23 March 2010

Turning Point

Passage of health care reform feels like a turning point in the Obama Presidency.

The Basics

The basic points are simple enough: Medicaid eligiblity will increase to 133% of poverty (about $29,327 for a family of four) and subsidies will be available for purchases of health care for families earning up to 400% of poverty (about $88,000 a year). Employers will be required to provide health insurance, and those who don't have employers will be required to buy it or face a tax penalty. There are some subsidies for employers. These core provisions take effect in 2014.

This is supposed to bring the percentage of people insured to about 95% of the people, bringing access to health care to 32 million people. Of the 5% left out, about a third are undocumented immigrants (about 8 million), about a third a Medicaid eligible people who don't apply for Medicaid, and about a third will be subsidy eligible families who still can't afford health care. A small number will be willful people who prefer to pay fines than get health insurance even though they can afford it.

The Medicaid eligible will be able to be brought swiftly into the system with little penalty once they get sick, and the willful who stayed out of the system will likewise be able to buy in even though they didn't get in until the had a condition, with penalties they can afford. The middle class affordability gap will probably be narrowed by the package of fixes headed to the Senate and subsequent legislation, much as the Medicare Part D "doughnut hole" has been.

Earlier, the Medicare Part D "doughnut hole" will be filled with a $250 credit, the national equivalent of the subsidized "Cover Colorado" high risk pool insurance will be made available to all, children can stay on their parent's policies until age 26, pre-existing condition limits will go, and cancellations for sick insured won't be allowed.

In 2011, insurers will be rquired to spend at least 80% of premium dollars on medical services. Medicare reimbursements will be cut. In 2013, singles making more than $200,000 and couples making more than $250,000 will see an increase in Medicare payroll taxes and in taxes on interest, dividends and unearned income. In 2018, a 40% tax on large premium health insurance policies kicks in.


No government subsidies can be traceable to abortion coverage. There are about 1.2 million abortions per year in the United States, with an average cost of under $500 and a range of $90-$1,800 in most cases. About 14% of that cost is paid for with state level public funding in liberal state for poor women. The total cost of abortions provided in Colorado is on the order of $5 million a year. This is a sum within the scope of what private sector funds and individuals on a fee for service basis can finance.

This minor political win for abortion opponents, in line with prior policy, leaves that movement with little to fire up its base.

Summing Up

Some details may change if the Senate passes the reconcilation bill this week or next, which seems rather likely, although it may pass some amendments that take one more vote from the House afterwards.

The final deal is remarkably modest. There is no public option, no new government healthcare program, no new network of healthcare providers, no takeover of private health care providers, no takeover of insurance companies.

Essentially, the bill makes health insurance mandatory, cuts some slack for those almost eligible for poverty based health care coverage, and engages in some utility-like regulation of private health insurance companies.

But, this bill puts us on a new moral foundation. Our system now assumes that everyone should be have access to health care. It assumes that health care providers should receive compensation on a fee for service basis for almost everyone without major acts of charity or risks of bad debt.

We will have to wait. Pray that you stay healthy for another four years. But, the writing is now on the wall.

Health Care Politics

Every single Republican in the House, a few conservative Democrats, and almost every Republican in the U.S. Senate is on record opposing this health care reform. So are about a dozen state attorney generals who are getting ready to file frivilous constitutional challenges to the bill.

I suspect that this united front against health care reform will do dire harm to the GOP politically. They offered no reasonable alternative. This political call will rank up there will GOP opposition to civil rights legislation, and with the extreme pockets of the GOP who still want to repeal Social Security and Medicare.

It is easy to stir up fear based upon straw man legislation that might be passed by Congress. But, once the dust has settled, individuals and businesses will be able to see how they came out in the health care debate and a great many Republican voters will learn that they are better off and that the fears that they had didn't materialize. It is much easier to be a myth bustered once an act is on the books to compare against political claims.

Further Incremental Change

The passage of this health care reform also clears the decks for further incremental change.

In the midst of a wide ranging debate over health care reform, it is easy for a public option to become muddled into a discussion of socialized health care. In a debate over a short, narrow bill eliminating an anti-trust exemption for health insurance companies and creating a new government sponsored, unsubsidizied non-profit health care company, it is far harder to twist a public option into something menancing, rather than as one more tool for cost control.

Debates over which public program subsidizes health care coverage for whom are less likely to push debate into the fenzy we've seen so far in the health care debate.

Debates over reducing one small revenue tax, such as an excise tax on large premium health care plans, in favor of some other small revenue tax, like the self-employment taxation of stock options, are likewise likely to be more contained.

Simplying eligibility for Medicaid in a way that increases the percentage of people with health care coverage is easier once it becomes clear that most people really are getting private health insurance coverage and that the easier eligiblity requirements don't have much of an impact on program cost and prevent providers from being stiffed.

