The President and Speaker Pelosi have shifted their health care message for the August Congressional recess. They are no longer talking about health care reform and covering all of the uninsured. They are instead:

  1. talking about health insurance reform;
  2. stressing how changes in insurance rules will benefit those who already have insurance; and
  3. attacking health insurers for opposing reform, and Republicans for allying with health insurers.

The last point is problematic on four fronts:

  • Three months ago the President spoke at the White House flanked by a health insurance CEO (George Halvorson of Kaiser Permanente) as part of his message that he was working productively with affected interests to produce savings.
  • Insurers are trying to remove the so-called “public option,” but are not opposing these bills broadly. And they’re certainly not running ad campaigns against the bills as they did in 1994. The head of the health insurance lobby is stressing that the industry wants to continue working with the Obama Administration and both parties in Congress.
  • Republicans and health insurers have a common interest in opposing the public option, but are not in the same place on many other issues, and they’re certainly not coordinating their public messages.
  • Democrats received more (60%) campaign contributions in the last election cycle from the health insurance industry than Republicans (40%). Six of the top 10 Congressional recipients, and 12 of the top 20, were Democrats. Particularly notable are two Chairmen writing the bills: Sen Baucus (#4) and Rep. Rangel (#6).

Here’s the President on May 11th in the State Dining Room:

Well, I just concluded a extraordinarily productive meeting with organizations and associations that are going to be essential to the work of health care reform in this country — groups that represent everyone from union members to insurance companies, from doctors and hospitals to pharmaceutical companies.

Attending the President’s meeting for the insurance industry were George Halvorson, Jay Gellert of Health Net Inc., and the top lobbyist for health insurers, Karen Ignani.

Some in Washington think the White House/Pelosi messaging shift is a strategic retreat, laying the groundwork for a fallback position in which the President could declare victory by enacting just the insurance reforms. As a matter of abstract legislative strategy this is a reasonable supposition. The health care reform legislative effort is going poorly for the President, and now is a logical time to make an initial shift to position for a partial win later.

But I don’t see it. The health insurance reforms cannot be separated from the rest of the bill for substantive and procedural reasons. While the spending numbers could obviously be dialed way down, I don’t see how one would substantively separate the health insurance reforms from the rest of the bill and have it still work. Even if you could, I don’t see how you could procedurally get this done given the likely vote situation. Even if the abstract legislative strategy is correct that it’s time for the Administration to cut their losses and prepare for a partial victory, I cannot figure out how they could execute such a strategic shift and deliver the desired result. They may be stuck with something close to an all-or-nothing choice.

A better explanation is that the President and his allies remain committed to the full reform package, and are just choosing to sell a different facet of it over the next month. Their prior communications efforts have failed. I think they’re sticking to their strategy and just changing their message.

Policy: four sides of a box

The President, his Cabinet and staff, and Congressional Democrats are fanning out across the country to talk about proposed legislative changes to health insurance rules. The most important for this discussion are:

  • Guaranteed issue and renewal: Everyone can buy health insurance, no matter what their medical condition. And everyone can renew their insurance, no matter what their medical condition.
  • Community rating: Everyone pays the same premium, no matter what their medical condition.

(Caveat: The pending legislation would mandate modified community rating. Premiums could vary, but only within certain limits.)

These provisions would mean lower premiums for people who are sick (e.g. with cancer) or have a high risk of getting sick (e.g., disease free, but with a family history of cancer, or a lifetime smoker). They would mean higher premiums for those who are healthy and have a relatively lower chance of getting sick. These are redistributive policies that benefit the sick or likely-to-be-sick at the expense of the likely-to-be-healthy.

To make them work you have to make the low-risk people buy health insurance.

Here’s an extreme example. The numbers are silly, but I’m trying to illustrate the concepts.

  • Imagine the world consists of two people, Bob and Charlie.
  • Bob is healthy. His expected health costs next year are $5,000.
  • Charlie has cancer. His expected health costs next year are $95,000.
  • Under current law, Charlie probably can’t buy health insurance. If he can, he has to pay about $95,000 for it, which may be more than he can afford.
  • If you implement guaranteed issue and (strict) community rating, then Charlie can buy health insurance, and Bob and Charlie each pay the same $50,000 premium.
  • Under this new policy Charlie is a big winner, Bob a big loser.
  • Bob may choose instead to go uninsured, rather than pay $45K more in premiums than his expected health costs. If he does, then Charlie’s back to paying $95K, since there’s no one to subsidize him.

