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The public option: a point on substance, a point on procedure

On the Strib’s Saturday op-ed page, Myles Spicer skillfully dissected at least some of main arguments against the “public option,” arguments that take as three postulates that 1. the government cannot do anything as efficiently as private, for-profit businesses, 2. that only the profit-motive can lead to innovation, efficiency and the best services for the best prices, and 3. that private businesses cannot survive if they have to co-exist with a public sector competitor.

Spicer went deep into the oft-used analogy between the public option’s possible role and coexistence with private health insurance companies and the coexistence between the U.S. Postal Service and private deliverers like Federal Express and UPS. Yes, USPS does require a taxpayer subsidy to stay in business. On the other hand, it provides certain services that are valuable to daily life and commerce, like deliver letters to the recipients’ door for 44 cents, that Fed Ex and UPS do not offer. Spicer doesn’t make the main point that Obama gbenerally does when he uses this analogy, which is that the existence of a not-for-profit public option in the field of letter and package delivery does not seem to preclude the existence of for-profit alternatives.

But the toughest true thing that Spicer wrote kicks back at the notion that private companies, competition and the profit motive are the only way to provide an incentive for innovation and a quality product offered at competitive prices, at least the area of health insurance. Wrote Spicer:

“This is 180 degrees wrong. For insurers, stronger profits do not reside in streamlining anything. They rest with raising rates to the highest market price possible, then insuring only the healthy, then denying claims whenever possible. That is what increases their profits.”

On to the procedural point

On the Lehrer Newshour’s regular Friday roundup of the week’s politics with David Brooks and Mark Shields, Shields brought up a point that hadn’t occurred to me before.

With 60 votes, the Dems would be able to pass anything through the Senate. But if even one Dem senator joined the Repubs on a filibuster, the bill could not come to a vote. If (as seems to be the case) there are Dem sens who would not vote for a bill with a public option in it, and others that would refuse to vote for a bill without one. If so, there will be no bill that can get 60 votes.

There’s long been talk that Senate Dems might decide to use the reconciliation process to enact a health care bill, which is a sneaky technical way of avoiding a filibuster. I am not the master of the rules that determine when reconciliation can be used this way.

But Shields suggested another more obvious, and less sneaky way to ensure that bill with majority support in the Senate can come to a vote. It’s pretty simple, Shields said that Majority Leader Harry has to tell the members of his caucus that they are all free to vote their conscience on final passage of a bill, but that the 60 Dems must stick together to vote cloture against Republican filibuster. I don’t know if there is much precedent for such an arrangement. David Brooks seemed a little skeptical. Here’s the exchange:

MARK SHIELDS: You can get — 60 votes is very simple. What you have to get — Harry Reid has to get out of his caucus is an agreement on procedural votes, that if there’s a — if there is a filibuster on any issue, that all 60 will vote to cut that filibuster off. And that’s the…

JIM LEHRER: No matter what their positions are on a specific…

MARK SHIELDS: That’s right. You can vote your own conscience. You can vote your own constituency on the issue itself. But if they’re going to try and filibuster an issue, that I have to have your vote.

JIM LEHRER: Does that make sense to you?

DAVID BROOKS: Well, I guess so. I just think it’s a huge advantage to get 60 on the substance. I think people are going to still be nervous. If you look at — we’ve had all this debate. We had the summer and then we’ve had the debate. The public is still extremely skeptical, and it’s still extremely skeptical in swing states.

What think?

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Comments (13)

  1. Submitted by Thomas Swift on 10/05/2009 - 07:59 am.

    Two words on the “public option” as it pertains to governmental competition with private insurance:

    FreddieCare

    FannieMed

    The Democrat party doing for the medical industry, precisely and exactly what it has done for the mortgage industry.

  2. Submitted by William Lindeke on 10/05/2009 - 08:36 am.

    It makes so much sense. Politically, those 60 votes have a shared fate as members of the Democratic party. All this claptrap about how ‘special’ senate collegiality, and its demands for unity and bipartisan agreement, ends up being a big stick in the eye of democracy (where voters have long since delivered a mandate for change, particularly considering the population weights of each senate vote).

