A Promising Convergence on Health

No one ever went broke betting against the prospects for health care reform. Now that the Boston Red Sox have won the World Series (twice), the failed pursuit of universal health insurance by generations of political leaders arguably stands as the premier example of unremitting futility in American life.

But a National Journal forum on health care I moderated last Thursday offered clear glimmers of hope about the possibility of a breakthrough. At the forum, held a few hours before President Obama's White House summit, there were, inevitably, warning signs too. But the signals of emerging consensus were especially promising because they came from two heavy hitters with both the institutional platform and personal inclination to play central roles in the upcoming legislative maneuvering: Andy Stern, president of the Service Employees International Union, and Karen Ignagni, president and CEO of America's Health Insurance Plans, the industry trade association.

Most significantly, both Stern and Ignagni said they would accept a trade-off critical to any universal coverage legislation: fundamental insurance reform in return for a mandate on all Americans to purchase health insurance (with government subsidies to limit their costs.)

I asked Ignagni if health insurers were willing to accept a requirement to sell policies to all applicants regardless of their prior health condition--a reform known as "guaranteed issue"--if Congress mandates that all Americans buy insurance (a so-called individual mandate.)
She said yes. "Clearly the public is telegraphing that they don't want to have a system where people are falling through the cracks, where they can't purchase," she said. That reaffirmed an under-reported statement embracing the mandate-guaranteed issue trade from AHIP's board of directors last December.

Then I asked Stern if he would accept the individual mandate if the insurance industry agreed to guaranteed issue. He said yes--so long as families can afford the coverage they are required to buy. "Yes, if it's affordable," he said. The mandate, he suggested, might need to be phased in until benchmarks in affordability are reached. "But in the end," he concluded, "you can't have a system unless everybody is part of it."

Why is that convergence between Ignagni and Stern so important? Because pairing guaranteed issue (with one additional wrinkle we'll address shortly) with an individual mandate is the key, both politically and substantively, to any realistic plan for universal coverage. As one administration official put it after hearing about the remarks from Ignagni and Stern, "That's the deal. It is phenomenally encouraging."

Politically this trade is so valuable because it marries the top priority of the insurance industry (a mandate that moves all Americans into the risk pool and, not incidentally, creates nearly 46 million new customers for them from the uninsured) with the top priority of the industry's critics--an end to the practice of denying coverage to people with prior health problems. Linking the two ideas is also substantively necessary. If insurance companies are required to sell to all applicants regardless of health condition, and no mandate is imposed, people could wait until they get sick to buy coverage; that would compel insurers to raise rates on everyone else to guard against that risk, diluting the value of reform.

Stern's embrace of the individual mandate--even with the caveat of affordability--is important because most labor leaders have resisted the idea. They've argued it would force the uninsured to buy coverage that is too expensive or inadequate; that fear led the California AFL-CIO, myopically, to kill a universal coverage plan based on the mandate-guaranteed issue trade that Republican Gov. Arnold Schwarzenegger passed through the Democratic State Assembly in December, 2007; the bill died one month later in the State Senate. Both chambers are controlled by Democrats.

As a candidate, Obama opposed the individual mandate, but many around him believe he'd take a mandate-guaranteed issue deal in a heartbeat--so long as it meets Stern's affordability criterion. If Obama did move that way, Stern's support would provide him cover on the left and maybe even increase pressure on the national AFL-CIO to go along; Sen. Edward M. Kennedy's likely acceptance of that trade would help too.

Stern's conditioning of his support for the mandate on affordability brings us to the wrinkle telegraphed above. Reformers believe an individual mandate should be tied not only to guaranteed issue but some form of "community rating" that limits the disparity between how much insurers can charge the old or sick vs. the young and healthy. After all, a guaranteed issue rule wouldn't do much good if policies are priced at absurdly unaffordable levels for those with, you know, actual health problems.

