In which Obama feels the pain of the price tag he imposed on the ACA

In an interview with Jonathan Chait, President Obama rather casually ticked off his first priority for shoring up the ACA:

In my mind the [Affordable Care Act] has been a huge success, but it’s got real problems. They’re eminently fixable problems in terms of strengthening the marketplace, improving the subsidies so more folks can get it, making sure everybody has Medicaid who was qualified under the original legislation, doing more on the cost containment. But you hit a point where if Congress just is not willing to make any constructive modifications and it’s all political football, then you’re getting a suboptimal solution. 

By now, the imperative to enrich the marketplace subsidies is a matter of consensus among progressive healthcare scholars and officials. Out-of-pocket costs are just too high for prospective enrollees with incomes over 200% of the Federal Poverty Level (FPL)*, the cutoff for strong Cost Sharing Reduction (CSR) subsidies, and premium subsidies leave buyers paying too high a percentage of their income -- between 6.4% and 9.7% of income for those in the 200-400% FPL range. In August 2015, Urban Institute scholars Linda Blumberg and John Holahan put out a detailed proposal for subsidy enrichment that included raising the actuarial value of the benchmark plan to 80% from the current 70% , with richer CSR extending further up the income ladder, as well as capping premiums at 8.5% of income for all income levels. Hillary Clinton's rather vague proposal for subsidy enrichment is apparently based on Blumberg and Holahan's. ACA improvement proposals by Timothy Jost and Harold Pollack and Sabrina Corlette and Jack Hoadley also prominently feature subsidy boosts.

The inadequacy of marketplace subsidies was evident to progressives from the beginning. Complaints began when Max Baucus's Senate Finance Committee released its bill in fall 2009, with a subsidy schedule that was far skimpier than that of the House bill.** In his 2011 book about the battle to pass the ACA, Richard Kirsch, national campaign manager from 2008-12 for Health Care for America Now (HCAN), an  umbrella group formed by unions and progressive nonprofits to advocate for universal health care, pins responsibility for the skimpy subsidies primarily on Obama:

Obama (re) declares war on lobbyists

It's on now. When the Baucus bill passed out of committee, it became clear that some form of health care reform will likely pass. That was the opening gong for lobbyists to start their final pushes to knock key cost control measures off of the end product -- the excise tax on expensive health care plans, the pending Sustainable Growth Rate cut to doctors' Medicare payments, the cuts in subsidies to Medicare Advantage plans, the tax on medical device makers, strong price control leverage for any public option, etc. etc.

The bogus and swiftly discredited (counter-swiftboated?) AHIP-commissioned study purporting to show that the Baucus bill will raise premiums was in turn a red cape to Democrats, who have gone out with gusto to paint the health insurance industry as public enemy #1. It is unlikely that AHIP is trying to prevent a reform bill from passing; they are rather trying to get what they can added in and taken out -- stiffer individual mandates, increased subsidies, no public option, no excise tax, weaker mimimum coverage standards. Give them all that, and reform is still worth doing -- insurance at least marginally worth having will still be made at least marginally affordable to most of those who now lack it. But the U.S. health care system will remain dysfunctional -- twice as expensive as that of other rich countries, riddled with coverage holes, wired for overtreatment. The battle now is about how eviscerated the final bill will be.

That is why Obama has returned to a major campaign theme: we can't reform our policies until we reform our politics. Here's how he put it on Jan. 30, 2008 in Denver:

we need to do more than turn the page on the failed Bush-Cheney policies; we have to turn the page on the politics that helped make those policies possible.

Lobbyists setting an agenda in Washington that feeds the inequality, insecurity, and instability in our economy.

Division and distraction that keeps us from coming together to deal with challenges like health care, and clean energy, and crumbling schools year after year after year.

Cronyism that gave us Katrina instead of competent government. And secrecy that made torture permissible and illegal wiretaps possible.

It's a politics that uses 9/11 to scare up votes; and fear and falsehoods to lead us into a war in Iraq that should've never been authorized and should've never been waged.

Compare his weekly address today:

This [rampant health care inflation] is the unsustainable path we’re on, and it’s the path the insurers want to keep us on. In fact, the insurance industry is rolling out the big guns and breaking open their massive war chest – to marshal their forces for one last fight to save the status quo. They’re filling the airwaves with deceptive and dishonest ads. They’re flooding Capitol Hill with lobbyists and campaign contributions. And they’re funding studies designed to mislead the American people.

