We use cookies to better understand how you use our site and to improve your experience by personalizing content. Please review our updated Privacy Policy and Terms of Use. If you accept the use of cookies, please click the "I accept" button.I acceptI declineX
Skip navigational links

Healthcare Reform Update January 7-13, 2010


Email Alert

January 13, 2010

Compiled by Brian White*

Economist Butler: Give States Maximum Flexibility Under Health Reform
By Andrew Villegas, KHN Staff Writer
January 12, 2010

Stuart Butler has seen health overhaul plans come and go during the three decades he has tracked health care policy at the Heritage Foundation. But this time is different, says the organization's vice president of domestic and economic policy studies. With legislative activity now entering the "endgame," he says, it's important to focus on how crucial issues might be resolved.

In a wide-ranging discussion with KHN, Butler, who holds a Ph.D. in U.S. economic history from the University of St. Andrews in Scotland, talked about the proposal to have the federal Office of Personnel Management (OPM) have a role in expanding insurance coverage to more Americans; the increasingly heated debate over the roles of the federal government and the states in implementing any legislation, and the merits--or demerits--of an individual mandate. He also predicted that the nation's employer-based health insurance system will continue to change, with or without health care legislation.

Whatever happens, he says, the full impact won't be known for years. "One way or the other, this is not going to end it," he said. "Obama is not going to be the last president to deal with health care reform."

Here are edited excerpts of the discussion:

Q: What do you think about the plan to replace a proposed government-run plan--a public option--with a proposal to have the OPM manage national plans from private insurers?

A: A lot of members (of Congress) are drawn toward this OPM alternative as a very different way of doing things than a public option would be. I think that they are going to find that that's not the case. There is and should be a debate about the public option and about single payer and I'm all in favor of having that debate. But I think what always bothers us is when something is suggested as an alternative and it isn't really. People need to know that. And if members don't want to have a public option and all that entails, then they really need to make some changes to any OPM alternative for it to really be an alternative.

Q: What should or shouldn't the OPM model try to accomplish?

A: OPM has enormous powers to negotiate with the private plans, which it really doesn't use. It can't become a method of simply taking over large chunks of the health insurance industry. It must not have an open-ended financial pipeline to the Treasury, that's a very critical issue. Because if you had an OPM alternative and the White House starts to use the powers OPM currently has, plus new powers from statute, and it also has access to credit through the Treasury . . . you really do have a different dynamic in terms of the financing in the long run.

Q: What other aspects of the legislation are you focusing on?

A: I think the exchange issue is another one. I've personally always supported exchanges, because I think in a market-based system--in a choice system--you do need a sort of a shopping mall system. You do need the equivalent of Expedia so people can compare. You do need rule-setting, much like a stock exchange for buying and selling companies. So, as an element in any kind of choice and market system, an exchange is a critical. So then the issue is how you design it. What powers does it have? What requirements does it put in place?

The issue I think, then, is where the exchange should be. I think a system that allows different ways of organization and fine-tuning is critically important. Therefore I favor, very much, a state-based system generally as opposed to a national exchange, which I think can easily become a highly restrictive institution that actually frustrates the kind of continuous experimentation and learning that you get in a competing state system.

Q: What, then, are the appropriate state and federal roles in health reform?

A: That's a critical issue: Who is ultimately responsible for the cost between the federal government and the state? You neither want a situation where the federal government carries the whole cost of something but the state can make all the decisions, because then they're a complete free-rider. And you don't want the opposite either.

Over time, variation and the ability of states to learn from each other, and to have some appropriate level of transference of resources is more likely to lead to a better outcome for everybody than to say, "We're going to start by making it the same everywhere."

Q: How effective do you think the individual mandate [to buy health insurance] is going to be?

A: From a technical point of view, I don't agree that an individual mandate is necessary to make the insurance system work. I mean, there's several arguments for a mandate and we've explored them all and we've been on both sides sometimes. But I think the argument you hear from the insurance companies--that we need everybody in America forced to buy our product for us to be able to work--is something that should cause people to be skeptical from the outset.

Going in and forcing people to buy something that they rationally don't want to buy has got a lot of problems. And certainly if you don't combine that with an adequate subsidy level, I think that's profoundly wrong.

