Health Care Moves

Health Care Moves

Members of the House and Senate will return to Washington the evening of Tuesday, September 8th. Over the following several days they will compare constituent feedback on health care reform. There will be thousands of small informal discussions – Members talking to each other on the House and Senate floor during votes, in the hallway, in the gym, over lunch or coffee or drinks.

The House and Senate Democratic leaders will convene caucus meetings of all their Members to get more structured input. These leaders will meet separately and together to discuss the feedback they are receiving. Senior White House staff will be involved in most of these discussions.

At some point in those first two weeks the President, Speaker Pelosi and Leader Reid will need to choose a legislative path. So far the President has allowed the horses to run all over the field – at some point he needs to corral them. But all his options are now bad, and he may continue to delay choosing a path. To do so would further diminish his fading chances of legislative success.

I think much of the chaos we are seeing results from a combination of:

  • Presidential indecision about which path to take and a lack of preparedness for the different paths;
  • an ever-changing message from the White House;
  • and a flawed set of policies and substantive arguments to which American citizens are reacting harshly.

Absent Presidential leadership on a specific policy proposal, Democrats are pulling in various directions. And I think everyone underestimated the depth and intensity of public opposition to the proposed policy changes. The August citizen town hall blowback will radically affect the closed-door Member discussions beginning next week, as will the expert polling analysis projecting large potential 2010 election losses for Democrats. A full-fledged Democratic Member panic is not out of the question.

I have written repeatedly that no one knows what will happen in September. Any analysis like this is dominated by tremendous uncertainty. I’m going to give it my best shot.

I see five possible paths for the President and Democratic Congressional leaders. I will list them in the order in which I think they will be considered, and I will assign my subjective probabilities to each.

  1. Cut a bipartisan deal on a comprehensive bill with 3 Senate Republicans, leading to a law this year; (10% chance)
  2. Pass a partisan bill through the regular Senate process with 59 Senate Democrats + one Republican, leading to a law this year; (10% chance)
  3. Pass a partisan bill through the reconciliation process with 50 of 59 Senate Democrats, leading to a law this year; (25% chance)
  4. Fall back to a much more limited bill that becomes law this year; (50% chance)
  5. No bill becomes law this year. (5% chance)

If you add the probabilities for 1 + 2 + 3 (in my case, 45%) you get the predicted probability of a Presidential “success,” defined as a comprehensive bill that looks somewhat like what is being publicly debated. Today I project a 55% chance of failure.

I will provide an overview of the legislative landscape, then walk through each path. What follows is highly judgmental, and I can prove none of it. It can and will change rapidly beginning seven days from now. My only defense is that over a 15-year period a President and two Senators paid me in part to do this kind of analysis. You get it for free.

Overview

A big bill is in deep trouble. The President and his team had serious problems before the August recess. Failing to pass a bill out of the House was an enormous setback. Speaker Pelosi picked up a little late momentum by cutting a deal with some Blue Dogs to get a bill out of the Energy & Commerce Committee, but at the cost of delaying final passage until the fall.

On the Senate side, bipartisan discussions among the Gang of Six (Senators Baucus, Conrad, Bingaman, Grassley, Enzi, and Snowe) were stalled. The President and Democratic Leaders needed to pick up substantial momentum in August.

Instead they lost tremendous ground, far more than anyone anticipated. More importantly, things are still rolling backward. For most Republican Members of Congress their constituent feedback makes this an easy call – they oppose the proposed bill. Many Democratic Members face conflicting pressures from their constituents, their leaders, and the President.

The Leaders’ choice of legislative path is both difficult and important. Choosing a path means picking winners and losers within the Democratic caucuses. The President’s choice can easily affect whether certain Members win re-election next November. He has postponed this decision so far. If things were going well, this would be a brilliant strategy, because he would have the flexibility in September to choose from among a few good options. Deterioration over the summer has provoked factions to dig in their heels, making all options increasingly difficult for the President. I think he now faces the question “Which path is viable,” rather than “Which path do I prefer?”

Path 1 – Cut a bipartisan deal with 3 Senate Republicans (10% chance)

This is the most straightforward of the three options. A deal among the Gang of Six would lead to a signed law. Such a deal would likely come to the Senate floor as a free-standing bill outside of the reconciliation process.

A bipartisan Gang of Six deal would obviously be more centrist than the bills now being discussed. I would expect:

  • The public option would be out;
  • A version of the Conrad co-op might be in, close to the original Conrad proposal;
  • The (stupid) Kerry plan to tax insurers for high-cost plans might be in; and
  • Other income tax increases would be out.