Of course, like clockwork, we’ve seen folks on cable television who know better, waving these industry-funded studies in the air. We’ve seen industry insiders – and their apologists – citing these studies as proof of claims that just aren’t true. They’ll claim that premiums will go up under reform; but they know that the non-partisan Congressional Budget Office found that reforms will lower premiums in a new insurance exchange while offering consumer protections that will limit out-of-pocket costs and prevent discrimination based on pre-existing conditions. They’ll claim that you’ll have to pay more out of pocket; but they know that this is based on a study that willfully ignores whole sections of the bill, including tax credits and cost savings that will greatly benefit middle class families. Even the authors of one of these studies have now admitted publicly that the insurance companies actually asked them to do an incomplete job.

It’s smoke and mirrors. It’s bogus. And it’s all too familiar. Every time we get close to passing reform, the insurance companies produce these phony studies as a prescription and say, "Take one of these, and call us in a decade." Well, not this time.

Beyond slamming the most obvious target, Obama at the close broadened the scope and raised the stakes, framing the health reform bill as a test case for the functioning of American democracy:

Last November, the American people went to the polls in historic numbers and demanded change. They wanted a change in our policies; but they also sought a change in our politics: a politics that too often has fallen prey to the lobbyists and the special interests; that has fostered division and sustained the status quo. Passing health insurance reform is a great test of this proposition. Yes, it will make a profound and positive difference in the lives of the American people. But it also now represents something more: whether or not we as a nation are capable of tackling our toughest challenges, if we can serve the national interest despite the unrelenting efforts of the special interests; if we can still do big things in America.

I believe we can. I believe we will. And I urge every member of Congress to stand against the power plays and political ploys – and to stand up on behalf the American people who sent us to Washington to do their business.

Obama here is not only turning the spotlight on lobbyists just as they kick into high gear -- there's also a veiled threat to expose selected targets in Congress (Democrats, since there's no Republican votes except maybe Snowe's) who try to hold the final bill hostage to various giveaways.

It's been said by many that Obama needs to land a punch in a major domestic policy fight. Let's see specifically what he chooses to fight for as health care reform approaches the endgame.

Does the public option rest on a thin Reid?

Pre-gaming the Harry Reid-led meetings to merge the Senate Finance Committee bill and the HELP bill, Ezra Klein highlights an important inflection point for the public option:

If Reid decides to put a public option, or some sort of public option compromise, into the bill, then it would require 60 senators to remove it on the floor, and only 41 senators to defend it. Conversely, if he decides to leave the public option fight for the floor, then it will take 60 senators to add it into the bill, and only 41 to block it. That means that groups who see an issue decided in their favor during the blend have a huge advantage over groups that are left to fight it out on the floor.

Of course, if Reid and his gang of 3-4 do include a public option (or some ghost of one) in the bill they bring to floor debate, and thus make it difficult to remove the public option on the floor, it will still ultimately take 60 senators to achieve cloture and bring any bill to a vote in the Senate.

Commonwealth Club: 78,000 Americans die yearly for lack of "timely and effective" health care

In a much-cited speech asserting the moral imperative for universal health insurance, Rep. Alan Grayson cited a Harvard study, published in the American Journal of Public Health, finding that just short of 45,000 Americans die prematurely every year for lack of health insurance.

A just-released state scorecard from the Commonwealth Club Commission on a High Performance Health System, scoring the relative effectiveness of each state's health care system, uses a somewhat different measure but comes up with an equally startling statistic: that if all states could reach the level of care achieved by top performing states,

Nearly 78,000 fewer adults and children would die prematurely every year from conditions that could have been prevented with timely and effective health care.

If this is true, more Americans die every year for want of "timely and effective" care than were killed in Vietnam or than die each year in car accidents. Moreover, even the "highest performing" state, Massachusetts, at the time of study ( when it had just begun to implement its universal health insurance plan) still left 7% of its adult working population uninsured -- and so significantly underperformed every industrialized nation in the world except the U.S. (The state with the highest percentage of working uninsured adults, at 32%, is Texas, where in the mid-90s Governor George W. Bush killed by neglect an attempt to establish a health insurance exchange for small businesses -- at least according to the exchange's chairman at the time of its demise).

The study also includes an incidental but striking congruity with CBO scoring of the Baucus bill. As noted, the study found that Massachusetts left 7% of its working adult population uninsured. Not surprisingly it concluded that if all states reached that level

Twenty-nine million more people would have health insurance - cutting the number of uninsured by more than half.