When it turns out that many people who can afford COBRA coverage end up receiving Medicaid coverage, the budgetary barriers to subsidizing COBRA coverage will fade.

New legislation will try to provide more coverage to undocumented immigrants and their children who are pregnant or children. Improving access to dental care is also likely to become an issue.

There may be experiments with providing more health care to children through the public schools.

Now that the big debate over near universal coverage is concluded, the far more technocratic issues of cost control will take center stage. The reforms made in this round will leave private insurance companies more fat and less prone to overplay their cards in the political arena. But, control of excess provider costs will start to take a more prominent part of the debate. Legislation will probably take a divide an conquer approach. One round of legislation will address cost control in the pharam sector. Another will address medical equipment.

Others legislation address compensation for professionals, probably indirectly at first, by giving insurance companies and others more bargaining power and requiring more transparency in pricing. Professional compensation parity between Medicaid, Medicare and private insurance is likely to become an increasingly pressing priority for health care professionals.

Health Care Reform Implication

State legislative support for this health care reform will surge when it becomes clear on the ground how much relief greater levels of private health insurance coverage is going to provide to publicly funded emergency care and public health care clinics, hence easing their budgets. Many public health care institutions that previously relied heavily on public spending will now become nearly autonomous economically.

Dramatic reductions in bad debt levels and charity care are going to ease provider cost inflation. Establishing new primary care practices in low income areas will begin to look much more attractive than it once did. Many newly minted doctors just starting medical school now will choose to start these practices which will become economically viable right around the time they are done with their medical training. These doctors will also become commmunity leaders and a force for advocacy in the communities where they establish their practices (filling a gap that declining ranks of personal injury lawyers once filled).

Greater availability of health care is probably going to decrease the number of people who feel that they should file personal injury lawsuits, and will indirectly lower liability insurance coverage costs of all kinds. This may lead to a resurgence of no fault automobile accident regimes, in which health insurance is primary over automobile liability insurance for medical expenses. Universal health care coverage is going to take a great deal of pressure off worker's compensation regimes and will probably eventually lead to a major overhaul on a state by state basis of the worker's compsenation system.

These developments in personal injury and worker's compensation law are going to take the wind out of the sails of the tort reform movement, and are going to cause many personal injury lawyers to seek out other practice areas.

Preventive care utilization will go up a little, chronic care utilization will go up meaningfully, acute care utilization will go down a little, and medical cost related bankruptcies will decline a great deal.

Crime rates will go down incrementally as more people gain access to psychiatric care, and as people who previously had access to health care only while incarcerated will now have it when not incarcerated.

Greater access to health care is going to spur a boom in small business formation, as it will be possible to start a new business while having health care. This boom may be the biggest driving economic force of the decade or so from 2014 to 2024. It will greatly reduce the benefits of being part of a large firm or franchise.

Mandatory health insurance expenditures are going to drive up the cost of low skilled work in the small business sector relative to the cost of full time work from office workers and manufacturing sector employees. The mandate will be the biggest compensation boost to workers in the bottom 80% of the income scale, despite the fact that this mandate will probably mute wage and salary increases for a considerable time.

Independent insurance agents offering individual health care plans will see a huge boom in business comparable to the boom seen in the ranks of mortgage brokers and realtors during the housing bubble.

American public health indicators like infant mortality rate and death rates from preventable diseases are going to improve.

Regualtory suspicion of new ambulatory surgery centers will decline, as the need to avoid the economic obligations that come with ER status fade, but ERs should be under much less financial pressure than they were.

A decreased likelihood of having savings wiped out by medical emergencies will make savings more attractive for working class people.

Political Climate

The health care reform dispels the notion of the Democrats as impotent. They promised change and this is the biggest change, although not the only one, that they will be able to deliver. This influences the large political climate.

The Iraq War and health care reform were the two most important issues for President Obama's supporters, and he can now fairly claims to have delivered significant results on each of these matters.

Foreign Wars

Before the 2010 election, a major drawdown of troops in Iraq will be complete, and the situation in Iraq appears to have stablized. Political and ethnic violence hasn't ended, the quality of life has still probably not returned to pre-Iraq War levels, and the country is far more ethnically segregated than it was before the Iraq War. There remains a large population of Iraqi exiles, many formerly middle class, who are actively involved in Iraq. But, they seem likely to settle into being communities in exile for the time being, rather than returning en masse. The elected civilian government in Iraq seems capable of managing to function in a stable manner secure in the knowledge that safety blanket garrison force of about 50,000 U.S. troops are there on a long term basis and could intervene if things get out of hand. Before President Obama's term ends, if the civilian government in Iraq manages to keep its house in order, he may be able to withdraw even more U.S. troops.

