Jon Cohn

McKinsey and Company has finally released the details of its controversial paper on the likely effects of health care reform. And it looks like the paper’s critics (including yours truly) were right to raise questions about it.

Based on what the company has said, the paper offers no new reason to think Americans with employer-sponsored insurance will lose that coverage because of the Affordable Care Act.

Politically, that’s good news for President Barack Obama, since he told insured Americans that the law wouldn’t take away the coverage they already had.

But what does it mean in terms of policy? Should we be happy that health care reform is unlikely to reduce substantially the current system’s dependence on employer-based insurance? That’s another, much more complicated question.

Let’s start by looking closely at the paper, which suggested that as many as half of all employers would seriously readjust their employee benefits and as many as a third would drop coverage altogether once the health law took full effect in 2014.

The theory behind the claim was that employers would find it financially advantageous to stop offering insurance because workers could instead get subsidized coverage through the new insurance exchanges.

Even though firms that employ more than 50 employees — which account the majority of American jobs – would have to pay a penalty for failing to offer health benefits, the McKinsey consultants said, the financial advantages of dropping coverage would more than offset that cost.

But the basis for that prediction was a survey of high-ranking corporate officials. And it turns out the survey had a few weaknesses.

For one thing, a quarter of respondents didn’t know the salary breakdowns of their companies — in other words, how many workers were making high salaries and how many were making low salaries.

In addition, more than half of respondents weren’t even aware of what their companies spent on health benefits.

The survey didn’t ask respondents about the ages of their employees. Were they relatively old? Young? A mix of the two?

And when survey administrators “educated” respondents about the health law, they didn’t remind them about the effects of the employer tax exclusion, which makes job-based health insurance worth a lot more to employees.

Surveys asking employers to predict behavior are never that reliable. But these issues make the McKinsey study a particularly poor forecasting tool. In general, younger and poorer workers might be better off getting insurance through the new exchanges, because they will get bigger subsidies from the government and because they benefit less from the tax exclusion. It is a different story for older and richer workers.

Sure enough, these studies have consistently shown a very different result: that the majority of employers will continue to offer health insurance, even after health care reform.

In fact, just this week, new analyses by Avalere Consulting and the Robert Wood Johnson Foundation came to the same conclusion. (The basis for the Robert Wood Johnson prediction was another projection from the Urban Institute’s model.)

While these predictions could be wrong, obviously, their findings are consistent with what happened in Massachusetts, where a similar coverage scheme actually bolstered employer-sponsored insurance.

Indeed, even McKinsey itself now acknowledges that its study couldn’t make projections as reliably as these other efforts. In its official June 20 press release, it stated flatly that its prediction was “not comparable to the health care research and analysis conducted by others such as the Congressional Budget Office, RAND and the Urban Institute.”

Private, employer-based coverage became the norm in the U.S. in the 1940s and 1950s because the arithmetic of health insurance works only with large groups of relatively randomly selected people, and large businesses naturally create such groups.

But employer-based coverage makes workers too dependent on their bosses while saddling employers with a financial liability over which they have only partial control. More importantly, it leaves out people who don’t have steady, full-time work.

An ideal health care system would not merely include everybody. It would also give everybody access to the same set of coverage arrangements, regardless of their place of employment (or lack thereof).

It would also liberate employers from the responsibility of administering health benefits for workers, allowing them to concentrate on other, more productive activities.

Let the car companies make cars and the grocery stores sell groceries and the software firms design software. They don’t need to be running health insurance plans, too.

A single-payer system, with a combination of basic government insurance and private supplemental coverage, would be a much better alternative.

So would a “competition” system that looks like what is currently in place in the Netherlands or Switzerland, or what Sen. Ron Wyden, D-Ore., first proposed back in 2007.

The Affordable Care Act could evolve into such a system, particularly if the new insurance exchanges work well and workers feel comfortable the insurance available there is as good as what they’d get from employers.

But that transition would probably take a lot of time, no matter what corporate officials were telling the survey-takers at McKinsey.

Jonathan Cohn is a senior editor at The New Republic .

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

Jonathan Cohn, Senior Editor of The New Republic

This column is a collaboration between KHN and The New Republic.

For the better part of two years, the debate over how to control health care costs had a certain one-sided quality to it, because the Democrats had a plan and their critics did not. Democrats were forced to put their ideas on paper, with specifics, and subject them to nonpartisan accounting. All the critics had to do was attack.

