Panicky People Make Bad Decisions : Salvaging Health Reform after Scott Brown

The shocking surrender of Ted Kennedy’s Senate seat to an insurgent Republican state legislator, Scott Brown, has imperiled President Obama’s health reform initiative. The Massachusetts “massacre” has unleashed a tidal wave of second guessing from Democratic pundits. Obama, the left argues angrily, got what he deserved for trying to find a bipartisan solution to health reform, for abandoning the beloved “public option” and snuggling up to the corporations they wanted to punish. If only he’d remained pure to their ideals, Martha Coakley would be a Senator and he’d have a bill on his desk by the end of the week. General Custer could not have gotten worse advice.

It’s possible that the loss of Ted Kennedy’s Senate seat might end up saving both health reform and the Obama Presidency. The President seems to understand what happened in Massachusetts better than his more ideological brethren. Disarmingly, he argued the day after Brown’s victory that it was produced by the same popular anger as his own election, though it’s worth noting an important qualitative difference. The 2008 election coincided with a full blown market panic, which the President’s calm and policies helped quell; What he is now facing is much closer to voter despair, as the domestic economy digests a huge overhang of debt, and unemployment lingers above the toxic 10% level.

His focus on health reform through his first year shouldn’t have been a surprise. It was a pivotal theme of his campaign. Rather than postpone health reform until the economy recovered, Obama connected the two – that we couldn’t have an economic recovery without reforming healthcare- without successfully explaining the connection to voters. Apparently, the political types in the White House prevailed over the economic types in the President’s decision to press ahead.

His transition and White House staffs were drawn heavily from the Clinton White House staff, who were haunted by the Clintons’ failure to accomplish health reform. They resolved not to write the bill themselves as the Clintons had done, but to manage the Congressional process from behind the scenes. They chose a popular former Senate Majority Leader, Tom Daschle, to be the manager. This was a brilliant appointment, not only because of his credibility and relationships, but because he brought with him a sensible roadmap, outlined in his book, Critical: What We Can Do about the Health Care Crisis.

The decision to throw Daschle under the bus in early February after ethics concerned surfaced was in retrospect extremely costly. It not only cost the White House nearly four critical months as they searched for replacements, but it also untethered the Congressional relationship and handed the initiative to Congress, particularly the House of Representatives. The two people chosen to replace Daschle, while knowledgeable and capable, lacked the political relationships and gravitas to manage the Congressional relationship. It ended up politicizing the process by handing the reins to Rahm Emanuel, who had both relationships and domain knowledge, but neither the time nor the position to chair all the key meetings. The illness and death of Ted Kennedy also crucially deprived the process of a senior Congressional diplomat capable of helping broker a solution.

The larger strategic problem was the inherent asymmetry between those who benefit from health reform and the core constituencies of the Democratic party. Those core constituencies already have coverage: organized labor, the “elderly”, the poor, etc. Their main concern throughout the process was in not losing any of those benefits. On the other hand, the main beneficiaries of health reform- young people, widows, homeless people, immigrants, both legal and illegal, etc, -had neither the voice nor the resources to advocate on their own behalf.

Political calculation led the White House to engage the major health care stakeholders (hospital, physicians, health plans and pharmaceutical companies), limiting their liabilities in exchange for neutralizing their opposition to the process. As health reform unfolded, core elements of the Democratic base felt increasingly alienated by the inevitable compromises. Single payer types felt betrayed by the failure of the White House to fight for the “public option”. Hispanics were infuriated by the House bill’s provisions definitively denying coverage to illegals (6-8 million of the uninsured). Womens’ groups were enraged by the extension of abortion restrictions to private insurance purchased through the exchanges. The unions were infuriated by the proposed tax on “Cadillac” health plans

With each successive iteration, the bills grew fatter, less comprehensible and less lovable. As it stood on the brink of reconciliation, the legislation had grown into a gigantic, hairball with the throw weight of a cinder block, laden with special interest favors, pet projects and carve-outs of various kinds. Despite the spin from the White House, it also represented a nearly open-ended, if delayed, spending commitment, and abjectly failed to alter the health system’s fundamentally inflationary payment ground rules. As concerns about the bill grew, a frustrated Emanuel lashed out at the policy community, reminding them that his goal was to get a bill passed, not to garner the approval of the Brookings Institution or the Aspen Institute.