According to the CBO's estimate, the Baucus bill over ten years would cover 94% of legal U.S. residents and reduce the number of uninsured by...29 million. In other words, once fully implemented (by about 2014) it would achieve nationally the level of coverage that Massachusetts achieved in its first phase of implementation.

The Commonwealth Club report also includes some good news, most notably

that national efforts to measure, benchmark, and publicly report performance had a marked effect on quality improvements at the state level. Following a national effort to track and report hospital treatment data, nearly all states improved on measures of treatment for heart attack, heart failure, pneumonia, and prevention of surgical complications. In some instances, the lowest state rate now exceeds the average three years ago. In addition, most states improved significantly on several measures of the quality of care in nursing homes (reductions in pressure sores, pain, and use of restraints) following a national effort to make that data publicly available.

Those results suggest that measures in the Baucus bill to hold hospitals accountable for outcomes and infection rates could be effective and yield significant savings.

Health care endgame: lobbyist pressure vs. "deficit neutral" pledge

Raising a front-page alarm, the Times' David Kirkpatrick warns that lobbyists are knocking the teeth out of all the significant cost control measures in pending health care legislation. This narrative cuts against the grain of the media attention focused on the CBO's verdict that the Baucus bill would reduce the deficit by $83 billion over ten years and by more in the second decade.

While the Baucus bill seems also to be the White House's template, Kirkpatrick usefully points out that it's only one of five bills making their way through House and Senate, and that under intense lobbyist pressure House Democrats have lined up against two central cost-cutting measures, the independent "MedPAC on steroid" commission (dear to Obama's heart) empowered to make regular recommendations for Medicare cost savings, and the excise tax on so-called "Cadillac" health care (expensive) plans that some employers offer to (mainly unionized) employees. Resistance to lobbyist pressure against the MedPAC proposal has been undercut by the Obama Adminstration's side deals with pharmaceuticals and hospitals to limit the amount that MedPAC could cut their payments -- now all other interest groups are clamoring either for equivalent carve-outs or to kill MedPAC altogether.

Negotiation between the House and Senate could cut two ways. The House wants a public option -- arguably the strongest cost controlling measure on the table, which allegedly lacks support in the Senate. The Senate, in turn, is more amenable to the Baucus cost controls opposed by Democrats in the House. One would like to think that the natural compromise would be "both/and" -- a public option and an excise tax and MedPAC. Alas, that would mean frustrating all the lobbying interests. On the other hand, there is genuine pressure for the bill to be scored as deficit neutral -- so a compromise can't cut out all cost control measures regarded as credible by the CBO. So the worst-case compromise -- no public option and no MedPAC or attempt to tax expensive benefit plans -- is likewise hard to imagine. Perhaps we'll end up with a weak excuse for a public option (or potential, to-be-triggered public option), a wholly or partially neutered MedPAC, and other tax substitutes for the excise. That would mean getting two thirds of the way toward universal coverage in five years while leaving serious cost control to another, still-more-desperate day.

In fact, T.R. Reid's survey of national health plans that work makes it pretty clear that there can be no significant health care cost control unless the government sets the rates for all procedures offered by all providers, either through a single payer system or through a tightly regulated, probably nonprofit, insurance industry. As long as health insurance is dominated by for-profit insurers with the freedom to set their own rates and coverage rules, the U.S. will continue to spend twice as much as other developed countries on health care. The only hope I see is either a strong public option or other nonprofit alternative slowly killing off the health insurance industry -- or else, continued inflation so out of control that universal desperation finally becomes strong enough to legislate the death of the industry.

It should be remembered that Obama is a long-range planner, committed by philosophy and inclination to effect change by "turning the battleship a few degrees" at a time. Bill Clinton confessed, while chronicling other achievements, "We bit off more than we could chew on health care." Obama, using Clinton as cautionary foil as much as George W. Bush did his father, decided from the start to enlist the health insurance industry rather than fight it head on. I hope and trust that he recognizes that the U.S. will never have an efficient, affordable health care delivery system as long as private for-profit insurers are free to operate as they do now -- with broad freedom to set coverage rules and repayment rates (in the current legislation, there will be some curbs on their freedom to set coverage rules, but probably not enough). Newt Gingrich's long-range plan for Medicare -- "first we're going to cut it off, then we're going to kill it" -- should define Obama's approach to the U.S. health insurance industry.

Brooks v. Brooks on the Baucus bill

David Brooks continues to write nonsense about health care.