Q: How can lawmakers--tussling among themselves--sell reform to the public?

A: With enormous difficulty. Let's realize what's going on here. . . . There must be big change in our system. We can talk about what that change should be, but our system is profoundly inadequate to reach the objectives we want. And there's a lot of agreement on what it should be. We should not have an employment-based (health insurance) system in the United States. The idea that your access to health care depends on who hires you is ludicrous in a modern society. (And) we need a defined contribution by society for our health care.

Q: Do you think a lot is going to change for people with employer-sponsored health insurance if health care legislation passes?

A: I think there will be changes. An enormous number of people are going to think that they're worse off either because their employers dropped a plan they liked, (they lost) a pediatrician they loved or they're paying for something they've already got and they don't see why they should have to do this.

I think in all probability, the costs of providing benefits through the place of work--because of the taxes and the requirements and the mandates and so on--is going to go up. We're going to see an acceleration of a trend (in which) total compensation, while rising with productivity, the portion in cash income is going to continue to decline.

What's actually going on is a decision by the government to say the amount of your compensation that's going to come in the form of health care determined by us is going to increase. Now as an economist, I look at something like that and say that means the preferences you would have had otherwise, in terms of cash and benefits, are going to be different than what you would have negotiated otherwise.

It's not going to generally raise the living standards of people by distorting the structure of the U.S. economy in this way. We can and should make changes in the health care system
. . . but they involve a cost to us and should be seen that way.

Obama Reportedly Backs 'Cadillac Tax' in Final Health Bill
January 7, 2010

President Barack Obama "told House Democratic leaders at a meeting on Wednesday that they should include a tax on high-priced insurance policies favored by the Senate in the final version of far-reaching health care legislation, aides said," The New York Times reports. "The White House has long expressed a preference for the excise tax on high-cost plans, which health economists say could be an important tool in controlling long-term health care spending for the government and for individuals and families. But House Democrats have resisted the idea, which is also strongly opposed by many organized labor groups--an important part of the party's base--because the tax may hit a number of more generous union-sponsored health plans" (Herszenhorn, 1/6).

The Associated Press : House Democrats want to raise income taxes on high-income individuals instead but recognize that they will have to bend on that and other issues so that Senate majority leader Harry Reid can maintain his fragile 60-vote majority support for the bill. . . . The House wants to increase income taxes on individuals making more than $500,000 and couples over $1 million, which would raise $460 billion over 10 years to pay for the bill. The Senate wants to tax insurance companies on plans valued at over $8,500 for individuals and $23,000 for couples, raising $150 billion. . . . In the end the House likely will have to accept the insurance plan tax at some level--say starting with plans valued at $25,000 or more, with carve-outs for certain union professions--but it might not happen without a fight" (Werner, 1/7).

The Washington Post reports that "skeptics continue to raise questions about who would be hit hardest and whether health-care spending would be limited as much as proponents say" if the tax is implemented. "Health analysts recently questioned the assumption that the tax would target only the most lavish insurance packages, nicknamed 'Cadillac plans.' The analysts, writing in the journal Health Affairs, found that some less-generous plans could be taxed because they are costly for other reasons. The location of an employer and the type of industry, for example, have as much to do with the cost of plans as the generosity of the benefits and the kind of plan. Smaller businesses, especially those with a preponderance of older workers, tend to have higher premiums, as do certain industries, including the health-care sector" (MacGillis, 1/7).

Los Angeles Times : "Wednesday's meeting, the second in two days, was part of a White House effort to take a more active role in healthcare negotiations as they reach their final stage. . . . A Senate aide who requested anonymity because he was not authorized to discuss the closed-door meetings said that the White House had signaled it would 'convene and run' meetings from now on as lawmakers strive to reach a consensus, reflecting a 'significant uptick' in the Obama administration's involvement. The Democratic leadership welcomes a more hands-on White House, as Obama's imprimatur could provide political cover to members casting a tough vote in an election year" (Nicholas, 1/7).

Uphill Battles for Lawmakers as Intensity Picks Up on Health Bill Negotiations
January 11, 2010

Politico: "Speaker Nancy Pelosi is telling her caucus not to believe stories that the House will simply roll over and accept the Senate's hard-fought health care bill." But as Senate Majority Leader Harry Reid is tasked with holding together his 60 votes to pass reform, Pelosi "may not have a choice."