I would expect moderate House and Senate Democrats to support such a deal. Liberals would be upset at the loss of the public option. The White House, Speaker Pelosi and Leader Reid would stress to liberals that a partial win is better than nothing. This is a common refrain when you compromise on legislation.

This path looks increasingly unlikely. Senators Grassley and Enzi have been sending negative signals over the past two weeks, reaffirming the conventional July wisdom that the “Gang of Six” discussions were not moving forward.

White House Press Secretary Gibbs is laying the groundwork for Democrats to embark on a partisan path by pointing to Senator Enzi’s recent radio address as evidence that Enzi is “walking away” from negotiations. I think all Members of the Gang of Six (Baucus, Conrad, Bingaman, Grassley, Enzi, Snowe) have been negotiating in good faith since day one. I think they have been unable to get a deal for two reasons:

  1. There appears to be no substantive policy position that can garner a centrist super-majority of the Senate; and
  2. Even if there were, Chairman Baucus lacks authority to close a final deal with Republicans.

Senators Grassley and Enzi are experienced negotiators. They know that any agreement with Senators Baucus, Conrad, and Bingaman would be reopened on the Senate floor, and in conference by both House Democrats and the White House. I presume that Baucus/Conrad/Bingaman could defend the deal on the Senate floor from amendments by the Left, but they could not guarantee the outcome of conference negotiations with the House. Nobody wants to have to negotiate twice (or three times), so Grassley and Enzi need either Pelosi or the President to give Chairman Baucus their proxy to close a deal. Speaker Pelosi can’t do that, and so far the President won’t. If the Gang of Six fails, it will be because the President undercut Chairman Baucus by failing to commit to a bipartisan path.

Projection: Today this path has a 5% chance. I’m assigning it a 10% chance over time, because as other paths fail it’s possible the Gang of Six could develop a Hero Complex and try to save the day.

Path 2 – Pass a partisan bill through the regular Senate process with 59 Senate Democrats + one Republican (10% chance)

If a bipartisan deal among the Gang of Six is impossible, I expect the three Democrats (Baucus/Conrad/Bingaman) would argue for a 60-vote floor strategy outside of reconciliation. They would take a substantive position similar to what I describe under Path 1 and push Senator Reid to bring it to the floor outside of reconciliation.

I think these Senators (who are quite influential) prefer this substantive path. Senators Baucus and Conrad are also critical to Path 3 – the reconciliation path, and Senator Conrad in particular has been publicly emphasizing the procedural challenges of that path. So if you’re a “moderate” Democrat (I use the term loosely) who wants to vote aye on final passage, you would like the bill to be a centrist one.

If you’re a liberal, as are the bulk of both the House and Senate Democratic caucuses, you probably hate this path. You’re not getting any political cover from Republicans (Senator Snowe doesn’t count), and you’re sacrificing “essential” elements of the bill that you [could/might] be able to get through a reconciliation path. I would expect liberal House Democrats would argue strongly against this path, as would outside liberals. This path requires dropping the public plan in favor of a Conrad co-op approach, and I cannot see the Left being willing to abandon their cause celebre with little tangible legislative benefit.

Five people to watch in this scenario are Democratic Senators Reid, Byrd, Specter, and Nelson, and Republican Senator Snowe:

  1. Senator Reid needs to lead his party, but is getting hammered in Nevada and he’s in cycle. This path might give him a little cover back home. Maybe.
  2. You need Senator Byrd to get to 60. Is he healthy enough to vote repeatedly over the course of a week or more?
  3. Senator Specter’s primary challenge from the left gets stronger if he votes no on final passage. His Republican challenge in the general election gets stronger if he votes aye. How does he want to vote? As an example, if he is more concerned with the general election threat, he might prefer a partisan reconciliation path in which he can vote no, even though it’s probably not his substantive preference.
  4. Similarly, Senator Nelson is generally considered to be the hardest Senate Democratic vote to hold onto. Does he want a more centrist bill that he can support, or is the political heat home in Nebraska so intense that he’d rather have a leftward bill that he can oppose?
  5. This path works only if Senator Snowe is willing to consistently vote with Democrats. Is she? If so, she (and any moderate Democrat on the margin) has near-infinite leverage over the bill’s contents.

Watch how hard Baucus and Conrad publicly push back against Path 3.

Projection: This path happens only if (a) Senator Reid wants it for personal reasons or (b) paths 1 and 3 are impossible. 10% chance.

