House Democrats’ health care bill is not the change we need

BY KIP SULLIVAN

On Nov. 7 the U.S. House of Representatives passed a bill that Democrats claim will bring real reform to America’s health care system. The vote was very close—220 to 215—and was won only after Speaker Nancy Pelosi agreed to an amendment proposed by Bart Stupak (D-MI) to restrict access to abortion. Although the bill, HR 3269, contains numerous useful provisions, the centerpiece of the bill—a section that says all Americans who are not insured by a government program like Medicare or Medicaid must buy health insurance or pay a fine beginning in 2013—will probably backfire on the Democrats. Democrats would be well-advised to pull at least that provision out of the bill, pass the remainder of the bill, and declare victory.

“For generations, the American people have called for affordable, quality health care for their families,” said Speaker Pelosi shortly before the vote. “Today, the call will be answered.” Note that Pelosi did not say the bill would enact universal health insurance. That’s because it won’t. The bill would cut the uninsured rate down to about 6 percent from the current level of 16 percent. But even that 6-percent uninsured rate might turn out to be an illusion if a substantial number of Americans cannot afford to obey the requirement that they buy health insurance. Health insurance, as everyone knows, is not cheap. Currently employers pay an average of $14,000 per employee with dependents. People who have to buy insurance on their own, such as real estate agents and musicians, pay even more.

The requirement that all Americans buy health insurance, which is known as an “individual mandate,” is also in the Senate health care reform bill that Senate Majority Leader Harry Reid and several other senators are writing. Since House and Senate Democrats published drafts of their bills back in June, they have been claiming that the individual mandate will be affordable for two reasons. First, they say subsidies will be available to middle-and lower-income Americans. Second, they claim their bills would set up a publicly run health insurance business—called “the public option”—and this government-run business would be so efficient it would steal customers from the insurance industry and force the insurance industry to lower their premiums.

Both bills do contain provisions authorizing subsidies and setting up a “public option.” But the “option” will be so small it will have little or no effect on premiums. And because the “option” won’t cut premiums (and because the bills don’t set limits on how high insurance companies can raise premiums), that means the subsidies will have to be larger than originally expected in order for people to afford to obey the individual mandate, which means the taxes required to finance the subsidies will have to be larger than originally planned. The problem the Democrats face, in short, is that their bills do nothing to cut health care costs, which forces them to choose between raising taxes more than necessary in order to finance larger subsidies, or to dial back the percent of the population that will be insured.

House Democrats compromised. They decided to restrict the size of the subsidies they will give middle-income Americans, which means Americans, particularly middle-income Americans, will pay relatively high proportions of their income to buy health insurance, and even higher proportions to pay for medical bills that won’t be covered by their insurance. According to an analysis of the House bill by the House Ways and Means Committee, a family of four earning two times the poverty level (about $44,000 annually) would have to pay 5.5 percent of its income in premiums plus a maximum of $4,000 in medical expenses not covered by their insurance (that is, after the family’s subsidies have been taken into account). Similarly, a family of four earning three times the poverty level (about $66,000 annually) would have to pay 10 percent of its income in premiums plus a maximum of another $4,500 in medical bills should anyone in the family get sick.
For many families, premiums of these amounts are lower than what they would pay today. But that fact does not address the affordability issue. Many households will still find they must choose between obeying the individual mandate and putting food on the table, or paying the rent.

The House bill allows people who feel they just can’t afford to obey the mandate to apply for a “hardship waiver.” But if they don’t get the waiver and still refuse to buy health insurance, they would be fined 2.5 percent of their income. This fine will be enforced by the Internal Revenue Service. Of course, these people might also pay an even bigger price for going without health insurance: They might die or suffer a serious setback to their health if they go without needed health care, or they might be bankrupted if they do get health care they can’t afford.

Liberal Democrats have put great pressure on the Senate and House Democratic leadership, and on President Obama, to support a “public option”—a publicly run insurance company that sells health insurance to the non-elderly. “Option” proponents have argued that the “option” will scare the insurance industry into lowering its premiums. But the “option” the Democrats endorsed is so small it may not survive in most markets, and if it does it will be too small to strike fear in the hearts of insurance company executives. The Congressional Budget Office predicts the House version of the “option” will insure less than 2 percent of the population; it predicts the Senate version will enroll roughly zero percent. An insurance company that only represents zero to 2 percent of the market is going to have a very hard time breaking into most insurance markets in the U.S., especially markets like Minnesota’s where three insurance companies (Blue Cross Blue Shield, Medica and HealthPartners) control three-fourths of the market all by themselves. That is true regardless of whether the company is publicly or privately run.

Because there are no cost-containment provisions in the legislation House Democrats passed on Nov. 7, and because there are political limits to tax increases (not the least of which is the large federal deficit President Obama inherited from George W. Bush), Democrats will not be able to give millions of Americans the subsidies they’ll need to make the individual mandate affordable. When Americans realize how unaffordable the mandate is, a substantial number of them will be upset.

It seems likely that Americans will also be unhappy about the simple fact that Democrats want to bail out the insurance industry. The individual mandate and the subsidies will generate an enormous river of cash for the insurance industry, just as the bank bailout generated income for the banking industry. Although one can argue that good things came of the bank bailout and good things will come of the insurance industry bailout, the fact is the public is uneasy about all that tax money going into the coffers of big business. Voters, especially independent and Republican voters, may punish Democrats in the 2010, 2012 and 2014 elections for subjecting them to the individual mandate and for rewarding the health insurance industry so handsomely. That will be too bad. The Democrats are the only party committed to achieving universal coverage. Republicans are not committed to universal health insurance.

For single-payer advocates, this bill raises a very serious issue: The possibility that it will make single-payer legislation at the state level very difficult to pass. Rep. Dennis Kucinich tried to get Speaker Pelosi to add a provision to the bill that would guarantee states the right to implement their own single-payer programs. Pelosi rejected his amendment, and the bill passed without it. Thus, it is possible that the House bill in its current form could make it difficult for Minnesota to enact the Minnesota Health Act, a single-payer bill authored by Sen. John Marty and Rep. David Bly.

Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program.