Incorrect conventional wisdom about health care reform

Incorrect conventional wisdom about health care reform

Here are ten pieces of conventional wisdom about health care reform that I think are wrong.

CW #1. The Obama team learned and avoided the mistakes of HillaryCare.

The Obama team avoided the mistake of jamming Congress with a massive and detailed plan without consultation, and they effectively neutralized interest groups that helped kill the Health Security Act. But, like the Clinton Administration, they tried to restructure one-sixth of the economy in one big bite. This is again proving to be more than the American people are willing to swallow.

Congressional Democrats were far more effective in expanding government’s role in health care in the fifteen years after HillaryCare failed, by repeatedly enacting incremental expansions of government to the most sympathetic population slice left uncovered by a government program.

CW #2. The President needs to propose a specific detailed plan to improve his chances of success.

Congressional Democrats need Presidential guidance on a few big policy elements: public plan in or out, must a plan provide universal coverage, how should $1+ trillion of new spending be offset, how serious are you about not increasing the long-run budget deficit. Presidential leadership here means choosing whether a bill must be partisan or bipartisan, and making a few big policy choices among well-defined options.

Five Congressional committees have already marked up bills, and the sixth has specifics they have not made public. If the President were now to propose legislative language or a detailed policy spec, it would be ignored but for what it says about these first-tier policy choices. Details from the White House might have been helpful in March. Now they would be irrelevant.

CW #3. The President is ambiguous about his position on the public option.

The President and his team have clearly and repeatedly stated that the public option is not essential. In Washington terms, that means it’s out if it needs to be to get a deal. There is no ambiguity. Upcoming House floor vote notwithstanding, the public plan will be out of any final comprehensive bill unless the President chooses a 50-vote reconciliation path through the Senate. Even in that scenario it might be watered down. The marginal votes oppose the public option, so it has to drop. I expect the Administration will perpetuate the facade of ambiguity to keep the Left at bay, right up to the moment where it drops out of the bill.

CW #4. The public option is the core of the government takeover of health care.

Democratic staff drafted these bills with a belt-and-suspenders. If (when) the public option is removed from the bill, other provisions would still turn health insurance into a public utility. Even without a public option, government employees or people appointed by the government would define standard benefit packages and cost-sharing for all health insurance. The government would regulate relative premiums and redistribute premium revenues among insurers, and have authority to place limits on insurers’ profits. A government-appointed board would define guidelines for quality care and for health care delivery models. Government guidelines labeled “advisory” have a tendency to become de facto standards over time, whether or not they are legally mandated.

Even without a public option, the pending bills would make provision of health insurance largely a governmental function, although run by for-profit firms.

CW #5. This debate is mostly about health policy.

This debate is equal parts health policy and economic policy. Every bill publicly pending would increase the short-term and long-term federal budget deficit, and the Administration recently upped its 10-year deficit estimates by two thousand billion dollars. CBO says the House bill would increase long-term budget deficits by ever-increasing amounts, exacerbating the long-term entitlement spending problem under current law. The pending bills would raise taxes and result in lower wages as expanded coverage and mandated benefits increase the price of health insurance. Claims of long-term deficit reduction are unsubstantiated by any government policy analyst – even the Administration has failed to support its “bend the curve down” claims with numbers.

Policymakers should be focusing on short-term economic recovery, preventing tax increases, and reducing long-term budget deficits by slowing the growth of entitlement spending. The pending bills would instead mean higher taxes, lower wages and exploding government debt. If these bills become law, they will be the most significant change in economic policy in years. Health reform is also an economic issue.

CW #6. Governor Palin blew it by talking about �death panels� that aren�t in the bill.

Yes, Governor Palin’s “death panel” statement was an exaggeration. But as a tactical matter from the perspective of someone trying to kill the President’s health care reform, was it an unwise move?

The President spent much of August using Governor Palin’s “death panel” claim as a straw man to argue that most substantive concerns with the pending legislation were exaggerated and spurious.

Was it smart for the President to spend so much air time on the message “Don’t worry, this bill won’t kill your grandma?” That’s not exactly going on offense. He could have easily dismissed it with a single statement and then had his staff and proxies counter-attack. Instead, the President magnified the effect of Gov. Palin’s attack by repeating it.

Going after insurers, Gov. Palin, and conservative talk radio may work to fire up your political base, but it does not reassure those who have legitimate questions about the bill. If the President is talking about “death panels” while trying to sell his health reform plan, then he’s losing the battle.

In addition, I think the President’s repeated counter-attacks on outrageous straw man arguments backfired, because he failed to address the justifiable concerns expressed by millions of citizens at town halls: more government involvement in health care, bigger budget deficits, higher taxes.

CW #7. Rowdy town hall protestors hurt the opposition’s case.

Had the obnoxious shouting and disruption persisted through August, it might have backfired. Instead, it guaranteed press attention throughout the month, and magnified the impact of concerned Americans participating in democratic debate. I think the ensuing public policy debate is a good thing, and the obnoxious behavior early in August involved more people in that debate by generating news coverage.

