Obama to Congress: Insurance Requirement Okay with Public Health Plan Option and Cost Regulation

Following Tuesday’s meeting with Democratic Senators on Sen. Baucus’ Finance Committee and Sen. Kennedy’s Health, Education, Labor and Pensions Committee (HELP), President Obama sent a letter to the two Chairmen indicating he’d support five key reform elements of the current health care system. The Washington Post and the New York Times cover the story. A link to the President’s letter is here. My comments on key segments below:

First: An insurance requirement, sort of
. Obama is open to requiring most businesses and individuals to purchase health insurance, with exceptions ("waivers") for low-income persons and small businesses. Remember his debate with Hillary Clinton over "mandates"? (Recall the Massachusetts model, which also provides penalties for non-compliance, and subsidies for low-income families; these aren’t mentioned but have been on the table in Committee discussions.) Lots of room for debate about what "shared responsibility" means.

I understand the Committees are moving towards a principle of shared responsibility — making every American responsible for having health insurance coverage, and asking that employers share in the cost. I share the goal of ending lapses and gaps in coverage that make us less healthy and drive up everyone’s costs, and I am open to your ideas on shared responsibility. But I believe if we are going to make people responsible for owning health insurance, we must make health care affordable. If we do end up with a system where people are responsible for their own insurance, we need to provide a hardship waiver to exempt Americans who cannot afford it. In addition, while I believe that employers have a responsibility to support health insurance for their employees, small businesses face a number of special challenges in affording health benefits and should be exempted.

Second, an exchange with a public health insurance option. Obama supports offering a public health insurance option to "keep the insurance companies honest." Note that Obama clearly distinguishes between the market place or mechanism — an "exchange" where people shop among options — and an option we could choose within that market — a government-sponsored public insurance option. But he leaves the details of what that option entails, and how open it is to everyone, to Congress. I predict the toughest battles for real reform will be fought there.

Americans should have better choices for health insurance, building on the principle that if they like the coverage they have now, they can keep it, while seeing their costs lowered as our reforms take hold. But for those who don’t have such options, I agree that we should create a health insurance exchange — a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can. None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs. I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.

Third, model health cost reforms on low-cost systems that provide superior care. Obama wants to encourage cost-cutting reforms like those achieved by the Mayo Clinic and Cleveland Clinic. (An excellent New Yorker article, The Cost Conundrum, by Atul Gawande explores these cost issues; a must read)

Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care. That means promoting the best practices, not simply the most expensive. We should ask why places like the Mayo Clinic in Minnesota, the Cleveland Clinic in Ohio, and other institutions can offer the highest quality care at costs well below the national norm. We need to learn from their successes and replicate those best practices across our country.

Fourth, use the Medicare’s MedPAC to establish cost standards. Obama wants to give teeth to Medicare’s current "advisory" cost oversight mechanism, which currently examines health care costs and payments and recommends measures to achieve more effective cost-cutting. It’s recommendations would take effect unless overruled by Congress. Ezra Klein blogged about MedPAC here and here. I’d add that this looks strangely familiar — it’s not unlike cost-of-service rate regulation for regulated utilities — and given the difficulty of creating meaningful, efficient competition in such a highly concentrated industry, probably necessary if we’re serious about containing health care cost inflation while pursuing universal coverage and ensuring quality care.

To identify and achieve additional savings, I am also open to your ideas about giving special consideration to the recommendations of the Medicare Payment Advisory Commission(MedPAC), a commission created by a Republican Congress. Under this approach, MedPAC’s recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress.

Fifth, he’s counting on new revenues. These look like the reveues he asked for in his budget, some of which are opposed by Senator Baucus and others. Note he’s not yet including a tax on the extra value of high-cost employer-provided coverage above a certain amount, though Baucus claims Obama may be open to that.

To fulfill this promise, I have set aside $635 billion in a health reserve fund as a down payment on reform. This reserve fund includes a number of proposals to cut spending by $309 billion over 10 years –reducing overpayments to Medicare Advantage private insurers; strengthening Medicare and Medicaid payment accuracy by cutting waste, fraud and abuse; improving care for Medicare patients after hospitalizations; and encouraging physicians to form "accountable care organizations" to improve the quality of care for Medicare patients. The reserve fund also includes a proposal to limit the tax rate at which high-income taxpayers can take itemized deductions to 28 percent, which, together with other steps to close loopholes, would raise $326 billion over 10 years.

Obama’s letter is important because it’s a coherent package and describes key elements that any reform plan would need. The measures are mutually supportive. For example, it doesn’t help much to have an exchange, if the only options available in the exchange are a small number (an oligopoly) of dominant private plans; you need the public [update to correct] option to give consumers a real choice. And imposing effective cost-regulation on Medicare (or any public plan) doesn’t work unless it’s coupled with measures that actually lower the providers’ costs without sacrificing quality; so measures 3 and 4 must go together. And you need both of these to work to make the public plan attractive and start displacing the dysfunctional, rationing-by-denial-and-price private insurance system.

The package is not the single-payer model that many Americans want, but outside the insurance mandate, it’s features would all be necessary to achieve that model. Now the question is, how will the two Senate Committees deal with this package?

More reactions from:
Ezra Klein, How Obama Plans to Reform Health Care; he expands on how the various features are complementary.
Kaiser Health News, Obama Open to Individual Insurance Requirement
HealthCareChange, Obama Wants MedPAC on Steroids (Oh, and the Public Plan Too)
SEIU, "Let’s be clear — this is big news for health care reform"
NYT, on problems of insuring small businesses
Volsky/WonkRoom, Obama’s Letter: Use Savings From Within the System to Finance Reform
HCAN, Just in Case You Forgot, Obama Supports Public Plan
Gerald McEntee/AFSME, Taxing Health Benefits Would Kill Health Reform
The Hill, Obama Demands Government-run Health Option
Karen Tumulty/Swampland, Obama gives Congress some health care marching orders