Path 3 – Pass a partisan bill through the reconciliation process with 50 of 59 Senate Democrats (25% chance)

This is clearly the preferred path of the Left. The Left dominates the House and Senate Democratic caucuses, and their views are closely aligned with the President’s stated policy goals (especially preferring to have a “strong” public option).

The primary problem with this path is procedural. I have written about this at length, but to summarize, there’s a two-part test:

  1. There are budgetary points of order that must be avoided to make sure this is still a reconciliation bill that can be passed with only 50 votes. (50 not 51 because there are now 99 Senators.) If the bill increases the deficit in any year beyond 2014, then it fails this test. In the long run, this means the offsets must be entirely cutting health spending or taxing things that grow at the same rate as health spending. Medicare and Medicaid cuts work. Taxing health benefits (good idea) or insurers (stupid but more likely) meets this test. Raising income taxes (as the House is considering) does not. If they fail this test, the entire bill loses reconciliation protection. This means it would need 60 votes to pass, and the bill would die. I think of these as “fatal” points of order.
  2. If Senate Democrats can avoid these fatal points of order, then they have to contend with the Byrd rule placing elements of the bill in jeopardy. This is the “Swiss cheese” problem in which major elements of a reconciliation bill could be stripped if there are not 60 votes to defend them. The “insurance reforms” and individual mandate would be in greatest jeopardy. The public plan can be drafted to survive this test.

At some point behind closed doors Senator Reid will ask Budget Chairman Conrad and Finance Chairman Baucus, “Can [a particular bill] avoid the fatal budget points of order?” If the answer is yes, then he’ll ask, “And what elements should we expect to lose to the Byrd rule?”

If the first question gets a no, then this path is not viable. If it gets a yes, then it’s viable, but at a substantive cost. It is the easiest path to conference with the House, and it leads to a more leftward bill, including a “strong” public option.

I would expect many moderate Democrats to oppose the bill if this path is chosen. This poses several challenges:

  • I presume House moderates will be pulling way back in September after getting beat up in August. Will they insist that the House bill be pulled more to the center, or will they instead prefer the bill to stay left so they can vote no? Can Speaker Pelosi get 218 votes for the deal agreed to by some Blue Dogs in committee in late July? (This is a risk on any path.)
  • As a procedural matter this path has a slash-and-burn feel to it. Take all the substantive arguments you heard in July and August, add to them procedural unfairness arguments, and turn up the volume a few notches. The rhetoric will get even hotter.
  • Assuming at least some moderate Democrats oppose the bill on this path, there will be bipartisan opposition to this bill. That makes it harder for Democratic leaders to hold nervous members voting aye, and will undermine the partisan attacks I would anticipate from the White House and Democratic leaders.

Projection: If they can overcome the fatal points of order, this is the highest probability path of a big bill becoming law. The White House and Democratic leaders would have to bend and break arms to hold a majority in both bodies, but with sufficient White House pressure they can probably do it, barely. This is the highest probability path for a big bill only because paths 1 and 2 are so fouled up. 25% chance.

Path 3A – Two bills: one through reconciliation, one through regular order (0% chance)

Not gonna happen. It’s just too hard for the leaders to coordinate the votes across the two bills. If things were politically stable and these bills had a high probability of legislative success, then maybe you could split it up. In the current environment, it’s too unstable and too risky for the leaders to pursue. Leaders like manageable risks when they bring bills to the floor. This path creates unmanageable risks.

Projection: 0% chance

Path 4 – Fall back to a much more limited bill (50% chance)

If paths 1, 2, and 3 fail, the President and Democratic leaders will have no alternative but to fall back to a much smaller bill. It’s in this context that the Gang of Six might return to power, although a smaller bill could be implemented on a bipartisan or partisan path.

A much smaller bill would definitely exclude a public option. Some friends suggest it could include “insurance reforms” like guaranteed issue and community rating, since there appears to be bipartisan support for both. I don’t think this works for a reason I have previously explained:

  • These insurance changes work only if they are combined with an enforceable individual mandate to buy health insurance.
  • An enforceable individual mandate means you need subsidies to deal with the $40K earner who can’t afford to comply with the mandate.
  • If you’re not going to increase the budget deficit, you need to offset the subsidies with spending cuts or tax increases.
  • And you’re right back where you started, minus the public option.