  3. Submitted by Steven Smith on 10/05/2009 - 09:28 am.

    Shields is right that such an appeal may make a difference, but the number of cases (I should figure out the exact number) of senators voting for cloture and against final passage is small. Most senators have a hard time explaining the inconsistency to attentive special interests and constituents. Still, I can see Dems arguing that the bill deserves a vote to move the process along to the next stage. They can filibuster the conference report later.

    By the way, it is more common for representatives to vote in favor of a House special rule (bringing a bill to the floor, perhaps with a closed rule) and against the bill that the rule allowed to come to a vote. Those House votes seem to be less visibly connected to outcomes than Senate cloture.

    Here’s another unlikely scenario: The Dems get the presiding officer to ignore the recommendations of the parliamentarian, get favorable rulings to ram reform through under reconciliation, and back it up by tabling the Republicans’ appeals. This is the “nuclear option” scenario the Republicans threatened on judicial nominations in 2005. But it is unlikely: A least several Democrats would be upset with this approach.

  4. Submitted by John E Iacono on 10/05/2009 - 10:11 am.

    Social Security has not dried up the market for life insurance or pension plans or annuities.

    The public option will not likely dry up the market for health insurance, and for the same reason: social security is, and has always been, an inadequate protection from the vicissitudes of old age, and requires supplemental planning.

    Government health insurance will almost certainly be the same: a band-aid but no stitches. It will leave large gaps, be costly, and be subject to bureaucratic whim when payments outstrip predictions.

    What is likely, however, is that companies, in the desperate hunt for lower health care costs, will opt for the government lowest common denominator coverage as their plan of choice, depriving millions of adequate health insurance.

    Government can work relatively efficiently with many things, but not with money. For every dollar taxed for the federal government, famously fifty cents gets “lost” in waste, bureaucracy, and expenditures not related to the stated object of the program. Some programs even wind up with not a penny available for the stated recipients.

    How a government “option” would reduce costs of insuring those willingly or unwillingly uninsured strains credulity. Waste is endemic in large corporate organizations as well, so the effects of this aspect of the “option” may be less evident, but this loss inherent to any government project will be there. Without taxpayer subsidies it is hard to see how any “savings” will be seen by those insured by the option. Such wealth transfers, thought they may be billed as “savings” are shell games.

    No-one could argue that “only profit motive can lead to innovation, efficiency and best services,” as the many (not all) non-profit charities illustrate. Perhaps others have heard this plea, but I have not. We all know that profit motive does not lead to any of these desirable objectives.

    What is likely true, however, is that once government takes over the control of health care the innovative persons in society are likely to abandon the field as an area too bogged down in regulations, permits, and the intransigence of uncaring bureaucrats to be worth the effort. Government does not easily change its spots.

    After all, why bother coming up with a new machine if government will delay fielding it, restrict access to it, and refuse to pay half the actual cost of using it (much like insurers today).

    And finally, there is the continual tendency for “creep” in government programs. Once politicians learned (at the time of FDR) that they could buy a vote by paying out money, they have never ceased to use the tool provided.

    Social Security, at its inception, was an actuarily sound insurance program. But politicians could not resist the urge to convert it to a welfare programing by guaranteeing to everyone a minimum payment, whether they had contributed or not. So now it will collapse in another generation, in spite of continually increasing taxes laid on current workers by raising the upper limit of taxable wages.

    Fannie and Freddie were brought to their knees by political desires to put everyone, no matter how financially unworthy, in a home of their own.

    In such a sensitive area as health care, similar largesse will surely evolve, and quickly, adding either to the deficit or to the tax burdens of all.

    While it may be convenient to set up straw men in arguing for the “public option,” it seems to me it is at very least disingenuous and at worst dishonest to use them in arguments for this option.

  5. Submitted by John E Iacono on 10/05/2009 - 10:25 am.

    On the procedural point:

    The dems have the majority, and if they can pressure it a filibuster proof one.

    The real question remaining is whether, when push comes to shove and individual dems weigh their willingness to die for the party, they can muster even the simple majority needed for the packages now being presented.

    Self preservation is a powerful instinct for all, including politicians.

