Philadelphia Reflections

Chicago Sauce on an Arkansas Turkey

Presumably, the proposers of affordable health coverage considered the approach of making it affordable through making it cheaper. Unfortunately, "affordable for every American" is so expansive that some people, somewhere, would require extra subsidy no matter how much prices were cut. Obamacare's supporters would be bitter to discover a two-class system, with them in second class. It did not take long to see how unpopular cutting existing programs would be, first with providers and then with provides. And then Obama advisors must have developed a greater understanding that existing internal hospital cost-shifting meant: Medicare was already subsidizing Medicaid, while the private sector had really been subsidizing the indigent care that Medicaid excluded. The savings to government costs (of universal coverage) were not going to be nearly as much as had been imagined.

So, a subsidy program was required. In addition, ensuring illegal immigrants during high unemployment was seriously unpopular, particularly in border states like Texas, where uncompensated care was already hard to manage. So we can easily imagine how the proposal emerged as: "Affordable health coverage for all Americans (legal residents only) achieved by giving cash subsidies ("refundable tax credits") to lower income groups, and expanding Medicaid coverage above its former income threshold". That wouldn't be a catchy political slogan, but it would be precise.

Such patchwork necessarily made it harder to comprehend. Somewhere in its evolution someone also seems to have determined to rescue Medicare from its impending bankruptcy -- while we are at it, let's fix Medicare. However both ideas, universal coverage and restructuring Medicare solvency, would be expensive; combining them might make the package unsupportably expensive in a recession, but it might also create more opportunity for major progress.

Affordable health coverage for all Americans (legal residents only) was to be achieved by giving cash subsidies ("refundable tax credits") to lower income groups while expanding Medicaid coverage limits to include them. A universal mandate for coverage, (but only our way, or the highway.)

Obamacare Capsulized

Legislative Strategy. It had been sixteen years since the Clinton Plan failed, but a book by Jacob Hacker called The Road to Nowhere outlined Bill Clinton's clever strategy for handling such massive complexity in 1994: by indiscriminately pouring everyone's pet schemes into one legislative package, planning later to remove unpopular prunes in the House-Senate conference committee, but reorganizing a few surviving plums into a unified plan. No one who voted on it would really know in advance what was to be left in the final pudding.

The Obama administration seemed to follow the same path. Modifying the pathway to a Budget Reconciliation Committee added the novel advantage of avoiding the Senate's 60-vote anti-filibuster rule, thus requiring only a simple majority to pass the Senate when it returned. It still needed 60 votes in the Senate to prevent a filibuster on the initial round, so the original Senate contribution to the conference committee had to contain a lot of goodies, just to get to the conference committee -- in order to be dropped.

In the flurries of lobbying activity, hospital advocates have suggested uninsured patients just appeared at hospital accident rooms, effectively causing other patients to subsidize them. That was somewhat true, but extending the idea to a claim the government was already paying for all indigent care, was a stretch because hospital cost-shifting was laying most of the cost on the private sector. To go further and proclaim that including indigent care under the insurance coverage umbrella would thus be cost-free, did really strain the facts. How could it be cost-free and still cost a zillion dollars? Right from the start, this proposal was making itself hard to defend.

The sound-bite is: the Obama health reform proposal of 2009 will extend affordable health insurance to poor Americans (citizen), and save Medicare from ruin by cutting costs. Because this still won't pay the bill, the rest of the nation must get less coverage for more cost.

So, at the end of September 2009, the country confronted multiple thousand-page bills from the House of Representatives containing wide assortments of liberal ideas, and a more conservative Senate proposal from Senator Baucus (D, Montana) representing the views of the Democratic caucus within the Senate Finance Committee. The British magazine The Economist promptly snorted; Senator Baucus' bill was "Half a loaf, half-baked." Since laws passed by strict party votes are in danger of prompt reversal when the other party next gains majority control, Senator Baucus had been struggling to achieve some Republican support but apparently decided bipartisanship was not worth the delay. In any event, the Senate's assignment was to get past a filibuster; the real zingers could come from Nancy Pelosi's House bill. Andy Stern the labor leader, had appeared on a television show offering no arguments at all, merely demanding a vote be taken instantly, presumably before public support eroded. Moderate House Representatives are characteristically most concerned with being turned out of office after passing a controversial proposal because they face election every two years. The much more liberal leadership of the House, with seniority because of their safe gerrymandered seats, are however more likely to honor extreme partisan demands. With a safe Democratic majority of the House, a few moderates could be spared to "vote their conscience".