Professing ambivalence about the Baucus bill, he complains in one breath that it "will retard innovation by using monopoly power to squeeze costs." Two paragraphs later, lauding the bill's "many provisions to make government-run health care more rational," he includes that it "would create a commission to perpetually squeeze costs," also cataloging specific measures favored by health care experts -- bundling payments, encouraging doctors to work in teams, improving IT, measuring comparative effectiveness. He acknowledges that savings from these measures "could be significant."

As for that free market shibboleth that cost controls are always bad: in health care, virtually every industrialized nation has found them necessary. Is Brooks aware that in France, Germany and Japan, three countries that get better health outcomes than the U.S. at half to two-thirds the cost, the central government sets prices for every medical procedure performed in the country, and all insurers are required to pay all bills submitted under that schedule by all providers? That those countries provide universal comprehensive coverage at minimal cost to their citizens? That the fee schedules are completely transparent, posted on doctor's office walls in France, available in a phone book-sized reference in Japan? (For a doctor's- and patient's eye view of these systems, see T.R. Reid's The Healing of America.)

The only "innovation" squeezed by governmental cost controls is the innovation of insurers, ingeniously determining how not to cover procedures or how to wring out maximum premiums by charging different rates for different levels of coverage.

Yes, health care providers in all three countries feel squeezed by government cost controls. Yes, they make much less than doctors in the U.S. They also come out of medical school with zero debt, pay pennies by US standards for malpractice insurance, and spend almost no time or money on administrative costs -- in contrast to American doctors, who have to employ whole staffs to deal with the byzantine billing and claims approval processes of multiple insurers.

Brooks also claims that the Baucus bill (or any set of subsidy levels for people purchasing insurance on exchanges) "will impose huge costs on people as they rise up the income ladder, distorting the whole economy."

Subsidies keyed to income are only relevant to those who do not get insurance from their employer, including the self-employed. Right now, such people suffer "huge costs" indeed -- buying individual insurance on the open market with no subsidy. For many, a rising income will be the result of better employment, which likely means employer-provided health care. For the self-employed or those who work long-term in workplaces that don't provide insurance, it seems perverse to complain that reducing subsidies as their income increases is an imposition of "huge costs."

David Brooks' lazy free market fantasy

Before publishing a disingenuous parable setting up false categories of free-market versus activist government reform, David Brooks should have had a chance to read a cautionary tale of failed health care reform that appeared on the very same Times op-ed page as his own column.

Brooks spins out the reform approaches of "Mr. Bentham" (Obama Democrat) and "Mr. Hume" (free market conservative, vaguely reminiscent of Bush). Presumably these are avatars of nineteenth century reformer Jeremy Bentham and philosopher David Hume, though the affiliations are too tenuous to be worth parsing.

Mr. Bentham is a type AAA superwonk with a solution to everything; Mr. Hume is a lazy skeptic who recognizes his limitations. While Brooks takes a few swipes at "Hume," his sympathies clearly rest with him.

Mr. Bentham comes up with the Baucus bill for health care reform and the Waxman-Markey energy bill; Mr. Hume proposes in both cases to let the market work its magic. Here he is on health care:

“Why don’t we just set up insurance exchanges with, say, 12 different competing policies? We’ll let everybody choose a policy, and we’ll let people keep any money they save. That way they can set off a decentralized cascade of reform, instead of putting all the responsibility on us here.”

Yeah, why don't we just. It's really easy to estblish robust competition benefiting consumers among for-profit health insurers, and every market has twelve competitors ripe for recruitment. That's where column B, an op-ed by the former chairman of the Texas Insurance Purchasing Alliance, Cappy McGarr, offers an appropos reality check.

McGarr chronicles the failure of Texas' effort in the early nineties to establish a health insurance exchange for small businesses--a failure he blames largely on neglect from Governor George W. Bush (the quasi-model, ironically, for Brooks' "Mr. Hume," with imagery borrowed from Maureen Dowd's Boy King columns). The exchange died, according to McGarr, for want of either a public option or strict rules to prevent insurers from cherry-picking small corporate customers outside the exchange:

Most important, though, our exchange failed not because it wasn’t needed, and not because the concept wasn’t sound, but because it never attained a large enough market share to exert significant clout in the Texas insurance market. Private insurance companies, which could offer small-business policies both inside and outside the exchange, cherry-picked relentlessly, signing up all the small businesses with generally healthy employees and offloading the bad risks — companies with older or sicker employees — onto the exchange. For the insurance companies, this made business sense. But as a result, our exchange was overwhelmed with people who had high health care costs, and too few healthy people to share the risk. The premiums we offered rose significantly. Insurance on the exchange was no longer a bargain, and employers began backing away. Insurance companies, too, began leaving the alliance.

