as a human right "has made global healthcare more unequal":

Human rights are the wrong basis for healthcare, by William Easterly, Commentary, Financial Times: The agonizing US healthcare debate has taken on a new moral tone. President Barack Obama recently held a conference call with religious leaders in which he called healthcare “a core ethical and moral obligation”. Even Sarah Palin felt obliged to concede: “Each of us knows that we have an obligation to care for the old, the young and the sick.”

This moral turn echoes an international debate about the “right to health”. Yet the global campaign to equalize access to healthcare has had a surprising result: it has made global healthcare more unequal.

The notion of a “right to health” has its origins in the United Nations’ Universal Declaration of Human Rights in 1948. But in the decades that followed, foreign aid’s most successful efforts in health – such as the World Health Organization and Unicef campaigns on vaccines and antibiotics – were based on a more limited goal: obtaining the largest possible health benefits for the poor from finite foreign aid budgets.

The moral argument made a big comeback in the new millennium. One of its most eloquent advocates is Dr Paul Farmer, who earned fame with heroic efforts to give people access even to complex medical treatment amid extreme poverty in Haiti and Rwanda, saying that healthcare was “a fundamental human right, which should be available free”. The WHO shifted from pragmatic improvement of health outcomes towards “the universal realization of the right to health”. Even Amnesty International ... added a new section to its human rights report in 2009 on the “right to health”.

So what is the problem? It is impossible for everyone immediately to attain the “highest attainable standard” of health... So which “rights to health” are realized is a political battle. Political reality is that such a “right” is a trump card to get more resources – and it is rarely the poor who play it most effectively.

The biggest victory of the “right to health” movement has been the provision of aid-financed antiretroviral treatment for African Aids patients, who include the upper and middle classes. ...

Saving lives in this way is a great cause – except to the extent that it takes resources away from other diseases. Alas, many observers fear that is exactly what it did.

An evaluation by the World Bank in 2009 faulted the bank for allowing Aids treatment to drive out many other programs. Global deaths due to either tuberculosis or malaria stood at 2m in 2008, around the same as those from Aids. Yet Aids accounted for 57 per cent of World Bank projects on communicable diseases from 1997 to 2006, compared with 3 per cent for malaria and 2 per cent for TB. Other big killers of the poor – such as pneumonia, measles and diarrheal diseases, which together accounted for more than 5m deaths in 2008 – received even less attention. ...

The lesson is that, while we can never be certain, the “right to health” may have cost more lives than it saved. The pragmatic approach – directing public resources to where they have the most health benefits for a given cost – historically achieved far more than the moral approach.

In the US and other rich countries, a “right to health” is a claim on funds that has no natural limit, since any of us could get healthier with more care. We should learn from the international experience that this “right” skews public resources towards the most politically effective advocates, who will seldom be the neediest.

This is not my area, but I do wonder if the problem is the designation of the right, or something more systemic within these countries. That is, the implicit assumption is that with a different goal - a "pragmatic approach" of directing resources where they will have the most benefits - the poor would have fared better, but are we sure that's the case? Who decides what defines "the most benefits"? My guess is that the same people who diverted resources before would manage to do so again by defining the benefits appropriately, i.e. in a way that benefits the same groups of people as before. If so, then the problem is not the designation of a right to health care.

T Pain Obama Auto-Tune

"So Much Happening in Washington and So Little To Show for It"

Robert Reich is not pleased with the proposals from congress for health care reform, financial regulation, environmental legislation, and job creation, all of which come up far short of what is needed, and he says lobbyists are to blame:

So Much Happening in Washington and So Little To Show for It, So Far, by Robert Reich: The Senate Finance Committee is set to vote Tuesday on a healthcare bill that just got a seal of approval from the Congressional Budget Office and is very likely to garner the vote of Republican Senator Olympia Snowe -- a twofer that gives the bill preeminence over four other healthcare bills that have emerged from House and Senate committees... Unlike those bills, though, the Senate Finance bill won't it have a public insurance option to compete with private insurers. Nor does it allow Medicare to use its bargaining power to negotiate lower drug prices, or adequately subsidize millions of middle-class families who will be required to buy health insurance that will be hard for them to afford. In short, it's a great deal for private insurers and Big Pharma but not such a great deal for middle-class Americans.

Meanwhile, the House Banking Committee is quietly circulating a draft set of reforms of financial markets... Barney Frank, who heads the Committee, is a thoughtful progressive. But the draft has gaping loopholes that will let most financial firms escape -- such as one that exempts corporations that deal in financial derivatives from any requirements for capital, business conduct, record-keeping, and reporting if they use derivatives for the purpose of "risk management," which is the very thing they all claim they're doing. Neither the draft bill, nor the Committee, nor anyone on the Hill having anything to do with financial regulation, is ... resurrecting the Glass-Steagall Act that once separated commercial from investment banking, and applying antitrust laws to the remaining five biggest Wall Street banks so none is "too big to fail."

At the same time, environmental legislation is now slinking its way through Congress..., but the bills are, frankly, far short of what's needed. ...

And what's happening on the job's front? Nothing except a blip of interest in tax credits to small businesses that create new jobs. That's not a bad move (I suggested it myself), but it's rather like bailing out the ocean with a teacup. If that's all there is, we're headed toward two years of double-digit unemployment. No one on the Hill or in the Administration is yet willing to say openly and clearly that the stimulus plan must be larger, and continued through 2010 and 2011.

My friends in the Administration and on the Hill repeatedly tell me "don't make the perfect the enemy of the better," or words to that effect. Politics is the art of the possible, blah blah blah. True. But in each of these areas -- healthcare, financial regulation, environment, and jobs -- the "better" is really not that much better. Forget perfect; anything that offered real reform would suffice for now. But in every case, what should be the centerpieces of reform are being left out.

Why? Congress is overwhelmed with corporate and Wall Street lobbyists (far too many of whom are former Democratic office holders). The White House is trying best it can to push ... in the right direction but there's too much going on, too many arenas where private interests are framing the debate and stifling major reform, and too many friends of friends and relations of relations who are making tons of money working for the other side. The public doesn't know what's going on because the national media would rather report on the sexual escapades of famous people... And progressives -- that is, progressive organizations in our nation's capital -- have been remarkably and consistently outgunned, outmaneuvered, or just plain ineffectual. This is largely due to the fact that they're sitting in Washington rather than organizing and mobilizing the rest of the country.

And I haven't even brought up Afghanistan.

"A Better Way to Health Reform"???

Martin Feldstein says he can solve the health care problem for a mere $220 billion:

A Better Way to Health Reform, by Martin Feldstein, Commentary, Washington Post: The American health-care system suffers from three serious problems: Health-care costs are rising much faster than our incomes. More than 15 percent of the population has neither private nor public insurance. And the high cost of health care can lead to personal bankruptcy, even for families that do have health insurance.

These faults persist despite annual federal government spending of more than $700 billion for Medicare and Medicaid as well as a federal tax subsidy of more than $220 billion for the purchase of employer-provided private health insurance.

There's got to be a better way. And it should not involve the higher government spending and increased regulation that characterize the proposals being discussed in Congress. ...

A good system should not try to pay all health-care bills. That would lead to excessive demand, wasteful use of expensive technology and, inevitably, rationing in which health-care decisions are taken away from patients and their physicians. ...

Here's a better alternative. Let's scrap the $220 billion annual health insurance tax subsidy, which is often used to buy the wrong kind of insurance, and use those budget dollars to provide insurance that protects American families from health costs that exceed 15 percent of their income.

Specifically, the government would give each individual or family a voucher that would permit taxpayers to buy a policy from a private insurer that would pay all allowable health costs in excess of 15 percent of the family's income. A typical American family with income of $50,000 would be eligible for a voucher worth about $3,500, the actuarial cost of a policy that would pay all of that family's health bills in excess of $7,500 a year.

The family could give this $3,500 voucher to any insurance company or health maintenance organization, including the provider of the individual's current employer-based insurance plan. Some families would choose the simple option of paying out of pocket for the care up to that 15 percent threshold. Others would want to reduce the maximum potential out-of-pocket cost to less than 15 percent of income and would pay a premium to the insurance company to expand their coverage. Some families might want to use the voucher to pay for membership in a health maintenance organization. Each option would provide a discipline on demand that would help to limit the rise in health-care costs.

My calculations, based on the government's Medical Expenditure Panel Survey, indicate that the budget cost of providing these insurance vouchers could be more than fully financed by ending the exclusion of employer health insurance payments from income and payroll taxes. ... And unlike the proposals before Congress, this approach could leave Medicare and Medicaid as they are today.

Lower-income families would receive the most valuable vouchers because a higher fraction of their health spending would be above 15 percent of their income. The substitution of the voucher for employer-paid insurance would be reflected in higher wages for all.

Two related problems remain. First, how would families find the cash to pay for large medical and hospital bills that fall under the 15 percent limit? ... Second, how would doctors and hospitals be confident that patients with the new high deductibles will pay their bills?

The simplest solution would be for the government to issue a health-care credit card to every family along with the insurance voucher. The credit card would allow the family to charge any medical expenses below the deductible limit, or 15 percent of adjusted gross income. (With its information on card holders, the government is in a good position to be repaid or garnish wages if necessary.) ...

The combination of the 15 percent of income cap on out-of-pocket health spending and the credit card would solve the three basic problems of America's health-care system. ... All of this would happen without involving the government in the delivery or rationing of health care. It would not increase the national debt or require a rise in tax rates. Now isn't that a better way?

A benefit of making sure that the government is not involved in health care is that it ensures that  Medicare and Medicaid remain "as they are today"? So a benefit of getting rid of government involvement is that it preserves government involvement?

On the credit card proposal, what happens to a family with high medical costs after two or three years when the credit card balance is, say, $15,000? Do they get cut off? Does medical care end until they pay their newly acquired credit card debt, or can they keep running up the balance? How costly is it to garnish wages or send collectors after people who don't use this credit wisely (meaning, in some cases, giving up needed care)? That solves the bankruptcy problem? How do we stop people from using this as a fungible source of credit for other purchases?

There's lots more, but you can probably guess that this is not a proposal I'd favor. E.g. it does little to make routine health care affordable to households who are already having trouble making ends meet. If a household cannot afford routine care, if even, say, spending the first few hundred dollars means giving up essentials, having costs above 15% of their income covered won't help with that problem. High deductible, catastrophic coverage, which is essentially what this is, is not the best way to provide for our health care needs.

Will Health Insurance Exchanges Work?

Most of the health care reform proposals being considered by congress include some form of health insurance exchanges. What are they and why are they needed?

...The idea of an insurance exchange is relatively straightforward. If you work for a big company or, say, the federal government, every year you choose from among a set of insurance plans--all of them conforming to some minimal standard, all of them available to you regardless of pre-existing medical condition. They've been chosen by your human resources or benefit department, who--ideally--have some clue about what they're doing, more at least than you do.

If, by contrast, you work on your own or in a small company, then you may have just one choice--or no choice at all. Affordable coverage probably won't be available to you if you have existing medical problems; even if you're healthy, the coverage you get could have major gaps or be otherwise unreliable. It'd be good to know which policies work and which ones don't. But unless you happen to be an actuary or insurance broker yourself, chances are you're clueless when it comes to navigating this complex world.

It's you, the individual or small businessperson trying to buy insurance, for whom the exchanges are being created. They're basically regulated marketplaces, where you get to choose from among insurance plans more or less the same way folks in large companies do. Your premiums should be more affordable, since now you're part of a large bargaining group. You should be able to get coverage regardless of preexisting conditions, since insurers can't pick and choose which exchange customers to cover. And you should have the peace of mind that the coverage is good, since you know it's been screened by the exchange.

Do we have any experience with exchanges?

The concept has been around for a while... And ... one state, Massachusetts, managed to create such an institution three years ago, when--as part of a more comprehensive health reform plan--it started a pair of insurance pools for small businesses and individuals who couldn't get coverage through employers.

The results, so far, are encouraging. People once unable to penetrate the private insurance market because of income or medical condition can now go online and select from a menu of insurance options--all of them covering essential services and providing solid financial protection, for rates not previously available. And although overall medical costs in Massachusetts have continued to rise,... premiums for ... the insurance option that the exchange manages most closely ... have risen at a far slower rate.

There are both weak and strong forms of exchanges:

The strong version is national, or at least regional. It's open to everyone: The unemployed, the self-employed and any business, no matter the size, that wants to buy in. There's risk adjustment to reduce the incentive for cherry-picking. The huge pool of users gives the exchange tremendous advantages in scale, simplicity and standardization (experts say that you need at least 20 million to fully achieve these benefits -- easy in a national exchange but harder in a regional or state-based one). With so many potential customers, insurers are eager to participate, and they will bid aggressively to ensure they're included in the market and compete aggressively to make sure they're successful within it. Over time, the combination of increased efficiencies and greater competition drive down costs, which will lead more employers to use the exchange, which will in turn give it more scale and bargaining power. You could easily see this exchange slowly emerge as the de facto American health-care system. And not through government fiat. Through consumer choice.

The weak version is state-based. It's open to only the unemployed, the self-employed and small businesses. Risk adjustment, if it exists at all, is crude. With such a limited pool of applicants, insurers aren't driven to compete, and the efficiencies of scale and competition are minimal. It never really grows, and instead exists as a marginal policy to mop up those who aren't covered by employers. Sort of an outlet shopping model for health-care, accessible only to the few able to get there.

Which version are we likely to get?

The bills moving through Congress all set up exchanges modeled more or less on what Massachusetts has done. But there are a few critical differences ... in how the exchanges would select which plans to offer...

In the bills that passed three House committees and the Senate Health, Education, Labor, and Pensions (HELP) Committee, the exchange would be a "prudent purchaser." In other words, it would have a staff that bargained with insurers to bring down premiums--and that made sure all plans lived up to strict guidelines for coverage and customer service. In effect, any insurer that wants to offer coverage through the exchanges has to get the equivalent of a "Good Housekeeping Seal of Approval" from the administrators. This is precisely how it works in Massachusetts.

By contrast, the Senate Finance bill envisions much weaker exchanges. Instead of choosing which plans to make available, the exchange administrators would, by law, have to accept any plan that meets a relatively minimal set of standards.

Jon Kingsdale, who runs the Massachusetts exchange, calls that a recipe for "policy disaster," as consumers faced a dizzying array of more expensive, less regulated choices. "It would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. ... The exchanges would be nothing more than an automated Yellow Pages." ...