I prefer thoughtful and impassioned yet civil debate to shouting. But democracy is sometimes impolite and raucus. A little shouting isn’t all bad if it eventually leads to impassioned debate, rather than just more shouting.

CW #8. Senators Grassley and Enzi blew up bipartisan talks among the Gang of Six and walked away from negotiations.

Democratic Senators Baucus, Conrad, and Bingaman, and Republican Senators Grassley, Enzi, and Snowe have worked for months to try to build the core of a bipartisan consensus. They have been unable to do so for three reasons:

1. The substance is difficult.

2. Each side is being pulled back by Members of their own party.

3. The President persistently undercut Chairman Baucus by denying him the ability to negotiate a final deal with Republicans.

Senators Grassley and Enzi are not fire-breathers. They are seasoned legislators who know how to cut a deal. They are also experienced enough to know they should not negotiate a deal with Chairman Baucus, only to have that deal reopened by the House and White House later in the legislative process. They want to negotiate once, not two or three times. That is reasonable and savvy.

The President and his team have known for months how to get a bipartisan deal: negotiate directly with Grassley and Enzi, or authorize Baucus to do so on their behalf. They were unwilling to do so, and are now feebly attempting to shift blame to these Republicans as they embark on a partisan legislative path.

CW #9. This policy debate is shallow and poorly-informed.

Yes, there is a lot of confusion and misinformation out there. Yes, many of the email chains are inflammatory and exaggerated (but not fishy). Yes, the press spends too many column inches and too much airtime on the political back-and-forth rather than the substance of the bills. Yes, too many people are shouting, and not enough are listening and debating. I concede that the debate is nowhere nearly as well-informed or thoughtful as it could be.

But so what? Millions of Americans are deeply involved in a discussion about a proposed fundamental change to how America works. And somehow, the real issues are seeping through the din. Even people getting distorted information from misleading emails are being subjected to a battle of ideas. Yes, those who listen only to one side of the debate will get a limited perspective. But anyone who exerts even a little effort can learn a lot, and anyone who listens only to one side but then debates someone who disagrees will learn something from that argument.

I think millions of Americans understand that this is fundamentally a debate about who should decide how much health care you get and who should have to pay for that care. I think they understand the rough consequences of an expanded government role in private health insurance and health care delivery. I think millions of them are reacting at an instinctive policy level to bigger government – higher taxes, bigger budget deficits, more government spending.

I wish millions of Americans read KeithHennessey.com and were patient enough to learn the details to be as well-informed as you, my brilliant and thoughtful readers. But I believe imperfectly-informed involvement is better than complete disengagement. And I have a core confidence that, given time, the American people are on the whole smart enough to figure out the underlying truths and make sound judgments. I am a strong believer in the inherent wisdom of the common man. I am actually pleasantly surprised how relatively well-informed this debate is, compared to so many other policy debates I have seen. I will continue to do my part to contribute to a thoughtful, impassioned, civil debate.

CW #10. The failure of comprehensive health care reform would doom an Obama presidency.

The Clinton health plan was a complete flameout, and yet President Clinton had two productive terms in office. If a comprehensive bill dies this year, I still expect a significant expansion of existing government health programs to become law, providing a significant consolation prize to a dispirited Democratic base. And I am confident that President Obama would be able to portray such a bill as a partial win, accompanied by a promise to continue fighting for larger reform. Failure to enact a comprehensive bill this year would weaken the President significantly in the short run but would not, by itself, doom his Presidency. Four years is a long time, and political weather is impossible to forecast beyond about a three-month horizon.

(photo credit: Brett Tatman)

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)

Debating the President's Portsmouth pitch (part 14)

We continue reviewing the President’s remarks on health care reform in Portsmouth, New Hampshire:

THE PRESIDENT: Now, in terms of savings for you as a Medicare recipient, the biggest one is on prescription drugs, because the prescription drug companies have already said that they would be willing to put up $80 billion in rebates for prescription drugs as part of a health care reform package.

Now, we may be able to get even more than that. But think about it.

Huh. So much for that secret deal that the drug companies had with the White House that their savings would not exceed $80 B over 10 years. “We may be able to get even more than that.” Hmm…

Even after 15 years of working in economic policymaking, I continue to be surprised at the naivete of some American business leaders. Almost three weeks ago I sounded an initial warning:

Hospitals: You’re the deep pockets. Insurers, Business and Pharma: They can make you villains again if they need to cut you more to make the budget numbers work.