The U.S. war in Afghanistan, now going into its tenth year, seems to be on track. Our allies have not departed. The civilian government we helped put in place seems to be managing a limited by stable functionality. Taliban activity seems to be done there and in neighboring Pakistan, and the al-Queda and Taliban forces seem to be on the back foot, which is not to say that they are fully and finally defeated. The U.S. is still entangled in what looks to be a long term counterinsurgency to help maintain a regime that is not ready to have the training wheels taken off. But, it is certainly not an obviously lost cause and U.S. casualties seem to be under control for now.

The likelihood of new military engagements involve Iran, North Korea or China seems lower now than it did during the administration of George W. Bush, despite the fact that tensions remain. The U.S. also does not seem to be on a collision course with Russia, and the situation in Israel does not look likely to deteriorate rapipdly in the near future.

Economic Legislation

Congress has passed multiple rounds of stimulus legislation and preliminary responses to the abuses found in the financial crisis. Many of the programs seem to have been only marginally effective (such as the housing credit). General Motors and Chrysler and AIG have all become government owned enterprises, and Fannie Mae and Freddie Mac have entered government receiverships. What matters is that Congress did something which may have helped, and that the worse seems to be over.

Some form of major regulatory reform on a par with Sarbanes-Oxley in scope and signficance seems likely to become law before the next election. Confidence in the ultimate passage of some sort of financial system regulatory reform is enhanced by the success of health care reform. The details will matter only to professionals and historians, but but fact that something significant gets passed will again help Democrats dispel the notion that they are impotent and convey the ideas that the adults are in charge again in Washington.

The Courts

President Obama has put Justice Sotomayor on the bench and she has fit comfortably into the place on the left side of the bench that she is filling. The President will likely get to replace the liberal and aging Justice Stevens as well, and history suggests that stopping a U.S. Supreme Court nomination is very hard, even when opponents have more seats in the U.S. Senate than they do now.

The President is lagging in appointing lower court judges, but should have time and the political ability to get these posts filled with judges generally favorable to his political philosophy, even if Democrats lose a few seats in the Senate in the 2010 election.

War on Terrorism

The President has taken a decidely military approach to foreign terrorism in a number of low profile military actions (like providing military support for Kenyan intervention in Somolia), while waivering between a criminal justice and a George W. Bush style enemy combatant approach to suspected terrorists domestically.

President Obama is fumbling around having immense difficulty meeting his campaign promises related to Guantanamo Bay and war on terrorism methods, but the Guantanamo Bay problem is partially resolving itself as other countries bit by bit offer homes to detainees, reducing the number of people whose cases have to be resolved. Soon there will be scores of cases to deal with, instead of hundreds.


Despite bipartisan support, Colorado's rural conservative city of Yuma recently passed a resolution asking for action on immigration reform, for example, immigration reform looks like it may not get action before the next Congress.

The basic thrust of Obama's proposal is straight forward: a path to citizenship for those who are already hear and want to play by the rules, easier access to legal visas, tighter identity paper standards, tighter border control and stronger employer sanctions for hiring illegal immigrants. Most Democrats and a significant minority of Republicans prefer this approach. But, a widespread consensus on the issue is not likely to emerge.

The lesson of health reform, that consensus isn't necessary to pass legislation and show that you can accomplish something, and the experience of successfully passing financial regulatory legislation may be necessary before the Obama administration gets enough fire in its belly to tackle immigration reform.

In the meantime, immigration policy is being made peacemeal. The exclusion of illegal immigrants from the benefits of the health care reform package was predictable, but a notable win for anti-immigrant forces. Criminal prosecutions for immigration offenses are way up, flooding the nation's jails, in a policy that seems to be more of a holdover from the last administration than the current one. Enthusiasm for a Berlin Wall/Israeli border style border fence seems to be waning in light of environmental and practical concerns over its construction.

The facts on the ground are changing too. Two of the industries most stereotypically associated with illegal immigration, construction on one hand, and motel and hotel service on the other, have been hurt by the recession more than almost any other inudstries, leaving many illegal immigrants without jobs and causing many illegal immigrants to return to their countries of origin. The total number of illegal immigrants in the United States is declining rather than increasing.

An increased supply of legal visas and a path to citizenship would reduce the ranks of the undocumented even more. It would also further cement the bond between the Democratic party and all manner of minority groups in its political base. But, it isn't clear if there is the political will to make this happen.

War on Drugs

President Obama's administration has created a truce by agreeing not to prosecute marijuana trafficing in compliance with state medical marijuana laws.

A compromise bill to reduce crack cocaine penalties relative to power cocaine penalties seems likely to pass. It is less than one might reasonable hope for and maintains an irrational distinction, but still significantly reduces currently draconian prison terms for about three thousand federal criminal defendants a year.

