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

13 October 2009

Time to Twist Arms

[For comment on the effort to repeal the McCarran-Ferguson Act and create a semblance of competition in the health-insurance industry, click here.]

The insurance-industry pirates have shown their true colors. They’ve raised the Jolly Roger and let fly a late-fall bombshell. They just released a commissioned report asserting that health-insurance premiums will go up if the insurance reform now before Congress (the so-called “Baucus bill”) becomes law.

There are two things to know about this report. First, it is an act of domestic treachery of the same caliber as Imperial Japan’s sneak attack on Pearl Harbor. It gives the lie to whatever may remain of the President’s “kumbaya” philosophy. The insurance-industry lion simply won’t lie down with the lambs (us, the people) and share its monopoly profits for the public good. Is anyone surprised?

This is not a bargaining ploy, as an insurance-industry PR hack tried to claim [search for “leverage”]. What the insurance industry appears to want—lower or no taxes on “Cadillac” health-insurance plans—is simply too small potatoes to risk the work of a century of progress toward health-insurance reform, not to mention the billions of dollars that some 37 million new customers would put into the industry’s coffers every year, partly paid for by us taxpayers. The industry, apparently, is willing to give all that up to keep the status quo.

No, the report is what it appears to be: simple treachery by a turncoat industry that never wanted reform and was waiting patiently for the best time and means to kill it. The report gives aid, comfort and political cover to Republicans who’ve wanted only for the President and reform to fail, from the very beginning. It gives cover to Blue Dogs who are too timid to support their party’s principles, and to all the members of Congress, including Max Baucus, whom the industry has worked so effectively to buy [search for “Baucus”].

The second thing to understand about the insurance industry’s report is that it’s probably right. Insurance premiums will go up if the Baucus bill passes in its present form. The reason is simple. There are only two ways to hold down prices in a free-market economy—regulation and competition—and the bill has neither. The demand pressure of all those mandated new customers will drive prices up because nothing in the bill will keep them down.

The bill has no price regulation, although the New York Times’ editorial board believes that it would prohibit insurers “from denying coverage or charging higher premiums for patients in poor health.” But even the Times doesn’t say the bill would regulate premiums for people who have no insurance now, because they have pre-existing conditions. Those lambs could buy new insurance under the new rules, but the lion would set what they pay.

In the absence of meaningful regulation, only competition can keep prices down. But nothing in the Baucus bill would promote the kind of competition that might actually achieve that goal. Nothing would eliminate state regulation and the balkanized, monopolized or oligopolized state markets that it creates, many of which have risk pools too small to deserve the name “insurance.” Nothing in it would require standardized minimum (or even model) terms and conditions to promote comparison shopping by consumers and employers.

And of course there is no public option in the Baucus bill. So nothing in it would come close to creating the kind of robust national competition that might actually drive down prices under time-tested free-market principles. The insurance “exchanges” and “co-ops” are just fig leaves to cover the bill’s nakedness.

So what should the Administration and the Democrats do? They should respond to this raw act of domestic treachery just as the nation responded to Pear Harbor. They should declare all-out war.

The Administration and Democrats in Congress should insist on a public option that would actually create competition and bring prices down. And they should use every means available, including budget reconciliation, to make it happen. No more Mr. Nice Guy.

The sole female with a role to play, Speaker Pelosi, seems to know what to do. She has never given up on the public option. Now she should appoint the House’s biggest bulldogs to the conference committee—ones who know where the bodies are buried and can twist arms like Lyndon Johnson. And she should tell them to pull out all the stops.

Wimpy Senate Majority Leader Harry Reid should try to recall the boxer he used to be. He should not just count votes, but coerce them. Lyndon Johnson he’ll never be. But he should try to take a few pages out of the old master’s book.

There are lots of ways that a party one vote shy of a filibuster-proof majority can cause recalcitrant members pain. There are senatorial “holds” on appointments. There are superfluous military bases and other boondoggles in members’ districts that need closing but remain open to support local employment and local pride. There are pet projects that get by as “earmarks” but that a clever leader who knows Senate procedure can block. Reid should threaten to use all these tools (and should follow up, if necessary) to change votes.

We’ve heard a lot about “pork” the last few years. But we’ve heard little about another traditional Senate practice: “log-rolling.” Leader Reid should make clear that votes against health-insurance reform, with a public option, will produce log-rolling in reverse.