Massachusetts senator, Kerry,... proposed to fix it by giving the exchanges the same powers envisioned in the House and HELP bills. But when Kerry introduced his plan last week, he couldn't get the votes to pass it. The reason, several sources on Capitol Hill say, was opposition from Olympia Snowe, the Maine Republican... Snowe seems to be concerned that a more aggressive exchange would amount to more government--which, in fact, it would be. But, as Massachusetts has shown, sometimes more government is exactly what health care needs.

Here's a bit more:

...Congress must also decide whether the exchanges would have any authority to decide which plans are offered and at what price, said Paul Fronstin, a policy analyst with the Employee Benefit Research Institute... “The exchange can have a more active role if it negotiate rates,” he said, “but it is not clear what is going to happen.”

In Massachusetts, for example, the state’s exchange, called the Connector, negotiates directly with the state’s private insurance companies in offering a small number of state-subsidized plans — similar to what an employer does when it screens the policies offered to its work force. ...

Jon Kingsdale, the executive director of the Commonwealth Health Insurance Connector Authority ... said the agency’s ability to negotiate on behalf of 180,000 customers who required state subsidies was a reason it achieved a 6 percent reduction in the cost of premiums this year.

But the Connector would be less effective if it had no say over which plans were offered on the exchange, said Mr. Kingsdale, who criticized the Senate Finance committee’s proposal, for example, as potentially creating little more than “an automated yellow pages.”

Because formulating an effective exchange is so difficult, some policy analysts are still arguing that only a new government-run competitor could create a powerful enough force in many parts of the country to offset the home-court advantage many insurers already wield. ...

And finally:

Chances are reasonably good that Kerry's vision of reform will prevail... But it's not a sure thing, which is why this seemingly narrow question deserves a lot more attention. Exchange design doesn't get the attention of controversies like the public option, abortion, or supposed death panels. In the long run, though, it could be far more decisive in whether reform works.

What is the bottom line to all of this? If exchanges are the way we are going to go, then how they are designed is essential. If we let lobbyists and misguided fears about government intervention stop us from giving the exchanges the breadth and authority they need, then they won't be effective.

Paul Krugman: The Politics of Spite

Why have Republicans positioned themselves as defenders of Medicare?:

The Politics of Spite, by Paul Krugman, Commentary, NY Times: There was what President Obama likes to call a teachable moment last week, when the International Olympic Committee rejected Chicago’s bid to be host of the 2016 Summer Games.

“Cheers erupted” at the headquarters of the conservative Weekly Standard, according to a blog post by a member of the magazine’s staff, with the headline “Obama loses! Obama loses!” Rush Limbaugh declared himself “gleeful.” “World Rejects Obama,” gloated the Drudge Report. And so on.

So what did we learn from this moment? For one thing, we learned that the modern conservative movement ... has the emotional maturity of a bratty 13-year-old.

But more important, the episode illustrated an essential truth...: the guiding principle of one of our nation’s two great political parties is spite pure and simple. If Republicans think something might be good for the president, they’re against it — whether or not it’s good for America.

To be sure, while celebrating America’s rebuff by the Olympic Committee was puerile, it didn’t do any real harm. But the same principle of spite has determined Republican positions on more serious matters... — in particular, in the debate over health care reform. ...

The Republican ... line of attack [against health care reform] is the claim — based mainly on lies about death panels and so on — that reform will undermine Medicare. And this line of attack is utterly at odds both with the party’s traditions and with what conservatives claim to believe.

Think about just how bizarre it is for Republicans to position themselves as the defenders of unrestricted Medicare spending. First of all, the modern G.O.P. considers itself the party of Ronald Reagan — and Reagan was a fierce opponent of Medicare’s creation, warning that it would destroy American freedom. (Honest.) In the 1990s, Newt Gingrich tried to force drastic cuts in Medicare financing. And in recent years, Republicans have repeatedly decried the growth in entitlement spending — growth that is largely driven by rising health care costs.

But the Obama administration’s plan to expand coverage relies in part on savings from Medicare. And since the G.O.P. opposes anything that might be good for Mr. Obama, it has become the passionate defender of ineffective medical procedures and overpayments to insurance companies. ...

The key point is that ever since the Reagan years, the Republican Party has been dominated by radicals — ideologues and/or apparatchiks who, at a fundamental level, do not accept anyone else’s right to govern.

Anyone surprised by the venomous, over-the-top opposition to Mr. Obama must have forgotten the Clinton years. Remember when Rush Limbaugh suggested that Hillary Clinton was a party to murder? When Newt Gingrich shut down the federal government in an attempt to bully Bill Clinton into accepting those Medicare cuts? And let’s not even talk about the impeachment saga.

The only difference now is that the G.O.P. is in a weaker position, having lost control not just of Congress but, to a large extent, of the terms of debate. The public no longer buys conservative ideology the way it used to; the old attacks on Big Government and paeans to the magic of the marketplace have lost their resonance. Yet conservatives retain their belief that they, and only they, should govern.

The result has been a cynical, ends-justify-the-means approach. Hastening the day when the rightful governing party returns to power is all that matters, so the G.O.P. will seize any club at hand with which to beat the current administration.

It’s an ugly picture. But it’s the truth. And it’s a truth anyone trying to find solutions to America’s real problems has to understand.

"The Public Option Lives On"

Robert Reich says of the public option for health care insurance, "yes we can," even if it means overriding the promises of the person identified with the phrase:

The Public Option Lives On, by Robert Reich: Tomorrow (Tuesday) is a critical day in the saga of the public option. Democrats Charles Schumer ... and Jay Rockefeller ... are introducing an amendment to include the public option in the bill to be reported out by the Senate Finance Committee -- the committee anointed by the White House as its favored vehicle for getting health care reform.

Before you read another word, call and email the Senate offices of Democrats Max Baucus (Montana), Tom Carper (Delaware), Robert Menendez (New Jersey), Kent Conrad (North Dakota), and Ben Nelson (Florida) -- telling them you want them to vote in favor of the public option amendment. And get everyone you know in these states to do the same. Hell, you might as well phone and email Republican Olympia Snowe (Maine) and make the same pitch.

Background: Every dollar squeezed out of Big Pharma and Big Insurance is a dollar less that you'll have to pay ... to cover healthcare costs. The two most direct ways to squeeze future profits are allowing Medicare to use its huge bargaining leverage to negotiate lower drug prices, and creating a public insurance option to compete with private insurers...

"The Baucus Free Rider Problem"

At CBS Money Watch:

The Baucus Free Rider Problem, by Mark Thoma

Paul Krugman: Baucus and the Threshold

Should "serious supporters of health care reform" vote for the Baucus plan?:

Baucus and the Threshold, by Paul Krugman, Commentary, NYTimes: So Senator Max Baucus, the chairman of the Senate Finance Committee, has released his “mark” on proposed legislation — which would normally be the basis for the bill that eventually emerges from his committee. And serious supporters of health care reform will soon face their long-dreaded moment of truth.

You see,... whatever health-care bill finally emerges will fall far short of reformers’ hopes. Yet even a bad bill could be much better than nothing. ... How bad does a bill have to be to make it too bad to vote for?

Now, the moment of truth isn’t here quite yet: There’s enough wrong with the Baucus proposal as it stands to make it unworkable and unacceptable. But that said, Senator Baucus’s mark is better than many of us expected. If it serves as a basis for negotiation, and the result ... is a plan that’s stronger, not weaker, reformers are going to have to make some hard choices about the degree of disappointment they’re willing to live with.

Of course, those who insist that we must have a single-payer system — Medicare for all — won’t accept [this] plan... But ... European countries, including Switzerland and the Netherlands, have managed to achieve universal coverage with a mainly private insurance system. ...

So something along the general lines of the Baucus plan might be acceptable. But ... the bad news is that the plan, as it stands, is inadequate or badly conceived in three major ways.

First, it bungles the so-called “employer mandate.” Most reform plans include a provision requiring that large employers either provide their workers with health coverage or pay into a fund that would help workers ... buy coverage on their own. Mr. Baucus, however, gets too clever, trying to tie each employer’s fees to the subsidies its own employees end up getting.

That’s a terrible idea. As the Center on Budget and Policy Priorities points out, it would make companies reluctant to hire workers from lower-income families — and it would also create a bureaucratic nightmare. This provision has to go and be replaced with a simple pay-or-play rule.

Second, the plan is too stingy when it comes to financial aid..., suggesting that for many people insurance would not, in fact, be affordable. Fixing this means spending more than Mr. Baucus proposes.

Third, the plan doesn’t create real competition in the insurance market. The right way to create competition is to offer a public option... The Baucus plan instead proposes a fake alternative, nonprofit insurance cooperatives — and it places so many restrictions on these cooperatives that, according to the Congressional Budget Office, they “seem unlikely to establish a significant market presence in many areas of the country.”

The insurance industry, of course, loves the Baucus plan. Need we say more?

So this plan has to change. What matters now is the direction in which it changes.

It would be disastrous if health care goes the way of the economic stimulus plan, earlier this year. As you may recall, that plan — which was clearly too weak even as originally proposed — was made even weaker to win the support of three Republican senators. If the same thing happens to health reform, progressives should and will walk away.

But maybe things will go the other way, and Mr. Baucus (and the White House) will, for once, actually listen to progressive concerns, making the bill stronger.

Even if the Baucus plan gets better, rather than worse, what emerges won’t be legislation reformers can love. Will it nonetheless be legislation that passes the threshold of acceptability, legislation they can vote for? We’ll see.

"Medicare for All"

George McGovern says there's a simple answer to out health care problems:

It's Simple: Medicare for All, by George S. McGovern, Commentary, Washington Post: For many years, a handful of American political leaders ... have been trying to gain passage of comprehensive health care for all Americans. ... In a presentation before a joint session of Congress last week, Obama offered his view of the best way forward.

But what seems missing in the current battle is a single proposal that everyone can understand and that does not lend itself to demagoguery. If we want comprehensive health care for all our citizens, we can achieve it with a single sentence: Congress hereby extends Medicare to all Americans.

Those of us over 65 have been enjoying this program for years. I go to the doctor or hospital of my choice, and my taxes pay all the bills. It's wonderful. ... I want every American, from birth to death, to get the kind of health care I now receive. Removing the payments now going to the insurance corporations would considerably offset the tax increase necessary to cover all Americans.

I don't feel as though the government is meddling in my life when it pays my doctor and hospital fees. There are some things the government does that I don't like -- most notably getting us into needless wars that cost many times what health care for all Americans would cost. Investing in the health of our citizens will enhance the well-being and security of the nation.

We know that Medicare has worked well for half a century for those of us over 65. Why does it become "socialized medicine" when we extend it to younger Americans?

Taking such a shortsighted view would leave nearly 50 million Americans without health insurance and without the means to buy it. It would leave other Americans struggling to pay the rising cost of insurance premiums. These private insurance plans are frequently terminated if the holder contracts a serious long-term ailment. And some people lose their insurance if they lose their jobs or if the plant where they work moves to another location -- perhaps overseas.

We recently bailed out the finance houses and banks to the tune of $700 billion. A country that can afford such an outlay while paying for wars in Iraq and Afghanistan can afford to do what every other advanced democracy has done: underwrite quality health care for all its citizens.

If Medicare needs a few modifications in order to serve all Americans, we can make such adjustments now or later. But let's make sure Congress has an up or down vote on Medicare for all before it adjourns this year. Let's not waste time trying to reinvent the wheel. We all know what Medicare is. Do we want health care for all, or only for those over 65?

If the roll is called and it goes against those of us who favor national health care, so be it. If it is approved, the entire nation can applaud.

Many people familiar with politics in America will tell you that this idea can't pass Congress, in part because the insurance lobby is too powerful for lawmakers to resist.

As matters now stand, the insurance companies claim $450 billion a year of our health-care dollars. They will fight hard to hold on to this bonanza. This is a major reason Americans pay more for health care per capita than any other people in the world. The insurance executives didn't cry "socialism" when their buddies in banking and finance were bailed out. But to them it is socialism if the government underwrites the cost of health care.

Consider the campaign funds given to the chairman and ranking minority member of the Senate Finance Committee, which has jurisdiction over health-care legislation. Chairman Max Baucus of Montana, a Democrat, and his political action committee have received nearly $4 million from the health-care lobby since 2003. The ranking Republican, Charles Grassley of Iowa, has received more than $2 million. It's a mistake for one politician to judge the personal motives of another. But Sens. Baucus and Grassley are firm opponents of the single-payer system, as are other highly placed members of Congress who have been generously rewarded by the insurance lobby. ...

And he didn't even mention how much tax cuts have cost relative to the cost of financing health care reform. Health care seems to be low on our priority list, below tax cuts, wars, and financial bailouts at least. Why? One reason is that most voters already have health care and their message is a simple one, reform is fine - we should cover everyone - so long as I don't have to pay more in taxes, my benefits aren't cut, and the quality of care isn't compromised (even those currently on Medicare might wonder if their benefits could be preserved at the current cost if the program was extended to everyone). I don't think people understand the extent to which employer based care will diminish in the future putting their care at risk, i.e. the risk that they face if we do not reform the system, so I don't think Medicare for all would survive this test in voter's minds. Whether it's true or not, they could be easily convinced that at least one of benefits, taxes, or quality would be compromised.

Did the Administration Make a Tactical Error?

Barry Ritholtz says the administration should have pursued financial reform before health care reform:

Tactical Error: Health Care vs Finance Regulatory Reform, by Barry Ritholtz: I believe the brain trust behind the Obama White House has made a huge tactical error.

As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation. ... What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Such dithering can be fatal to an administration.

This was a colossal blunder.  Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical de-regulators from office.

Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office. He should have been “Hooverized,” and O should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.

Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.

Never waste a crisis, indeed . . .

I also believe that the administration should have moved faster on financial reform, but if the cost is to delay and possible endanger health care reform (lobbying efforts would have been in full force there too), then it's less clear. Would it have been impossible to do both? And where does climate change legislation fit into all of this?

"The Public Plan Is Not the Same Thing as Cost Control"

Ezra Klein is worried that opposition to any health care reform plan that does not contain a public option will prevent legislation that is "a useful first step" from moving forward. He argues that the public plans that have been proposed would do very little to control costs, so giving them up is not much of a sacrifice:

The Public Plan Is Not the Same Thing as Cost Control, by Ezra Klein: This will not be a popular post, I fear. But one of the themes I'm seeing in a lot of the commentary is that the absence of a public plan is essentially equivalent to the absence of cost control, and the presence of a public plan is pretty much the presence of cost control. For the public plans on the table, that's not true, at least not in any way I can see.

You can control costs in one of three ways: use less treatment, need less treatment, or pay less for treatment. The theory of the public plan rested on paying less for treatment, as Medicare does (though it's important to note that Medicare's costs are still rising at a totally unsustainable rate, albeit a slightly less unsustainable rate than private insurance). The problem is that the public plan no longer has the attributes that permit Medicare to pay less for treatment.

