Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

19 August 2009

Health-Insurance Quid Pro Quo

If any health-insurance reform occurs in our lifetime, a grand bargain will produce it. On one side will sit insurance and drug companies and small minds from small states, who believe their minuscule populations can fend for themselves and want the rest of us to do the same. On the other side will sit the American people (except for the town-hall screamers who believe Medicare is a private company). So far the President has tried to stand in the middle, but he’s going to have to choose sides soon.

As candidate, President Obama promised to broadcast the negotiations on C-SPAN. That’s one of a very short list of promises he has clearly broken.

But no matter. In a brilliantly simple column, Bob Herbert of the New York Times has laid out the current quid pro quo for us. The insurance companies get millions of new customers, who will be forced to buy insurance or pay a fine. Most of them will be young and healthy and therefore unlikely to make many claims. The drug companies get a guarantee against government using the collective bargaining power of its millions of Medicare and Medicaid patients to drive down prescription drug prices. As Herbert cogently points out, these two points alone are worth billions in secure profits.

What do we, the people, get in return? The bills aren’t fully written yet, but as far as Herbert reveals and I can tell from news reports, we get two things. First, we get a ban on pre-existing-condition exclusions. Now one will ever again be refused coverage because of something that happened before the policy began. Second, we get a removal of caps on claims. We also get some experiments with preventive care, better quality control, and non-fee-for-service medicine. These experiments may improve care and lower costs in the long run, but they will take decades to do so.

These points are good and helpful. But there’s also a downside for us the people. Lots of (mostly poor) young and healthy folk, and lots who think they can’t afford insurance, are going to have to buy it or pay a fine. That’s called a “mandate.”

I am on record on this blog (see 1, 2, and 3) as opposing mandates. The President also opposed them as a candidate. Economists like Paul Krugman who have studied the issue more than I (and are probably smarter) say mandates are the only way to get everyone covered.

But mandates are political poison. They are a regressive tax on the poor and lower-middle class. If you want to read a touching and well-written description of how mandates can hurt struggling consumers, read comment number 49, by one “Leah,” to Herbert’s piece.

Mandates are also a red flag to right wingers. The only valid point I have ever heard right wingers make about health-insurance reform concerns mandates. They are government coercion, and they do decrease personal liberty. There’s no getting around those facts.

So that’s the grand bargain as it appears so far. Is it worth it? Is the average Joe and Mary getting a good deal?

I think not. I think the President and the Democrats (who after all, control Congress) are leaving money on the table, lots of it. If they were business people or lawyers negotiating for clients, they soon wouldn’t have any clients left.

Here, in rough order of importance, are what more we the people might ask for:

1. The “public option.” I know, I know. It’s not going to happen. But I put it first both to recognize its importance and to suggest how many of the following we the people ought to get in its stead. (For those who don’t know, the “public option” would have been a single government-run insurance plan, like Medicare, to compete with the thousands offered by private industry. Government-run health care, i.e., “socialized medicine,” was never on the table, as Paul Krugman explained beautifully in a recent Times column.)

2. Real competition. In another post, I analyze why so-called “competition” in health insurance is a joke. Basically, there are three reasons: (1) state regulation, (2) group (usually employer) bonding, and (3) the snowflake-like uniqueness and complexity of health insurance policies, which makes realistic comparison shopping impossible.

But you don’t need economic theory to understand why there’s no competition in health insurance. You can just look at results. We just had to bail out GM and Chrysler because they lost badly to competitors from Japan, Korea and Europe. We once had home electronics made by American companies named Zenith, Motorola and RCA. Now they’re all gone. Look around your home; you won’t find their names on a single device, unless (maybe) you’re visiting grandma. At the height of the PC boom, we had over two dozen computer makers. Now there are only Dell, H-P and (way down the list) Apple, with a Taiwanese company (Acer) rapidly gaining the lead in netbooks.

That’s competition. In competition, some firms win and others lose. In today’s flat world the winners and losers can be anywhere on the planet. Have you ever heard of a health insurer going out of business or losing to a competitor? Have you ever even heard of one losing substantial market share? Does any foreign firm dare enter our multiple mini-monopoly markets, knowing that lobbying is half the job? All our local health-insurance firms are fat and happy in their little niche monopolies formed by state regulation, employer bonding and consumer confusion.