Because the Senate thinks of itself as the sensible, deliberative body, oversight of law remains with its originating committee, to preserve the connection to the "intent of Congress". Because Medicare and Medicaid are amendments to the Social Security Act, the Senate Finance Committee has maintained jurisdiction over these three social benefit programs. A "unified budget" made it easier to shift one program's surplus to cover another's deficit. In the House, with turnover every two years, continuing oversight is mostly assumed by the Appropriations Committee, on the grounds that this is the only committee which reviews every ongoing program, every session. But the realities of the program mix with the quirks of the Senate, and for over forty years whatever the Finance Committee says about Medicare, pretty much goes. During the fall of 2009, this group of old colleagues could be seen on C-Span, gently joshing each other, and even more genially suggesting their disagreements. Each member of Finance belongs to several other committees, but on Medicare, they know their stuff and have a loyal staff to remind them of what they have forgotten. They considered 550 amendments to Obamacare, and stubbornly defended the right of each committee member of either party to be heard courteously, in spite of what must have been a wild frenzy of pressure by unions and other partisans, to be done with it. Their patient labors turned up one issue that party leaders -- especially the Governors -- probably wish they had left alone.

Blow away the smoke. Obamacare is about fixing Medicaid without admitting who, or what, caused it to need fixing.

The nut of the matter.

The fifty Medicaid programs are a big mess. They are run by state governments with Federal provision of at least 57% of the funds, and in some cases over 80%. Some states offer eligibility to those with incomes at only half of the poverty level, others go to several times the poverty level. Their tendency is to use the HMO model of healthcare delivery, but it is an individual state option. Minority groups absolutely hate HMO. The fraud level in Medicaid is by far the largest in the whole government. The quality of care is uneven, but it is always going to be somewhat substandard since it pays well below cost and deals with high-crime populations, amid uncomprehending chronic poverty. It attempts to deal with the deplorable psychiatric inpatient problem, which is in its present condition because of bungled regulation. Medicaid under-reimbursement is the main cause of hospital cost shifting, which causes still other distortions. And so on. If you search for an explanation of the bizarre statistics on infant mortality, the ranking of U.S. "health care quality" as 19th in the world, etc, the explanation is to be found right here. To the extent that statistics are not rigged in order to make certain countries look good, the poor rank of American healthcare reflects the sadly underfunded Medicaid programs.

Even the medical profession is largely unaware of Medicaid issues because most members of mainstream medicine have long stopped accepting membership in the program, in part because of its laughable reimbursement, but more importantly, the HMO organizational model makes it impractical to treat an occasional poor person free of charge and skip the paperwork. It, therefore, is sometimes true that some Medicaid physicians see nothing else. And finally, hear this: Senator Grassley muttered that 90% of the cost of Obamacare is aimed at fixing Medicaid, and no Democrat on the committee corrected him. When you get down to it, Obamacare is a very expensive program for making Medicaid what it ought to be, and definitely isn't. Originally confined to Maternal and Infant Care, its money is largely spent on nursing homes. This would make a perfectly plausible explanation for why it has been so hard to see what the new proposal is all about -- it's about fixing the old mess which state and federal governments created, while at the same time hoping to extend a similar program to the rest of the country later, as a "single payer" system. Senate Finance has a difficult tap dance with this one, but they have put their heads down and are plodding on.

Eighty percent of the cost is devoted to fixing the flaws of Medicaid.

Senator Grassley

Many unexpected developments are still possible in an on-going debate, but it seems timely to examine the Obama proposal as presently visible at half time, so to speak. What is so far proposed of consequence, and what problems would be cured?

Employer Mandates. First, nearly universal health coverage hopes to be achieved by mandates, making it illegal not to be covered, imposing fines for non-compliance. It does not seem extreme to predict a rise in the fines to a level where they support the rise in costs they provoke. That would serve the initial problem of pacifying the public during the early going, but ultimately justifying the Supreme Court assessment that it was a tax, not a penalty. Unfortunately for this idea, Justice Roberts stated in his opinion that the fact that the penalty was so low proved it was a tax. If the penalty tax was raised enough, it would prove it was not a tax, and therefore the universal mandate would become unconstitutional because the rest of the Court had already agreed that the Commerce Clause did not support it. Chief Justice Marshall once opined that "The power to tax is the power to destroy" which generates the justification that only a small tax is safely small enough to be a tax and not a penalty. It follows that while the Constitution permits the Federal Government to tax for revenue, it is not an enumerated power to tax in order to coerce or destroy. Justice Roberts may have been tipped off, but if not it was a shrewd guess.