The strongest public plan on offer is in the bill being considered by the House of Representatives. This plan is limited to the health insurance exchanges, which are in turn limited to employers with fewer than 20 workers. So that's the first point: The vast majority of Americans would be ineligible for the public plan, even if they wanted it. The CBO estimates that by 2019, the public plan would have a likely enrollment of 10 million Americans — and that estimate (pdf) imagines a world in which the exchanges are opened to businesses with 50 or fewer employees, which is to say, it's more favorable than the actual bill.

The end result is that the public plan is unlikely to have a very large customer base, which means it will be unable to use market share to bargain prices far lower than private insurers. That might not matter if the plan could attach itself to the rates that Medicare uses. In the first draft of the House bill, the plan could do that, at least for its first three or four years of existence, after which point it was cut loose from Medicare. But the deal Henry Waxman cut with the Blue Dogs erased that advantage, and now the public plan, even in the House bill, is on its own. That is to say, the plan has neither Medicare bargaining power nor the sort of customer base that gave Medicare its bargaining power.

Is that an argument against the public plan? Nope. There are real advantages to the presence of a public alternative. Competition matters, for one thing, and there are a lot of states where one or two private insurers essentially control the market. Experimentation matters, too, and the public plan could be used alongside Medicare to test payment reforms and disease management programs that could pay off in the long run. The public plan could also usher in a fairly radical level of transparency in pricing and behavior, forcing private insurers to follow suit. And lastly, the public plan is something of a corporate accountability measure. Its presence in the market ensures that health-care reform won't simply be a large reward to the insurance companies absent any serious changes in their behavior.

These were the original arguments for the public plan, and they're as strong today as they were then. But they are not the same as cost control. ... This step in health-care reform is largely about expanding coverage and creating a structure — with universality and the exchanges and so forth — that will make cost control easier down the road. None of the bills, on their own, really do all that much to control costs.

He's correct - the options for a public plan that have been proposed do not do much to control costs, and even in this weakened form, there is still considerable opposition to the proposed public plans from the right. The frustration on the left is over why the proposals for a public plan are so limited. Why don't they do more to control costs? Democrats control the White House and Congress, yet they cannot get this legislation passed? That is puzzling to many supporters. The practical realities of enacting legislation are far from the vision that many people had about what would happen after the election. For these people, cost control or lack of it is not the point, this is all about political power and allegiance to the people who put the president and congress in power. They would be far more willing to accept something like the Baucus plan if they felt that the administration had gone down fighting rather than giving in to the wishes of the other side whenever they manage to make a little noise.

I also agree with this. Here's Paul Krugman discussing Obama's health care speech to Congress tomorrow:

I, for one, won’t be obsessing about exactly which pieces of proposed reform he emphasizes — because that’s not what’s driving the politics. Americans haven’t become skeptical about Obamacare because they’d rather shave an extra $30 billion a year off the cost; they have not, contrary to “centrist” fantasies, been turned off by the details of the stimulus plan or cap-and-trade. What has been missing is a vision. And this is probably the last chance to supply that vision.

There are people on the left who want to feel as though they've finally triumphed over Republicans, and triumph has been defined, in part, as enacting a public plan (if for no other reason than the fact that Republicans oppose it). Compromise is not a win to many of the administration's supporters, and that's a problem since some form of compromise may be the only way to get legislation enacted. But if the goals are made clear, and that requires a clear statement of the administration's vision, then a "win" can be clarified as well. Is the vision cost control? Expanded coverage? What is the main goal of reform? The administration needs a clear statement of where it wants to go and how the proposals on the table will get us there, it needs to give supporters something besides a public plan to rally around. If it can do that, then health care legislation that does not include a public plan can still be a "win" in the eyes of supporters.

Reich: The Lessons from History on Health Care Reform

Robert Reich says one of the keys to health care reform is to ignore or disregard economists:

The Lessons from History on Health Care Reform, by Robert Reich: With Congress returning from recess to consider health care legislation and the President set to deliver a major address on the subject to both houses of Congress tomorrow, a bit of history may be in order. An excellent starting place David Blumenthal's and James Marone's "The Heart of Power," which I reviewed for the New York Times this past weekend. Here are the major points:

Universal health care has bedeviled, eluded or defeated every president for the last 75 years. ...

Devising a plan is easy compared with the politics of getting it enacted. Mere mention of national health insurance has always prompted a vigorous response from the ever-vigilant American Medical Association; in the 1930s, the editor of its journal equated national health care with “socialism, communism, inciting to revolution.” Bill Clinton’s plan was buried under an avalanche of hostility that included the now legendary ad featuring the couple Harry and Louise voicing their fears that the Clinton plan would substitute government for individual choice — “they choose, we lose.”

One lesson is that a new president must move quickly, before opponents have time to stoke public fears. ...

Congress can be just as much of an obstacle:... a president must set broad health reform goals and allow legislators to fill in the details, but be ready to knock heads together to forge a consensus. ...

Presidents who have been most successful in moving the country toward universal health coverage have disregarded or overruled their economic advisers. Plans to expand coverage have consistently drawn cautions or condemnations from economic teams in every administration, from Harry Truman’s down to George W. Bush’s. An exasperated Lyndon Johnson groused to Ted Kennedy that “the fools had to go to projecting” Medicare costs “down the road five or six years.” Such long-term projections meant political headaches. “The first thing, Senator Dick Russell comes running in, says, ‘My God, you’ve got a one billion dollar [estimate] for next year on health. Therefore I’m against any of it now.” Johnson rejected his advisers’ estimates and intentionally lowballed the cost. “I’ll spend the goddamn money.” An honest economic forecast would most likely have sunk Medicare.

It’s not so much that presidential economic advisers have been wrong — in fact, Medicare is well on its way to bankrupting the nation — but that they are typically in the business of thinking small and trying to minimize risk, while the herculean task of expanding health coverage entails great vision and large risk. Economic advice is important, but it’s only one source of wisdom.

Yet since Johnson, presidents have found it increasingly difficult to keep their economists at bay, mainly as a result of the growth of Washington’s economic policy infrastructure. Cost estimates and projections emanating from the White House’s Office of Management and Budget and the Congressional Budget Office, both created during the Nixon administration, have bound presidents within webs of technical arguments, arcane rules and budget limits. To date, Democratic presidents have felt more constrained by this apparatus than Republicans, perhaps because they have felt more of a need to prove their cost-cutting chops.

President Obama seems to have anticipated many of these lessons. He’s moved as quickly on the issue as this terrible economy has let him, and he has not been too rattled by naysaying economists (although the cost estimates of the Congressional Budget Office set him back). But although he outlined his goals but left most details to Congress, the lesson from history is that he may have waited too long to force a deal on that disorderly body (especially disorderly when Democrats are in charge). The question remains whether, in the weeks and months ahead, he can knock Congressional heads together to clinch it, and overcome those who inevitably feed public fears about a “government takeover” of health care and of budget-busting future expenditures. He needs to work fast, and be tough as nails.

But even if Obama fails, there is an art to losing, too — in a way that can tee up the issue for future presidents. Truman lost but nonetheless redefined the terms of debate, setting the stage for Medicare (which is why Johnson honored Truman when he signed it into law). Compare him with Clinton, who walked away from the wreckage of his health care plan and rarely mentioned the subject again. This allowed opponents to gain control over the spin and history, so that the Democrats’ signature cause slipped out of political sight for a decade. ...

Making the Sale on Health Care Reform

Matt Miller says the framing of health care reform is crucial:

Lessons for Obama from Ted Kennedy’s noble flops, by Matt Miller, Commentary, Financial Times: ...Senator Kennedy has rightly been hailed as a passionate voice for the voiceless and a master of the legislative process. But any assessment of his legacy is incomplete if it fails to ask why American liberalism’s modern icon proved so ineffective in persuading his country to share his vision.

This is not a matter of abstract interest. President Barack Obama stands little chance of succeeding in the coming healthcare endgame without understanding why, for all his passion, Kennedy could not make the sale. ... There is no single answer. But one reason was the sense among voters that liberals tended to worry more about the poor than about the struggling middle class. This same sentiment now threatens Mr Obama’s health reform.

“We have to do better at making this issue a moral imperative,” Tom Daschle, former Senate majority leader (and Obama confidante) told the New York Times Magazine last month. “This in many respects is the civil rights battle of the early part of this century.” But middle-class voters do not see healthcare as a “civil rights issue” – a cause in which they should enlist to bring justice to others. With soaring premiums and shrinking and precarious coverage, the 85 per cent of Americans who have health insurance see reform as a matter of economic security for their families.

Unfortunately, the American left has for years defined the issue predominantly as a matter of ending the scandal of the uninsured. ... The Democratic argument has failed to emphasize how health reform can deepen the economic security (and improve the health status) of the middle class. Yes, one part of that argument is to ensure that no American in the 21st century goes without coverage. But the liberal instinct – to focus first on the neediest in ways that lead squeezed middle-income voters to conclude liberals want to take their hard-earned money and spend it on someone else – helps explain why Kennedy-style politics never prevailed.

Democrats need to frame their goals as inclusive measures to promote security and opportunity in a global economy – improving the life chances of society’s most luckless but also bolstering the security and prospects of America’s vast middle class. This is also the only way to persuade average Americans to pay for such policies...

I've also argued that the debate needs to be framed in terms of how it will help the typical household (while maintaining the goal of expanding coverage), so while I might have stated it differently, I think the argument that the benefits to middle class voters need to be emphasized is essentially correct. The moral argument for extending care to those who currently cannot afford it is important, and I wish it was enough by itself to motivate changes, but I suspect too many people will wonder why the government wants them to help pay for someone else's health care when they can't afford to the coverage they need for their own families. Unless and until reformers can answer that question satisfactorily, reform will be difficult to bring about.

*****

[A quick, far from comprehensive comment on the Baucus health care plan: The plan s far from perfect, and it doesn't do a lot for typical households, but it does provide a cap on out of pocket expenses thereby eliminating the risk that a serious medical condition will create severe financial hardship. Protecting people from catastrophic outcomes is an important and worthy goal, and that does provide additional security to typical households, but I'm not sure the additional security the plan provides is enough by itself to make the sale on health care reform to the voters who matter. Most people will be required to have health insurance and people on this plan will still face high deductibles and high co-payments for regular care.]

Does Curing Health Care Require That Consumers Feel the Pain?

Jonathan Gruber says controlling health care costs requires that consumers face the consequences of their health insurance choices:

[F]undamental cost control can only come from the supply side. ... But ... effective supply-side control will involve restricting consumers in some way ... Unless consumers face a financial penalty from their choices that drive health care upward, supply-side reforms will fail.

Update: Robert Fogel:

There is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective.

Ideas versus Discipline

"This is just the latest chapter of a long saga":

The Guns of August, and Why the Republican Right Was So Adept at Using Them on Health Care, by Robert Reich: What we learned in August is something we've long known but keep forgetting: The most important difference between America's Democratic left and Republican right is that the left has ideas and the right has discipline. Obama and progressive supporters of health care were outmaneuvered in August -- not because the right had any better idea for solving the health care mess but because the rights' attack on the Democrats' idea was far more disciplined than was the Democrats' ability to sell it.

I say the Democrats' "idea" but in fact there was no single idea. Obama never sent any detailed plan to Congress. Meanwhile, congressional Dems were so creative and undisciplined before the August recess they came up with a kaleidoscope of health-care plans. The resulting incoherence served as an open invitation to the Republican right to focus with great precision on convincing the public of their own demonic version of what the Democrats were up to -- that it would take away their Medicare, require "death panels," raise their taxes, and lead to a government takeover of medicine, and so on. ...

This is just the latest chapter of a long saga. Over the last twenty years, as progressives have gushed new ideas, the right has became ever more organized and mobilized in resistance -- capable of executing increasingly consistent and focused attacks, moving in ever more perfect lockstep, imposing an exact discipline often extending even to the phrases and words used repeatedly by Hate Radio, Fox News, and the oped pages of The Wall Street Journal ("death tax," "weapons of mass destruction," "government takeover of health care.") I saw it in 1993 and 1994 as the Clinton healthcare plan -- as creatively and wildly convoluted as any policy proposal before or since -- was defeated both by a Democratic majority in congress incapable of coming together around any single bill and a Republican right dedicated to Clinton's destruction. ...

You want to know why the left has ideas and the right has discipline? Because people who like ideas and dislike authority tend to identify with the Democratic left, while people who feel threatened by new ideas and more comfortable in a disciplined and ordered world tend to identify with the Republican right. Democrats and progressives let a thousand flowers bloom. Republicans and the right issue directives. This has been the yin and yang of American politics and culture. But it means that the Democratic left's new ideas often fall victim to its own notorious lack of organization and to the right's highly-organized fear mongering. ...

August is coming to a close, and congressional recess is about over. History is not destiny, and Democrats and progressives can yet enact meaningful health care reform... But to do so, we'll need to be far more disciplined about it. All of us, from Obama on down.

[On another issue - people "who like ideas and dislike authority" are the types who tend to end up in universities, so this would also explain how self-selection could lead to a disproportionate number of Democrats in academia.]

Update: Andrew Samwick says this all sounds familiar:

Robert Reich Is Having Deja Vu, Too, by Andrew Samwick: But he doesn't quite realize it.  In his latest post..., he laments the way Democrat "ideas" couldn't persevere against the onslaught of Republican "discipline."  Change a few details, and he's talking about failed Social Security reform in 2005:

I say the Democrats' "idea" but in fact there was no single idea. Obama never sent any detailed plan to Congress. Meanwhile, congressional Dems were so creative and undisciplined ... they came up with a kaleidoscope of health-care plans. The resulting incoherence served as an open invitation to the Republican right to focus with great precision on convincing the public of their own demonic version of what the Democrats were up to... The Obama White House -- a veritable idea factory brimming with ingenuity -- thereafter proved unable to come up with a single, convincing narrative to counteract this right-wing hokum. Whatever discipline Obama had mustered during the campaign somehow disappeared.

Being "coherent" enough to overcome "hokum" ought to be the minimum standard for legislation on this scale.  Like it or not, if you want to use the tools of a democratic government to reorganize markets for health care, you need more than an idea factory and staged townhall meetings.  You need some discipline yourself.  And we're not talking about Ironman triathlon level discipline.  We're only talking about government level discipline: white papers, Congressional hearings, and, critically, a forum in which the ideas in the bills that are moving through Congress are shown to be better ideas than the alternatives.  We haven't seen that at all.  In particular, show me why the bills moving through Congress, with all of their attendant costs, are better than a simple reform consisting only of:

1. Community rating
2. Guaranteed issue
3. Ex post risk adjustment
4. An individual mandate, with Medicaid for a fee as the backup option

And spare me the whining about how the Republicans don't have a better plan.  They don't have the White House.  They don't have the Senate.  They don't have the House.  They don't have to have a better argument than the claim that the Democrats' plan isn't better than the status quo.  It's not as if the Democrats shot down Social Security in 2005 and have now done something better.

