Obama Health Care Reform Proposal: New Life, or Last Gasp?

The Obama White House released its health care proposal today in advance of the Thursday bipartisan summit.   The proposal builds off the bill passed by the Senate.  The White House also gave a special nod to Republican ideas incorporated in the proposal.  In this post, I’ll briefly review the proposal, and then review why I believe that many of the parties that embraced the initial legislation will lose interest, and be happy to see this proposal die on the vine.

Main elements:
-          Eliminate the provisions for special deals for Nebraska (and presumably Louisiana)
-          Offer more subsidies to make insurance affordable for the working class
-          Eliminate the ‘donut hole’ for senior citizen prescriptions more rapidly
-          Provide more subsidies to community health centers
-          Create a Health Insurance Rate Authority to oversee health insurance premium increases
-          Regulate health insurers to prohibit some of the worst abuses, including recission , and require more appeals process
-          Decrease the penalty for violating the individual mandate to purchase insurance
-          Impose a payroll tax for employers of over 50 whose employees get tax credits to purchase health insurance
-          $40 billion in new tax credit for small businesses to encourage insurance
-          Crack down harder on fraud and abuse, including better use of databases, harsher penalties, and holding Medicare intermediaries more accountable.
-          Prohibit brand name drug company payments to generic drugmakers to delay marketing of new generic medications
-          Delay of new fees on medical device companies, which would be framed as excise taxes
-          Decrease Medicare Advantage payments to health plans by more, including penalizing those health plans which submit coding suggesting increased illness burden when claims suggest that this is not true
-          Initiate the “Cadillac tax” for high value health plans later, omit dental and vision care, and adjust for age and gender
-          Increase Medicare inpatient tax for high income taxpayers.
-          $10 billion more in fees from pharmaceutical companies (Total $33 billion over 10 years)
-          Increase funding for state Medicaid programs, and make this uniform
-          $1 billion for implementation.

Much of this represents finding a “middle ground” between the House and Senate bills.  Giving administrators the tools to better fight fraud is a good idea, and more subsidies for the working class and small businesses will make it more likely this bill would really decrease the level of uninsured. 

Notably absent is malpractice reform – which would not save big dollars , but could help the bill gain more support. 

The White House estimates that this bill would help insure an additional 31 million Americans, and would decrease the deficit by $100 billion over 10 years.

But I’ve become pessimistic.

Many months ago, before anyone had heard of Scott Brown and when the Democrats got their 60th Senate seat, passage of health reform seemed close to a certainty. In that environment, the stakeholders came to the table and made real concessions (even if some, including me, pointed out that some of these concessions were self-serving – like pharmas which promised $80 billion in prescription discounts in exchange for far more in new business . The insurers agreed to rein in rate increases in exchange for more membership. The physicians and hospitals agreed to lower rate increases in exchange for fewer uninsured patients. AARP agreed to Medicare cuts.  None of these concessions felt painless to these stakeholders, but they were willing to come to the table when it appeared that health care reform was inevitable.  They made concessions because the alternative appeared to be worse – being left out and potentially suffering more severe cuts.

The current rate of health care cost increases is economically unsustainable – but we have what in game theory is called a “Nash Equilibrium”  where none of the players in a multiplayer game are willing to change their strategy for fear other players will not change theirs.  When it looked like everyone would change their strategy – the logjam appeared to be broken. 

Today, the political world is a different place.  Some commentators are talking about a failed Obama presidency, and the Tea Party convention (with its 600 attendees) commanded two days of news attention.   The Republicans are dead-set against deficits, but denounce any attempt to cut Medicare spending by encouraging evidence-based medicine as “death panels.”

Health care cost inflation isn’t sustainable –  and so we will come to a crisis that will break this logjam.  It looked like the Obama administration and its allies in Congress would have broken the Nash Equilibrium in late 2009.  It’s not looking any easier in early 2010.

By the way, the Kaiser Family Foundation has put together a great side-by-side summary of the different health plan proposals.