Many states are going far further and Colorado may be among them, both in tolerating marijuana and in reducing stiff penalties for illegal drug related crimes.

The administration has not taken bold moves so far on criminal justice issues, despite saying positive things in speeches, other than the marijuana issue, and has even dragging its feet on shutting down a Bush Administration program that puts immense resources into cracking down on the non-problem of pornography to the point where federal judges are starting to band together and ask the United States Sentencing Commission to rethink existing sentencing guidelines in that area.

President Obama, perhaps wary of the political consequences, has also let his pardon power go unused, rather than using it as a powerful political tool.

Gun Control

Imminent U.S. Supreme Court recognition of a weak individual Second Amendment right to bear arms for self-defense that can be used to invalidate state and local government laws is likely to be come a reality later this year (the right already has been established vis-a-vis the federal government). President Obama has repeatedly said on the campaign trail that he believes that such a right exists, despite paranoia in anti-gun control circles afraid that the administration will confiscate their guns.

While the substance of the right isn't something that most liberals would favor, like TABOR in Colorado, it helps Democrats by making the fears of those who oppose gun control less credible, and by giving the Second Amendment an authoritative interpretation that is less extreme than the one ascribed to it by gun rights activists.

The Balance of Political Power

The current session of Congress has the most liberal collection of Senators and Representatives in a century or more, but has prior to the health care reform victory, failed to exercise that power effectively. There have been times when there have been somewhat larger percentages of Democrats in the past century, but in those eras a large percentage of them were Southern conservatives. Now, conservatives make up only a small share of the Democratic caucus and are counterbalanced by a handful of remaining moderate Republicans. Liberal leaning Democrats now hold narrow majorities in the House and the Senate, both the President and Vice President are liberal leaning Democrats, and four of the nine justices on the United States Supreme Court are liberal leaning, while a fifth, Justice Kennedy, is a moderate conservative. Liberals, conservative Democrats and moderate Republicans and independents combined in the U.S. Senate hold a filibuster proof sixty seats in the U.S. Senate.

Liberal leaning Democrats still need to make compromises in Washington, but they are now the clearly most powerful faction in our national government, while conservative Republicans are at their nadir, are divided amongs themselves, are out of touch with the American people, have no ideas, and have no mechanisms to offer up policy agendas of their own. Conservative Democrats and moderate Republicans haven't been shut out, but they can be voted down in the U.S. House, and have no home in the White House. They need the protections of the anti-democratic rules of the U.S. Senate of the moderate swing vote of Justice Kennedy on the U.S. Supreme Court to continue to exercise power. They can be powerful deal makers, but they don't drive the agenda.

Campaign Finance

The U.S. Supreme Court in its Citizens United case has seriously impaired the ability of any campaign finance system to limit the role of corporate and union money in political debates, including those over candidates.

Practically speaking, this doesn't matter much from a dollar perspective. The old campaign finance rules were already full of loopholes. But, the changing campaign finance rules will have some impact on how political campaigns are conducted.

More spending hurts Democrats a lot less now, when they can attract support through incumbency, than they would have at a time of Republican dominance.

But, it isn't clear how the new rules will play out in practice.


With the passage of health care reform, the Obama administration finally seems to have some hope of going into the 2010 elections with significant accomplishments to campaign on that will be popular with the public when the dust settles.

It has taught the administration how to win legislative battles and the political importance of having legislative accomplishments. These are critical lessons for an administration that has a strong position in Congress.


Michael Malak said...

The talk show hosts on 760 AM are incensed that Democrats in general, and Kucinich in particular, dropped support for the public option, which of course would have paved the way for single payer.

Even though I advocate for free market solutions, I have to admit that single payer would be better than the new healthcare bill, or even our current system.

The penalties on employers are going to kill jobs. $37,500/year for hiring employee #50 and $1 million/year for hiring employee #200. (And an equal savings for firing #50 or #200.)

Andrew Oh-Willeke said...

The public option has almost no relationship to single payer. Drawing a connnection between the two inaccurately muddies the waters.The public option is simply a government sponsored health insurance company without a profit motive.

The penalties on employers are not going to kill jobs, because the overhwelming majority of employers with 50 or more employees already get health insurance as a matter of economic reality. In 2009, more than 98% of employers with 200 or more employees and 95% of employers with 50-199 employees provide health insurance (and hence aren't subject to the penalty). Also, the penalties ($750 per employee for a 50 employee firm and $5,000 per employee for a large firm), if a company chooses to pay then and not provide health insurance are far lower than the cost of getting health insurance.

The plan simply avoids a race to the bottom. More costs for you don't kill jobs if your competitors do the same thing and everyone in the market collectively increases their prices a little as a result.