Paul Krugman: Missing Richard Nixon

If we're lucky, we might get health care reform that is almost as good as what Richard Nixon offered in the early 1970s:

Missing Richard Nixon, by Paul Krugman, Commentary, NY Times: Many of the retrospectives on Ted Kennedy’s life mention his regret that he didn’t accept Richard Nixon’s offer of a bipartisan health care deal. The moral some commentators take from that regret is that today’s health care reformers should do what Mr. Kennedy balked at doing back then, and reach out to the other side.

But it’s a bad analogy, because today’s political scene is nothing like ... the early 1970s. In fact, surveying current politics, I find myself missing Richard Nixon.

No, I haven’t lost my mind. Nixon was surely the worst person other than Dick Cheney ever to control the executive branch.

But the Nixon era was a time in which leading figures in both parties were capable of speaking rationally about policy..., our political system’s ability to deal with real problems has been degraded to such an extent that I sometimes wonder whether the country is still governable.

As many people have pointed out, Nixon’s proposal for health care reform looks a lot like Democratic proposals today. In fact, in some ways it was stronger. ... Nixon proposed requiring that all employers, not just large companies, offer insurance.

Nixon also embraced tighter regulation of insurers, calling on states to “approve specific plans, oversee rates, ensure adequate disclosure, require an annual audit and take other appropriate measures.” No illusions there about how the magic of the marketplace solves all problems.

So what happened to the days when a Republican president could sound so nonideological, and offer such a reasonable proposal?

Part of the answer is that the right-wing fringe, which has always been around ... has now, in effect, taken over one of our two major parties. Moderate Republicans, the sort of people with whom one might have been able to negotiate..., have either been driven out of the party or intimidated into silence. Whom are Democrats supposed to reach out to, when Senator Chuck Grassley..., who was supposed to be the linchpin of any deal, helped feed the “death panel” lies?

But there’s another reason health care reform is much harder now...: the vast expansion of corporate influence.

We tend to think of ... a huge army of lobbyists permanently camped in the corridors of power, with corporations prepared to unleash misleading ads and organize fake grass-roots protests against any legislation that threatens their bottom line, as the way it always was. But our corporate-cash-dominated system is a relatively recent creation, dating mainly from the late 1970s.

And now that this system exists, reform of any kind has become extremely difficult. That’s especially true for health care... The health insurance industry ... has become a political behemoth, one that is currently spending $1.4 million a day lobbying Congress. ...

Given the combination of G.O.P. extremism and corporate power, it’s now doubtful whether health reform,... if we get it ..., will be anywhere near as good as Nixon’s proposal, even though Democrats control the White House and have a large Congressional majority.

And what about other challenges? Every desperately needed reform I can think of, from controlling greenhouse gases to restoring fiscal balance, will have to run the same gantlet of lobbying and lies.

I’m not saying that reformers should give up. They do, however, have to realize what they’re up against. There was a lot of talk last year about how Barack Obama would be a “transformational” president — but true transformation, it turns out, requires a lot more than electing one telegenic leader. Actually turning this country around is going to take years of siege warfare against deeply entrenched interests, defending a deeply dysfunctional political system.

"Beware Authoritative 'Inside Washington' Sources"

Robert Reich says incremental reform of health care won't work, and he gives an example to illustrate why incremental reform isn't always the best way to proceed:

Beware Authoritative "Inside Washington" Sources Who Say The Public Option is Dead, by Robert Reich: ...Years ago, as the story goes, Britain's Parliament faced a difficult choice. On the European continent drivers use the right lanes, while the English remained on the left. But tunnels and fast ferries were bringing cars and drivers back and forth ever more frequently. Liberals in Parliament thought it time to change lanes. Conservatives resisted; after all, Brits had been driving on the left since William the Conquerer's chariot. Parliament's compromise was to move from the left to right lanes -- but incrementally, on a voluntary basis. Truckers first.

But his main point is to be careful of reports of authoritative voices saying that "the public option is dead, that the President won't be able to get a comprehensive health care bill, and that the White House and congressional leadership already know the best they'll be able to do now is move incrementally":

 Washington, D.C. is an echo chamber in which anyone who sounds authoritative repeats the conventional authoritative wisdom about the "consensus" of inside opinion, which they've heard from someone else who sounds equally authoritative, who of course has heard it from another authoritative source. Follow the trail to its start and you often find an obscure congressional or White House staffer who has seen some half-assed poll number or briefing memo, but seeking to feel important hypes it a media personality or lobbyist who, desperate to sound authoritative, pronounces it as truth. In any other place on the planet it would be called rumor, gossip, or drivel. In our nation's capital it's called "inside information." The process would be harmless except that it creates self-fulfilling prophesies. Since most of our elected representatives would rather not stick their necks out lest they lose their heads, they tend to rush toward whatever consensus seems to be emerging -- which, of course, is based on authoritative reports about the emerging consensus.

In the last few days authoritative sources have repeatedly told me that the public option is dead, that the President won't be able to get a comprehensive health care bill, and that the White House and congressional leadership already know the best they'll be able to do now is move incrementally... The rightwing media fearmongers and demagogues have won.

Don't believe it. The other thing about Washington is how quickly conventional authoritative wisdom changes, especially when the public is still in flux over some large matter. Rightwing fearmongers and demagogues thrive only to the extent the mainstream media believes they're thriving. Although polls continue to show that while most Americans like the health care they're getting, they also dislike their insurance companies, worry that they or their families will be denied coverage, and are anxious about the increasing co-payments, deductibles, and premiums they're facing. Most are still eager for reform.

In addition, we've come to the point where health-care incrementalism won't work. [explains why, and also explains the need for a public option]... When you go through the logic, it starts to look a lot like comprehensive reform. ...

So forget the authoritative sources. Mobilize and organize. We can get comprehensive, meaningful health care reform if we push hard enough. And we must.

Health Care Reform and Entreprenuership

I've also argued that if we don't reform health care, people who think they will be able to keep their current health coverage will find out otherwise, and that health care reform will have a positive effect on entrepreneurship:

Fixing Health Care Is Good for Business, by Gary Locke, Commentary, WSJ: ...There has been a lot of talk about the 47 million Americans who do not have health insurance. But health-care reform is just as important to the majority of Americans who have health insurance now. Absent reform, the price of an average family's insurance will nearly double over the next decade—to $25,000 from $13,000.

No less troubling are the stories I hear from CEOs, entrepreneurs and workers. Rising health-care costs are crushing American companies—particularly small businesses that are the source of much of our economic vitality. ...

The pernicious price of runaway health-care costs also has a dampening effect on entrepreneurship.

How many aspiring owners of businesses are locked in jobs they don't like for fear that striking out on their own would cause them to lose their health insurance? The Small Business Majority, a national advocacy group, estimates there are as many as 1.6 million. ...

The bills working through Congress are moving in the right direction... We must keep moving forward. ...

Because insurance costs are obscured by the employer based system that we rely upon for much of our health insurance, most people don't realize how much they pay for insurance now, let alone the costs they will face in the future. This lack of transparency about the actual insurance costs faced by a typical family creates unnecessary confusion and fear. When, for example, people hear that reform means they might have to pay, say, $8,000 for insurance coverage, they balk at the figure even though it actually saves money and would result in their receiving higher wages (research suggests that the total wage plus insurance bill that firms pay is relatively stable so that a fall in the cost of insurance translates into higher wages). And even if people know how much the insurance costs, the belief may be that the employer is actually paying for the insurance, or at least a significant portion of it, but that is not what research on the incidence of the insurance costs suggests.

The Size of the Bush Tax Cuts vs. the Cost of Health Care Reform

Via Economix:

Trillion Dollar Health Reform, $3 Trillion in Tax Cuts, by Howard Gleckman, Tax Policy Center: It is interesting, and perhaps worth noting, that while political opposition seems to be hardening against the $1 trillion, ten-year cost of the early versions of health reform, barely a peep of concern has been raised about the $3 trillion price tag for President Obama’s plan to extend most of the Bush-era tax cuts.

The message seems pretty clear: The President, congressional Democrats, and nearly all Republicans are fine with busting the budget to cut taxes for nearly everyone, notwithstanding a cumulative deficit over the next decade of $9 trillion. They are, by contrast, unwilling to spend one-third as much to provide medical insurance for those who cannot afford it. I’ve always felt that health reform is as much an ethical choice as an economic one. We appear to be making ours.

Yes, priorities. Tax cuts for the wealthy come before health care for the uninsured.

Paul Krugman: All the President’s Zombies

The age of Reaganism should be over, but it isn't:

All the President’s Zombies, by Paul Krugman, Commentary, NY Times: The debate over the “public option” in health care has been dismaying in many ways. Perhaps the most depressing aspect for progressives, however, has been the extent to which opponents of greater choice in health care have gained traction — in Congress, if not with the broader public — simply by repeating, over and over again, that the public option would be, horrors, a government program.

Washington, it seems, is still ruled by Reaganism — by an ideology that says government intervention is always bad, and leaving the private sector to its own devices is always good.

Call me naïve, but I actually hoped that the failure of Reaganism in practice would kill it. It turns out, however, to be a zombie doctrine: even though it should be dead, it keeps on coming.

Let’s talk for a moment about why the age of Reagan should be over.

First of all, even before the current crisis Reaganomics had failed to deliver what it promised. Remember how lower taxes on high incomes and deregulation that unleashed the “magic of the marketplace” were supposed to lead to dramatically better outcomes for everyone? Well, it didn’t happen. ...

President George W. Bush, who had the distinction of ... presiding over the first administration since Herbert Hoover in which the typical family failed to see any significant income gains.

And then there’s the small matter of the worst recession since the 1930s. There’s a lot to be said about the financial disaster..., but the short version is simple: politicians in the thrall of Reaganite ideology dismantled the New Deal regulations that had prevented banking crises for half a century, believing that financial markets could take care of themselves. The effect was to make the financial system vulnerable to a 1930s-style crisis — and the crisis came.

“We have always known that heedless self-interest was bad morals,” said Franklin Delano Roosevelt in 1937. “We know now that it is bad economics.” And last year we learned that lesson all over again.

Or did we? The astonishing thing about the current political scene is the extent to which nothing has changed.

The debate over the public option has, as I said, been depressing in its inanity. ... But it’s much the same on other fronts. Efforts to strengthen bank regulation appear to be losing steam, as opponents of reform declare that more regulation would lead to less financial innovation — this just months after the wonders of innovation brought our financial system to the edge of collapse...

So why won’t these zombie ideas die?

Part of the answer is that there’s a lot of money behind them. ... In particular, vast amounts of insurance industry money have been flowing to obstructionist Democrats like Mr. Nelson and Senator Max Baucus, whose Gang of Six negotiations have been a crucial roadblock to legislation.

But some of the blame also must rest with President Obama, who famously praised Reagan during the Democratic primary, and hasn’t used the bully pulpit to confront government-is-bad fundamentalism. That’s ironic, in a way, since a large part of what made Reagan so effective, for better or for worse, was the fact that he sought to change America’s thinking as well as its tax code.

How will this all work out? I don’t know. But it’s hard to avoid the sense that a crucial opportunity is being missed, that we’re at what should be a turning point but are failing to make the turn.

Many people - people who make up key voting blocks - are happy with the health care coverage they have now (employer based or Medicare for the most part) and they do not want it to change. Thus, if they can be convinced that they will have to give up some of their own health care (and/or pay much higher taxes) in order to expand coverage to the uninsured, then they will be unlikely to support reform. The government death panel lie plays into people's fear of losing what they have now by implying that choices will be much more limited if reform is enacted, and worse, that someone else will make the choices for you. It promotes the general fear that government involvement means less options than are available now, and that many of the choices will be mandated.

Democrats made a mistake, I think, by not emphasizing that just the opposite is true. It is the failure to reform health care that will limit future choices, perhaps severely if cost projections are realized. Government is the best hope of maintaining the choices that are available now, and of expanding the choices available to those who currently have no health insurance. In light of this, the message from reform supporters has emphasized the need for both cost control and expanded coverage.

The problem with the message is that cutting costs and expanding coverage sounds like it's a tradeoff. That is, it sounds like the intent is to cut costs - partly by limiting choices for those who now have coverage - in order to expand coverage to those who are currently uninsured. Because of this, people who have adequate coverage are afraid of losing options and control over their care. Democrats need to explain that universal coverage and cost control are not tradeoffs in this sense, but rather both of these are elements of an overall strategy to do the best we can to maintain the choices that people now have. It's not one of the other, both are part of a system-wide approach to reform. The same is true with other elements of the plan such as the public option. This doesn't take away the choice of health care plans, it adds one and if people don't like it, they don't have to use it.

The point that Democrats must make clear is that doing nothing puts people's existing health care coverage at substantial risk. People should be very afraid if reform fails, especially people who have good coverage now since they're the ones with the most to lose. So while I wholeheartedly agree that Democrats need to confront "government-is-bad fundamentalism," they also need to make clear how government can do good. System-wide reform of health care is the best chance people have for a health care system that meets their needs at least as well as what they have now, and the necessary reform cannot be accomplished without government's help.

"Five Myths about Health Care around the World"

An attempt to "dispel a few myths about health care abroad":

5 Myths About Health Care Around the World, by By T.R. Reid, Commentary, Washington Post: ...I've traveled the world ... to see how other developed democracies provide health care. Instead of dismissing these models as "socialist," we could adapt their solutions to fix our problems. To do that, we first have to dispel a few myths about health care abroad:

1. It's all socialized medicine out there. Not so. ... In some ways, health care is less "socialized" overseas than in the United States. Almost all Americans sign up for government insurance (Medicare) at age 65. In Germany, Switzerland and the Netherlands, seniors stick with private insurance plans for life. Meanwhile, the U.S. Department of Veterans Affairs is one of the planet's purest examples of government-run health care....

2. Overseas, care is rationed through limited choices or long lines. Generally, no. Germans can sign up for any of the nation's 200 private health insurance plans -- a broader choice than any American has. ... The Swiss, too, can choose any insurance plan in the country.

In France and Japan, you ... can go to any doctor, any hospital, any traditional healer. There are no U.S.-style limits such as "in-network" lists of doctors or "pre-authorization" for surgery. You pick any doctor, you get treatment -- and insurance has to pay. ...