  6. Submitted by Ross Williams on 10/05/2009 - 02:03 pm.

    “So now it will collapse in another generation, ”

    There is no evidence Social Security will ever collapse. This is pure right-wing hokum. The worst that can happen is that it will pay lower benefits than it currently does. And even that is extremely unlikely.

    “Fannie and Freddie were brought to their knees by political desires to put everyone, no matter how financially unworthy, in a home of their own.”

    No, they weren’t. That’s another invention of right-wing myth making machines. Fannie and Freddie got caught in the same crunch as most home owners – falling housing prices. They bought mortgages whose collateral precipitously dropped in value.

    “once government takes over the control of health care”

    The Federal Government already pays for most of the health care for the elderly, the poor and military veterans. And of course, it pays for health care for federal employees, including elected officials. None of the public options have government taking even that much “control over health care”.

    I think the reality is that most of the proposals out there are designed to cut health care costs without cutting into health care industry profits. There is only one way to do that, reduce the health care people receive. That, not right-wing fantasies about government control, is the real danger of industry backed reform.

  7. Submitted by Bernice Vetsch on 10/05/2009 - 05:37 pm.

    Ross Williams: Yes.

    2003: Billy Tauzin let drug industry lobbyists into his office to “help” write the Medicare Part D drug plan. The result is a privatized mish-mash of hundreds of plans. Medicare is forbidden to negotiate volume price reductions (the VA gets 46-47% off; Medicare pays full price).

    To choose a plan, a senior must (1) compare prices to find those that are affordable, and (2) check each company’s formulary to see if his/her drugs are approved for payment. The drug companies are allowed to raise their prices every seven days and are allowed to remove drugs from the formularies they released in the annual open enrollment period. Seniors, on the other hand, can change plans only once a year, so if one of their drugs is dropped, they must pay retail for it until the next enrollment period.

    Complex. Bureaucratic (private AND public). Very expensive($80 billion more per year in taxpayer dollars and excess premiums, co-pays, deductibles and doughnut-hole purchases for seniors).

    Billy Tauzin’s reward? He became Big Pharma’s chief lobbyist at $2 million per year.

    2009: Max Baucus lets insurance company lobbyists “help” write the Senate Finance Committee version of health insurance reform.

    I don’t think we can look for a citizen-friendly bill out of that committee, no matter how hard some Democratic senators are fighting to improve the bill with amendments that are voted down by Baucus, other Blue Dogs and Republicans.

  8. Submitted by Richard Schulze on 10/05/2009 - 09:48 pm.

    The fact that many people are without insurance, the fact insurance is not portable. Those problems all stem from a single cause. Which is that we rely on private insurers to provide health insurance. That’s a failed business model effectively for this enterprise.

    The private insurance companies imperative is to not sign up as clients people who need medical care. They want to find healthy people or people who won’t need medical care.

    Much of their budget is devoted to identifying who is going to need care and then taking steps to exclude those people from their policy rolls.

    Another major part of their budget is based on aggressive efforts to deny reimbursement claims, so if you do have a policy and you do get a procedure and then you seek reimbursement for it. They have experts who get extra salary if they deny a higher proportion of claims.

    That is a failed business model for providing health care. That is called the adverse selection problem.

    That is why no other major economy provides health care along the lines of that model. Every other country has a universal access system that is roughly speaking a single payer system.

    The reason the insurers are staying in business, though, is because barriers to entry in the health insurance industry are in practice quite high. Insurers benefit from pooling risk. The larger the pool, the better in terms of the insurer’s ability to hedge its risk and build negotiating leverage with its providers. That makes it very difficult for a new type of start-up to compete: they’ll have trouble getting together enough customers to pool their risk adequately, and even if they do, they won’t have as much negotiating leverage as the big guys. Health care providers may demand a better deal or refuse to accept them. As such, they’ll never get off the ground.

    Insurance, in other words, is a volume business, the main requirements for which are that (1) you have a lot of money pooled together and that (2) you’ve been around for a while.

    CIGNA and Aetna have a lot of money pooled together and they’ve been around for awhile but they don’t have as much money, nor have they been around as long, as the federal government. It’s possible; certainly, that the profit motive in the insurance industry has driven more innovation than we’re giving it credit for. But that isn’t my bet.

    There’s no obvious reason that the government couldn’t provide more for less.