Other posts in this series:

  1. The President’s overpromise that everyone can keep their health plan
  2. Putting the government in charge of your health insurance
  3. Waiting in line
  4. Government-mandated benefits
  5. Preventive care does not save money (in the aggregate)
  6. The House bill would increase short-term, 10th year, and long-term budget deficits
  7. The President was incorrect — AARP opposes the bill
  8. The bills would take Medicare savings needed for solvency and spend them on a new entitlement
  9. Medicare is not a good example of government-run health care because Medicare is fiscally unsustainable
  10. Even if the public option drops out of legislation, other parts of these bills would put private insurance under government control
  11. The President says the public option will keep private insurers honest at the same time he proposes cutting payments to private insurers competing with the Medicare public option
  12. The pending bills would move more cost-benefit decisions from insurers to people chosen by the government
  13. Guaranteed renewal and guaranteed issue

Debating the President's Portsmouth pitch (part 8)

Here is the President talking about health care reform in Portsmouth, New Hampshire:

THE PRESIDENT: [If we do nothing] our deficit will continue to grow because Medicare and Medicaid are on an unsustainable path. Medicare is slated to go into the red in about eight to 10 years.

This statement is true. But the President and his budget director have lowered their bar to say only that health care reform must not increase the deficit, not that it must reduce the deficit. If legislation “cuts” Medicare spending and turns right around and re-spends those funds to create a new rapidly growing health care entitlement, then the underlying deficit problem is unresolved. The legislation being developed in both the House and the Senate just barely meets this condition.

The President’s budget director argues that other reforms in legislation will “bend the cost curve down.” The nonpartisan Congressional Budget Office disagrees, and says the House bill will increase long-term budget deficits relative to current law.

Continue to the next post in this series…


Other posts in this series:

  1. Introduction and the President’s overpromise that everyone can keep their health plan
  2. Putting the government in charge of your health insurance
  3. Waiting in line
  4. Government-mandated benefits
  5. Preventive care does not save money (in the aggregate)
  6. The House bill would increase short-term, 10th year, and long-term budget deficits
  7. The President was incorrect — AARP opposes the bill

Debating the President's Portsmouth pitch (part 7)

Here’s still more from the President in the Portsmouth, New Hampshire town hall on health care reform:

THE PRESIDENT: We have the AARP on board because they know this is a good deal for our seniors.

(later) AARP would not be endorsing a bill if it was undermining Medicare, okay?

After the town hall, AARP issued a statement including the following sentence:

AARP: While the President was correct that AARP will not endorse a health care reform bill that would reduce Medicare benefits, indications that we have endorsed any of the major health care reform bills currently under consideration in Congress are inaccurate.

A political observation: With this statement AARP embarrassed the President. It is a huge deal for a left-leaning interest group like AARP to directly and immediately contradict the President on his top policy priority. I infer that AARP’s leadership is more afraid of their members attacking them for perceived support of these bills than they are of infuriating the President and his staff.

Continue to the next post in this series…


Other posts in this series:

  1. The President’s overpromise that everyone can keep their health plan
  2. Putting the government in charge of your health insurance
  3. Waiting in line
  4. Government-mandated benefits
  5. Preventive care does not save money (in the aggregate)
  6. The House bill would increase short-term, 10th year, and long-term budget deficits

Debating the President's Portsmouth pitch (part 2)

This is the second in a series of posts on the President’s comments about health care reform at yesterday’s town hall in Portsmouth, New Hampshire.

Here is the President again:

THE PRESIDENT: You will not be waiting in any lines. This is not about putting the government in charge of your health insurance.

And yet section 3103 of the Senate HELP Committee bill would give the Secretary of Health and Human Services authority to appoint a Medical Advisory Council that would determine what items and services are “essential” for a “qualified health plan,” and, by implication, which benefits are not essential. The House bill is parallel but less specific, creating an “independent public/private advisory committee,” in which the members are chosen by the government. In both cases, the recommendations would be packaged together and approved or disapproved en bloc by the Executive Branch and Congress.

These bills would give government officials, or people chosen by the government, authority to determine benefit packages, copayments and deductibles, relative premiums, as well as health plan expenses and profits. They would, in effect, turn health insurance into a utility, run by private companies, but with policies and rates set by the government. While privately-owned firms would be implementing the decisions, the key decisions would be made by government officials or people chosen by government officials.

THE PRESIDENT: I don’t think government bureaucrats should be meddling, but I also don’t think insurance company bureaucrats should be meddling. That’s the health care system I believe in.

Resources are constrained, and so someone has to make the cost-benefit decision, either by creating a rule or making decisions on a case-by-case basis. Many of those decisions are now made by insurers and employers. The House and Senate bills would move some of those decisions into the government. Changing the locus of the decision does not relax the resource constraint. It just changes who has power and control.

The health care system I believe in moves no more decisions into the hands of the government, and instead creates incentives for people to control more of these decisions and make these hard tradeoffs for themselves. Insurance would evolve from pre-paid medical care, as it is today for many, to a more traditional catastrophic protection model, as we now have for other kinds of insurance.

Continue to the next post in this series…


Other posts in this series:

  1. Introduction and the President’s overpromise that everyone can keep their health plan

Fishy statements about health care reform

Fishy statements about health care reform

I sent the following email to flag@whitehouse.gov this morning.