As for those notorious waiting lists, some countries are indeed plagued by them. Canada makes patients wait weeks or months for nonemergency care, as a way to keep costs down. But ... many nations -- Germany, Britain, Austria -- outperform the United States on measures such as waiting times for appointments and for elective surgeries. In Japan, waiting times are so short that most patients don't bother to make an appointment. ...

3. Foreign health-care systems are inefficient, bloated bureaucracies. Much less so than here. ...

4. Cost controls stifle innovation. False. The United States is home to groundbreaking medical research, but so are other countries... Any American who's had a hip or knee replacement is standing on French innovation. ... Many of the wonder drugs promoted endlessly on American television, including Viagra, come from British, Swiss or Japanese labs. Overseas, strict cost controls actually drive innovation. ...

5. Health insurance has to be cruel. Not really. American health insurance companies routinely reject applicants with a "preexisting condition"... They employ armies of adjusters to deny claims. If a customer ... faces big medical bills, the insurer's "rescission department" digs through the records looking for grounds to cancel the policy... Foreign health insurance companies, in contrast, must accept all applicants, and they can't cancel as long as you pay your premiums. ...

In many ways, foreign health-care models are not really "foreign" to America, because our ... system uses elements of all of them. For Native Americans or veterans, we're Britain: The government provides health care, funding it through general taxes, and patients get no bills. For people who get insurance through their jobs, we're Germany: Premiums are split between workers and employers, and private insurance plans pay private doctors and hospitals. For people over 65, we're Canada: Everyone pays premiums for an insurance plan run by the government, and the public plan pays private doctors and hospitals according to a set fee schedule. And for the tens of millions without insurance coverage, we're Burundi or Burma: In the world's poor nations, sick people pay out of pocket for medical care...

This fragmentation is another reason that we spend more than anybody else and still leave millions without coverage. All the other developed countries have settled on one model for health-care delivery and finance; we've blended them all into a costly, confusing bureaucratic mess.

Which, in turn, punctures the most persistent myth of all: that America has "the finest health care" in the world. We don't. In terms of results, almost all advanced countries have better national health statistics than the United States... In terms of finance, we force 700,000 Americans into bankruptcy each year because of medical bills. In France, the number of medical bankruptcies is zero. Britain: zero. Japan: zero. Germany: zero.

Given our remarkable medical assets -- the best-educated doctors and nurses, the most advanced hospitals, world-class research -- the United States ... should be the best in the world. To get there, though, we have to be willing to learn some lessons about health-care ... from the other industrialized democracies.

There are, of course, groups that have a strong interest in perpetuating these myths as part of their attempt to block health care reform.

"Why the Gang of Six is Deciding Health Care"

Why does the "gang of six" have so much power over health care reform?:

Why the Gang of Six is Deciding Health Care for Three Hundred Million of Us, by Robert Reich: Last night, the so-called "gang of six" -- three Republican and three Democratic senators on the Senate Finance Committee -- met by conference call and, according to Senator Max Baucus, the committee's chair, reaffirmed their commitment "toward a bipartisan health-care reform bill" (read: less coverage and no public insurance option). The Washington Post reports that the senators shared tales from their home states, where some have been besieged by protesters angry about a potential government takeover of the nation's health care system. ...

But who, exactly, anointed these six to decide the fate of the nation's health care?

I don't get it. Of the three Republicans in the gang, the senior senator is Charles Grassley. In recent weeks Grassley has refused to debunk the rumor that the House's health-care bill will spawn "death panels"... Grassley called the President and Speaker Nancy Pelosi "intellectually dishonest" for claiming the opposite. On Thursday Grassley told the Washington Post that Congress should scale back its efforts to overhaul health care in the wake of intense anger at town hall meetings. But -- wait -- the anger is largely about distortions such as the "death panels" that Grassley refuses to debunk.

This week on Fox News Grassley termed the House bill "the Pelosi Bill," and called it "a government takeover of heath care, exploding the deficit because it's not paid for and it's got high taxes in it."

I really don't get it. We have a Democratic president in the White House. Democrats control sixty votes in the Senate, enough to overcome a filibuster. It is possible to pass health care legislation through the Senate with 51 votes (that's what George W. Bush did with his tax cut plan). Democrats control the House. The Speaker of the House, Nancy Pelosi, is a tough lady. She has said there will be no health care reform bill without a public option.

So why does the fate of health care rest in Grassley's hands?

It's not even as if the gang represents America. The three Dems on the gang are from Montana, New Mexico, and North Dakota -- states that together account for just over 1 percent of Americans. The three Republicans are from Maine, Wyoming, and Iowa, which together account for 1.6 percent of the American population.

So, I repeat: Why has it come down to these six? Who anointed them? Apparently, the White House. At least that's what I'm repeatedly being told by sources both on the Hill and in the Administration. "The Finance Committee is where the action is. They'll tee-up the final bill," says someone who should know.

Paul Krugman: Obama’s Trust Problem

The fight over the public plan is about more than just health care policy:

Obama’s Trust Problem, by Paul Krugman, Commentary, NY Times: According to news reports, the Obama administration — which seemed, over the weekend, to be backing away from the “public option” for health insurance — is shocked and surprised at the furious reaction from progressives.

Well, I’m shocked and surprised at their shock and surprise.

A backlash in the progressive base — which pushed President Obama over the top in the ...election... has been building for months. The fight over the public option involves real policy substance, but it’s also a proxy for broader questions about the president’s priorities and overall approach. ...

One purpose of the public option is to save money. Experience with Medicare suggests that a government-run plan would have lower costs than private insurers; in addition, it would introduce more competition and keep premiums down.

And let’s be clear: the supposed alternative, nonprofit co-ops, is a sham. That’s not just my opinion; it’s what the market says: stocks of health insurance companies soared on news that the Gang of Six senators trying to negotiate a bipartisan approach to health reform were dropping the public plan. Clearly, investors believe that co-ops would offer little real competition to private insurers.

Also, and importantly, the public option offered a way to reconcile differing views among Democrats. Until the idea of the public option came along, a significant faction ... rejected anything short of true single-payer, Medicare-for-all reform... The public option ... settled some of those qualms.

That said, it’s possible to have universal coverage without a public option — several European nations do it — and some who want a public option might be willing to forgo it if they had confidence in the overall health care strategy. Unfortunately, the president’s behavior in office has undermined that confidence.

On the issue of health care itself, the inspiring figure progressives thought they had elected comes across, far too often, as a dry technocrat... Mr. Obama’s explanations of his plan have gotten clearer, but he still seems unable to settle on a simple, pithy formula...

Meanwhile, on such fraught questions as torture and indefinite detention, the president has dismayed progressives with his reluctance to challenge or change Bush administration policy.

And then there’s the matter of the banks.

I don’t know if administration officials realize just how much damage they’ve done themselves with their kid-gloves treatment of the financial industry...

So there’s a growing sense among progressives that they have, as my colleague Frank Rich suggests, been punked. And that’s why the mixed signals on the public option created such an uproar.

Now,... Mr. Obama was never going to get everything his supporters wanted.

But there’s a point at which realism shades over into weakness, and progressives increasingly feel that the administration is on the wrong side of that line. It seems as if there is nothing Republicans can do that will draw an administration rebuke: Senator Charles E. Grassley feeds the death panel smear, warning that reform will “pull the plug on grandma,” and two days later the White House declares that it’s still committed to working with him.

It’s hard to avoid the sense that Mr. Obama has wasted months trying to appease people who can’t be appeased, and who take every concession as a sign that he can be rolled.

Indeed, no sooner were there reports that the administration might accept co-ops as an alternative to the public option than G.O.P. leaders announced that co-ops, too, were unacceptable.

So progressives are now in revolt. Mr. Obama took their trust for granted, and in the process lost it. And now he needs to win it back.

"Public Auction Option Shouldn't be a Deal Breaker"

Tim Duy recommends this piece on public-private competition. The argument, based upon the outcome of public-private competition in electrical power and worker's compensation insurance, is that there is no reason to fear a public option for health care:

Public option shouldn’t be deal breaker for reform, by Jack Roberts, Guest Viewpoint, Register Guard: Recent reports that the Obama administration may (or may not) be backing away from a public option for health care reform are likely to raise the decibel level of the debate even higher. Unfortunately, the result may be to reduce further the chances of getting health care reform passed at all. ...

To a great extent, this is reminiscent of the great debate in the 1930s over public vs. private power... Nowhere was this debate more contentious than in Oregon.

Public power advocates believed that private utilities were strangling the economy and robbing ratepayers, while opponents insisted that public power was a sure route to socialism. Sound familiar? The only thing both sides seem to agree on was that one system or the other must prevail and that public and private power could not coexist.

Jump ahead 70 years. Here in Lane County, most people receive their electrical power from municipal utilities, cooperatives or a people’s utility district. Private utilities such as Portland General Electric and Pacific Power serve most of the rest of the state.

Today, we may use euphemisms such as “consumer-owned” and “investor-owned” utilities, but it is still the same public vs. private power distinction. ...[T]here is actually little difference in the way public and private utilities operate. The reason is that both public and private utilities are funded by their ratepayers. Public utilities are not subsidized by general tax dollars, as private power advocates once feared. ...

There is little reason to believe that a public health insurance option would operate much differently from private health insurance companies, either. Already there are nonprofit health insurance companies that operate more or less like their for-profit competitors. Their incentive to hold down costs ... is no less than a for-profit company’s. After all, their top management still wants to keep its jobs and be compensated for good performance, too.

Probably the best example of how a public health insurance option could operate is Oregon’s experience with a quasi-public worker’s compensation insurance company, the State Accident Insurance Fund...

True, its principal private sector competitor, Liberty Northwest, complains about unfair competition... Yet in a state that requires businesses to carry worker’s compensation insurance, SAIF serves as a critical provider of affordable workers’ comp coverage for thousands of Oregon companies, large and small. ...[M]ost Oregonians don’t regard SAIF as representing a government takeover of workers’ compensation, much less a harbinger of socialism. ...

Yet Oregon’s workers’ comp system is not so clearly better than the 25 states that have no equivalent to SAIF as to render their mandatory workers’ compensation laws worthless or unworkable. The fact is that mandatory workers’ compensation laws were a major step forward..., with or without a public option for providing worker’s comp insurance.

Adopting universal health care coverage will be equally revolutionary in its effect on our society, whether it initially includes a mandatory public option, and whatever the precise form that option originally takes.

The real key to health insurance reform is to prevent insurance companies from excluding people from coverage or charging higher premiums based on a person’s pre-existing health condition, and then to mandate coverage for everyone. ...

"The Rationing Canard"

Free Exchange responds to a WSJ editorial by Martin Feldstein charging that "rationing health care is central to President Barack Obama's health plan":

The rationing canard, Free Exchange: Many, many people have already weighed in on whether or not the health care plan making its way through Congress will involve "rationing", and it was inevitable, I suppose, that Martin Feldstein would eventually decide that it's his turn. Here he is:

...The Obama strategy is to reduce health costs by rationing the services that we and future generations of patients will receive.

The White House Council of Economic Advisers issued a report in June explaining the Obama administration's goal of reducing projected health spending by 30% over the next two decades. That reduction would be achieved by eliminating "high cost, low-value treatments," by "implementing a set of performance measures that all providers would adopt," and by "directly targeting individual providers . . . (and other) high-end outliers."

The president has emphasized the importance of limiting services to "health care that works." To identify such care, he provided more than $1 billion in the fiscal stimulus package to jump-start Comparative Effectiveness Research (CER)... Comparative effectiveness could become the vehicle for deciding whether each method of treatment provides enough of an improvement in health care to justify its cost. ...

...The deployment of scare quotes would seem to suggest that Mr Feldstein has a problem with the government limiting high cost, low-value treatments, even though they're costly and not very valuable. In his third paragraph he says that Comparative Effectiveness Research—that is, research to determine whether treatments are effective or not—could lead to a cost-control mechanism which could become the vehicle for deciding whether a treatment's effectiveness justifies its cost. And then he says something about a system that in no way resembles the one America would have if the current reform package passed. Left unaddressed is whether it counts as rationing if you're still allowed to pay for additional services out of pocket.

It's fair for Mr Feldstein to recommend certain changes in the tax code, as he then proceeds to do, as a useful policy step. But why the long and dishonest preamble?

The bigger problem with the argument by rationing is that it seems to ignore how resources are allocated in a perfectly free market—by willingness or ability to pay. Mr Feldstein writes:

But unlike reductions in care achieved by government rationing, individuals with different preferences about health and about risk could buy the care that best suits their preferences. While we all want better health, the different choices that people make about such things as smoking, weight and exercise show that there are substantial differences in the priority that different people attach to health.

Certainly, preferences regarding the level of health insurance to carry vary, as do preferences for overall healthiness, as revealed by choices about things like smoking and diet. But to what extent are lifesaving treatments had or not had on the basis of preference? What about costly but effective therapies for chronic conditions?

The nub of the matter is this—government can afford to provide basic coverage to everyone, but it can't afford to provide every treatment everyone may want to everyone who wants it. It must therefore decide how to limit its expenses, and it can leave open the option of using a private practitioner to those who are denied care based on a cost-benefit analysis. Or government can provide coverage to no one, and those who cannot afford a treatment—effective or not—will go without. Those people will be just as fine as they'd be with treatment in some cases, they'll suffer in others, and occasionally they'll die because they couldn't afford coverage.

That's the nub of it, really. Faced with the prospect of a plan that provides effective treatments to everyone but forces people who want relatively ineffective treatments to pay for them on the private market, Mr Feldstein says he'd prefer a system where people who are unable to afford effective treatments don't get them, calling concern for those unable to pay for treatments "misplaced egalitarianism".

It's all well and good to let the market allocate televisions. Many people live happy lives without televisions, and lack of a television hasn't ever killed anyone. Attempting to provide a basic level of access to television to every American would be misplaced egalitarianism. I would have thought Mr Feldstein could understand the ways in which the market for televisions is different from that for health insurance.

I've discussed rationing via price and other mechanisms previously, (e.g. here), so let me instead try to characterize the political debate on this topic with an overly simplified example. We can, very roughly, break down medical costs as:

total medical costs = (cost per person)*(number of people covered)

The cost per person can be broken into two components:

cost per person = (number of procedures per person)*(cost per procedure)

The number of procedures per person is intended as a rough proxy for the level of care each person receives (i.e. the quality of care, and it includes all aspects of a particular procedure, including prescription drugs). Putting these together gives:

total medical costs = (cost per procedure)*(procedures per person)*(number of people covered)

The Republican attacks are, essentially:

Democrats intend or will be forced to reduce costs by reducing the number of people covered (perhaps focusing on the elderly) and by reducing procedures per person (i.e. a lower level of care on average). Dramatic tax increases may be needed as well.