Genuine conservative thinkers like David Frum are right about one thing [search for “national market”]: real competition would work wonders in cost control and give consumers some relief. But in order to get it we would have to completely restructure our national insurance market. We would have to have national regulation, an open invitation to foreign insurers, and some federally prescribed minimum and model policies that would let consumers comparison shop.

Don’t hold your breath. But if you like to call conservatives’ bluff, competition is what to ask for. It would do a lot of good, and we’re a long way from having it.

3. Immediate portability. Although 15% of us don’t have insurance, 85% do. Most of those 85% are pretty happy with what they’ve got, whether or not that feeling is justified. Probably the single easiest thing Congress could do to make those 85% dance with joy is to let them all keep the policies they have now until Medicare kicks in.

I’m not talking about keeping premiums fixed. That would bankrupt the insurance industry. I am talking about keeping people in the same insurance group after they separate from the organization that brought them into that group. For example, “immediate portability” would mean that you keep your employer-provided health insurance when you separate from your employer, for whatever reason. You would have to pay the same group rate that you pay now, as adjusted in the future. (That is, you couldn’t escape the increases in premiums that non-separated employees pay.) But you wouldn’t have to pay higher individual rates that insurers now gouge you with under COBRA. And as long as you could afford it, you could keep the same policy until age 65.

This simple plan would have three positive effects. First, it would assuage the single greatest health-insurance anxiety after claim denial: losing your health insurance with your job. Second, it would provide a natural transition to a non-employer based health-insurance system. (Conservatives should love it because the government wouldn’t be involved.) Third, it would expand insurance pools gradually, with employee attrition, giving insurance companies time to adjust their rates and their businesses. (Their terms, at least at the most basic level, would be fixed by minimum models prescribed the federal health-insurance regulators.)

4. National model policies. Comparison-shopping can’t exist unless there are things to compare. Right now, health-insurance policies are like snowflakes: no two are alike. The government could set up independent best practices panels of medical and health experts, leavened by an economist or two, to prescribe model insurance policies.

This program could have two variants. In the first, the model policies would be simply that: voluntary, non-mandatory models. Presumably some private businesses would offer them because the prestige and trust generated by the federal approval would attract customers. If more than one did, viola! Competition would arise.

In a second variant the model policies would be part of a new nationwide regime of federal health-insurance regulation, which would eliminate the industry’s state-by-state balkanization. The “models” would be mandatory in the sense that every private insurer would have to offer at least their basic coverage. Insurers could compete on price, responsiveness to claims, and ease of administration, or by offering non-mandatory extras at separately-stated prices.

5. National co-ops. Non-profit co-ops are the alternative to the public option now under discussion. Herbert dismisses them as “like sending peewee footballers up against the Super Bowl champs.” I partly agree, which is why they’re number 5.

But non-profit co-ops could do some good if they were national in scope and part of a new national regulatory regime for health insurance. If confined to separate states, they would be like the tiny co-op groceries that still exist in various university towns: they would provide a valuable service to their members but a negligible improvement in the general scheme of things.

As the ordering of this list suggests, I don’t think co-ops alone sweeten the deal for us the people enough to make it fair. A hard bargainer could get more: at least immediate portability, and perhaps a significant start on competition through federal regulation and model policies as well.

But if this doesn’t happen, don’t blame the President. That’s where I part company with Herbert. President Obama is a brilliant man. He often gets his way with a deftness and smoothness that I never expected until it happened. Examples are his winning the primaries with his soft approach to Hillary’s wrath, and his getting the auto makers to buy into radically increased efficiency standards. If there’s a way to get things done without making waves, “No Drama Obama” will find it.

But as brilliant a man and a politician as he is, the President is no Messiah or magician. Congress, not he, writes the law, including any for health-insurance reform. When his aides tell him credibly the votes aren’t there, there’s not much he can do. He can threaten a veto, but Republicans would just say “Bring it on!” They’d love to deride him as an over-promiser and a failure.