Rep. Paul Ryan

And attack they did. Sometimes they said the Democrats’ plan, which eventually became the Affordable Care Act, did too little. (It’ll blow up the deficit! It’ll bankrupt the government!) Sometimes they said it did too much. (It’ll stop innovation! It’ll create death panels!) Sometimes they even said the two things simultaneously, which is the kind of neat rhetorical trick politicians can pull off only when they have no plans of their own.

All of that changed this month, when House Budget Committee Chairman Paul Ryan, R-Wis., released his budget proposal and included within it radically conservative reforms of the nation’s major health care programs.

Ryan would repeal altogether the coverage expansions of the health law. He also would increase the eligibility age for Medicare and then turn it into what most of us would call a “voucher scheme,” eliminating in 2022 the traditional government-run insurance plan for everybody who retires in that year and replacing it with a fixed financial subsidy that seniors can apply toward the cost of regulated private insurance policies.

Last but not least, Ryan would transform Medicaid into a block grant. Instead of guaranteeing federal funds to cover everyone that becomes eligible for the program, Washington would simply give the states a pre-determined, lump sum of money — and let states figure out how best to use it.

On paper, the Ryan plan saves the government a lot of money, at least in the long run. But upon closer inspection, the savings turn out to be illusory, cruel or some combination of the two. In fact, far from proving the superiority of conservative health reforms, Ryan’s plan validates what his political adversaries have said all along.

The Affordable Care Act represents a serious and realistic approach to controlling the cost of medicine — one that would be even more serious and realistic if the long-term budget changes President Barack Obama just recommended become law.

Although privatization has its own ideological appeal to conservatives, the real reason Ryan’s program would reduce government spending and deficits dramatically, at least over the long term, is that it substantially reduces the amount of insurance people would get. Repealing the health law would deprive more than 30 million people of insurance and leave others with more limited benefits.’

Meanwhile, the fixed formula Ryan would use to calculate the Medicaid block grants and Medicare vouchers would cause the value of each to rise far more slowly than the cost of health care. States would end up reducing enrollment or scaling back benefits or both. And, according to the Congressional Budget Office, seniors would end up individually responsible for more than two-thirds of their medical costs.

The theory behind this effort is that, by making individuals more conscious of the cost of health care, they will act more like consumers — thinking twice before getting extra treatments and shopping around for insurance policies that provide better value at lower costs.

But Republicans take this argument, which has some truth, way too far. The Medicare Advantage program, which already offers seniors the option to enroll in private insurance, hasn’t produced vast savings. Experiments with high-deductible coverage suggest it causes beneficiaries to skimp on useful care, including preventive treatments that prevent most costly, acute episodes later on. As Len Nichols, an economist at George Mason University, puts it, Ryan and his allies are “substituting algebra for health care policy.”

And that’s to say nothing of the political perils in Ryan’s strategy. As presently structured, his plan envisions a seismic shift away from traditional Medicare to a voucher worth considerably less money. Older voters are famously sensitive to even modest alterations in government benefit programs for the elderly. The idea that lawmakers would stand behind such an abrupt change, and then let it evolve in a way that so drastically reduces the federal contribution toward retiree health care, is difficult to accept.

The alternative is to control health care costs a bit more gradually, which is what the federal health overhaul does. Like Ryan’s plan, the Affordable Care Act attempts to restrict the federal government’s contribution toward health care expenses, via constraints limiting the growth in Medicare (although not Medicaid) costs as well as the tax subsidy working-age Americans get for employer-sponsored insurance. But the constraints are looser.

For example, unlike Ryan’s plan, which uses a fixed-value voucher to set Medicare spending, the health law sets less restrictive growth targets (which the president’s debt plan would further tighten) and then calls upon an independent commission — the Independent Payment Advisory Board — to recommend reforms when Medicare costs exceed those targets. IPAB’s recommendations can change what Medicare pays the providers of care, but the board, by law, cannot alter Medicare benefits or eligibility.

In addition, the health law’s formula doesn’t attempt to reduce spending by focusing exclusively on direct cuts to individual beneficiaries. On the contrary, the law distributes spending reductions across the health care system, affecting virtually everybody — whether it’s reducing Medicare payments to hospitals, eliminating extra subsidies for private Medicare Advantage plans or demanding greater rebates from pharmaceutical companies that contract with government insurance programs.