By the late fall, most of the core Democratic constituencies, the policy community and the commentariat all hated the legislation, while its intended beneficiaries were either terminally confused, or had tuned the process out, convinced that it wasn’t going to help them. The White House’s sense of urgency was well placed, because the longer the process stretched out, the more vulnerable it became to political brushfires like the loss of the Kennedy seat. It’s not like the Democrats are exactly helpless with 59 Senate votes and an eighty plus vote majority in the House. It’s rather that the year-long process has not only alienated the core of the President’s party, but also angered the public, which saw only a lot of “inside baseball” special deals and non-transparent policymaking.

Can progress on health reform be salvaged post Scott Brown? Absolutely, but at a price. One major problem will be finding a trash can large enough to stuff the two Houses’ grotesque bills into. Several red bags will be needed. Then, the political question will be: who can the President afford to piss off now?

The President yesterday indicated the possibility of scaling back from achieving quasi-universal coverage to accomplishing a few major goals with broad support: health insurance reforms, small business coverage subsidies, perhaps a modest Medicaid expansion and some cost containment measures (pilot projects, a Medicare Commission?). As we will discuss, these are not political “gimme’s” by any stretch.

If the White House did not want to let go of the goal of universal coverage , it could take a big political risk by advocating passage of Wyden Bennett (S 334, the Healthy Americans Act), the only health reform proposal with bipartisan sponsorship. S334, which CBO scored as deficit neutral in its first full year of implementation, would create a national, consumer choice market for health insurance supported by federal vouchers. It would also fold Medicaid into a national voucher program for private coverage, permanently ending a fiscally explosive welfare program (and bringing US health policy in line with that of most European countries, who do not separate low income people from the rest of the covered population).

However, Wyden Bennett severs the tie of health coverage to employment, and is thus anathema to the labor unions. The unions have played a major, if unscripted, role in shaping the administration’s policies. Preserving public sector union jobs (in higher education and healthcare) consumed a major fraction of the unpopular American Relief and Recovery Act, at the expense of infrastructure spending, green energy and a host of other job creating programs. The unions also shaped the auto industry bailout and were rewarded with majority ownership of Chrysler. Is achieving universal coverage at the price of alienating his union supporters worth the price? That’s a question that only the President can answer.

If Wyden Bennett is too big a stretch, even the partial reforms the President is considering would carry political costs. For example, imposing “patient protection” measures like restricting pre-existing condition exclusions or lifetime benefit caps, or cutting Medicare Advantage payments without the healing balm of millions of new customers will definitely alienate the health plans. (The Democratic base as well as many Blue Dogs and moderate Republicans will cheer lustily. . . )

Hospitals, doctors and pharmaceutical firms will step up their opposition to a Medicare Commission, or to future restraints on Medicare payment increases, absent the prospect of millions of new customers. A split with the medical industrial complex is inevitable. As things were going, however, this was going to happen shortly after health reform was enacted, when the White House turned its attention to deficit reduction.

Other measures could bring major reductions in uninsured people with very little cost. If you don’t require community rating, covering millions of people in their teens and twenties could be accomplished for $60 a month, with affordable subsidies for lower incomes. At low enough rates, many parents would voluntarily cover their kids. Doubling community health center funding would cost only about $2 billion a year, extending the healthcare safety net. Voluntary Medicare buy-in could cover a lot of the 11 million uninsured boomers with modest subsidies for the lower income folk (an trial balloon shot down in October by the hospital industry and their buddy, Joe Lieberman).

The crucial thing is that the President must rigorously limit what’s in the bill to things that directly reduce the uninsured population with as little collateral fiddling as possible, or which create immediate, tangible benefits for people than can be explained in, at most, two PowerPoint slides, and do it in about 300 pages of legislation. As the bills in Congress metastasized into the present monstrosities, these tangible benefits were either postponed five years or became largely unexplainable, squandering the President’s formidable capacity to persuade. A major reason why I voted for Obama was that because I thought he’d be a good teacher- a calm, reasonable person who could explain to us in English how we stood to benefit from a reformed health system.

To overcome the obstacles that lie in his path, he’s going to have to shed the arrogant misreading of the 2008 election as somehow “transformational” -a call for government to “rescue us”. His election, like the 2006 Congressional election that preceded it, was a “throw the bums out” election. Most of the “bums on the bubble” are now members of his own party, will have controlled Congress for four long years. And if the Democrats cannot defend Ted Kennedy’s seat, how many of their seats are really safe in 2010 or 2012? Unlike Clinton, Obama does not seem driven by the compulsive drive to have everyone love him. Some cold calculations about who you can afford to piss off is the key to making the right choices.

Originally published on The Health Care Blog.