Can Obama team navigate rough waters of health reform?

A large number of Americans favor health care reform, which could help the new President as he seeks to overcome mandates, taxes and pay cuts.

President Barack Obama is fortunate to have the wind at his back as he launches his health care reform voyage. Polls show that a very large majority of Americans favor major reform. The invited stakeholders (including ACP) who attended the March 5 White House summit on health reform discussed how to prevent differences on specific elements getting in the way of achieving broader consensus.

Congressional leaders subsequently announced an ambitious plan and timetable for producing legislation. Yet, it would be naive to expect that Mr. Obama will enjoy smooth sailing. Instead, health care reform could meet strong headwinds, forcing him to land short of affordable, guaranteed health coverage for all or even abort the mission. Or he might find a way to steer around troubled waters and find his way to universal coverage, even if the journey takes longer than hoped.

Mandates, taxes and pay cuts pose the biggest obstacles. How Mr. Obama navigates through or around these issues may decide how far he gets.

Unpopular mandates

Health policy experts agree that it is not possible to achieve universal access without mandates, which could be imposed on:

  • individuals, requiring them to purchase qualified health insurance coverage;
  • businesses, requiring that they provide qualified coverage;
  • insurers, requiring them to cover people with pre-existing conditions at a reasonable premium cost; or
  • all of the above.

Yet, mandates create political pushback. Mandates on individuals can easily be spun in the public's mind as “big government” telling people to buy insurance they can't afford. Mr. Obama used this line of attack during the Democratic primaries against Hillary Clinton's individual mandate proposal. And already, large employers are resisting a “pay-or-play” mandate and requirements that self-insured companies offer a defined set of benefits.

Insurers have signaled a willingness to accept some new rules on underwriting and premiums. In exchange, they want a hand in writing the rules and an individual coverage mandate to generate more business.

Tough taxes

Mr. Obama already is learning the hard truth that if achieving consensus on mandates is hard, raising taxes is even more difficult. He proposed creating a $634 billion fund for health reform, with half of the fund paid for by raising taxes on people earning more than $250,000 per year.

Predictably, Republican members of Congress opposed it. Some Democrats expressed misgivings, especially about Obama's proposal to reduce the tax deductions for charitable contributions made by higher-income earners.

As an alternative, Sen. Max Baucus (D-MT), chair of the tax-writing Senate Finance Committee, suggested capping tax deductions of employer-sponsored health insurance at a defined dollar threshold. Coverage that exceeds the cap would be taxed as personal income.

Labor unions that negotiated richer and more expensive health benefit packages for their members are likely to view a tax on those extra benefits as unacceptable. And, when he was a candidate for president, Mr. Obama harshly criticized Sen. John McCain (R-AZ) for proposing something similar, characterizing it as tax increase on ordinary Americans.

Unpopular pay cuts

Another way to pay for health care reform is to cut reimbursement elsewhere. For instance, the other half of Mr. Obama's $634 billion health reform fund would be paid for by cutting payments to hospitals with high re-admission rates, reducing payments for home health, lowering Medicare Part D payments for drugs, and subjecting Medicare Advantage plans to a competitive bidding process.

Interest groups subject to the cuts immediately lined up against them. Karen Ignagni, CEO of America's Health Insurance Plan, a health insurer trade group, told National Public Radio that the Medicare Advantage cuts “would jeopardize the health security of more than 10 million seniors enrolled in Medicare Advantage and would turn back the clock on innovative payment incentives to improve the quality of care that patients receive.”

Mr. Obama's proposed $634 billion fund would cover only 60% of the $1 trillion that comprehensive health care reform is expected to cost in the next decade. The rest will have to be found by making health care more efficient, although the Congressional Budget Office has typically cast a skeptical eye on claims that popular and non-controversial ideas such as prevention or health information technology will lead to significant savings. Otherwise, more money will have to be found through mandates, taxes or cuts.

Mr. Obama will have to chart the course and lead others through even the most difficult parts of health care reform. Navigating around all of the interest groups that will raise objections to health reform will require a steady hand, a willingness to alter course, and maybe even doing battle against his political foes.