The Democrat's response runs along the following lines:

That's a fabrication. There's no intent to reduce the number of people covered or to reduce the level/quality of care. In fact, the number of people covered must rise to achieve universal coverage, and procedures per person, i.e. the level of care, will only fall to the extent that procedures with little or no benefit are eliminated. The number of procedures (i.e. the quality  of care) will, if anything, go up.

To achieve the goal of universal coverage while controlling costs, it is necessary that costs per person fall. However, this will not be achieved through rationing care. Instead, costs per person will be reduced by lowering the cost per procedure (through lower administrative costs, increased competition, lower drug costs, etc.) and by eliminating unnecessary procedures. Additional revenue may also be used to broaden coverage. Cross-country studies indicate that the reduction in costs per person needed to provide universal coverage without reducing the level of care is achievable.

The goal of Democrats is to lower costs without sacrificing the quality of care (which will allow coverage to be expanded). Whether that's achievable or not is a legitimate point to debate, I think the experience in other countries suggests there's quite a bit of excess in the system that can be removed without affecting the quality of care people receive, but accusing Democrats of intending to cut the quality of care or to ration care within particular segments of the population (or overall) mischaracterizes what they are trying to achieve.

Notes on Co-Ops

Some very rough notes on co-ops I jotted down just before a radio interview yesterday. The main questions I was interested in addressing were the feasibility of co-ops, whether they would lower costs, and whether co-ops would broaden coverage so that it is practically universal. This was a last minute effort, and likely incomplete, so please don't hesitate to add to the list in comments:

1. Co-ops are not very well defined.

2. It is not clear that Co-ops will lower costs. For one, you need at least 500,000 members to have enough bargaining power to matter, and even then it just puts you on an even keel with existing companies. That isn't enough bargaining power to lower costs. Also, will co-ops lower administrative costs? Probably not much.

3. Some reports say the plan would come with 6 billion in start-up funds. But there are still large barriers to entry.

4. This was an eye opener. Blue Cross-Blue Shield, which already has substantial market share in some areas (e.g. 90%), is a non-profit and would likely qualify as a co-op. Though they would likely come under some new regulations in terms of who they must cover if they did change to a co-op, as well as other restrictions, it doesn't seem like this would bring about much change.

5. Some states already allow co-ops, e.g. Iowa, and they have not generally been successful.

6. On coverage, how will that work? Will these co-ops be like Savings and Loans (to which they are often compared) where membership is restricted to certain groups, or will they be forced to provide insurance to anyone who wants it? If so, how do you stop firms from subtly using non-price mechanisms to discourage high cost patients from joining? Exactly how coverage will be regulated is vague in the reports I read, though perhaps there's an actual proposal somewhere that is more informative.

7. Republicans won't support this either, so why are we bothering with it?

[Update: Tyler Cowen asks What are health care co-ops?]

"Public Option versus Co-ops: The Market Test"

What do prediction and financial markets have to say about the prospect of dropping the public option and replacing it with health care co-ops? Arin Dube has an answer (which is a follow-up to this post):

Public Option versus “Co-ops”: The Market Test, by Arin Dube: President Obama says he is serious about making sure we have a competitive alternative to the private health insurance companies to drive down costs. However, he is now apparently open to the idea of “health co-operatives” that will be regional purchasing pools operating independently of the federal government.  How well will these co-ops achieve his stated goals?  To assess this, we can start with his own words and those of his subordinates.  Well, to be precise, how various investors reacted to these words.

Exhibit A

Exhibit A shows how investors in the Intrade prediction market reacted to signals from the Obama administration on Sunday August 16 that they are willing to ditch the public health insurance option. In the market’s assessment, the likelihood of a federally administered health plan passing fell from around 35% to around 20%, the biggest one-day drop since the prediction market started in June.

So as the public option’s condition went to critical, and “co-ops” started looking increasingly likely, how did investors in the top 4 private health insurance companies react? As exhibit B shows, champagne bottles were popped.

Exhibit B

On a day when the broader stock market took a hit (dropping 2.2% at the time of writing), these four companies with a combined market cap of $80 billion saw their prices rise an average of  3%.  Actually, if you dot the i’s and cross the t’s in calculating “abnormal returns”** for these four companies, it comes to be 5.8%.  All in all, statements by the Obama administration over the weekend helped investors of private health insurance markets make around $4.6 billion.

So, as the market’s assessed likelihood of the public option passing dropped by 15 percentage points, share prices rose by around 6 percentage. If you are willing to extrapolate based on this event, going from a public option to “co-ops” would be worth around 40% of the value of these companies, or around $32 billion.  This is similar to the results from my previous analysis of how market reacted to announcements by members of the Senate Finance Committee.

President Obama may have harsh words for the insurance companies. But those are not the words investors in these companies are paying attention to. They are paying attention to whether President Obama will sign a bill with vague “co-ops” or demand a public option. And the reaction by these investors bodes poorly for “co-ops” fulfilling their role as a serious competitive alternative to private insurance companies.

*****　

** Abnormal returns are calculated as [Raw Return] – beta * [Index Return]. Betas for AET, UNH, WLP and CI are 1.3, 1.14, 1.15 and 1.88 respectively (from Google Finance).

Arindrajit Dube is an economist at UC Berkeley Institute for Research on Labor and Employment who is joining the Department of Economics at the University of Massachusetts, Amherst. His work focuses on labor and health economics topics, as well as political economy.

"The Public Option as a Signal"

More from Paul Krugman on the public option:

The public option as a signal, by Paul Krugman: Look, it is possible to have universal care without a public option; Switzerland does. But there are some good reasons for the prominence of the public option in our debate.

One is substantive: to have a workable system without the public option, you need to have effective regulation of the insurers. Given the realities of our money-dominated politics, you really have to worry whether that can be done — which is a reason to have a more or less automatic mechanism for disciplining the industry.

The second is what the option debate says about Obama.

If progressives had real trust in Obama’s commitment to doing the right thing, the administration would have broad leeway to do deals. But the president doesn’t command that kind of trust.

Partly it’s a matter of style — as many people have noted, he has been weirdly reluctant to make the moral case for universal care, weirdly unable to show passion on the issue, weirdly diffident even about the blatant lies from the right. Partly it’s a spillover from his other policies: by appointing an economic team that’s Rubin redux, by taking such a kindly attitude to the banks, he has squandered a lot of progressive enthusiasm.

Add in the dealmaking as part of the health care process itself, and progressives can be forgiven for having the impression that Obama (a) takes them for granted (b) is way too easily rolled by the other side.

So progressives have their backs up over one provision in health care reform that’s easy to monitor. The public option has become not so much a symbol as a signal, a test of whether Obama is really the progressive activists thought they were backing.

And the bizarre thing is that the administration doesn’t seem to get that.

I think there's another factor as well. It's not just that Democrats don't trust Obama's commitment to progressive issues, and it's not simply a matter of style, or a spillover from other appointments, though I do agree these are issues. It's also the sense that the same old right-wing crazies are driving the public debate to a much greater extent than is justified by the last election. This was supposed to be a new era, one where progressive ideas would dominate public policy, not an era where a false charge of "death panels" would dominate the public discourse, and certainly not an era where misrepresentations from the far right extreme would cause the public option to be dropped from the legislation.

Whether the administration simply does not have the political power, lacks sufficient will, doesn't understand the political significance, or what, it's hard for supporters to watch the same political game unfold once again in what was supposed to be a new era in progressive politics. It's a frustrating slap in the face for progressives who support the administration, and it's the sense of powerless against the right-wing false message machine that is driving that frustration.

The administration needs to take a stand against something important - and win. And not just for what is signals to supporters. Compromise will never appease the crazies on the right, strength is the only way to beat them.

Update: Robert Reich isn't ready to give up on the public option:

The Public Option's Last Stand, and the Public's, by Robert Reich: I would have preferred a single payer system like Medicare, but became convinced earlier this year that a public, Medicare-like optional plan was just about as much as was politically possible. Now the White House is stepping back even from the public option...

Without a public, Medicare-like option, health care reform is a bandaid for a system in critical condition. There's no way to push private insurers to become more efficient and provide better value to Americans without being forced to compete with a public option. And there's no way to get overall health-care costs down without a public option that has the authority and scale to negotiate lower costs with pharmaceutical companies, doctors, hospitals, and other providers -- thereby opening the way for private insurers to do the same.

It's been clear from the start that the private insurers and other parts of the medical-industrial complex have hated the idea of the public option, for precisely these reasons. A public option would cut deeply into their current profits. That's why they've been willing to spend a fortune on lobbyists, threaten and intimidate legislators and ordinary Americans, and even rattle Obama's cage to the point where the Administration is about to give up on it.

The White House wonders why there hasn't been more support for universal health care coming from progressives, grass-roots Democrats, and Independents. I'll tell you why. It's because the White House has never made an explicit commitment to a public option. ... If Obama tells Senate Democrats he will not sign a healthcare reform bill without a public option, there will be enough votes in the United States Senate for a public option.

I urge you to make it absolutely clear to everyone you know, everyone who cares about universal health care and what it will mean to our country, that the bill must contain a real public option. Tell that to your representatives in Congress. Tell that to the White House. If you are receiving piles of emails from the Obama email system asking you to click in favor of health care, do not do so unless or until you know it has a clear public option. Do not send money unless or until the White House makes clear its support for a public option.

This isn't just Obama's test. It's our test.

I'm not sure this is the place for the administration to take a stand, perhaps it is, but I am sure that they need to take stand on something. Let me ask a question. Can you articulate with a simple statement what the administration's primary goal for health care reform is? Is it to make coverage universal? To control costs and reduce future deficits? To stop the insurance companies from taking advantage of people who already have coverage? All of the above? Something else? I don't think you can take a solid stand on the issues until you've clearly articulated the main goal, and that has not been done. I suspect that the goals will be defined after reform is passed - if it is - and the goals will be defined as whatever they were able to get. We got the main things we were after we will be told, whether that is true or not. But if, in the end, reform is mostly cosmetic, I don't think that strategy will work.

To say that your goal is whatever you can achieve, whatever that is, would be fine if what is possible is independent of how clearly and forcefully the administration articulates its goals, but what can be achieved is not independent of the administration's articulation of its goals. When the goals are vague, it allows the other side to define reform, and do so on their terms and with their terminology, and that limits the possibilities that are available, perhaps fatally.

Paul Krugman: The Swiss Menace

If health care reform happens, it looks like it will be "Swissified." Like the cheese, it has some holes, but gets the job done:

The Swiss Menace, by Paul Krugman, Commentary, NY Times: It was the blooper heard round the world. In an editorial denouncing Democratic health reform plans, Investor’s Business Daily tried to frighten its readers by declaring that in Britain,... the handicapped physicist Stephen Hawking “wouldn’t have a chance,” because the National Health Service would consider his life “essentially worthless.”

Professor Hawking, who was born in Britain, has lived there all his life, and has been well cared for by the National Health Service, was not amused. ...

Investor’s Business Daily would like you to believe that Obamacare would turn America into ... a dystopian fantasy version of Britain. The screamers on talk radio and Fox News would have you believe that the plan is to turn America into the Soviet Union. But the truth is that the plans ... would, roughly speaking, turn America into Switzerland — which may be occupied by lederhosen-wearing holey-cheese eaters, but wasn’t a socialist hellhole the last time I looked. ...

Every wealthy country other than the United States guarantees essential care to all its citizens. There are, however,... three main approaches...

In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works...; these stories are false..., over all it appears to provide quite good care while spending only about 40 percent as much.... By the way, our own Veterans Health Administration, which is run somewhat like the British health service, also manages to combine quality care with low costs.

The second route to universal coverage leaves the actual delivery of health care in private hands, but the government pays most of the bills. That’s how Canada and, in a more complex fashion, France do it. It’s also [how]... Medicare...[does it]... Again, you hear a lot of horror stories about such systems, most of them false. ... And Medicare is highly popular, as evidenced by the tendency of town-hall protesters to demand that the government keep its hands off the program.

Finally, the third route to universal coverage relies on private insurance companies, using a combination of regulation and subsidies to ensure that everyone is covered. Switzerland offers the clearest example: everyone is required to buy insurance, insurers can’t discriminate based on medical history or pre-existing conditions, and lower-income citizens get government help...

Massachusetts health reform more or less follows the Swiss model; costs are running higher than expected, but the reform has greatly reduced the number of uninsured. And the most common form of health insurance in America, employment-based coverage, actually has some “Swiss” aspects:... employers have to follow rules that effectively rule out discrimination based on medical history and subsidize care for lower-wage workers.

So where does Obamacare fit into all this? Basically, it’s a plan to Swissify America, using regulation and subsidies to ensure universal coverage.

If we were starting from scratch we probably wouldn’t have chosen this route. True “socialized medicine” would undoubtedly cost less, and a straightforward extension of Medicare-type coverage to all Americans would probably be cheaper... That’s why I and others believe that a true public option competing with private insurers is extremely important: otherwise, rising costs could all too easily undermine the whole effort.

But a Swiss-style system of universal coverage would be a vast improvement on what we have now. And we already know that such systems work.

So we can do this. At this point, all that stands in the way of universal health care in America are the greed of the medical-industrial complex, the lies of the right-wing propaganda machine, and the gullibility of voters who believe those lies.

"A Public Option Isn't a Curse or a Cure"

This was in today's links and received quite a few comments, so I'll put it into its own post in case people want to continue the discussion (I think the post below this one refutes some of the main points, e.g. that the public sector can never win a fair fight or be innovative):

A Public Option Isn’t a Curse, or a Cure, by Richard Thaler, Commentary, NY Times: [T]he question of whether a “public option” should be part of the health care solution ... is a red herring, and is getting in the way of genuine reform.

In debating the public option — that is, an insurance option run by the government — the politicians themselves are making exaggerated claims about its pros and cons. We hear from the right that an insurance plan run by the government will drive all private-sector insurers out of business and be the first step toward socialism, if not communism. The left claims that only a public option can give evil insurers the competition they need to create much-needed reform.

Paul Krugman: Republican Death Trip

What's the best way to respond to the lies that are being used to scare people into opposing health care reform?:

Republican Death Trip, by Paul Krugman, Commentary, NY Times: “I am in this race because I don’t want to see us spend the next year re-fighting the Washington battles of the 1990s. I don’t want to pit Blue America against Red America; I want to lead a United States of America.” So declared Barack Obama in November 2007, making the case that Democrats should nominate him ... because he could free the nation from the bitter partisanship of the past. ...