The Texas exchange failed, in other words, for want of the very types of provisions that Brooks lampoons in the Baucus bill: "He’d design a set of insurance policy regulations to make sure everybody gets uniform care"( along with various crucial experimental measures to restrict overtreatment and overbilling that Brooks does not criticize in detail).

Brooks recognizes on some level that free market fundamentalism has failed. His Mr. Hume "never could very accurately predict how the market was going to move." But he holds reflexively to his contempt for good-faith efforts to create market conditions in which health insurance competition can flourish. He won't recognize, as Paul Starr has shown, that the Baucus bill -- and indeed, all the Democratic health care bills pending in both chambers -- are comprised entirely of ideas proposed by Republicans over the past four decades. He won't consider, with Jonathan Cohn, whether an exchange minus a public option might work with strict regulation of private insurers. He hasn't engaged the tough questions driving the debate -- for example, whether the Wyden amendment opening the exchanges to all employees might foster real competition, or whether co-ops might work, or how to bend the cost curve if he doesn't like the efforts to do so that he implicitly lampoons in the Baucus bill. He prefers, with his own Mr. Hume, to whine and fantasize easy answers.

The crown jewels of health care cost-cutting

Ron Brownstein has an important post that details the substantial cost-control measures in the Baucus bill that led CBO to score it as a deficit reducer over the long term. The measures, Brownstein notes, center on two themes: "shifting the reimbursement model away from volume to value, and encouraging physicians to work more closely in teams to manage the overall health of patients, particularly those with expensive chronic conditions."

The Baucus bill would also create an empowered oversight commission, the "MedPAC on steroids" that Obama has emphasized as the chief mechanism for sifting, improving and expanding the cost control measures seeded in the bill. Brownstein:

The bill creates a second new institution that could be even more important: an independent Medicare Commission, as Obama has proposed. The commission would be required to offer proposals for cost-savings whenever Medicare spending rises too fast and Congress would be required to give their proposals fast-track consideration. The commission would likely become a vehicle to move into law the most promising payment and coordinated care reforms that emerge from the tests and pilot programs that the bill's other provisions set in motion. "If it develops into a respected independent body it could be one of the most significant parts of this legislation," said the senior administration officials. "I think that's the most auspicious path forward for promoting fundamental reform."

Compare Obama, speaking to Washington Post editor Fred Hiatt in July:

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

Note the gradualism. That's not pusillanimity; it's recognition that our current payment system is a huge battleship that can only be turned by degrees. Compare Atul Gawande, who did so much to spotlight payment incentives as a core driver of health care inflation:

McAllen and other cities like it have to be weaned away from their untenably fragmented, quantity-driven systems of health care, step by step. And that will mean rewarding doctors and hospitals if they band together to form Grand Junction-like accountable-care organizations, in which doctors collaborate to increase prevention and the quality of care, while discouraging overtreatment, undertreatment, and sheer profiteering. Under one approach, insurers—whether public or private—would allow clinicians who formed such organizations and met quality goals to keep half the savings they generate. Government could also shift regulatory burdens, and even malpractice liability, from the doctors to the organization. Other, sterner, approaches would penalize those who don’t form these organizations.

This will by necessity be an experiment. We will need to do in-depth research on what makes the best systems successful—the peer-review committees? recruiting more primary-care doctors and nurses? putting doctors on salary?—and disseminate what we learn. Congress has provided vital funding for research that compares the effectiveness of different treatments, and this should help reduce uncertainty about which treatments are best. But we also need to fund research that compares the effectiveness of different systems of care—to reduce our uncertainty about which systems work best for communities. These are empirical, not ideological, questions. And we would do well to form a national institute for health-care delivery, bringing together clinicians, hospitals, insurers, employers, and citizens to assess, regularly, the quality and the cost of our care, review the strategies that produce good results, and make clear recommendations for local systems.

Dramatic improvements and savings will take at least a decade...

Bending the health care cost curve is not the work of a day, or a single bill. There is a fair amount of consensus among Democrats about how to get the process started. Will the lobbyist-ridden legislative process gut the promising provisions drafted in Baucus's and other bills? Will Obama take a stand on these, as he didn't on the public option? Did he decide long ago that payment mechanisms were more important than insuring mechanisms?