From: Keith Hennessey
Sent:
Tuesday, August 11, 2009 7:47 AM
To:
flag@whitehouse.gov
bcc:
surveil@fbi.gov; bigbro@dhs.gov; patriot.act@nsa.gov; anon6427@dni.gov

Subject: Fishy statements about health care reform

The Honorable Linda Douglass
Communications Director
Health Reform Office
The White House

Dear Ms. Douglass:

I write in response to the request posted on the White house blog, “Facts are stubborn things.”

If you get an email or see something on the web about health insurance reform that seems fishy, send it to flag@whitehouse.gov .

I call to your attention several fishy statements about health care reform legislation made by a gentleman named Dr. Douglas Elmendorf. He claims to be Director of the “Congressional Budget Office” and has posted frequently about health care reform on his website, cbo.gov. This information takes the form of personal posts on his Director’s Blog, as well as in-depth reports that have the veneer of competent, thorough, impartial professional analysis. The IP address of his site is 206.106.246.254, and his organization has named their hideout the “Ford House Office Building.”

Elmendorf appears to have several hundred followers in his organization, which has extraordinary influence over many in Congress. I understand that some right-wing Members of Congress support and even vote for his annual funding source.

CBO and Elmendorf make extraordinary claims about bills moving through Congress that attempt to implement the President’s plans for health care reform. I bring them to your attention so that you can refute them. I have included these allegations below. Specifically, Elmendorf and his rabble-rousers make the following claims:

  • The House bill would increase the budget deficit by $239 B over the next ten years. This conflicts with the President’s goal of not increasing short-term deficits.
  • Ten years from now the House bill would add $65 B to the budget deficit. This conflicts with the President’s insistence that legislation must not increase the deficit in that year.
  • The House bill would increase long-term budget deficits by ever-increasing amounts, making our long-term debt problem worse than under current law. This of course conflicts with the President’s statements that “health care reform is entitlement reform,” and that health care reform is essential to addressing America’s long-term budget problems.
  • Rather than “bending the cost curve down” as the President has laudably insisted, Dr. Elmendorf said the Senate HELP Committee bill would “raise the cost curve.”
  • Under the House bill, in the year 2015 about 8 million uninsured Americans would remain uninsured and pay higher taxes. This would violate the President’s pledge not to raise taxes on anyone earning less than $250,000 per year.
  • Under the House bill, about 3 million people who now have employer-sponsored health insurance would lose that coverage because their employer drops it, violating the President’s bold promise that no one will lose the health plan they have now.
  • The President’s Medicare Commission proposal would probably save only $2 billion over ten years, and there is a high probability it would save no taxpayer money. In the long run the saving would be “modest.”

If this suspect “Congressional Budget Office” is publishing disinformation about either health care reform, I hope you can correct it. A lot of important people seem to listen to this Elmendorf guy. Left unrefuted, these claims suggest that the bills being developed in the House and Senate would harm the U.S. economy and millions of Americans in violation of the President’s stated goals.

Sincerely,

Keith Hennessey
KeithHennessey.com


Seemingly fishy statements about health care reform
made by Dr. Douglas Elmendorf and his “Congressional Budget Office”

Effect on short-term budget deficits

“According to CBO’s and JCT’s assessment, enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion over the 2010-2019 period. That estimate reflects a projected 10-year cost of the bill’s insurance coverage provisions of $1,042 billion, partly offset by net spending changes that CBO estimates would save $219 billion over the same period, and by revenue provisions that JCT estimates would increase federal revenues by about $583 billion over those 10 years.” Elmendorf blog post

“By the end of the 10-year period, in 2019, the coverage provisions would add $202 billion to the federal deficit, CBO and JCT estimate. That increase would be partially offset by net cost savings of $50 billion and additional revenues of $86 billion, resulting in a net increase in the deficit of an estimated $65 billion.” Elmendorf blog post

Effects on long-term budget deficits

“In sum, relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window.” Elmendorf letter to Reps. Camp, Barton, Kline, and Ryan

“The net cost of the coverage provisions would be growing at a rate of more than 8 percent per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in the subsequent decade. … Revenue from the surcharge on high-income individuals would be growing at about 5 percent per year in nominal terms between 2017 and 2019; that component would continue to grow at a slower rate than the cost of the coverage expansion in the following decade.” Elmendorf letter to Reps. Camp, Barton, Kline, and Ryan

Eight million uninsured paying higher taxes

See table “Preliminary Analysis of the Insurance Coverage Specifications Provided by the House Tri-Committee Group,” of this CBO cost estimate. 16m people would be uninsured post-policy, of whom about half would be unauthorized immigrants.