    What Mr. Swift’s position reflects instead is ideology: who cares that the federal government could build a better mousetrap? They’re the government and that’s bad. His argument is really no more sophisticated than that.

    If a libertarian conservative wants to make this argument, more power to them, but they absolutely should not be turning around and suggesting that a public option would raise health care costs. They’re saying, rather, that they’re morally opposed to the cost savings that would ensue.

    It’s my belief that private industry is usually able to deliver more efficient outcomes to the consumer than the government could.

    But usually isn’t always. And health insurance is one of those exceptions

  9. Submitted by John E Iacono on 10/06/2009 - 09:32 am.

    Richard says:
    “Another major part of their budget is based on aggressive efforts to deny reimbursement claims, so if you do have a policy and you do get a procedure and then you seek reimbursement for it. They have experts who get extra salary if they deny a higher proportion of claims.”

    They learned this from the Medicare method of reducing payments.

    So why not regulate the insurers, rather than just take over and do the same?

    There’s no question insurers need extensive additional national regulation – something the government is much better at, when it’s not government money involved.

  10. Submitted by John E Iacono on 10/06/2009 - 09:55 am.

    (#6) Author Editor Ross Williams says:

    There is no evidence Social Security will ever collapse. This is pure right-wing hokum. The worst that can happen is that it will pay lower benefits than it currently does. And even that is extremely unlikely.

    >There IS clear evidence, and many public statements, that without changes and/or additional funding it will be bankrupt and unable to meet currently promised obligations. No “hokum” at all — just the facts.

    “Fannie and Freddie were brought to their knees by political desires to put everyone, no matter how financially unworthy, in a home of their own.”

    No, they weren’t. That’s another invention of right-wing myth making machines. Fannie and Freddie got caught in the same crunch as most home owners – falling housing prices. They bought mortgages whose collateral precipitously dropped in value.

    >Another statement that flies in the face of publicly known facts. Variable rate loans with built-in rate escalators were used to qualify otherwise unqualified buyers. Decline in home value only left those with no equity to lose free to just walk away. They would otherwise have sold, but lost the home anyway. Any fool could have seen it coming if real estate values declined. Some in congress did, but did not succeed in changing the rules because dems wanted everyone to “have the American dream” — economically worthy or not. While it may be convenient to rewrite history, it is not kosher in these discussions.

    “once government takes over the control of health care”

    The Federal Government already pays for most of the health care for the elderly,

    >Careful here. Do you mean Medicare, or do you mean Medicare joined with the costly “supplemental” coverage from private insurers, needed to avoid bankruptcy if one has Medicare alone.

    “the poor”

    >Again, careful here. How many clinics do not take medicaid patients because they simply cannot affort to provide services for what Medicaid pays? And private payers and those covered by private insurance make up the shortfall for those who do take them.

    “and military veterans.”

    >This one, I believe, is closer to accurate. But of course it’s done in the military way, and has its own methods for restricting access, as the Agent Orange and now post-trauma syndrome vets can attest.

    “And of course, it pays for health care for federal employees, including elected officials.

    >Of course it does. Government always takes care of its own, especially those who cast the votes for it. And at exorbitant cost to us all. But if anyone thinks the taxpayers will get such a package, I have a bridge near my home you might be interested in.

    “None of the public options have government taking even that much “control over health care”.

    >On the contrary, everywhere government puts its foot in, it assumes control, from bureaucrats (not doctors) making Medicare payment decisions to military physicians making vets wait months and then downplaying symptoms — except for the chosen not-so-few blessed with the federal employee programs subsidized by the rest of us.

    “I think the reality is that most of the proposals out there are designed to cut health care costs”

    >I believe the proposals out there only address “payments”, with no regard for actual costs whatsoever.

    without cutting into health care industry profits.

    >I agree on this aspect.

    There is only one way to do that, reduce the health care people receive.

    >Agreed here, also.

    “That, not right-wing fantasies about government control, is the real danger of industry backed reform.”

    >Name calling never helps in a discussion. “fantasies” is an example. I agree that “industry backed” reform, as in the deal with the pharma companies, is a real danger — just as behemoth ham handed government involvement as a player/umpire in the health care world can be.