Most important, the Affordable Care Act doesn’t merely limit health care spending, in the faint hope that consumers, on their own, will produce a more efficient market. The law also introduces reforms that will put in place technological infrastructure and financial incentives to promote higher quality care. To some extent, that means sweeping, system-wide changes like the introduction of electronic medical records or the creation of an institute that will determine which treatments work better than others. But it also means dozens of more narrowly focused efforts, like a new public-private partnership to promote patient safety or pilot programs in “smart malpractice reform.” The idea is to experiment with virtually every payment reform experts have tried successfully on a small scale, in the hopes of replicating the successful ones across the country.

In short, the Republican vision for health care reform, as expressed by Ryan, is to limit federal spending on medical care, at levels far below what we spend today, and then let individuals make the best of the situation. By contrast, the health law calls for more gradual, more shared sacrifice by everybody involved with health care — with a focus on promoting efficiency so that lower spending needn’t result in lesser care. That’s not only a more realistic approach to controlling costs. It’s also a more humane one.

Jonathan Cohn is a senior editor at The New Republic .

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

Attacking The Health Law: The GOP’s Confusing And Incompatible Arguments

This column is a collaboration between KHN and The New Republic .

Suppose I told you one of the political parties was determined to increase wasteful government spending by hundreds of billions of dollars, to pay the salaries of countless extra bureaucrats and to degrade the quality of medicine in the U.S.

If you’ve been paying attention to politics for the last few months, you’d probably assume I was talking about the Democrats.

Confused? Well, don’t blame yourself. The Republicans and their allies have spent a lot of time — and a lot of money — attacking the Affordable Care Act and promising to undo it.

And they have done so with such a fury that almost nobody seemed to notice they are making a pair of arguments that are fundamentally incompatible.

The Republicans start their calls for repeal with a familiar, thematic critique of government. The new health law, in this telling, represents an unconscionable government intrusion into the private sector and, ultimately, an encroachment on individual liberty. The federal government will be dictating everything from how employers conduct their businesses to how doctors treat their patients.

And, oh yes, the government will be spending a ton of money it does not now have, increasing the deficit and/or laying new burdens on the taxpayers.

The argument is hyperbolic and, in places, downright inaccurate. But, at least, it is consistent with longtime conservative principles about the role and size of government.

To be fair, the Republican argument makes perfect sense if you think like a campaign operative.But that’s not all the Republicans have been arguing. They’ve also been attacking the health overhaul for what it will do to Medicare. And instead of accusing Democrats of trying to dump more money into a government program, as Republicans would typically do, they’ve attacked Democrats for doing the very opposite — noting that the Affordable Care Act will reduce spending on Medicare somewhere around $400 billion over the next ten years.

Apparently government-run health care is awful, except, um, when it isn’t.

To be fair, the Republican argument makes perfect sense if you think like a campaign operative. Senior citizens are, at the moment, the most conservative age group in the electorate. They were least likely to support President Obama in 2008 and, during the health care fight, were most likely to oppose enactment.

Republicans seized on that fact and have gleefully proclaimed themselves champions of Medicare, despite a long history of opposing it and, as Newt Gingrich once put it, letting this universal social insurance program “wither on the vine.”

Seniors are playing along, since they figure reform means taking money once targeted for Medicare and diverting it to help people under-65 pay for their medical care.

But here’s where things could get complicated for the advocates of repeal. Consider what undoing the cuts in Medicare would entail.

It would start, first of all, with restoring higher payments to the insurers that provide private coverage for people in Medicare, through what’s known as the Medicare Advantage plans.

There’s a reason the health law reduces those payments: Repeated independent studies, including those by the well-respected Medicare Payment Advisory Commission, determined that the government was paying the insurers too much.

Restore those payments, and you’re wasting taxpayer dollars. And a lot of those wasted dollars will go to hiring new people to work at insurance companies. They won’t be government bureaucrats, obviously. They’ll be insurance company bureaucrats.

But is that really better? Is the Tea Party in favor of waste as long as its lines the pockets of insurance executives rather than Uncle Sam?

Meanwhile, restoring the other cuts to Medicare would mean rescinding payment reductions designed to make the program more efficient.

Remember, a major goal of the health reform measure is to push against higher spending while simultaneously promoting higher quality care.

In the case of Medicare, that means slowing down payment increases to providers and penalizing those that provide substandard treatment; while, at the same time, boosting payments to primary care doctors and providing bonuses for those who actually treat patients better.

Reasonable people can argue how well these efforts will work. But allowing Medicare to continue going along as it has been for the last ten to twenty years — which is what repealing the new health law would do — would almost surely force a choice between much higher taxes or much worse access to care.