You can’t make the insurance “reforms” work by themselves. In addition, insurance reforms without the individual mandate would cause insurers to awaken from their confused slumber and enter the debate with vigor (in opposition). At a late stage this could matter, especially if Democrats are trying for a bipartisan smaller bill.

For this reason, I think it’s easier to “build up” to a smaller bill. There will clearly be a bipartisan consensus to increase Medicare spending on doctors (the so-called “doc fix”). I will guess that this path leads to $100B — $200B of spending over 10 years: more Medicare money for doctors, combined with expansions of Medicaid for the poor. To offset the deficit effect, they would cut Medicare Advantage and nick at other Medicare providers, and maybe do some of the Kerry tax increase proposal. This would be an “incremental” package that advocates would argue is a small step in the right direction. I would oppose such a package, but it might be able to get 60 votes, and could almost certainly get the 50 votes needed through reconciliation, and without any significant procedural hurdles. This path could be partisan or bipartisan, and it’s way too soon to predict which.

This is what Democrats do when all else has failed, to make sure the President has something to sign. It’s a failure path that they would unconvincingly argue is a first step toward a larger reform.

This would be small compared to the big reform policy being discussed, but in any other context it would be an enormous bill. For comparison, in 2007 and 2008 President Bush sustained two vetoes over a ten-year $15 billion difference in SCHIP spending. Here we’re talking about moving $100B – $200B around as a “fallback” position.

Projection: 50% chance, because I think paths 1-3 have low probabilities of success. This probability increases by 5 percentage points each week the President delays choosing a path.

Path 5 – No bill becomes law this year (5% chance)

It’s hard to imagine how you end up here. If everything falls apart, they at least do a doc fix and throw in some “quality improvement” provisions to save face, which puts them on path 4. Still, stranger things have happened.

Projection: 5% chance.

Conclusion

Thanks for making it through this lengthy post. I hope it helps you understand the multi-dimensional nature of this decision and the interaction of what I call the 5 Ps: policy, politics, personalities, the press, and legislative process. It is complex and important.

(photo credit: dlkinney)

36 responses

  1. Keith,

    Thank you for your insight into the various possibilities. I still have a hard time believing the presidents credibility can be restored with any option cited given the fact that the main emphasis was "bending the cost curve downward." Furthermore, I canot see how any of these options can be considered a victory for the president or the American people.

  2. Wow — fantastic inclusion of Bayesian a priori subjective probabilities. I’ll be back for more analysis like this — I’ve been thinking of your housing / financial crisis issues.

    Notable by absence is the lack of any Republican alternative. Were a large number of Reps to get behind a simple, Voucher for Health Insurance for all as a better alternative, this might lead to No Bill.
    Similarly, stronger Rep calls for Medical cost Transparency, including average cost of malpractice insurance itemized on every bill and a call for legal reform, might also lead to No Bill.

    Then again, a more credible Rep alternative might well increase the pressure for a #3 centrist bill.

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  4. What about the 6h "P" – the people?

    Therein lies the problem. Call us the people, the patients or the polls, just put us in the alphabet somewhere.

  5. The real objective for the Democrats generally, and the Left particularly, has little or nothing to do with health care – its a power grab.

    Hence the obvious, no/low cost improvements like legal reform (tort reform), making it easy to buy catastrophic coverage and HSA plans across state lines, etc. will not be there. Giving individual policies the same tax treatment as employer provided policies will not be there. Looks instead for features that can be greatly expanded over time by regulation, and will employ lots of lawyers and unionized Federal employees.

    One has to assume bad faith from the Left in any of these negotiations, and I think people make be sensitized enough to this now that this will be a problem for the Democrats.

  6. Keith: Thanks for the clear picture of what's most likely in store for us. I'm rooting for Path #5. Whichever path they choose, do you think the legislation will be rushed through with little or no opportunity for politicians and the public to actually read it? Many people are fed up with that tactic, and are watching government actions closely. If they do allow time for review, there will no doubt be much to dislike, since they still have to work in payoffs to various special interests.

  7. Pingback: The HSA Coalition » President Obama Abandons the Public Option, Again — What it All Means

  8. Keith,

    I love game theory. I tried the same topic you are doing here one month ago, and then updated it today based on your numbers.