  11. Submitted by Richard Schulze on 10/06/2009 - 09:57 am.

    John, I agree with much of what you have contributed to this subject. As you, I would not like to see a total “take over” either. Although having said that, I would like to see a public option. Which very well could be the impetus for the health insurance industry to become “more competitive”. Choices are what should be offered to the public. A public option should be one of the choices for people to shop for. Might work for some, maybe not for others. But a choice nonetheless.

    A few things like changing the age for dependents to the age of 25. Allow preexisting conditions. Both of which could be self initiated by the industry without regulation.

    Allow interstate commerce for health insurance. Which to my understanding most non profits are against as it would rub against their business model.

  12. Submitted by Thomas Swift on 10/06/2009 - 10:17 am.

    “Although having said that, I would like to see a public option. Which very well could be the impetus for the health insurance industry to become “more competitive”.”

    I don’t get it.

    I started out with a play on words, meant to focus attention on the…no, not similarity…exact replication, between the government’s intrusion into the mortgage industry and the proposed intrusion into the medical industry.

    Freddie Mac and Fannie Mae are “government sponsored enterprises” which were created by Congress to make the mortgage industry…wait for it….”more competitive”.

    Are you aware of what role those “GSE’s” played in the economic meltdown we are struggling through?

    In what way do people think government has reinvented itself that it may now be trusted to provide competition to yet another major piece of our economy?

    It’s like Captain Edward Smith has come back to life and is waging a campaign to convince the White Star Line that he has figured out how to cleave ice burgs and deserves another shot at one.

  13. Submitted by Richard Schulze on 10/06/2009 - 03:23 pm.

    Swiftee, The habitual red herring abuser…
    I like my herrings in the smoker next to the cisco’s and lake trout.

    It’s kind of like people thinking they are qualified to advise on economics just because they have a bank account.

    The CRA has nothing to do with the financial crisis. How do we know this?
    1), it has been in place for some thirty years, so if its going to produce disasters its not a very good explanation of a current crisis.
    2), 80% of non-prime loans were made by non-regulated entities not subject to the CRA. So obviously their behavior was not in any way prompted by the CRA.
    3), the institutions that were regulated and were subject to the CRA, none of them had any CRA rating problems. So they weren’t making these loans to try and improve their ratings. They already had great ratings.
    4), what changed in CRA regulation over the recent period relevant to the crisis? It was weaken not strengthened as a result of Phil Gramm and the repealing of the Glass-Steagall Act in 1999. The great success of the Glass- Seagall act was that it separated depositors from risky bets. I can assure you that all this CRA hooey is all made up.

    Fannie & Freddie do have a role to play in this crisis. But it’s not the one that most people think about. Fannie & Freddie ironically were the primary reasons we didn’t have a crisis in sub-prime much earlier. Because Fannie & Freddie only purchased prime mortgages for packaging. And Fannie & Freddie’s standards in general are very good, that’s a conforming mortgage in jargon and so in the old days the non-prime folks could not sell their stuff because only Fannie & Freddie could by it.

    What changed? We passed a law that allowed what we call Private label to create Mortgage backed securities. So these are primarily investment banks. Its the investment banks that that purchased the non-prime loans. Then sent them to the rating agencies to receive bogus AAA ratings.

    So it’s overwhelmingly again a story of actually a weakening of and the creation of competitors to Fannie & Freddie that led to this. But Fannie & Freddie did NOT purchase sub-prime loans, but exotic derivatives, the ones that got the phony AAA rating from the rating agencies. Primarily liar loans and it did so while at a time when the Office of Federal Housing Enterprise Oversight was regulating it and had full regulatory power to stop this practice. A conservative republican ran OFHEO, he did not stop this practice, and he did not think it was risky. It is also true that the Bush administration pushed the stuff, remember the “ownership society” it was in fact a bipartisan effort. Fannie & Freddie are massively insolvent as a result of the CDO’s they purchased.

    The Rating Agencies slapped AAA on all those securities because it didn’t cost them anything. Banks were willing to tailor their deal structure to meet the rating agency model because it was so much more profitable to sell triple-A rate horse manure than actually doing work. The crazy loans only were possible because on paper they were very profitable.

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