Obamacare closes the safety valve that just about every poor person has long been eligible for Medicaid, but few of them actually join it until they get into a hospital and the social worker signs them up. The true antagonism of poor people to "Welfare medical treatment" has yet to surface into public view. Mandates are always unpopular, but back in Washington two competing ideas for mandates once headed for a conference committee. Because of the tax preference for the purchase of health insurance by employers, we still have a largely employer-based system, defining for poor people what normal health care looks like. As hospitals (responding to the shift of Medicaid costs to Medicare which they are forced to make) have increasingly shifted the costs of indigent care onto employer-based insurance, those employers who participate are increasingly anxious to make their competitors stop evading "their share". Unfortunately for this proposition, the non-participating employers never agreed to subsidize someone else, and do not feel bound by any moral strictures surrounding the demand of big business that their competitors are obliged to share a burden which big business decided to assume for its income tax benefit. If you doubt that small business and big business are competitors, just ask yourself what small retail businesses probably think of Amazon and Walmart. Then ask yourself whether very many small businesses benefit from ERISA.

Since almost all interstate employers already buy insurance for their employees under the coverage of the ERISA law, representatives of large employer groups want their competitors, especially foreign-owned, to experience equal expense. Big employers would thus be pleased with an employer mandate: employers who do not provide employee health benefits would be fined. Big employers are not so much threatened by little ones, as anxious to avoid government regulations which ultimately favor smallness as a preferred business model. By contrast, small employers are resistant to the employer mandate, amplifying the political perspective that increased cost would particularly hurt new employment in the present recession. Small employers enjoy and would hate to lose, the reputation of being the largest source of new jobs in our economy. Employer mandate might indeed ensure some uninsured people but the remaining uninsured would be unaffected. An employer mandate solves some purposes of big business but probably injures small business to a degree offsetting the cost-shifting argument. So, although an employer mandate was on the table, Senator Baucus proposed the individual mandate which Representative Pete Stark of Berkely, California had been advocating for years. That is, every person found without health insurance would be fined. Recall now, that Chief Justice Roberts introduced the qualification that the fine must remain small to be called a tax. Presumably, compliance would be even less than the widely-evaded mandate for automobile liability insurance.

One cannot leave the subject of mandates without the impression that there is some poorly understood connection with the Henry Kaiser income tax preference for employers who provide employee health insurance. Almost nothing can illustrate the intensity of warfare between big business and small business than this. Large employers definitely do not want to share this benefit with their smaller competitors, and definitely, do not want to say so in public. To the rest of the public, big business is taking the wrong side of the fairness argument, to say nothing of the Constitutional argument about equal treatment. But there is no other source visible for the seventy-year defense of the indefensible which has long convinced Congress that the tax inequity is politically impregnable, and cui bono will have to suffice. As long as this remains the case, there is some hope that some Congressman will be willing to fight it out.

Individual mandate creates a somewhat different political problem of what to do about recalcitrants who are both sick and uninsured, who must now fear punishment as much as their illness when they appear for treatment. They are unlikely to forget which congressman voted to create the vexing outcome of fearing-to-seek-treatment. The Congressional Budget Office summed it all up: we started with forty million uninsureds, but it is most likely we will be left with thirty million uninsured (and now resentful) persons, including 7 million who are in jail, an equal number of mentally retarded or disturbed, and 11 million illegal immigrants. The very vocal remainder is hard to classify and hard to count. But the CBO is probably right, it's hard to see how insurance reform of any description will get the number much below 30 million.

Give the tax exemption to everyone, or give it to no one.

A second difficulty with the individual mandate is that it exposes the long-standing inequity in the Henry Kaiser tax law. The main reason we continue a largely employer-based system is that purchase cost is effectively reduced by the tax discount when an employer buys it for an employee. Self-employed or unemployed persons do not now receive this tax-discount. For seventy years it has been desirable to extend this tax exemption to everyone equally, both for fairness, and to create portability mitigating the pain of pre-existing condition exclusions. Pre-existing condition exclusion always existed, but it is the linkage to portability between jobs that makes it such a wide-spread issue. But the employer-based system might lose its main reason to continue, so that particular consequence has yet to be addressed. Inverting the traditional relationship between being sickly and paying higher insurance premiums has never sounded completely plausible, but we are now going to see what happens if we try it that way. Additionally, the political consequence of not equalizing the tax preference would get worse. Compelling millions to buy individual insurance, while at the same time denying them everyone else's tax exemption for it -- is not likely to survive long once it gets public attention.