AHIP's board statement last December was silent on a community rating requirement and Congressional aides say the group has been opaque on the question in early discussions. But at the panel, Ignagni flashed some ankle on the question (literally because we were sitting on high stools.) She suggested an arrangement in which insurers and the government in effect would divide the cost of insuring the biggest risks through a combination of rating reform and public subsidies. "You have to think about the ratings and the subsidy in tandem," she argued. For instance, she noted, a pure form of community rating--in which everyone is charged the same premium regardless of their age or health status--would substantially increase rates on young healthy families (while reducing them on older or sicker people). In that instance, "you might decide well then we could subsidize those [young] individuals to cushion that," she said. Alternately, she said, you might allow insurers to vary rates somewhat based on age, but use subsidies to ensure that say, "nobody over 55 would have to pay more than 10 per cent of income" for premiums--as California did in its reform. More details on the issue are coming: "You will hear a great deal from us soon about rating," she said.

Settling the details of such a rating-subsidy scheme wouldn't be easy (nothing in health care is). And there are plenty of other stumbling blocks that could derail reform. Among the most controversial is the plan backed by Obama and many Democrats to create a public competitor to the private insurance companies--a kind of Medicare for all. It's intended to force the private insurers to cut costs and improve service, but they consider it, as Ignagni put it, a "stalking horse" to drive the nation toward a single-payer government system. So do almost all Republicans; at the panel Sen. Robert Bennett (R-Utah), who has co-authored a bipartisan universal coverage bill that includes the individual mandate, said that Republicans view a public competitor as "a slippery slope toward a government-run system." Including such a public plan in reform legislation, he predicted, would guarantee intense GOP opposition: "If this is seen as ultimately a pathway to a single payer government run system, Republicans will fight it with every possible energy and frankly...a lot of Democrats will too." Yet the idea of a public competitor has stirred great passion on the left, and Stern described it as a "must-have" in the final legislation.

It wouldn't be easy but my guess is Obama and Senate Democrats (if not necessarily House Democrats) would jettison the public plan--or scale it back to a token level--if an agreement is in sight on the other central issues. Obama would fundamentally change the prospects for health reform if he can build an alliance with the insurance industry, which led the successful fight against Bill Clinton's universal coverage plan. Against that very tangible political benefit, the value of a public competitor (which also frightens the big provider interests because they fear it would slash reimbursement rates) might come to seem too theoretical to most Democrats.

There were other encouraging notes at the session, too. Stern, for instance, said he was open to limiting the current "tax exclusion" that frees workers from paying taxes on the money their employers contribute toward their premiums. That idea, which could contribute substantially to financing coverage for the uninsured, is usually anathema to labor but Stern said: "In any part of this health care agenda, we cannot let things rise simply by letting purchasers make decisions without some sense of responsibility to try to limit costs. So I think there is going to be a cap of some sort; the question is what kind."

The barriers to health care reform are easy to identify: whether to require all employers to contribute toward coverage for their employees; whether to establish the public competitor to private insurance companies; how to reduce the growth in health care costs; and how to pay for the public subsidies required to maintain an affordable individual mandate. The complexity of those choices help explain why Stern's union and the American Federation of State, County and Municipal Employees, according to Saturday's New York Times, recently withdrew from a dialogue with industry groups aimed at producing a consensus report.

But those private consensus-building efforts, while valuable, remain somewhat premature. It's helpful for diverse groups to share ideas and build trust. But it's unrealistic to expect any interest to make tough concessions in this dialogue until they test the market for their preferred ideas in Congress. If and when health reform legislation starts moving, all the players will accept different compromises than they would now, as they measure the ideal against the achievable. Indeed, administration officials believe so many groups, from AHIP to the Pharmaceutical Research and Manufacturers of America (another unlikely potential Obama ally) have already signaled unusual flexibility precisely because the president has so strongly indicated his intention to move forward. "The thing that was really helpful...was how much people have moved thinking that Obama was going to go," said one administration official who participated in Thursday's White House summit. "They are only where they are because they think something is coming."

If this is finally the year that something big is indeed coming on health care reform, the odds are high that Ignagni and Stern will be at the table when it does--and that the deal each sketched out on Thursday (an individual mandate for insurance reform) will provide the foundation of the agreement.