Monday, November 9, 2009

Why Health Reform Will Fail (To Pass) - Part Two

I wanted to provide an update to my prior post in which I explained why I think health reform will ultimately fail to pass. This weekend, in an historic vote, the House passed health care reform by a very narrow 220-215 vote. Never before has any house of Congress passed legislation for universal health care in America. So does this alter my prediction? Hardly - in fact I am more convinced than ever that no bill will reach the President's desk. And the seeds of its destruction were sown in the deals made to reach 220 votes in the House. To win the votes of pro-life Democrats Speaker Pelosi allowed a vote on an amendment offered by Rep. Bart Stupak (D-Mich.) that would prevent the use of federal subsidies to pay for insurance that covers elective abortion. The amendment was adopted with the votes of 64 Democrats. Pro-choice Democrats were angry, but they knew that the bill could not pass without the votes of pro-life Democrats, so they accepted the amendment. Now the bill has moved to the Senate, where moderate Democrats have made it clear that they too will demand a bill that bars any federal funds for abortion. So, the Senate is unlikely to pass a bill if it does not include the Stupak language. Problem is 40 pro-choice Democrats in the House have now signed a letter pledging to vote against any House/Senate compromise bill that includes the Stupak amendment. If the Conference Committee agrees to a bill with the Stupak language it will lose the 40 pro-choice votes in the House and fail.  If, on the other hand, the Conference strips the Stupak language then it would lose the votes of pro-life Democrats in the House and the Senate and fail to pass. What must be remembered is that in the Senate, Conference Reports can be filibustered - it's rare, but allowed. So now add abortion to the list of reasons why health reform will fail - and later, expect me to add immigration policy to the growing list.

Original Post
There has been much news this week about the momentum for health reform. House Speaker Nancy Pelosi has just introduced a 1,990 page bill representing the House version of reform, complete with a public option that would allow the government to negotiate payment rates with providers. On the Senate side, Majority Leader Harry Reid made news earlier this week when he announced that the Senate bill would include a public option with an allowance for states to “opt-out” of the program.

Given these developments there is now a sense of inevitability that health reform will pass and be signed into law by President Obama either this year or early next year. I’m not so certain. In fact, I am increasingly convinced that no reform legislation will make it to the president’s desk.

Allow me to explain why…

The Public Option
For too long the press has been obsessed over the question of the public option, as if it were the only point of contention between the House and the Senate. The truth of the matter is that the debate over the public option was as much about disagreements within the House and within the Senate as it was about a disagreement between the two bodies. In the House, Democrats can be divided into three camps 1) those who demanded a public option that paid doctors a fee linked to Medicare reimbursement rates, 2) those who supported a public option but wanted negotiated reimbursement rates (mostly rural state members where Medicare rates are low), and 3) those who simply oppose creation of a public option (mostly Blue Dogs who hail from conservative districts). There are 256 Democrats in the House and it takes 218 votes to pass any legislation – so Democratic leadership had to find a compromise. In the end, Pelosi went with group 2 (negotiated reimbursement) based on the assumption that many in group 1 and perhaps a few from group 3 would come on board. At last count, Pelosi is still short of the 218 votes; so passage in the House is still an open question.

In the Senate, disagreement over the public option and the form it should take is a bit more complicated, but Senators can also be grouped. There are 1) those who support a public option but would allow states to “opt-out”, 2) those who favor the creation of a trigger that would create a public option if other reforms efforts fail, 3) those who support allowing states to create their own public option, and 4) those who oppose the creation of a public option. Harry Reid has decided to go with group 1 and the opt-out provision in hopes that it would represent an acceptable compromise. The problem that Reid faces is that any bill requires 60 votes given the likelihood of a filibuster. There are only 60 Democrats in the Senate and only 1 potential GOP vote – Maine’s Olympia Snowe – so Reid cannot afford to lose anyone. So far Snowe has said that she opposes the opt-out approach and Joe Lieberman (CT) (and Independent who caucuses with the Democrats) has said the he to will seek to block such an approach as well. By most counts Reid is about 5 votes shy of the 60 he needs. Trouble is, if the opt-out provision comes to the floor as part of the bill any effort to strip it out via amendment would also need to overcome the 60 vote hurdle – and there may be 41 Democrats who want to keep it. So Reid finds himself lacking the votes to pass legislation with the public option opt-out and possibly lacking the votes to remove the opt-out from the bill. As such, reform could easily die in the Senate.

But let’s assume that the House and Senate do pass their bills. Then a conference committee will be convened for the purpose of reconciling the differences. With regard to the public option there are key differences between the House and Senate. The House bill would not allow for an opt-out and it is doubtful that House liberals would accept such a provision; likewise, the Senate could not muster enough votes to pass a public option without an opt-out. The greater threat to compromise between the House and Senate would be the elimination of the public option in the Senate version. It is unlikely that Pelosi could wrangle the 218 votes needed for compromise legislation with no public option, even with the provision for a trigger. So the public option could derail passage in the House, in the Senate, and especially in the final stage of compromise between the two bodies.