Three million people losing the health plan they have now because of the bill

“In addition, CBO and the JCT staff estimate that nearly 6 million other people who would be covered by an employment-based plan under current law would not have such coverage under the proposal. That figure includes part-time employees, who could receive subsidies via an exchange even though they have an employer’s offer of coverage, and about 3 million people who would not have an employer’s offer of coverage under the proposal. Firms that would choose not to offer coverage as a result of the proposal would tend to be smaller employers and those that predominantly employ lower-wage workers … people who would be eligible for subsidies through the exchanges … although some workers who were not eligible for subsidies through the exchanges also would not have coverage available through their employers. Whether those changes in coverage would represent the dropping of existing coverage or a lack of offers of new coverage is difficult to determine.” Elmendorf letter to Chairman Rangel (July 14, 2009)

The President’s “IMAC” Medicare Commission proposal

“CBO estimates that enacting the proposal, as drafted, would yield savings of $2 billion over the 2010-2019 period (with all of the savings realized in fiscal years 2016 through 2019) if the proposal was added to H.R. 3200, the America’s Affordable Health Choices Act of 2009, as introduced in the House of Representatives.” Elmendorf letter to House Majority Leader Hoyer (July 25, 2009)

“This estimate represents the expected value of the 10-year savings from the proposal … In CBO’s judgment, the probability is high that no savings would be realized, for reasons discussed below, but there is also a chance that substantial savings might be realized.” Elmendorf letter to House Majority Leader Hoyer (July 25, 2009)

“Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis.” Elmendorf letter to House Majority Leader Hoyer (July 25, 2009)

“The proposed legislation states that IMAC’s recommendations cannot generate increased Medicare expenditures, but it does not explicitly direct the council to reduce such expenditures nor does it establish any target for such reductions.” Elmendorf letter to House Majority Leader Hoyer (July 25, 2009)

Will health care reform cause lower wages?

Will health care reform cause lower wages?

A new study by Steven Nyce and Syl Schieber looks at the effects on wages of expanding health insurance coverage. Their results are devastating.

Dr. Schieber is a pension/benefits expert with Watson Wyatt. He is Chairman of the Social Security Advisory Board and he served on the Clinton Administration’s Social Security Advisory Council of 1994-96.

Here are Nyce & Schieber (emphasis in the original):

Measured by hourly pay growth or increases in earnings, workers across much of the earnings spectrum are not faring as well this decade as they did in the last. On the other hand, when benefits are factored in, most workers appear to have done as well or better over this decade as they did in the last, and those at the bottom or middle of the earnings distribution have done as well as many at the top. The rapid run-up of both health and retirement costs has caused the slowdown in wage growth we have seen this decade. Health care reform that does not control costs – and that in fact could exacerbate them – presents risks that have yet to be widely discussed. Specifically, if reform accelerates health benefit cost inflation, the associated cost increases might eat up most – if not all – of workers’ wage increases over the next few years and possibly for decades to come.

Let’s look at some of their numbers. For comparison, over the period 2000-2007 health benefit costs grew at the rate of growth of compensation + 3.2 percentage points per year.

Nyce/Schieber provide eight scenarios. I will use these four:

  • Baseline – Assume that health cost growth is cut in half from its recent trends, at compensation + 1.5% per year.
  • Scenario 1 – expanded coverage & cost growth slows: Health insurance reform provides universal coverage through a mandate. Health cost growth is the same as in the baseline scenario, equal to compensation growth + 1.5% per year.
  • Scenario 2 – expanded coverage & no change in cost growth: Health insurance reform provides universal coverage through a mandate. Health cost growth is at the historic (2000-2007) rate of compensation growth + 3.2% per year.
  • Scenario 3 – expanded coverage accelerates cost growth: Health insurance reform provides universal coverage through a mandate. Expanded coverage increases demand for health care, increasing health cost growth to be compensation growth + 6% per year.

I have picked four representative numbers for each scenario from the tables in the Nyce-Schieber paper. In each case I use the numbers for the period 2007-2030 for:

  • All workers
  • A worker in the 3rd income decile (Imagine a worker who has income lower than 75% of the American workforce.)
  • A median income worker (I interpolated between the Nyce-Schieber 5th and 6th decile numbers.)
  • A worker in the 8th income decile (imagine a worker who has income greater than 75% of the American workforce.)

Let’s look at the average annual wage increases for each of these workers in each of these scenarios.

All workers

3rd decile

Median worker

8th decile

Baseline

+1.02%

+0.96%

+0.96%

+1.00%

Scenario 1

+0.91%

+0.63%

+0.87%

+0.96%

Scenario 2

+0.59%

-0.02%

+0.42%

+0.66%

Scenario 3

-0.69%

-2.84%

-1.32%

-0.57%

Let’s put this into sentence form:

  • If health care reform finances universal coverage primarily through a mandate to buy health insurance, and if health cost growth continues as it has in recent years, a median worker’s real wage growth rate would be more than cut in half.
  • If health care reform instead accelerates health cost growth because expanded insurance coverage means more health services are consumed, that same median worker would see his real wages shrink.
  • For lower-wage workers the picture is worse. If health care reform finances universal coverage primarily through a mandate to buy health insurance, and if health cost growth continues as it has in recent years, a worker in the 3rd income decile would see no real wage growth.
  • And if health care reform instead accelerates health cost growth because expanded insurance coverage means more health services are consumed, that same low-wage worker would see his real wages shrink dramatically.