Last but by no means least, the President should loose his Pit Bull-in-Chief, Rahm Emanuel, on the Senate, with instructions to make Lyndon Johnson look tame. Rahm should do whatever it takes to get the votes. And the President himself should give a no-holds-barred speech telling the nation exactly who is responsible for this act of treachery. There is no longer any reason to coddle the insurance industry after it stabbed him in the back.

Will this work? I don’t know. But the President promised to fight for reform, and we’ve seen little fight so far. We’ve seen a lot of trying to make friends with natural enemies. We’ve seen a lot of “cooperative” back-pedaling. But we haven’t seen much recognition that, to paraphrase Von Clausewitz, politics is war by other means.

The insurance-industry’s treacherous report provides the perfect opening. The President should make a prime-time speech like FDR’s right after the attack at Pear Harbor. He should say something like this:
“The insurance-industry fat cats have stabbed me in the back. Through me, they’ve stabbed you, the people.”

"And you know what, they’re right. Premiums will go up if this bill passes in its current form, because it doesn’t have a public option to drive prices down with real competition. So the industry, which opposed the public option all along, is now trying to use the very defect it caused to kill reform entirely. It forced Congress to swallow a poison pill and now is waiting for the bill to die.”

“Well, you didn’t elect me to fall for that kind of domestic treachery, and I’m not going to stand for it. So we’re going to do what we have to do to get reform enacted, with a public option, which will drive premiums down. We ask for your support.”
I can’t think of any better way for the President to bring his party back together and to prepare for the 2010 congressional elections. And nothing would make me prouder of my President and more ready to open my wallet for him and the DCCC.

Did the Mouse Roar?

If you blinked this week, you might have missed the most important news story on health care since Max Baucus and the Gang of Six, gorged on contributions [search for “Baucus”] from the health-insurance industry, killed the public option in the Senate Finance Committee. Our own little senatorial wimp, Harry Reid, got up on his hind legs and proposed repealing the McCarran-Ferguson Act.

That law is hardly sexy. You have to know something about economics and industry structure just to appreciate the evil it does. It exempts insurance—including health insurance—from our antitrust laws in favor of state regulation. In other words, it is the primary culprit responsible for health insurance operating in a series of too-small-for-risk-spreading monopolies and oligopolies, instead of a single, competitive, national insurance market.

Never missing an opportunity to miss the point, the mainstream media reported none of this. What it did report was a bit of trivia: Reid’s irrelevant observation that McCarran was a Nevadan like him, and that it might take one Nevadan to undo the evil that another had done. Maybe the media, like Reid, thought basic economics is too much for the uneducated goons that pass for citizens these days. Where the hell is David Leonhardt (our best economics reporter) when we need him?

But adequately reported or not, the effort to repeal McCarran-Ferguson is big news. It’s unclear now whether it’s just a feint—a shot across the bow of the treacherous insurance industry which, after months of making nice, is now trying hard to kill reform once again. If the effort bears fruit, it could actually create competition in health insurance where (in most markets) none has ever existed. It could provide a credible second-best solution to a robust public option.

Don’t take my word for it. Take the word of David Frum, an honest and cerebral conservative currently out of favor with the nutty neos who have driven the GOP off its ideological cliff. Two months ago he endorsed [search for “national market”] federal regulation (and therefore competition) as a solution to rising health-insurance and health-care costs on which liberals and conservatives could agree.

If you want to find common ground, why not go back to the basics of a free-market economy? Competition is good. Monopoly and oligopoly are bad. They are especially bad when created artificially not by private action, but by federal legislation that treats insurance like no other industry. Duh.

So lets all give a hand to Harry Reid, the mouse who may have roared. And lets all run, not walk, to demand that our representatives in Congress stop touting a “free-market” health-insurance system that isn’t and can’t be and make it so.

Footnote: The reason that the largely Democratic effort to repeal McCarran-Ferguson might be a feint is that the law covers all insurance, not just health insurance. The Democrats may be hoping that auto, fire, casualty and other insurance companies, which often share common corporate families with health insurers, will be scared to death by the prospect of losing their uniquely privileged position in American industry and put pressure on health insurers to tone down their opposition to reform for the greatest good for the greatest number (of fat cats). That approach certainly sounds utilitarian to me.


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