But the public option is just one point of disagreement. The House and Senate also differ on how to pay for reform and how to achieve universal coverage. The differences are significant and philosophical and raise serious questions about whether compromise can be attained.

Employer provided insurance is the principle source of health insurance for Americans under the age of 65 (99% of those over 65 have Medicare). About 60% of the non-elderly population receives health insurance through an employer (or a parent/spouse/guardian’s employer). As health care costs have increased more and more employers are opting to no longer provide insurance. But 83% of the uninsured live in a family headed by at least one employed person. As such, many support requiring employers to provide insurance as a way to expand coverage. To that end, the House legislation requires that employers provide insurance coverage to their employees or face a penalty equal to 8% of total payroll. The Senate legislation does not require employers to provide insurance, but is expected to contain a provision stipulating that if an employer has any uninsured employees who receive a federal subsidy to purchase insurance that employer would face a fine of $750 multiplied by its total workforce. It is an odd provision to be certain, but well short of a mandate. Given that individual insurance costs approximately $5,000 per year, and that most employers pick up the tab for 75% of that cost, a $750 fine per employee may seem like a bargain compared to providing health insurance. It is unlikely that a strict employer mandate could pass in the Senate and equally questionable whether progressive members of the House would accept any compromise that eliminated the employer mandate. The House bill also contains an individual mandate to purchase health insurance, those who fail to do so face a fine equal to 2.5% of their adjusted gross income. In the Senate the individual mandate has been all but eliminated with individuals who fail to purchase insurance facing a maximum fine of $750 per year, and that fine is phased-in slowly over the next 7 years. Given that individual insurance costs about $5,000 per year, the $750 fine may not motivate many to purchase insurance. House Democrats view the mandates as essential to maximizing coverage, many Senate Democrats view mandates as being too burdensome and punitive.

Concern over rapidly rising deficits and President Obama’s pledge that he will not sign any bill that exceeds $900 billion over the next ten years or that “added one dime” to the national debt has forced the House and Senate to find ways to pay for health care reform. Not surprisingly each found its own way. The House would fund a substantial portion of its reform via a proposed 5.4% surtax on individuals earning more than $500,000 per year and couples earning more than $1 million. In the Senate income tax increases are a non-starter, instead the Senate has proposed a 40% excise tax on extravagant health plans – so-called Cadillac plans – defined as those that cost more than $8,000 a year for individuals and $21,000 for families. The argument being that this would keep the source of new revenue within the existing health care system and it could discourage such extravagant plans in the future, plans that encourage the overuse of services. The tax on these insurance plans will go nowhere in the House given that many of these Cadillac are in fact the result of years of bargaining on the part of organized labor. Labor is a key constituent of the Democratic Party, labor opposes the Senate tax, and it would never survive the House. The House and Senate taxes are essential to paying for the bills, yet it is hard to see how the House and Senate can come to any compromise on this key funding issue.

In the end, I simply find too many substantive differences between the House and Senate proposal to see how a conference committee could reach consensus that would then be acceptable to each chamber. Months of negotiation, deals, and concessions in each chamber have resulted in legislation that would be acceptable to the barest majority needed to pass a bill in each house of Congress. The conference committee negotiations would necessarily unravel those deals and the fragile coalitions they created within each body. So the House has introduced a bill that currently lacks the 218 votes it needs to pass the bill, the next couple of weeks will be dedicated to finding those votes. In the Senate, Harry Reid is preparing to introduce legislation that is at least 5 votes shy of the 60 votes it needs. The next month (at least) will be spent trying to find those 60 votes. But even if the House and Senate clear the considerable hurdles that remain within their own chambers the far greater, and perhaps insurmountable, challenge will be reconciling the two bills. But the differences between the House and Senate on key provisions – the public option, mandates, and taxes – are considerable and represent deep philosophical and political differences that may prove impossible mediate.

Many expect that once the House and Senate have passed their respective bills President Obama will wade into the negotiations and hammer out a deal – those expectations may not be realistic. Progressive Democrats in the House and the Senate see this as a limited window of opportunity to enact substantive reform and have expressed little willingness to compromise. They know that whatever passes will be policy for years if not decades; after all, it took 15 years just to put health reform back on the agenda after the Clinton failure in 1994. But progressives lack the votes to pass anything without the votes of moderate Democrats, and they are far less willing to embrace substantive change.

(Of course, if I'm wrong I reserve the right to delete this post and pretend that I never wrote it...)