If you don’t believe me, just look at the plan proposed by Republican Representative Paul Ryan, who is forthright enough to admit that the GOP alternative to the Democrats’ approach to Medicare is to reduce radically its guaranteed benefits.

Of course, the Republican Party’s leadership hasn’t embraced Ryan’s plan in any specificity.

And, at least for the short term, it seems unlikely they’ll advocate such a path, lest they scare off the seniors that just handed them control of the House of Representatives.

But that means Republicans are now on the side of wasting taxpayer dollars on a government program that, in fact, needs some reform. I wonder how long it will be until the Tea Party figures that out.

Jonathan Cohn is a senior editor at The New Republic

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

It will force a lot of people to pay higher premiums. It will lavish subsidies on the private insurance industry. It will put life-and-death decisions in the hands of bureaucrats. And it will add hundreds of billions of dollars to the federal debt.

No, I am not talking about the health care reform law. I’m talking about the Republican proposals to repeal it.

Since even before the Patient Protection and Affordable Care Act became law, Republicans have been vowing to get rid of it and to pass their own reforms instead.

It makes a lot of sense politically. The voters are angry at Washington. The voters are also worried about their access to health care.

By promising to “repeal and replace,” as the slogan goes, Republicans sound like they’re giving the voters exactly what they want.

Multiple estimates, including those from the Congressional Budget Office, suggest that that an additional 30 million people will get insurance because of these changes.

Jon Cohn

The Republicans say they have their own mechanisms for expanding insurance coverage. On the official website for congressional Republicans, party leaders propose such measures as allowing the purchase of coverage across state lines and creating special insurance plans for people with pre-existing conditions.

But studies have repeatedly shown that proposals like these would, at best, bring coverage to just a few million Americans. So if the Republicans succeed in taking the recently enacted reforms off the books, that means they are taking insurance away from a whole lot of people.

But it’s hard to see how getting rid of health care reform would accomplish that goal, either. The new law includes a bunch of measures designed to reduce the overall cost of care — first by a little bit, and then by a lot.

It would also establish an insurance exchange that gives individuals and small businesses access to the kind of group policies large employers now have — complete with those subsidies, which will offset some or most of the cost for people who would otherwise struggle to pay the premiums on their own.

Although the effect of these changes on individual premiums will vary a lot from person to person, the CBO concluded that, once you account for the subsidies, reform will mean lower average premiums for people with private insurance.

Repeal reform and these people are stuck paying more (unless Republicans are willing to let benefits get a lot more skimpy).

The official projections also suggest that, ten years from now, government spending on health care will be lower than it might otherwise be.

Repeal reform and the deficits go back up — by more than $100 billion over ten years. And while the nation as a whole will pay slightly more for health care over the next ten years, the rate of growth — which is the figure we care about most — will be lower. Take away reform and, according to the projections, health care costs will rise at a higher rate.

Again, the Republicans have their own ideas about reducing costs. A few of them have merit. (In principle, for example, malpractice reform makes sense, if done right.)

But most experts believe the mainstream Republican proposals won’t significantly bend the cost curve.

But wait a minute — wouldn’t that all be worthwhile in order to get the government out of medical care? Given all the stories of “socialized medicine” and “death panels,” it might seem that way.

But those things exist only in the imagination of dishonest and hysterical critics. On the other hand, the health overhaul does include a bunch of consumer protections, many of which are already taking effect.

There are or will be standard benefits that all insurers will have to cover, requirements for more disclosure so that consumers will be able to shop intelligently and find the best plans, and guarantees of the right to appeal treatment denials.

If you take away health reform, all of those protections go away — and consumers will be more vulnerable to the whims of faceless insurance company bureaucrats, whose goal may be to maximize profits rather than public health.

The health law is far from perfect. Critics on the left and right can find plenty to criticize legitimately. But reform also promises a lot of benefits — to individuals and to the country as a whole.

Can Republicans make the case that Americans would be better off without these benefits?

It’s about time somebody forced them to answer that question.

Jonathan Cohn is a senior editor at The New Republic .

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

Jonathan Cohn, Senior Editor of The New Republic responds to John Goodman’s earlier column: Medicaid Rescissions Worse than Private Insurers

This column is a collaboration between KHN and The New Republic .

Everywhere you look, Medicaid seems to be in jeopardy. The program provides health insurance for the very poor, but depends on state funding and, right now, the states don’t have any to spare.