Is Scenario 3 realistic? Would expanded health insurance coverage “add fuel to the fire” and cause health cost growth to increase? Here are Nyce & Schieber:

Health care reform is likely to impose new inflationary pressures as broader coverage increases the demand for health services.

When the Medicare program was started during the 1960s, real wages grew at a compound annual rate of 2.8 percent, while employer-sponsored health benefits costs grew by 8.9 percent per year, after adjusting for inflation. During the 1970s, when demand for services under Medicare intensified, real wages grew by 0.8 percent per year, while employers’ health benefit costs grew by 8.1 percent per year, after adjusting for inflation. Given that the legislation now being proposed to expand health insurance coverage includes no particularly effective mechanisms for controlling the pressures of new demand for health goods and services, it seems prudent to at least consider a scenario where expanded coverage accelerates health inflation. In alternative scenario 3, our high-cost scenario, employers’ health costs increase by 6 percentage points per year more than compensation.

Here are some key conclusions from Nyce & Schieber:

In projection scenarios that involve both expanded health insurance coverage and continuing high health inflation rates, the outcomes are dire, including falling wages at the bottom of the earnings spectrum and very slow wage growth on up the earnings distribution. These outcomes are projected to persist over at least the next couple of decades, and there are no indications they would improve thereafter.

Expanded health care coverage coupled with accelerated health inflation rates produce even worse results. The resulting rapid escalation in health benefit costs would drive disposable wages downward across most of the earnings spectrum, although lower-earning workers would be the hardest hit. These poor outcomes would persist over the entire projection period.

The risks of continued health cost inflation are too high to ignore. If we do not throttle back the system, many workers will have to live with much lower compensation rewards in coming years. The likelihood that entitlement reform will follow on the heels of health reform makes controlling health costs even more urgent. If final health reform expands employment-based coverage but fails to slow health cost inflation, the discontent with wage growth so far will seem negligible compared with reactions to falling wages on the horizon.

At this juncture, we have a choice: We can either change the incentives in our health care payment systems to slow the growth of health costs and encourage the delivery of quality services, or we can concede that standards of living – which have risen fairly consistently since World War II – have reached a pinnacle and are headed for decline.

In July the health care reform debate looked at the effects of proposed legislation on the federal budget. Congress needs to focus on the effects of their proposed policies on workers’ future wages.

(photo credit: zero by jima)

Doing health care through reconciliation is even harder than I thought

Doing health care through reconciliation is even harder than I thought

Over the past two days I have posted about the President’s new health care reform message, the Senate reconciliation process and how it might affect this fall’s health care debate.

Yesterday’s Byrd rule examples would allow a bill to pass the Senate, but with major parts possibly excised. A smart friend wrote that while Senator Reid may not be able to get the whole car through reconciliation, he could probably get the chassis, wheels, and engine. He could then come back in separate future bills to add things like seats, steering, and brakes.

And two smart friends wrote to tell me they think that clever Senate Democratic staff can draft around some of the Byrd rule problems I raised. They have convinced me that the public option can be drafted so that it is not vulnerable to the Byrd rule test I described yesterday. I still think the “health insurance consumer protections” are vulnerable. I received mixed views on the individual and employer mandates from a few experts.

But I missed the most important point. I was so focused on provisions that would not affect the budget and might therefore have to be removed, that I forgot to think about provisions that would affect the budget.

You will remember from the past two days that the reason Senator Reid might decide to use reconciliation is that he would then need only 51 votes to pass a bill through the Senate. If he cannot build a 60-vote coalition, either with Republicans or among his 60 Democrats, then he may feel his best option is to try a 51-vote strategy. Reconciliation is the only way he can do that.

If any rules place 60-vote requirements on a reconciliation bill, they seriously foul up that strategy. Yesterday I explained why certain non-budgetary provisions would violate the Byrd rule because they don’t affect the budget. If Senator Reid has 51-59 Senators in his coalition, then those provisions will drop out.

I missed that there are two other 60-vote requirements that are triggered by the spending in such a bill.

  • There is another prong of the Byrd rule test, which in our case says in effect that if the reconciliation bill increases the budget deficit in any year after 2014, then the spending parts of the bill can be removed unless there are 60 votes to waive the Byrd rule.
  • There is a separate Senate point of order against legislation that increases long-term budget deficits. If CBO says that this bill increases the budget deficit by more than $5 B for any of the following periods: 2020-2029, 2030-2039, 2040-2049, or 2050-2059, then the bill dies unless there are 60 votes to waive this point of order.

So imagine that Senator Reid has had clever staff redraft the Senate HELP Committee and Senate Finance Committee language to avoid most of the Byrd rule problems I described yesterday. Assume that he knows from the Senate parliamentarian that, while he will lose some components of the bill if he cannot get 60 votes to defend them, with 51 votes he’ll be able to pass most of the bill.

