Thursday, December 21, 2006

Digging Into the Healthy Americans Act

As Carla pointed out earlier this week, we've mostly stood by as the parade of commentary over Ron Wyden's major health care reform proposal has been debated. Not for lack of interest or editorial reasons, but because we wanted to make sure we understood how the program was intended to work, and whether unintended consequences would impact their plans.

At this stage I have to place enormous blessings on the Senator himself and several of his top staff members, who have repeatedly talked with us by phone including weekend nights, responded to email, endured aggressive questions of accounting and ethics--and did it professionally, candidly and with good humor. It's their job to serve the public in that way, but they can't possibly give that kind of service and patience to every one in their constituency--so we're honored to have the chance to put them through their paces on the program, and we owe them and you a thoughtful response.

At the Senator's proposal website, somewhat abstractly named Stand Tall For America, there are the various testimonials, professionally and among the larger or influential hometown blogs. Carla's preliminary endorsement is there, as are excerpts from DailyKos diaries, and it's where I read about the program first, actually--and my experience was different.

It will be interesting to watch DailyKos react to Democrats in the majority, because it has an insurgent's mentality. They took Wyden's plan apart, they being the hardcore supporters of single payer reform. Because the plan continues to involve the same health care companies delivering the insurance, without a single payer option, to the idealized Left the plan is a sellout insult. Don't get me wrong; I think single payer is the ideal model, and I don't think Wyden's people would necessarily disagree out of hand. But they are frank about political reality, and they see a fight for 51 on this, much less something Bushproof.

That's not necessarily their angle, although of course they intend to press for passage. This is Ron Wyden trying to get rubber to meet road on the health care situation. Ironically, the plan that is the child of multiple work groups and prior programs has been labeled as the plan to stop all planning, and get Senators on record. In a conference call regarding the proposal, Wyden said "elected officials are way too timid," and it is his intent to draw them out. The time for white papers is over!--so reads the white paper, but soon enough it will become a living bill, subject to amendment, stripping or stuffing.

What's the idea? In a nutshell, the burden of contracting for health care will move from your company to you. Your company (or government) will "cash out" of their health care benefit programs, giving you some of the money, and some into a giant health care kitty. The DHS then holds what amounts to a massive nationwide healthcare auction, with up to 30 prescreened insurance providers, all of whom have to provide a basic coverage plan that is "actuarially equivalent" to what federal employees get--rather puffily referred to as "the same as Members of Congress," something that is about as technically true as techinal gets. Nancy Pelosi is not getting an early boot from her hospital bed because the clock is ticking on her coverage. If there is one solid complaint I have about the plan, it's the nomenclature. It's hard coming up with good names, but these in my humble opinion aren't the ones.

So every provider has to offer the same base rate plan, and in addition they must offer it at a single rate, except for geography and smoking behavior. But everyone must be covered (more on that later). You can't be dropped, and you can't be denied. And you will get to buy and own your health care coverage. You will see what it costs, you will pay for it...sort of.

No, I mean you'll definitely pay for it, but you still won't really see what it costs. Some people argue that the best thing to contain health care costs is to make the costs highly visible to consumers. Under the HAA, you pay a premium up front each month, but that amount is not the true cost of your care; it includes reductions made possible by subsidies from employers, the state and the federal government to provide care to those without the ability to pay full freight. If you're one of those people, you know even less about how much care costs, because your care will be partially or even totally subsidized through annual income tax deductions. The deduction slides from 100% down to 0 when you get to 400% of poverty, about $40,000. So if you make more than poverty wages, you get nothing--but if you're at the poverty level, the money you spent on premiums would come back to you in your tax refund. As a result you'll never know exactly how much your care costs, although certainly compared to the typical method of only seeing the employee contribution in your paycheck you'll get a better idea.

Freedom, choice, access and information are the key selling points of Wyden's program, with the primary goal of guaranteeing coverage that goes whereever you go, and does not leave you. Because it doesn't break up the for-profit relationship health providers have with their customers, it relies heavily on market mechanisms and economic truisms to make the plan work. Wyden's model very strongly believes in the price-reducing power of competition. Because the basic plan is the same everywhere, that knowledge gives bargaining power to the consumer, and the vendor is forced to accomodate pricing pressures...theoretically.

That was my first major question with the program: if we're sticking with the private model, in which profit is the aim and cost increases serve that aim, what assurances are there that they won't go all OPEC on us and artificially hold up the price? The answer, according to Wyden's folks, is in distribution of knowledge and the level of competition for market share. If you know what every provider offers, and what the going rate is, as the consumer you can leverage that information to get the best price or the most benefits and service.

OK, fair enough. The plan does not lay any claim to reversing cost increases or holding them steady. They will go up, and they will exceed inflation and wages both. But there is a reasonable argument that the increases will be held down, which is a decent start.