"The public option is out. Employer mandates could prove too tough to change. And the president has already taken the Senate's side in the fight over a tax on high-end health care plans." Pelosi instead is "setting her sights on achievable goals" such as higher insurance subsidies, greater insurer oversight and the establishment of a national exchange. But, "to win (the fight over a proposed tax on high-cost insurance plans)--or any other--she needs to convince Obama her math is tougher than Harry Reid's" (O'Connor and Budoff Brown, 1/9).

Roll Call : "Health care negotiations in Congress will pick up steam next week, as the House returns for legislative work and Members become more engaged in exploring the compromises necessary to enact a bill this year." And, although the Senate remains in recess until after the Martin Luther King Jr. holiday, leaders, including Majority Leader Harry Reid (D-Nev.), are expected back in Washington by midweek. "(An) aide said the thrust has been on trying to see what House liberals will accept from the less ambitious Senate bill, but that a certain amount of moaning and groaning from the House is expected before any final deal emerges." House members believe they have more "leverage than Senate Democrats think," Roll Call reports, particularly after the backlash against Sens. Ben Nelson and Joe Lieberman for "their roles holding up the health care bill for major concessions" (Pierce and Dennis, 1/9).

Health Bill Negotiators Consider Applying Medicare Tax to Investment Income, WSJ Reports
January 12, 2010

News outlets explore some of the unsettled and sticky policy questions--such as what taxes might pay for it, and whether mandates to buy coverage should be included--in the health overhaul legislation.

The Wall Street Journal: "House and Senate negotiators are considering applying for the first time the Medicare payroll tax to investment income as part of a compromise to pay for a health overhaul. The extra Medicare tax would apply only to the wealthy and could allow congressional Democrats to reduce the sting of a tax on high-cost insurance plans, said Democratic aides and others briefed on the negotiations" (Vaughan and Meckler, 1/12).

NPR : House and Senate lawmakers are attempting to merge their legislation, but "key disputes" remain. "One example are the so-called 'health care exchanges,' the new marketplaces where individuals and small businesses would be able to shop for health insurance," something both groups agree on in principle but handle quite differently. The Senate would allow states to manage their own exchanges and keep the exchange available only for the uninsured and small businesses, while the House would consider opening exchanges to more people later on and manage them at the federal level (Rovner, 1/12).

The Sacramento Bee : "The so-called individual mandate, a centerpiece of the sweeping effort to overhaul the country's health care system, seemed a nonissue during most of the early debate just months ago, but in recent weeks it has emerged as another obstacle in the effort to pass legislation providing health insurance to millions of Americans who lack it." But, now, libertarians consider it intrusive and unconstitutional, while some liberals argue it would "allow insurance companies to hold consumers hostage" (Calvan, 1/12).

McClatchy: One thing lawmakers--including Republicans--do agree on is a provision requiring chain restaurants to post calorie counts for everything on their menus. "Politically, the provision is a rare example of lawmakers from both parties agreeing on a nuance of the mammoth health care bill" (Lightman, 1/12).

Labor Leaders Confront Obama on "Cadillac" Tax Proposal
January 12, 2010

Labor leaders were invited to the White House to discuss negotiations to merge the House- and Senate-passed health overhaul packages.

The Washington Post : "The final bill will not include the House's government-run insurance plan, or 'public option'; it will probably include the Senate's new tax on high-cost health plans that could affect many union members; and its penalties for employers who do not provide insurance coverage will probably be closer to the more lenient terms in the Senate bill." Earlier in the day, AFL-CIO President Richard Trumka warned at the National Press Club that Democrats risk a replay of the "Democratic blowout in the 1994 elections, when, after the passage of NAFTA and other disappointments to unions, 'there was no way to persuade enough working Americans to go to the polls when they couldn't tell the difference between the two parties'" (MacGillis, 1/12).

The New York Times: "During a private session designed to 'search for a sort of compromise,' President Barack Obama told the union leaders 'that he remained committed to taxing high-cost insurance policies as a way to drive down health costs. But he also signaled that he was willing to amend the proposal to 'make this work for working families,' a senior administration official said."