But then along comes Senator Loper, who is deeply concerned about the fiscal impact that long-term budget deficits will have on her three children. She raises the long-term budget point of order against the reconciliation bill. Assume she has an estimate from CBO which shows that the bill increases budget deficits by more than $5 B in the period 2020-2029. It might look like this key quote from CBO’s analysis of the House Tri-Committee bill, H.R. 3200:

In sum, relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window.

If Senator Reid cannot find 60 votes to waive that point of order, the entire bill dies.

Alternately, Senator Loper could raise Byrd rule points of order against the major spending components of the bill. But if she’s just trying to kill the whole thing, the long-term budget deficit point of order is a bigger weapon.

Since we do not yet have a full Senate bill to analyze, we can look at the House Tri-Committee bill for comparison. That bill fails the Byrd rule test: CBO says it would increase deficits in each year from 2015 to 2019. The above quote from CBO suggests CBO would also conclude the bill fails the second test.

Now the House bill’s authors would concede the House bill is incomplete, and that they intend to find bigger offsets. In recent weeks we have seen House Democrats struggle with the political pain of cutting spending or raising taxes. The bigger the gap that has to be closed, the more one has to cut spending or raise taxes, and the harder it is for Democratic leaders to muster the needed votes.

More importantly, income tax increases won’t do it, for reasons I have described before. Income taxes grow about 5% per year. The new proposed spending grow 8-9% per year. This means that, even if you meet Director Orszag’s “10th year test” and match spending and revenues in the 10th year (2019), the two lines will start separating and you’ll get increasing deficits in the long run. It is extremely difficult, and may be impossible, to meet the Senate’s long-term deficit test if the bill uses income tax increases as offsets.

Unless Senator Reid can find ways to make these bills not violate these two tests he will need 60 votes even to pass a reconciliation bill. All of a sudden reconciliation may not allow him to implement a 51-vote strategy.

If Senator Reid wants to use reconciliation to pursue a 51-vote strategy:

  • He will have to redraft certain provisions (like the public option) to maximize their chances of surviving Byrd rule challenges. This is relatively easy.
  • He will have to assume that certain other provisions will get knocked out of the bill by the Byrd rule. I think the health insurance consumer protections fall into this category.
  • He will have to make sure the bill bill does not increase the long-term budget deficit, in any year beyond 2014 or by more than $5 B in any of the four decades beginning in 2020.

This last one is difficult. Extremely difficult. It may be practically impossible.

The President told MSNBC yesterday that in September Democrats might abandon their bipartisan talks with Republicans and choose a partisan route. If they do go partisan, they can either use the reconciliation process or try to get all 60 Senate Democrats to support a single bill. The President and his advisors would be wise not to underestimate the difficulty of the reconciliation path.

(photo credit: “The Ohio Clock Corridor” by mr_mayer)

How reconciliation might be used for health care reform

How reconciliation might be used for health care reform

This is the second post in a series of two. For a primer on reconciliation, please start here: What is reconciliation?

Let’s look at how reconciliation might apply to this fall’s health care reform debate.


Suppose in September Senate Finance Committee Chairman Baucus cannot reach an agreement with Republican Senators Grassley, Enzi, and Snowe. Suppose Senate Democrats are still not completely unified, and Senate Majority Leader Reid is afraid to bring a health care reform bill to the Senate floor under the normal rules, because he fears that his 60 Senate Democrats won’t stick together. His biggest fear would not be the vote on final passage – he would have a fairly high probability of getting 51 Democrats to vote aye, if he ever got that far. It’s the intervening amendment process and a potential filibuster that kill him.Republicans could craft amendments that moderate Democrats would support, and in effect rewrite the bill on the Senate floor. At a minimum, Senator Reid could fear that a large majority of more liberal Senate Democrats would be furious. Or you might expect that a large share of the 40 Republicans would refuse to end debate (they would be filibustering the bill), and Sen. Reid might not be able to get 60 votes to shut off debate. If the bill still contained a public option, or if it increased long-term budget deficits, or if it raised taxes on small businesses or increased private health insurance premiums, it’s easy to imagine some moderate Senate Democrats voting no on cloture.

Fearing this scenario, Senator Reid might instead choose to use the reconciliation instruction created last spring in the budget resolution for just this purpose, as a backup plan in case Democrats could not broker a deal with Senate Republicans, and in case they couldn’t hold all of their own caucus together.

This year’s reconciliation instruction orders two committees, Senate HELP (Kennedy/Dodd) and Senate Finance (Baucus) to report legislation to the Senate Budget Committee by October 15th. Each committee’s bill must reduce the deficit (through either spending cuts, tax increases, or a combination) by a net of at least $1 billion over the period 2009-2014.

Hold on. $1 billion?!? I thought this was supposed to be a budget bill? I thought these were trillion+ dollar bills?

You can see that Senator Reid created this instruction not to create a fast-track legislative vehicle for deficit reduction, but instead to create such a process for a bill that is basically deficit neutral.

We already have a bill from the Senate HELP Committee. Senate Finance Committee Chairman Baucus would have to get his committee to report a bill no later than October 15th.