So, how’s it going? Sure enough, President Obama is now facing the same kind of opposition that President Bill Clinton had to deal with: an enraged right that denies the legitimacy of his presidency, that eagerly seizes on every wild rumor manufactured by the right-wing media complex. This opposition cannot be appeased...

Right now, the charge that’s gaining the most traction is the claim that health care reform will create “death panels” (in Sarah Palin’s words) that will shuffle the elderly and others off to an early grave. It’s a complete fabrication...

And not long ago, some of the most enthusiastic peddlers of the ... smear, including Newt Gingrich ... and Mrs. Palin herself, were all for “advance directives” ... the event that you are incapacitated or comatose. That’s exactly what was being proposed — and has now, in the face of all the hysteria, been dropped from the bill.

Yet the smear continues to spread. And ... Senior G.O.P. figures, including so-called moderates, have endorsed the lie. Senator Chuck Grassley, Republican of Iowa, is one of these supposed moderates. I’m not sure where his centrist reputation comes from..., his role in the health care debate has been flat-out despicable.

Last week, Mr. Grassley claimed that ... Ted Kennedy’s brain tumor wouldn’t have been treated properly in other countries because they prefer to “spend money on people who can contribute more to the economy.” This week, he told an audience that “you have every right to fear,” that we “should not have a government-run plan to decide when to pull the plug on grandma.”

Again, that’s what a supposedly centrist Republican, a member of the Gang of Six trying to devise a bipartisan health plan, sounds like.

So much, then, for Mr. Obama’s dream of moving beyond divisive politics. The truth is that the factors that made politics so ugly in the Clinton years — the paranoia of a significant minority of Americans and the cynical willingness of leading Republicans to cater to that paranoia — are as strong as ever. In fact, the situation may be even worse ... because the collapse of the Bush administration has left the G.O.P. with no real leaders other than Rush Limbaugh.

The question now is how Mr. Obama will deal with the death of his postpartisan dream. So far, at least, the Obama administration’s response ... has had a deer-in-the-headlights quality. It’s as if officials still can’t wrap their minds around the fact that things like this can happen to people who aren’t named Clinton...

What, then, should Mr. Obama do? It would certainly help if he gave clearer and more concise explanations of his health care plan. To be fair, he’s gotten much better at that over the past couple of weeks.

What’s still missing, however, is a sense of passion and outrage — passion for the goal of ensuring that every American gets the health care he or she needs, outrage at the lies and fear-mongering that are being used to block that goal.

So can Mr. Obama, who can be so eloquent when delivering a message of uplift, rise to the challenge of unreasoning, unappeasable opposition? Only time will tell.

Maybe the answer is to scare people with the truth. Without health care reform that reduces the growth in costs, we won't be able to sustain the level of health care we are delivering now let alone cover those who don't have access to the care they need. Other countries have demonstrated conclusively that it's possible to deliver high quality universal care at a much lower cost than in the US, so a failure to implement reform is also a failure to maximize the availability of high quality health care. For that reason the people trying to block reform are -- to put it in their terms -- the death squads. They are the the the ones putting health care at risk, particularly care for those reliant upon government programs such as Medicare that will face budget pressures if costs aren't controlled, so lets hope the fabrications and other antics don't deter us from implementing the changes that are necessary to ensure that we can meet our health care needs.

Wrong Message

The administration has been trying to sell health care reform by reassuring people that if they are satisfied with the coverage they have now, they can keep it.

That is, so long as it's still available. Given the way employers have been shedding responsibility for health care and the way escalating costs have been reducing affordability, it's unlikely that it will be. And, of course, if you do get sick, you may find you don't have the coverage you thought you had.

So the message should be that health care reform is the only chance people have to keep the coverage they have now.

"Medicine and Society in the Medieval Hospital"

I was curious about the degree to which health care has been universally available historically, and I stumbled upon this brief history of hospitals that gives some information on the question. Based upon bits and pieces of information from other sources, I had speculated that, particularly after the Black Death, societies saw a need for health care for all strata of society to prevent the spread of disease. Diseases such as the plague did not discriminate by income, and this gave the wealthy an incentive to keep the poor free of deadly, contagious afflictions. That would result in fairly universal care for diseases that could spread throughout society (though perhaps separation from society is a better description). I think that's part of why care was established for the poor and for the sick more generally, but the social relationships appear to be a bit more complicated than that:

Medicine and Society in the Medieval Hospital, by Tatjana Buklijaš, Croat Med J. 2008 April; 49(2): 151–154: Hospitals today are places where medical treatment is provided, but also places where major life events, such as birth and death, occur. Yet, their history is relatively short; they were born, together with modern medicine, some two hundred years ago in the revolutionary Paris (1,2). Around 1790, large hospitals and pioneering research blossomed throughout Europe, replacing the Hippocratic model of disease with the localizationist paradigm. The rise of the modern hospital began in Paris when the social change brought about by the French Revolution provided the momentum for the transformation. For the first time in history, cure of the body and care for the soul were separated, and physicians, rather than the church and rich lay patrons, took charge of medical institutions. Medical treatment was no longer a privilege of the rich (at home) or charity for the poor (in hospital), but an indispensable human right. This article discusses the influence of social changes on the history of the pre-modern hospitals between the late Antiquity and early modern period. Using examples from Southern Croatia, it illuminates the subtle differences in socio-political organization, which shaped the history of hospitals.

"The Time has Come"

A plea for health care reform:

Even though we are a nation that places a high value on health, we have done very little to insure that quality health care is available to all of us at a price we can afford. We have allowed rural and inner-city areas to be slowly abandoned by doctors. We have allowed hundreds of insurance companies to create thousands of complicated policies that trap Americans in gaps, limitations, and exclusions in coverage, and that offer disastrously low benefits which spell financial disaster for a family when serious illness or injury strikes. We have allowed doctor and hospital charges to skyrocket out of control through wasteful and inefficient practices to the point where more and more Americans are finding it difficult to pay for health care and health insurance. We have also allowed physicians and hospitals to practice with little or no review of the quality of their work, and with few requirements to keep their knowledge up to date or to limit themselves to the areas where they are qualified. In our concern not to infringe on doctors' and hospitals' rights as entrepreneurs, we have allowed them to offer care in ways, at times, in places, and at prices designed more for their convenience and profit than for the good of the American people.

When I say "we have allowed" I mean that the American people have not done anything about it through their government, that the medical societies and hospital associations have done far too little about it, and that the insurance companies have done little or nothing about it.

I believe the time has come in our nation for the people to take action to solve those problems -- Edward M. Kennedy, In Critical Condition: The Crisis in America's Health Care, pp. 16-17, 1972.

That was written nearly forty years ago.

"An International Comparison of Small Business Employment"

John Schmitt and Nathan Lane of the CEPR:

An International Comparison of Small Business Employment, by John Schmitt and Nathan Lane, CEPR: Contrary to popular perceptions, the United States has a much smaller small-business sector (as a share of total employment) than other countries at a comparable level of economic development, according to this new CEPR report. The authors observe that the undersized U.S. small business sector is consistent with the view that high health care costs discourage small business formation, since start-ups in other countries can tap into government-funded health care systems. [Note: Click on figures for larger versions]

     

There's another factor that could also be contributing besides competitive disadvantages with countries that have government funded health care systems. A more extensive social safety net can reduce the risk of attempts at entrepreneurship. If there is an extensive social safety net to fall back upon if things don't work out, you might be more willing to quit the job you hate (the one with health insurance for the kids) and sink everything you have into a small business that you've always wanted to run. But I'm not sure the data above support this interpretation, i.e. that there is an obvious positive association between the strength of social insurance and the prevalence of small business. But it is highly suggestive, and regressions that control for other cross-country differences could help to settle the issue. In any case, one thing is clear, according to these measurements the US has low numbers relative to other countries in the sample.

"The White House's Deal With Big Pharma Undermines Democracy"

Robert Reich says the administration's promise not to use the government's purchasing power to lower the price of drugs in return for a large, pharmaceutical industry sponsored ad campaign in support of health care reform undercuts and threatens the democratic process:

How the White House's Deal With Big Pharma Undermines Democracy, by Robert Reich: I'm a strong supporter of universal health insurance, and a fan of the Obama administration. But I'm appalled by the deal the White House has made with the pharmaceutical industry's lobbying arm to buy their support.

Last week,... the White House confirmed it has promised Big Pharma that any healthcare legislation will bar the government from using its huge purchasing power to negotiate lower drug prices. That's basically the same deal George W. Bush struck in getting the Medicare drug benefit, and it's proven a bonanza for the drug industry. ... Let me remind you: Any bonanza for the drug industry means higher health-care costs for the rest of us...

In return, Big Pharma isn't just supporting universal health care. It's also spending a lots of money on TV and radio advertising... Big Pharma has budgeted $150 million for TV ads promoting universal health insurance, starting this August (that's more money than John McCain spent on TV advertising in last year's presidential campaign), after having already spent a bundle through advocacy groups like Healthy Economies Now and Families USA.

I want universal health insurance. And having had a front-row seat in 1994 when Big Pharma and the rest of the health-industry complex went to battle against it, I can tell you first hand how big and effective the onslaught can be. So I appreciate Big Pharma's support this time around...

But I also care about democracy, and the deal between Big Pharma and the White House frankly worries me. It's bad enough when industry lobbyists extract concessions from members of Congress, which happens all the time. But... [a]n industry is using its capacity to threaten or prevent legislation as a means of altering that legislation for its own benefit ... at the highest reaches of our government, in the office of the President.

When the industry support comes with an industry-sponsored ad campaign in favor of that legislation, the threat to democracy is even greater. Citizens end up paying for advertisements designed to persuade them that the legislation is in their interest. In this case, those payments come in the form of drug prices that will be higher than otherwise...

I don't want to be puritanical about all this. Politics is a rough game... Perhaps the White House deal with Big Pharma is a necessary step to get anything resembling universal health insurance. But if that's the case, our democracy is in terrible shape. How soon until big industries ... have become so politically powerful that secret White House-industry deals ... are prerequisites to any important legislation? When will it become standard practice that such deals come with hundreds of millions of dollars of industry-sponsored TV advertising designed to persuade the public...? (Any Democrats and progressives ... should ask themselves how they'll feel when a Republican White House cuts such deals to advance its own legislative priorities.)

We're on a precarious road -- and wherever it leads, it's not toward democracy.

Paul Krugman: The Town Hall Mob

Lack of passion is hazardous to health care reform:

The Town Hall Mob, by Paul Krugman, Commentary, NY Times: There’s a famous Norman Rockwell painting titled “Freedom of Speech,” depicting an idealized American town meeting. The painting, part of a series illustrating F.D.R.’s “Four Freedoms,” shows an ordinary citizen expressing an unpopular opinion. His neighbors obviously don’t like what he’s saying, but they’re letting him speak his mind.

That’s a far cry from what has been happening at recent town halls, where angry protesters — some of them, with no apparent sense of irony, shouting “This is America!” — have been drowning out, and in some cases threatening, members of Congress trying to talk about health reform. ...

[W]ell-heeled interest groups are helping to organize the town hall mobs. Key organizers include two Astroturf (fake grass-roots) organizations: FreedomWorks, run by the former House majority leader Dick Armey, and a new organization called Conservatives for Patients’ Rights.

The latter group, by the way, is run by Rick Scott, the former head of Columbia/HCA, a for-profit hospital chain. Mr. Scott was forced out of that job amid a fraud investigation; the company eventually pleaded guilty to charges of overbilling state and federal health plans, paying $1.7 billion — yes, that’s “billion” — in fines. You can’t make this stuff up.

But while the organizers are as crass as they come, I haven’t seen any evidence that the people disrupting those town halls are Florida-style rent-a-mobs. For the most part, the protesters appear to be genuinely angry. The question is, what are they angry about?

There was a telling incident at a town hall held by Representative Gene Green, D-Tex. An activist turned to his fellow attendees and asked if they “oppose any form of socialized or government-run health care.” Nearly all did. Then Representative Green asked how many of those present were on Medicare. Almost half raised their hands.

Now, people who don’t know that Medicare is a government program probably aren’t reacting to what President Obama is actually proposing. They may believe some of the disinformation opponents of health care reform are spreading, like the claim that the Obama plan will lead to euthanasia for the elderly ... coming straight from House Republican leaders... But they’re probably reacting less to what Mr. Obama is doing ... than to who he is.

That is, the driving force behind the town hall mobs is probably the same cultural and racial anxiety that’s behind the “birther” movement, which denies Mr. Obama’s citizenship. Senator Dick Durbin has suggested that the birthers and the health care protesters are one and the same; we don’t know how many of the protesters are birthers, but it wouldn’t be surprising if it’s a substantial fraction.

And cynical political operators are exploiting that anxiety to further the economic interests of their backers.

Does this sound familiar? It should: it’s a strategy that has played a central role in American politics ever since Richard Nixon realized that he could advance Republican fortunes by appealing to the racial fears of working-class whites.

Many people hoped that last year’s election would mark the end of the “angry white voter” era in America. Indeed, voters who can be swayed by appeals to cultural and racial fear are a declining share of the electorate.

But right now Mr. Obama’s backers seem to lack all conviction, perhaps because the prosaic reality of his administration isn’t living up to their dreams of transformation. Meanwhile, the angry right is filled with a passionate intensity.

And if Mr. Obama can’t recapture some of the passion of 2008, can’t inspire his supporters to stand up and be heard, health care reform may well fail.

"Astroturf Along American Highways"

Robert Reich is worried that Republican opposition to health care reform will result in "a watered-down set of reforms that still leave millions of Americans uninsured and don't slow healthcare costs":

Astroturf Along American Highways, and the Republican Plan, by Robert Reich: On our drive across America, my son and I have spotted spiffy white vans emblazoned with phrases like "ObamaCare will raise your taxes" and "ObamaCare will put bureaucrats in charge of your health." ...

This isn't grass roots. It's Astroturf. The vans carry the logo "Americans for Prosperity," one of the Washington front groups orchestrating the fight against universal health. They're using Congress's August recess to heckle Democratic representatives when they meet with their constituents, stage erszatz local anti-universal health rallies, and fill home-town media with carefully-crafted, market-tested messages demonizing healthcare reform.

The Republican party's fingerprints are all over this. FreedomWorks, another group now Astroturfing its way around America, is chaired by former House Republican Leader Dick Armey. Texas Republican Pete Sessions, who chairs the National Republican Campaign Committee, says the days of civil town halls are "now over.” Key Republican funders are forking out big bucks. The U.S. Chamber of Commerce, whose ties to the GOP are legion, announced in June it would “develop a sweeping national advocacy campaign encompassing advertising, education, political activities, new media and grassroots organizing" to battle universal health and other Democratic initiatives.