Give tax exemption to everyone or give it to no one, or give it for a lesser amount, but give the same thing to everyone if you hope for re-election. While tax equity is not in the current legislation, it might as well be, and the CBO should be asked to score it as part of the eventual cost. And finally, no mandate in sight during a recession would insure illegal immigrants, who are a large part of the uninsured problem in certain regions. It is reported that sixty percent of uninsured persons are concentrated in Florida and the four states bordering Hispanic America, a fact that ten senators and several dozen congressmen are sure to notice. Proponents of amnesty for illegals have undoubtedly thought about this matter. Opponents of amnesty are apt to see immigration reform as just a way to cloak the costs of Obamacare as an unrelated issue.

Now turn to the other main objective of reform legislation, to reduce the high costs of medical care. The poster child of this objective, possibly the central issue agitating many politicians, is the approaching bankruptcy of Medicare. To skip over technicalities, accumulated subsidies of fifty years of Medicare recipients have created unfunded liabilities that make Medicare the largest single debtor on the planet, unless someone wants to compete with $250 billion a year. If you think about it, Medicare would have no debts at all if it were self-supporting. Until something is changed, the fifty percent subsidy of Medicare by borrowing from general tax revenues is steadily making the problem worse. The understanding of the public is just beginning to realize that Medicare is so heavily subsidized, and this is probably the main source of its popularity. Ignoring how this growing debt was created, it is accompanied by fifty years of promises to every citizen about what they are entitled to. Perhaps it was believed that an uproar over reducing Medicare benefits could be softened by burying it in a nationwide reduction of all healthcare costs, but half the cost of Medicare is a pretty big nut to bury, and fifty years of accumulated debt is just about impossible to hide.

In fact, such expansiveness provokes more suspicion that something is being slipped in by the back door. In angry town meetings which frightened congressmen, held during the August 2009 recess, one speaker after another went to the microphone and said something like, "I have excellent health insurance and I wish everybody else had it, too." Following which, something was immediately said equivalent to, "But don't you dare take my good coverage away from me to give it to someone else!" And not invariably, but often enough to make it emphatic, some would add, "I voted for you in the past, but I'd never vote for you, again." No doubt, every one of those congressmen was asking himself how the party leaders could have got him into such a fix. Why don't we try something else? Senator Baucus offered to pay for reform by putting a tax on health care providers, but every worried citizen quickly saw that taxing providers will raise costs, not lower them. Credibility is waning.

The Affordable Care Act would cost a trillion dollars, and still, leave 5% of the population without insurance.

The Congressional Budget Office

An adage is getting hardened: Increasing access to subsidized health care is not compatible with cutting costs, and won't even produce universal coverage. It is increasingly difficult for presidential oratory to reverse that opinion. The Congressional Budget Office has not pronounced the Obama plan to be an unachievable goal, but after examining an enormous pile of studies, it amounts to that. They simply said it would cost a trillion dollars, and would still leave 5% of the population uninsured. In one sentence, the CBO probably killed a lot of strategies.

Still, the Obama administration gamely plunges ahead, seemingly forgetting that defeat of the Clinton health plan was followed by a mass eviction of incumbent congressmen; by their analysis it wasn't a bad plan that made trouble, it was failure to pass the bad plan, which it must be recalled was a universal HMO system. The Clintons avoided public defeat by pulling that legislation away without a floor vote. But at least they did escape the backlash against what would then have been a ruinously unpopular program. It is not unrealistic to surmise that Obama would never have been elected to a first term if Clinton had not backed away from his version of healthcare reform. Right or wrong, some Democratic congressmen are certainly toying with that heretical idea.

For one thing, the public has always been bewildered by the need for such a rush, such a collision. We are now fighting wars and struggling with the worst depression since 1930. All of those major projects are going poorly. Why in the world would we believe that reforming health care is our major priority, right now?

The following section closes the discussion of the main features of the Obama plan and ignores thousands of pages of legislation not yet implemented. The law is mainly made up of earmarks, boondoggles, and in consequence -- the usual contents of an annual budget reconciliation act produced at Thanksgiving or the day before Christmas. We hear nothing about tort reform, which at most will produce a study or a pilot program. Nor the public option, which Senator Baucus said cannot pass the Senate, and about which former Senator Dole said he heard, but scarcely would believe, that the Public Option was just a smokescreen intended to distract the public while the rest of the bill slipped past the uproar of Public Option getting defeated. The fate of the expensive but inconsequential computerized medical record would once have depended on the precarious health of Senator Byrd of Virginia, who had long held a stranglehold on government computer procurements, but which now mainly perplexes us as to what to do with it. Blue-sky yarns about the value of the Electronic Medical Record abound. But except for large group practices which do seem to need it, most doctors see EMR as an expensive way to add two hours a day to their already overloaded workload and badly compromise patient privacy in the process.

Originally published: Friday, September 18, 2009; most-recently modified: Wednesday, May 15, 2019