If health-insurance “reform” turns out to be a dud, the real culprits will be our Constitution and our Senate’s seniority system. As a recent brilliant piece in the Washington Post explained, they give senators elected by three percent of us the power to make health-insurance policy for the rest. We have no choice but to live with these twenty-first century consequences of our Founders’ eighteenth-century compromise. So does our president.

I keep hoping he’ll perform a miracle, as he’s often done so far. But if the small minds from the small states are intent on giving away the store to insurance and drug companies, there’s little that he or anyone else can do.

The only thing I can think of to bring them to heel is to boycott products from their miserable little states. But since most of them produce only coal and farm products (if anything that the rest of us buy), even that’s pretty hard to do. Maybe we could all refuse to travel as tourists to Maine, Montana, New Mexico and Wyoming for a decade or so. But Iowa and North Dakota? Who goes there except on business or to visit relatives? If anyone can think of an effective way to demonstrate our collective displeasure with these states’ senators’ small minds and coziness with special interests, please let us all know.

Epilogue: Where is Lyndon Johnson When We Need Him?

After all the horror and division of the Vietnam era, I never thought I’d be nostalgic for Lyndon Johnson. But despite his abysmal performance in foreign policy, he might be the only political figure of my lifetime who could get real health insurance reform through our Senate today.

Lyndon Johnson made a miracle in domestic politics. He got the Senate to pass the civil-rights laws that ultimately helped put Barack Obama in the White House.

People who didn’t live through that era (or aren’t history buffs) have no idea what a miracle that was. Jim Crow laws were still in force throughout the South. Nearly all Southern Democrats had built their political careers on a vile brand of open and easy racism that even Rush Limbaugh wouldn’t endorse today. Many had gotten their start in politics by being members of the Ku Klux Klan or its fellow travelers. Yet in the end they voted for equal rights for African-Americans in voting, housing, employment and accommodations.

They were a tough, tough bunch to convince. How did Johnson do it?

Some no doubt had their personal epiphanies and saw the nation’s future. But most needed arm-twisting.

Johnson was a big, gregarious, intimidating, gruff, and vulgar man. He knew how to twist arms and loved doing so. As former Senate Majority leader with decades in the Senate, he had something on everyone. He had done important favors for almost every senator, and he knew everyone’s secrets. He used to brag that he had every senator’s “pecker in mah pocket.” (There were no women in the Senate in those days, certainly not from the South.)

So Johnson twisted arms (and other appendages) with enthusiasm and a vengeance. He helped change the nation.

But he did so at a price. As he himself predicted, he gave the South and control of the nation’s politics to the Republican Party for two generations. Racists and know-nothings, who had once been a presence in both parties, gravitated to the Republican Party, where they slowly took control. Both parties lost their centers and became more ideological.

One price of Johnson’s miracle is the polarization of today. But there’s much more to it than that. There are reasons why no Senate majority leader since Johnson—and certainly no president—has been anything like him.

For one thing, the Senate has changed. It’s much more bureaucratic and rule oriented. In Johnson’s day, it was still an old boys’ club, for better and for worse. Senators from different parties drank, ate and partied together. When important issues came up, they wheeled and dealed in smoke-filled rooms. Now they posture and grandstand for the TV cameras, and they do so separately.

Worst of all, the Republican Party has changed beyond recognition. It now may be the most rigid and doctrinaire political party in American history—our closest analogue to the Soviet and Chinese Communists in their heyday. If a proposal doesn’t lower taxes, shrink government, and give the private sector more power, it doesn’t get their support. Period. Anything, no matter how silly, that embarrasses Democrats and makes them fail earns their admiration. Orrin Hatch (R., Utah), one of the Senate’s most senior and powerful Republicans, won’t even repudiate Sarah Palin’s “death panel” lie.

Today most Republicans admire Rush Limbaugh. Thinking, moderate Republicans of Johnson’s day, like Nelson Rockefeller, would have spat on him. But their breed has vanished from our political jungle.

The sad fact of our political life is that it takes both parties to accomplish anything significant. Not all of them, but just enough to compromise and move forward. Our Senate has become so ossified on the Republican side that it can’t do anything but respond to the most horrendous crises, like last year’s financial meltdown.

