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Jay Rockefeller and the Question of Compromise

WIRESAUTO DEALERS.jpgLater today, Sen. Jay Rockefeller (D-W.Va,) will be introducing the Consumers Health Care Act into the Senate. The legislation has two parts: The Health Insurance Trust, which is essentially a ratings agency that will assess the quality of insurance plans and help consumers make informed choices, and a public plan.

I got an early look at Rockefeller's proposal (pdf) and it is, to my knowledge, the first piece of Senate legislation laying out what a public plan could, and probably should, look like. The public plan is given, for its first three years of existence, access to the provider networks used by Medicare, and for its first two years, access to the payment rates negotiated by Medicare. This helps it get off the ground. After that, it's on its own. If providers don't feel that the public plan is worth accepting, they can terminate the contract while still keeping their access to Medicare.

This is a smart solution to the problem of start-up: Given that private insurers have had years to build their networks and negotiate their rates, giving the public plan temporary access to an existing infrastructure is exactly what's needed to ensure it starts on a level playing field, rather than is forced to build from scratch. And if, after a few years, the fears of its critics manifest and the public plan proves itself so deleterious to health-care providers that they can't bear to contract with it, they can simply stop.

It is likely, of course, that Rockefeller's proposal will be considered a "liberal" bill. Meanwhile, Sen. Kent Conrad's (D-N.D.) co-op plan is being touted as the centrist compromise. But the concept of compromise only makes sense if you're clear about what you're compromising on. As Rep. Lynn Woolsey argued to me last week, to liberals, a public plan along Rockefeller's lines is a compromise from single payer. And a public plan along Sen. Chuck Schumer's (D-N.Y.) lines would be a compromise from Rockefeller. And a co-op plan along Conrad's lines would be a compromise from Schumer.

In other words, the co-op idea, whatever its many merits, is not a compromise between liberals and conservatives. It is a compromise between, on the one side, conservatives who don't want any nonprofit competition for insurers, and on the other side, Schumer's proposal, which is already a compromise of a compromise of a compromise.

(Photo credit: Joshua Roberts)

By Ezra Klein  |  June 17, 2009; 11:40 AM ET
Categories:  Health Reform  
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Next: When Markups Stop Being Polite and Start Getting Real


If I understand correctly, Sen. Schumer’s idea is to have a corpus of funds to boot strap the public plan. After seeding that plan with the money, Fed would essentially wash its hand with it and the plan will have to compete with private ‘for profit’ plans.

I like the idea of Sen. Schumer for the simple reason that Fed involvement is extremely limited, specific and in a sense one time. The damage to ‘tax payers’ is completely limited and in full scope sun light. After according a fair chance to such a public plan to succeed, these sunset provision nature of Fed involvement will unhook taxpayers from any perpetual support. If there is a merit in public plan, let it be tested on as much market principles as possible.

I thought Sen. Schumer was talking about around $100 Billion as the seed capital for the plan (or plans, I am not sure). Probably spread over some duration and potentially dived up among more than one plan if those do not get thinly spread to succeed.

If putting money upfront is not possible for Fed due to ‘budget constraints’, one way to look at Sen. Rockefeller’s plan is it offers the down payment / seed money ‘in kind’ – access to Medicare terms. Only Congress / Fed can grant that charter of ‘access’ since Medicare is the property of Fed. That will be the ‘in kind’ payment.

Sen. Conard’s ides of ‘co-op’ is similar, but more diffused. On the other hand that very diffusion can give rise to ‘let hundred flowers bloom’ scenario and there in may lie the real solution. Of course, funding mechanism for multitude of these ‘co-ops’ will become cumbersome and thorny.

All in all Sen. Schumer’s plan, or Sen. Rockefeller’s plan as a fall back, look more appropriate.

As is clear from my woeful knowledge of these matters, we will need more education from Ezra for all these proposals in Congress.

Posted by: umesh409 | June 17, 2009 12:22 PM | Report abuse

It's unclear whether this plan provides guaranteed issue at the same price. This plan also purports to be budget neutral, but still borrows significantly from the Treasury up front. The plan also appears to require that small businesses pay for the public option if they don't offer insurance themselves.

This Rockefeller option appears to be vastly inferior to the Exchanges that Mr. Klein wrote about yesterday. It reenforces an awful employer-based system.

The employer-based system, which is premised on the income tax deduction only being available for employer plans, is broken for many reasons. First, portability. The average American has ten jobs by the time he/she is 42. Needless to say, there are inevitable gaps in employment during which time people are either uninsured, or often forced to pay in post-tax dollars for the very expensive COBRA. Further, health plan at new jobs often have completely different providers, thus forcing people to shift doctors and dentists every time they get a new job. Second, tying health care to employment lowers real income. The primary reason that the productivity gains of the last two decades have not resulted in signifincantly higher real income is that the gains are being siphoned into rising health care costs. Third, there is the market failure of adverse selection. People who are not in employer plans yet still want insurance are a suspect group of disease-ridden miscreants. This raises the cost of private insurance for anyone who wants to join this group, which is exaserbated by the fact that the insurance is also non-deductible. Fourth, there is simply the issue of inefficient taxation of renumeration. High marginal tax rates for ordinary income is about to be taxed at 55% marginal tax rates. Health benefits are taxed at 0%. In this situation, renumeration will inevitably shift to health benefits, which drives health cost inflation. Fifth, the employer system distorts consumer choice. One reason why costs rise every year is that people have limited choice on what health insurance they can pick. Employers don't care, since they just pass on higher health insurance costs in the form of lower salaries. The result is that insurance plans get more ritzy, more procedures get covered, and the end consumer who in a normal market would tame this process via price signals is forced to become complicit in this scheme. Thus, unlike nearly every other market out there, there is no consumer choice in the health insurance market. Thus, price does not communicate intelligent signals, and scarce resources are not efficiently or fairly allocated. Sixth, it discourages employment. Most companies provide their employees with health care. When considering additional hires, companies must also pay a fortune for each new employee in the form of health care, as well as the employer-paid portion of the FICA tax. This also encourages layoffs.

Unfortunately, the Kennedy plan reenforces these negative attributes of the employer-based system. The McCain plan, as well as the Wyden-Bennett plan, would destroy the employer-based system. If Congress were closer to a 50/50 split among the parties, my guess is that there would be a consensus to demolish the employer-based system. Instead, because the Democrats so thoroughly dominate all aspects of Washington, we will probably see a reenforcement of the employer based system.

Posted by: Dellis2 | June 17, 2009 1:08 PM | Report abuse

"The public plan is given, for its first three years of existence, access to the provider networks used by Medicare, and for its first two years, access to the payment rates negotiated by Medicare."

But is it also funded in large part by general tax revenue, like Medicare?

Posted by: tomtildrum | June 17, 2009 4:16 PM | Report abuse

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