For this system to work you have to require that Bob buy health insurance and pay the subsidy implicit in his community rated premium. You need an individual mandate to make guaranteed issue and community rating work.

If you want the biggest health insurance reforms being pushed by the President and Speaker (guaranteed issue and renewal, and a version of community rating), then you also have to have an individual mandate.

But an individual mandate means everyone must have or buy health insurance. There will be low-income people not covered by Medicaid who won’t be able to afford health insurance. If you want them to buy, you’ll either have to subsidize them or force them to make some extremely difficult choices within their already tight budgets. Elected officials will choose the subsidy route.

You need to subsidize lots of low-income (and even low-to-moderate income) people if you implement an individual mandate.

Now the President has said that any increased spending must not increase the budget deficit. The subsidies necessitated by the mandate must therefore be offset with spending cuts or, in the Congressional Democrat view of the world, with tax increases.

You need to cut spending

[or increase taxes, or both] if you want your subsidies not to increase the net budget deficit.

We have completed the four-sided box. Start by presuming that it’s too hard to enact a big bill. Assume that strategically you want to enact only the insurance reforms that you think are the most politically attractive component of the bill:

  1. You want to enact only the health insurance reforms.
  2. You need an individual mandate to make the health insurance reforms work.
  3. You need to subsidize lots of people if you implement an individual mandate.
  4. You need to cut spending or increase taxes if you want your subsidies not to increase the budget deficit.

You’re right back where you started. To enact the health insurance reforms, you need a complete bill that includes an individual mandate, subsidies, and politically painful offsets. You can drop the employer mandate, and you certainly don’t need an obscene $1+ trillion of subsidies. My point is simply that you can’t hive off the insurance mandates and make the policy work.

Procedure: Return of the Byrd rule

Suppose you ignored the substantive problems and had a bill that just contained the insurance reforms. Could you enact it?

You could, but only if you have 60 Senate votes. You could not use the fast-track reconciliation procedure to enact guaranteed issue and community rating because of the Byrd rule. I think (but am not certain) that the same would apply to an individual mandate.

Long-time readers of this blog may remember that a reconciliation bill requires only 51 votes to pass the Senate, instead of the usual 60. Everyone is therefore tempted to ask, “Can I get my bill done through reconciliation?”

The Byrd rule contains several “prongs.” For our purpose the relevant prong is that every provision in a reconciliation bill must directly affect federal spending or taxes, or be a “necessary term or condition” of another provision that directly affects spending or taxes. If a provision fails both of these tests, then it has to come out of the reconciliation bill unless you have 60 votes to “waive” the Byrd rule.

Insurance mandates fail both these tests. Changing the relative prices that insurers can charge different customers has no direct effect on the federal budget. And while you could argue that these mandates make the rest of a health care reform bill work better, that’s not the “necessary term or condition” test. To pass that test, you have to successfully argue that a spending or tax provision would no longer work if the insurance mandates dropped out of the bill. That’s just not the case. I think it’s a slam dunk that a guaranteed issue/renewal mandate, as well as community rating mandates, would violate the Byrd rule.

If the Senate Parliamentarian agrees with me, then you could not use the reconciliation process to do a “health insurance reform” bill. And if you tried to enact a broader “health care reform” bill like the House Tri-Committee bill through reconciliation, those insurance mandates would drop out of the bill through the Byrd rule unless 60 Senators supported them.

To simplify, unless the Senate Parliamentarian has a radically new view (which I seriously doubt), you need 60 votes in the Senate to enact the health insurance reforms being championed by the President and Speaker this month. Reconciliation won’t let you pass them with just 51 votes in the Senate.

Conclusion

Other than the shift in communications strategy, I see no other signs of a change in strategy by the President or his team. They do not appear to be preparing for a health-insurance-only fallback bill.

I cannot see how one would make such a bill work in practice. You need the individual mandate, the subsidies, and offsets to make it work as a policy matter.

Even if you could make the policy work, going with a narrower insurance-only bill would not work through reconciliation, so you don’t buy yourself a big procedural benefit.

I disagree with those who say this is a new strategy. It’s a new message to try to sell the same strategy, and with the same desired policy outcome as we’ve seen over the past few months.

(Photo credit: whitehouse.gov)