The proposed 40 percent tax would affect family plans worth more than $23,000 and those worth $8,500 for individuals and could raise
$149 billion in new tax revenues over 10 years. "According to one union survey, the tax would affect one in four union members. . . . The machinists' union announced Monday that its executive council had unanimously voted to oppose any health bill that was financed by taxing the value of workers' existing health plans, and the general president of the International Association of Fire Fighters, Harold A. Schaitberger, accused Mr. Obama of abandoning his campaign promise not to tax the middle class.

Union leaders instead back a House proposal to raise a payroll tax on high-earning couples--those who make more than $1 million a year (Stolberg and Greenhouse, 1/11).

The Detroit News: The disagreement over the "Cadillac tax" has also attracted the attention of United Auto Workers President Ron Gettelfinger, who will be in Washington to fight the proposal. "Gettelfinger says he wants the tax eliminated--or at the very least an increase in the minimum level that would be taxed" (Shepardson, 1/12).

NPR: "The problem for President Obama is that the unions for years have been negotiating bigger and better health insurance packages in lieu of wage increases" (Liasson, 1/12).

The Associated Press: The White House has indicated that, though it will not disappear, "the tax may change so it hits fewer workers." For instance, "raising the threshold for the tax from $23,000 to $25,000 or higher" is one possibility under discussion. "The threshold has already been raised for first responders and workers in certain high-risk fields and the levy could be softened for more union professions" (Alonso-Zaldivar and Werner, 1/12).

The Washington Times : "The 'Cadillac' tax and the House's plan to tax high-earning couples are not interchangeable. The House approach--a 5.4 percent tax "for families with incomes over $1 million or individuals over $500,000--would raise about $460 billion over a decade." Meanwhile, the "Senate's $871 billion plan . . . raises a smaller portion of its funding through the "Cadillac" tax, bringing in $149 billion over a decade" and is also "financed through cuts to Medicaid and Medicare funding and raise some money by taxing medical device makers, fining some employers that don't provide insurance coverage and some individuals who don't get it" (Haberkorn, 1/12).

PBS NewsHour also follows the debate over taxing the high-cost insurance plan and seeks the views of "Jonathan Gruber, a health economist at the Massachusetts Institute of Technology--he is also a paid consultant to the Obama administration--and Josh Bivens, an economist at the Economic Policy Institute" (Ifill, 1/11).

Skeptics Question Health Overhaul Savings, Cost-Controls
January 12, 2010

USA Today reports that independent analysts are increasingly questioning whether the long-term savings promised in the health care bills being considered by Congress are realistic. "From proposed Medicare cuts to a program for seniors that would accumulate money only in its first years, the bill contains provisions that add up to billions in savings and revenue. But analysts such as Joseph Antos of the conservative American Enterprise Institute question whether they can be achieved."

Among the biggest source of proposed savings are Medicare hospital and physician fees, which lawmakers say could provide 42 percent of the planned $438 billion in cuts to the program over 10 years. Some of those cuts, however, "may be unrealistic," a Health and Human Services Department report found (Fritze, 1/12).

In addition to the cuts, the bills would pull "nearly every available cost-control lever" in an effort to slow the growth of medical spending, the Associated Press/ABC News reports. "The four big ideas for slowing costs are: discouraging high-priced health insurance by taxing it; paying hospitals and doctors for quality care and coordination instead of sheer volume of procedures; aggressively seeking savings from Medicare; and restructuring the health insurance marketplace to make it more competitive."

Other core initiatives are "an ongoing push on prevention and an unprecedented research effort to identify effective treatments." Taken together, supporters hope these strategies can slow health care inflation, resulting in savings. According to the AP, even savings of 1 or 2 percent growth could add up over a decade. But, "That's a rosy scenario, skeptics say. Even some supporters of the legislation say cost controls could have been fine-tuned to make them more effective" (Alonso-Zaldivar, 1/11).

This information was reprinted from with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery . © Henry J. Kaiser Family Foundation. All rights reserved.


© 2018 American Health Lawyers Association. All rights reserved. 1620 Eye Street NW, 6th Floor, Washington, DC 20006-4010 P. 202-833-1100 F. 202-833-1105