It’s safe to assume that such a markup would be partisan. Reconciliation is a hardball process that shuts down the rights of the minority party. Using it would likely provoke a unified response from Senate Republicans, who would react quite negatively to being cut out of the legislative process. Senator Baucus has a 13-10 partisan majority on the committee. He could lose at most one of his 13 Democrats and still report out a bill.

The Senate Budget Committee would then make sure that both the HELP Committee and Finance Committee bills meet the instruction: that each reduces the deficit by at least $1 billion over the next five years. These two bills would be stapled together and become the reconciliation bill for consideration on the Senate floor.

Note that these two bills would likely be incompatible. They may have duplicative sections or conflicting provisions. There is nothing that requires the bill to be internally consistent.

From Senator Reid’s perspective, so far, so good. Before bringing the reconciliation bill to the Senate floor, I would expect that he would draft an alternative to the two bills, called a substitute amendment. He would take components of the two committee bills and combine them in a way that best achieves his policy goals and, more importantly, maximizes his probability of holding 51 Democratic votes on the Senate floor. As long as he stays close to the confines of the two committee-reported bills, he has nearly complete freedom to draft the substitute amendment any way he likes.

We learned in the first post that the reconciliation rules protect the bill from a filibuster and endless and non-germane amendments. If Senator Reid can hold 51 votes to defeat amendments, and to vote aye on final passage, then he’s home free. He has a further advantage in that the rules make it hard to add things to a reconciliation bill.

His problem is the Byrd rule. Any one Senator (presumably a Republican who opposes the bill) can surgically use the Byrd rule to remove sections of the bill. Senator Reid will need 60 votes to defeat each of these attempts, and there could be a lot of them. If Reid’s coalition is shy of 60 votes, the bill could end up being Swiss cheese by the end of the process and before Senate passage. The reconciliation bill that passes the Senate could contain enormous gaps from provisions stricken by skillful use of the Byrd rule.

We’re really down in the weeds, but this is critically important, so I’m going to dive a little further into the specifics of the Byrd rule and how it might apply to health care reform.


We learned in the first post that any provision which does not affect spending or taxes is “extraneous,” and therefore violates the Byrd rule, and therefore can be removed by a single Senator raising a point of order unless 60 of his colleagues vote to “waive” the point of order and leave that provision in the bill. Note that the Byrd rule has nothing to do with whether a provision is good or bad policy. It’s mechanical.

Here are the three most important parts of the Byrd rule:

  1. If a provision has no effect on spending or revenues, then it’s extraneous and violates the Byrd rule …
  2. … unless it is a necessary term or condition of another provision that does affect spending or revenues.
  3. If a provision has a small budget effect that is merely incidental to its broader non-budgetary policy effect, then it is extraneous and violates the Byrd rule.

Looking at the provisions of a likely reconciliation bill, here are my preliminary judgments. The ultimate arbiter is the Senate Parliamentarian. “OK” means that I think it doesn’t violate the Byrd rule, not that I think it’s good policy.

  • Medicaid expansions – The spending is clearly OK. Some of the detail changes within the Medicaid expansion are not.
  • New health insurance “exchange” subsidies – OK. Same as for Medicaid. Lots of the non-spending related details could violate the Byrd rule.
  • Tax increases – OK.
  • Individual & employer mandates – OK. They’re basically taxes with conditions.
  • Small business tax credits – OK

Here are provisions that I think violate the Byrd rule:

  • Exchanges / Gateways, and all the requirements imposed through them – They’re separated from the subsidies.Someone might argue that the exchanges are a “necessary term and condition” of making the subsidies work. That’s a huge stretch.
  • So-called health insurance consumer protections – Insurance mandates such as those requiring guaranteed issue and guaranteed renewability, no lifetime or annual limits, extension of coverage to 25-year old dependents, and modified community rating – As I wrote yesterday, I think these clearly violate the Byrd rule. A couple of friends pointed out that these provisions would make health insurance more expensive. That depresses wages, which reduces income tax revenues, which is a budgetary effect. I think this fits in the merely incidental bucket – these provisions would fundamentally restructure the insurance industry with a minor budget effect.
  • The public option – As currently drafted, it’s designed to be independent of federal spending. If so, it’s extraneous. I imagine they could redraft it to link it more closely to the spending so it doesn’t violate the Byrd rule.

In addition, I imagine that each of the broader spending and tax provisions that I labeled as OK, including the Medicaid expansions and the health insurance subsidies, would contain components that are not strictly necessary for the spending. I imagine that some of those provisions might be vulnerable to the Byrd rule as well.

Now you can see Senator Reid’s challenge. If he goes with a 51-vote strategy through reconciliation, he may lose large parts of his bill. In particular, he’ll have to figure out how to protect the public option from the Byrd rule, because a Left-side strategy only works if the public option stays in the bill.

I will conclude by repeating a point from yesterday. It is too soon to predict how this fall will play out. I hope these process details help you understand some of the rules of the game.

(photo credit: “The Ohio Clock Corridor” by mr_mayer)

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