Last week, President Barack Obama signed a law that will give the states additional money, enough to avoid the worst cuts. But when that money runs out, in the middle of 2011, those cuts could be back on the agenda.

Cutting Medicaid during a recession is terrible economics, since it takes money out of the economy at precisely the moment when we should be putting more into it.

It’s also cruel. The Medicaid population includes some of the country’s most economically and medically vulnerable residents. Without Medicaid coverage, these people become even more vulnerable.

Writing last week for Kaiser Health News, John Goodman suggests we channel our outrage at the whole concept of government insurance.

During the health care debate, Goodman notes, reform advocates like me complained about private insurers that yanked coverage from people with high medical claims–a practice known as “rescission.”

Goodman thinks we had it exactly backwards. It’s Medicaid that’s yanking away people’s coverage, in what he calls “Medicaid rescissions.” And “these abuses,” he says, were “not addressed in the health overhaul.”

Goodman, who runs the National Center for Policy Analysis in Texas, has been writing and speaking about the evils of government insurance for a long time. And that’s a respectable philosophical viewpoint, although not one I happen to share.

But his analysis here takes some curious turns–turns worth examining more closely, since Goodman columns have a way of reverberating through the conservative echo chamber and, eventually, into the national political conversation.

The place to start is with a reminder of what, exactly, Medicaid is and how it is supposed to work. Medicaid is for people who don’t have nearly enough money to buy decent private coverage on their own or through an employer.

The rest of the money comes from the states, which are in charge of administering the program and have the option of expanding it, either by making the coverage more generous and/or offering it to more people.

States have frequently taken advantage of that option, particularly in recent years, for one simple reason: More and more people need it.

The proportion of Americans who get Medicaid coverage has expanded since its inception and, if not for that expansion, the total number of people without health insurance would be a lot higher than it is today.

States don’t have the money to sustain these expansions during hard economic times, forcing them to make cuts unless the federal government steps in, as it did last week.

And, make no mistake, this is terrible.

But to compare Medicaid cutbacks to private insurer rescission is grossly misleading.

The problem with rescission has been that there’s mounting evidence of insurer bad faith–that, in an effort to fatten margins, insurers singled out the people with big medical claims and found excuses to drop their coverage, frequently leaving these people to pay bills they’ve already incurred and thought were covered.

That’s a whole lot different from scaling back the safety net because the states have run out of money to sustain it at current levels.

Rescission is the product of insurers trying to make money at the expense of people in need. Medicaid cuts are the product of society trying to help people in need, but coming up short.

The new health law, the Patient Protection and Affordable Care Act, expands Medicaid substantially, so that all Americans with incomes under 133 percent of the poverty line are eligible for it.

Goodman implies that, in so doing, the government exposes yet more Americans to the vulnerability present Medicaid recipients feel whenever state budgets get low.

This is–how do I put this?–a creative reading of health care reform. Yes, the new law expands Medicaid. But it expands the “mandatory” population that all states must cover, and it dedicates a stream of federal money to make that happen.

It also guarantees that people making more than 133 percent of the poverty line can get insurance, regardless of preexisting conditions, with subsidies to offset much or most of the cost. And, yes, it bans the practice of rescission except in clear cases of fraud.

In short, the law creates a seamless and permanent system of insurance that should eliminate precisely the insecurity that’s the focus of Goodman’s article.

Goodman does have a broader, more reasonable argument. The more government gets involved in health insurance, he suggests, the more people’s coverage will depend on politicians’ decisions.

Under health reform, government will be setting the rates at which Medicaid pays providers (something it does now) as well as defining a minimum benefits standard for private insurance (something it doesn’t do now).

And that means there will inevitably be fluctuation. If budgets are tight, for example, future governments might reduce Medicaid payments to providers–which, as Goodman rightly notes, makes it harder for people on Medicaid to get timely appointments with doctors.

But the new health law actually increases what Medicaid will pay primary care providers, at least for the first few years. It also locks in place certain guarantees, like who is eligible for Medicaid and the idea that basic medical care should always be covered that will be very difficult to alter.

Lawmakers and officials would still have some leeway, particularly if they’re willing to rewrite the law itself. But, unlike the people who run insurance companies, they will be accountable to the public when they come up for re-election.

Does that mean Medicaid under health reform will as reliable, and as strong, as the best private insurance policies? Regrettably, no. Future lawmakers will make cuts, just as today’s sometimes do. And those cuts will affect beneficiaries in one way or another. But it will still be far more secure than what the poor could get on their own–just as it is now.

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.