The Republicans' goal isn't ideological. It's power. Republicans smell 1994 all over again. That's when they defeated Clinton's healthcare plan -- and in doing so convinced large numbers of Americans that Clinton and the Democrats couldn't be trusted. This enabled the Republicans to retake control of Congress. ...

But this Republican strategy will fail. 2010 will not be 1994. There's too much momentum behind universal health care right now to stop it. Yet the Republicans' fake grass-roots campaign may cause some Democratic lawmakers to become even more nervous about universal health care than they already are... The result will be a watered-down set of reforms that still leave millions of Americans uninsured and don't slow healthcare costs. This is why Obama has to fight for this so hard over the August recess, why he has to be far more specific about what he wants in the bill...

I don't think it's clear cut that Clinton's failure to enact health care reform was the primary cause of the Democrat's troubles in 1994, though it probably contributed to some extent. But I want to note something else, the generational difference in attitudes toward reform:

Fifty percent of those questioned in a CNN/Opinion Research Corp. survey released Wednesday morning say they support the president's plans, with 45 percent opposed. The results indicate a generational divide.

"Obama's plan is most popular among younger Americans and least popular among senior citizens," CNN Polling Director Keating Holland said. "A majority of Americans over the age of 50 oppose Obama's plan; a majority of those under 50 support it."

It's interesting that the age group most likely to be covered by a government health plan -- the elderly who are covered in large part by medicare -- is also the group most opposed to change.

"Mass. Bashers Take Note: Health Reform is Working"

An editorial from the Boston Globe defends health care reform in Massachusetts against critics who are trying to use it as an example of what might go wrong with the reform at the national level: 

Mass. bashers take note: Health reform is working, Editorial, Boston Globe: Pundits and politicians who oppose universal healthcare for the nation have a new straw man to kick around - the Massachusetts reform plan that covers more than 97 percent of the state’s residents. In the myth that these critics have manufactured, this state’s plan is bleeding taxpayers dry, creating nothing less than a medical Big Dig.

The facts - according to the Massachusetts Taxpayers Foundation - are quite different. Its report this spring put the cost to the state taxpayer at about $88 million a year, less than four-tenths of 1 percent of the state budget of $27 billion. ... The main reason costs to the state have been well within expectations? More than half of all the previously uninsured got coverage by buying into their employers’ plans, not by opting for one of the state-subsidized plans.

This should be exciting news for those fiscal conservatives, including both Republicans and “blue dog’’ Democrats, who claim to support the goal of universal coverage while despairing over its budget impact. But that’s not what you hear from the Massachusetts bashers. Trying to scare off the nation from helping the uninsured get coverage, Fox News host Bill O’Reilly said recently, “You don’t have to look any further than the universal healthcare mess in Massachusetts to see disaster ahead.’’ New York Times columnist Ross Douthat ... accused President Obama of “pushing a health plan that looks a lot like the system currently hemorrhaging money in Massachusetts.’’ ...

Whether out of ignorance or convenience,... bashers have it wrong. Unlike the Big Dig, health reform came in on time and under budget. It will be proportionately more expensive nationally to provide coverage for the uninsured than it has been here simply because the state began the task with a much lower rate of uninsured, 7 percent, compared with the US rate of 17 percent. But a national plan that relies, as Massachusetts’ does, on both government-subsidized insurance and a mandate on employers to offer insurance or pay a penalty ... should be able to cover nearly everyone without busting the budget. ...

Paul Krugman: Health Care Realities

When it comes to health care, "government involvement is the only reason our system works at all":

Health Care Realities, by Paul Krugman, Commentary, NY Times: At a recent town hall meeting, a man stood up and told Representative Bob Inglis to “keep your government hands off my Medicare.” The congressman, a Republican from South Carolina, tried to explain that Medicare is already a government program — but the voter, Mr. Inglis said, “wasn’t having any of it.”

It’s a funny story — but it illustrates the extent to which health reform must climb a wall of misinformation. It’s not just that many Americans don’t understand what President Obama is proposing; many people don’t understand the way American health care works right now. They don’t understand, in particular, that getting the government involved in health care wouldn’t be a radical step: the government is already deeply involved, even in private insurance.

And that government involvement is the only reason our system works at all.

The key thing you need to know about health care is that it depends crucially on insurance. You don’t know when or whether you’ll need treatment — but if you do, treatment can be extremely expensive, well beyond what most people can pay... Triple coronary bypasses, not routine doctor’s visits, are where the real money is, so insurance is essential.

Yet private markets for health insurance, left to their own devices, work very badly: insurers deny as many claims as possible, and they also try to avoid covering people who are likely to need care. Horror stories are legion...

And in their efforts to avoid ... paying medical bills, insurers spend much of the money taken in through premiums ... on “underwriting” — screening out people likely to make insurance claims. In the individual insurance market,... so much money goes into underwriting and other expenses that only around 70 cents of each premium dollar actually goes to care.

Still, most Americans do have health insurance, and are reasonably satisfied... How is that possible, when insurance markets work so badly? The answer is government intervention.

Most obviously, the government directly provides insurance via Medicare and other programs. ... Medicare — which is ... one of those “single payer” systems conservatives love to demonize — covers everyone 65 and older. And surveys show that Medicare recipients are much more satisfied with their coverage than Americans with private insurance.

Still, most Americans under 65 do have some form of private insurance. The vast majority, however, don’t buy it directly: they get it through their employers. There’s a big tax advantage to doing it that way... But to get that tax advantage employers have to follow a number of rules; roughly speaking, they can’t discriminate based on pre-existing medical conditions or restrict benefits to highly paid employees.

And it’s thanks to these rules that employment-based insurance more or less works, at least in the sense that horror stories are a lot less common than they are in the individual insurance market.

So here’s the bottom line: if you currently have decent health insurance, thank the government. ...

Which brings us to the current debate over reform.

Right-wing opponents of reform would have you believe that President Obama is a wild-eyed socialist, attacking the free market. But unregulated markets don’t work for health care — never have, never will. To the extent we have a working health care system at all right now it’s only because the government covers the elderly, while a combination of regulation and tax subsidies makes it possible for many, but not all, nonelderly Americans to get decent private coverage.

Now Mr. Obama basically proposes using additional regulation and subsidies to make decent insurance available to all of us. That’s not radical; it’s as American as, well, Medicare.

Equity and Efficiency in Health Care Markets

This is an attempt to clarify a few of the remarks I've made over the last several days regarding the need for government intervention in health care markets.

There are two separate reasons to intervene, market failure and equity. Taking market failure first, there are a variety of failures in health care and insurance markets such as asymmetric information, market power, and principal agent problems. These can be solved by the private sector in some cases, but in others government intervention is required.

But even if the private sector or the government can solve the market failure problems adequately, there's no guarantee that the resulting distribution of health care services will be equitable. We don't expect the private sector to, for example, make sure that everyone can live on the coast and have an ocean view if they so desire, we use market prices to ration those goods, but we may want to make sure that everyone can get health care when they have serious illnesses. So equity considerations may prompt the government to intervene and bring about a different distribution of health care services than would occur with an efficient market.

I believe that economists have something to offer in both cases. In the first, economic theory offers solutions to market failures, and though not every market failure can be completely overcome, the solutions can guide effective policy responses. I prefer market-based regulation to command and control solutions whenever possible, i.e. I prefer that government create the conditions for markets to function rather than direct intervention. But sometimes the only solution is to intervene directly and forcefully.

In the second case, the idea is a bit different. Here, equity is the issue so somehow society must first designate the outcome it is trying to produce before economists can help to achieve it. Right now, it is my perception that the majority of people want to expand to universal or near universal coverage if we can do so without breaking the bank, and without reducing the care they are used to. If we can find a way to do that, the majority will come on board. If that's the case, if that's what we have collectively decided we want, then the job of the economists is to find the best possible way of achieving that outcome (or whatever outcome is desired) given whatever constraints bind the process (whether political realities should be part of the set of constraints is a point of contention, so I'll stay silent on that).

So if we are only concerned about efficiency, we do our best to resolve the market failures and leave it at that. We make sure, for example, that people have the information they need to make informed decisions about their care, that there aren't incentives that cause doctors to order too much or too little of some type of care or test, that monopoly power is checked, etc., etc. There's no guarantee that everyone will receive care, or that the distribution of care among those who do receive care will be as desired.

But if we are concerned with equity too - and most of us aren't comfortable watching people suffer when we know that help is readily available (perhaps nature imposes this externality upon us purposefully) - if we won't let people die on the street or suffer needlessly due to our sense of fairness and equity - then we will want to intervene to achieve broad based coverage in the least cost and fairest manner we can find (and there may be other equity issue that are important too).

Both reasons, equity and efficiency, can justify government intervention into health care markets. I think equity is of paramount importance when it comes to health care, so for me that is enough to justify government intervention, and the existence of market failure simply adds to the case that government intervention is needed.

So those opposed to government involvement in health care markets have to first argue that there is no market failure significant enough to justify intervention, a tough argument in and of itself, and also argue that people who, for example, go without insurance or cannot afford the basic care they need deserve no compassion whatsoever from society more generally. That's an argument I could never make even for those who could have paid for insurance but chose to take a chance they wouldn't need care, let alone for those who cannot afford it under any circumstances. I want everyone to be covered as efficiently as possible, and to be required to pay their fair share of the bill, whatever that might be, for the care that's made available to them.

What's the Matter with the Blue Dogs?

Jacob Hacker wonders why the Blue Dogs oppose health care reform that could provide significant help to their constituents:

Health Care for the Blue Dogs, by Jacob S. Hacker, Commentary, Washington Post: The fate of health-care reform ... hinges on ... the ... "Blue Dogs" -- who are threatening to jump ship.

The main worry expressed by the Blue Dogs is that the ... leading bills ... won't bring down medical inflation. The irony is that the Blue Dogs' argument -- that a new public insurance plan designed to compete with private insurers should be smaller and less powerful, and that Medicare and this new plan should pay more generous rates to rural providers -- would make reform more expensive, not less. The further irony is that the federal premium assistance that the Blue Dogs worry is too costly ... would make health-care affordable for a large share of their constituents. ...

Increasing what doctors and hospitals are paid by the new public plan, as the Blue Dogs desire, would only raise premiums and health costs for their constituents. It would also fail to address excessive payments to hospitals and specialists...

Many Blue Dogs fret that a new public health insurance plan will become too large... Their concern should be that a public plan will be too weak. A public health plan will be particularly vital for Americans in the rural areas that many Blue Dogs represent. ...

Yet the Blue Dogs have mostly ignored the huge benefits of a new public plan for their districts. ... Right now, large swaths of farmers, ranchers and self-employed workers can barely afford a policy ... or are uninsured. They will benefit greatly from the premium assistance in the House legislation..., from additional subsidies for small businesses to cover their workers, and from a new national purchasing pool, or "exchange," giving those employers access to low-cost group health insurance that's now out of reach.

And given that Blue Dogs are worried about the ... cost of reform, they should applaud the House bill's requirement that all but the smallest of employers make a meaningful contribution to the cost of coverage. This will not just raise much-needed revenue..., it will also reduce the incentive for employers to drop coverage and let their workers go into the pool, increasing the size of the exchange and the public plan.

Blue Dogs have the future of health-care reform in their hands. If they hold firm to their principles of fiscal responsibility and effective relief for workers and employers in their districts, what's good for Blue Dogs will also be good for America.

Maybe their most important constituents aren't the voters in their districts?

Paul Krugman: An Incoherent Truth

Paul Krugman rubs Blue Dog noses in the pile of incoherence they left in the House:

An Incoherent Truth, by Paul Krugman, Commentary, NY Times: Right now the fate of health care reform seems to rest in the hands of relatively conservative Democrats — mainly members of the Blue Dog Coalition, created in 1995. And you might be tempted to say that President Obama needs to give those Democrats what they want. But he can’t — because the Blue Dogs aren’t making sense. ...

Reform, if it happens, will rest on four main pillars: regulation, mandates, subsidies and competition. ... The subsidy portion of health reform would cost around a trillion dollars over the next decade..., this expense would be offset with a combination of cost savings elsewhere and additional taxes, so that there would be no overall effect on the federal deficit.

So what are the objections of the Blue Dogs? Well, they talk a lot about fiscal responsibility, which basically boils down to worrying about the cost of those subsidies. And it’s tempting to stop right there, and cry foul. After all, where were those concerns about fiscal responsibility back in 2001, when most conservative Democrats voted enthusiastically for that year’s big Bush tax cut — a tax cut that added $1.35 trillion to the deficit?

But it’s actually much worse than that — because even as they complain about the plan’s cost, the Blue Dogs are making demands that would greatly increase that cost.

There has been a lot of publicity about Blue Dog opposition to the public option, and rightly so: a plan without a public option ... would cost taxpayers more...

But Blue Dogs have also been complaining about the employer mandate, which is even more at odds with their supposed concern about spending. The Congressional Budget Office has already weighed in on this issue: without an employer mandate, health care reform would be undermined as many companies dropped their existing insurance plans, forcing workers to seek federal aid — and causing the cost of subsidies to balloon. It makes no sense at all to complain about the cost of subsidies and at the same time oppose an employer mandate.

So what do the Blue Dogs want?

Maybe they’re just being complete hypocrites. It’s worth remembering the history of one of the Blue Dog Coalition’s founders: former Representative Billy Tauzin of Louisiana. Mr. Tauzin switched to the Republicans soon after the group’s creation; eight years later he pushed through the 2003 Medicare Modernization Act, a deeply irresponsible bill that included huge giveaways to drug and insurance companies. And then he left Congress to become, yes, the lavishly paid president of PhRMA, the pharmaceutical industry lobby.

One interpretation, then, is that the Blue Dogs are basically following in Mr. Tauzin’s footsteps: if their position is incoherent, it’s because they’re nothing but corporate tools, defending special interests. And as the Center for Responsive Politics pointed out in a recent report, drug and insurance companies have lately been pouring money into Blue Dog coffers.

But I guess I’m not quite that cynical. After all, today’s Blue Dogs are politicians who didn’t ... switch parties even when the G.O.P. seemed to hold all the cards and pundits were declaring the Republican majority permanent. So these are Democrats who, despite their relative conservatism, have shown some commitment to their party and its values.

Now, however, they face their moment of truth. For they can’t extract major concessions on the shape of health care reform without dooming the whole project: knock away any of the four main pillars of reform, and the whole thing will collapse — and probably take the Obama presidency down with it.

Is that what the Blue Dogs really want to see happen? We’ll soon find out.