Wyden also expects the increase in choice and information equality to counteract the loss of bulk purchasing power held by employers when seeking an insurance plan. When Schnitzer Steel contracts for insurance for instance, they do so with the force of 3,000 individual policies behind them. Vendors compete based on the idea that they would win or lose 3,000 customers all at once.

When the buying is done by a single person, however, the amount of attention overhead that goes into providing care skyrockets. It's simply not possible to treat every customer like a high roller, and in a world where 99% of Americans would be buying a policy, each individual customer is all but invisible as a buying entity.

But Wyden and his backers believe that current price competition is highly imperfect because of the ability for vendors to cherry pick who to insure. Because of the makeup of its workforce, a company may only find itself eligible for 3 or 4 different packages from vendors willing to take on all of their workers. Without the ability to cherry pick customers however, conceivably any vendor could cover the company's workers, thus improving the competition among vendors for those workers. At the individual level, the theory is that increased choice competition based on equalized product offerings will outweigh the loss of purchasing power when it comes to getting the best rate.

I'm not 100% sure these expectations will hold up; I have a sneaky feeling that once everybody is forced to offer the same basic plan, the demand and supply curves will cease to function, and health care will be subject to discounting and promotions about as often as salt or light bulbs. Insurers won't make their money off the base plans; they'll seek to entice customers to buy a la carte offerings to supplement the basics, and will simply treat the compulsory coverage as an inelastic demand item that they won't mess around with much on price. Could they use their basics plan as a loss-leader, trying to draw in new customers? Maybe, but it's not a given.

Now we get to the part of the plan I'm still having trouble with: cost containment. To some extent it's unfair to judge a plan based on its admitted weakness; the goal of his proposal is not to cut costs per se, but to maximize access and hope cost containment follows. But I'd argue that access is often a function of cost, and if you start by trying to rectify the problems which are causing the cost of health care to continue spiraling upwards, you can improve access to care as a byproduct, and in the long run you'll achieve both goals faster.

Under the plan, since individuals will ultimately be on the hook to pay for their own health care, this means they will be the ones to pay when prices go up--one way or the other, either through increased premiums or increased tax subsidies. And when it comes to dealing with increases, individuals are much less prepared and able to deal with them than either employers or hospitals. Right now, when health care costs go up a company can either try to increase revenue to pay for it, or cut the service level of care. If neither option is palatable, a business might simply absorb the cost on a short term basis, or pay up front and take it back in tax deductions, or when cash flow allows. The same is true of hospital ERs; when they see a non-covered patient, they eat the cost or pass it down the line.

The typical Oregonian simply does not have this luxury of accounting--either they have the money or they don't. If your bill goes up 10% in one year, you'll be paying 10% more for insurance next year. Furthermore, that unlucky consumer faces a losing battle in catching up to costs. Wages are essentially flat in Oregon, and during this Presidency have even gone down in some cases. But let's be generous and say with COLA they're going up an average of 3% per year. Now compare that to the annual increase in health care costs nationwide, running as high as 10-11% per year, and you'll see what I mean--where's that 7% over and above a wage increase coming from? And for every year that wages lag behind health care costs, the worker will fall further behind in controlling them, being forced to pay the prevailing cost and thus making sacrifices elsewhere in their housing? What will they sacrifice?

I must say, the response I got to this thorny question were not encouraging--essentially, that no plan can hope to close the gap between wages and health care increases. To which I gulp and reply, "Yes, I know--so how will people cope with that ever-widening gap?" The supporters' answer is that because costs outstripping wages is a truism, the proposal's moderate controlling of costs, combined with the expectation that wages would rise faster because employers would see such savings from not having to pay for health care, works out to be a better deal than the course we're now travelling. It's a reasonably logical argument, but the gap is already so large and seemingly intractable that I definitely worry about people being able to keep up, under this system.

That said, the argument that we must do something, and soon, is a compelling one--one which makes bogging the proposal down in negative "what if" scenarios a threat to ever getting any kind of movement on health care reform at all. In my many discussions with the Senator and his staff, I haven't totally been persuaded that the Healthy Americans Act produces the best model for reforming health care in the US. That's a problem, because why push for something that may not be the optimal course?

But Wyden makes a strong case that we simply can't afford to wait for ideal solutions, particularly in today's political climate. Single payer as an option is deemed a no-go in the 110th Congress, and who knows how long it might be until some kind of single payer scheme could become acceptable. While costs are a huge consideration, preeminent concern over them may reflect a bias of those who already have coverage, as opposed to those who do not.

By far, the biggest worry for 43 million people is not how much their health care is costing them, but the fact that not having any is making them sick. As with housing, where tis better to be sheltered and destitute than out on the streets with a dollar in your pocket, most people without health care would prefer to get covered first, and THEN worry about how they're going to make ends meet afterwards. And on that basis, it's hard not to see Wyden's audacious plan as a potentially rousing success story.