A big reason is ideology. We are still in the grip of the bumper-sticker ideology that brought us low. If you want evidence, read yesterday’s opinion piece in the Wall Street Journal by one Arthur C. Brooks. It’s unvarnished neoconservative cant. Its path to Nirvana is the same as always: lower taxes, less government, more power to private business. Not a genuflection does it make to the marvelous achievements of government over the last seventy years. Not a mention of Alan Greenspan’s humble admission that he had been wrong about the beneficence and self-corrective power of unfettered markets. It’s as if the last decade never happened and Friedrich von Hayek were still alive.

For better or for worse, our Founders designed our system to protect minority rights and power. Today our minority folk are in a rut. They’re so deep in it that even Lyndon Johnson couldn’t be Lyndon Johnson today. Whether they can extricate themselves before we become a third-world power is anyone’s guess.

Recent experiments on rats show that creatures under stress do the same things over and over, whether or not those things do any good. Maybe our Republicans are like that. They’ve trashed the country at home and abroad. They are now desperately trying to justify their misrule by arguing that more of the same policies that got us in this ditch will get us out. Maybe they’re under too much stress and need a rest.


1. The only other broken promise of real consequence was his reversal on federal campaign financing during the general election. I supported that reversal, for reasons laid out in another post.

2. A recent study by Consumer Reports [subscription required] has the self-explanatory title, “Why 4 in 10 Americans can’t depend on their health insurance.”


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  • At Fri Aug 28, 10:49:00 PM EDT, Anonymous Florida Health Insurance said…

    We as health insurance brokers in Florida are so anxious for a way to get coverage to the thousands that we have to deny every year, that we have begun a website to locate all of the current public programs and plans available to our residents and actually there are quite a few and we find that 30% of the uninsured give or take actually qualify for public assistance. What about the other 70% including my own mother? That is the problem and unless there is an actual identification of why these costs are escalating so quickly and so steeply I fear that even the best universal coverage will not help the economy when it goes into a free fall from the effects of the Washington Politicians, Wall Street, and worst of all the Corporatacracy who could care less about the 95% of Americans that don't make up the wealthy.

  • At Sat Aug 29, 03:05:00 AM EDT, Blogger jay said…

    Dear Florida Health Insurance,

    I’m glad you asked.

    Public assistance (welfare) doesn’t pay for health insurance or health care. It barely pays for food and lodging. Because most folks on public assistance don’t have health insurance, they wait until their health problems are severe and then go to the emergency room. That costs us all more because they can’t pay for any care. (If you work in the health-insurance industry, you know how expensive emergency rooms can be.)

    As for your mother, is she sixty? If she is, her statistical life expectancy is low because she’s an American. Americans aged sixty have [search in Friday Aug. 28 for “twenty-third”] lower life expectancies than their counterparts in the twenty-two next richest nations. If your mother’s rich, she may do better. But if she’s an average person, the health-care system in this country will shorten her life.

    Your mother is also at risk because so many have no insurance. Who does her housekeeping and cooks and cleans for her? If not you, it probably is some low-paid person without health insurance. If that person gets swine flu, they won’t go to a doctor and won’t be told to stay home. So they’ll bring the flu right to your mother’s door. We can’t protect public health against an epidemic when 15% of the people are outside the health-care system.

    You mother would also benefit financially if all those uninsured people have insurance, whether they or the government pays for it. The point of insurance is to spread financial risk around. The larger the pool of paying customers, the lower the premiums for everyone. That’s why all economists want to insure the uninsured. Doing so is not just altruism; it would benefit everyone by lowering premiums.

    As for the “Corporatocracy,” why aren’t private insurance companies part of it? For over sixty years (since Harry Truman first proposed universal health insurance) they’ve fought it with lies every step of the way. As a result, we Americans pay twice as much for health care as other leading industrial democracies and are twenty-third in seniors’ life expectancy.

    If your mother knows what’s good for her, she should be working and voting for reform, the sooner the better. I’m working on an open letter to seniors elaborating these points, which I’ll publish in a few days.



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