    The put a table showing my predictions (and a link to them) for last month, your predications today & my updated predictions today at: "The Chess Game – game theory & the future of Obamacare": http://hope4america.ning.com/profiles/blogs/the-c

    To summarize that post here (i..e: these are my numbers below):

    Path 1 – "Cut a bipartisan deal with 3 Senate Republicans". Last month: 25%. Today: 15%
    Path 2 – "Pass a partisan bill through the regular Senate process with 59 Senate Democrats + one Republican". Last month: 5%. Today: 5%
    Path 3 – "Pass a partisan bill through the reconciliation process with 50 of 59 Senate Democrats ". Last month: 25%. Today: 15%
    Path 4 – "Fall back to a much more limited bill". Last month: 0% (I had not thought of this last month). Today: 30%
    Path 5 – "No bill becomes law this year ". Last month: 10%. Today: 10%
    Path 6 – A moderate version, but using reconciliation! (This option is not considered by you). Last month: 45%. Today: 25%

  9. How does this analysis change if Howard Dean signals any openness to running against Obama in 2012?

  10. >How does this analysis change if Howard Dean signals any openness to running against Obama in 2012?

    I don't see how that would affect ANYTHING. Dean didn't do too well last time, and Obama certainly isn't afraid of him as a competitor.

    I think the Republicans don't want to get behind a competing bill because they're enjoying watching the Democrats shoot themselves in the foot over this mess. Maybe when the Democrats have *something* worth talking about, then they can try that.

  11. Wow – feel like a Washington insider.
    The President's basic nature is to vote "present." He does not like hard decisions; he is not a natural leader. He confuses popularity with respect. He enjoys the former but not the latter.
    In the end, he will take anything that he can sign, declare victory for the American people and the media will celebrate his leadership. The media wants A bill – anything they can attribute to Pres Obama.
    Let's see if any "distractions" evolve during the Fall to prevent the President from taking a firm stand. He really needs and imo, wants an excuse to vote "present."

  12. Good analytic work. As a follow-on, you might consider the feedback effect on health care from other current economic issues. Obama's plans only happen if voters don't see them as a threat to jobs. The jobless recovery (and the steady increase in CBO estimates of debt), coupled with the debatable results of the President's existing programs such as the stimulus and a "cash for clunkers" program tht's looking more and more like the taxpaers' subsidy of Japanese brands, will make it steadily harder to push this rock up the hill. How much harder? We're interested in your weighting of the probabilities.

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  14. Very detailed post and well worth the read. I wish someone would walk to the table with a 4 sheet bill. One page for tort reform. One page for allowing purchase of insurance over state lines. Last page for portability if you lose your job. Page 4 will say "this page intentionally left blank" just to make a statement.

  15. Pingback: President Obama Abandons the Public Option Again — What it All Means - Dan_Perrin’s blog - RedState

  16. At the risk of being identified (accurately) as a policy wonk, I would like to suggest a legislative alternative that would improve the analysis of option 4. If the proposal replaced the "individual mandate" with an option (not an obligation) for insurers to penalize previously uninsured subscribers (think 2 years of premium as a penalty) then enforcement would go away as a problem. It would also significantly decrease complaints from insurers.

    This model would incentivize newly insured subscribers to opt for high deductible policies. since the cost (premium plus penalty) is lower. If the plan exempted very high deductibles (think $10,000 or $15,000) form the penalty, it would generate more affordable plan options for those below median income.

    I suspect independent analysis would even show this "bends the cost curve" down, since it skews toward high deductible plans. IT has the collateral benefit of incentivizing providers to innovate on cost for the high deductible population.

    Thoughts anyone?

  17. I wonder if Obama saw all of this happening the whole time with a sliver of hope he could get the public option. May not have seen the town halls coming, but Democrats have been trying to get this since FDR and failed every time. There will be a lot of disappointment from liberals in the short run, but he must be pretty happy with the position he's in.

  18. Option 4 is basically for Democrats to raise taxes to increase Medicaid without Republican cover. I put the chances of that at more like 25%. Also I doubt there are even 45 votes for the reconciliation path 3, so put that at 10%. That puts no or no significant bill this year (option 5) at almost 50%.

  19. I, too, would like some insight into why some simpler measures haven't been proposed. I've heard many people talk about wanting to move the tax advantage (for purchasing health insurance) from the corporation to the individual but I haven't heard any reasons why this idea doesn't get serious attention. Do insurance companies oppose it because they prefer the security of a corporate customer instead of individual customers? One would think that insurance companies would welcome the freedom to compete across state lines, but that's another proposal I have yet to see get much attention.

    Tom Grey: I doubt that malpractice insurance is the biggest driver of increasing healthcare costs, though I don't have any way to make an argument for my position. I would be interested in hearing why you think it has an impact so large that we should focus on tort reform.

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