August vote likely for health care reform

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The writer Mark Twain was once asked if he belonged to any organized political party.

"I don't belong to any organized political party," Twain responded. "I'm a Democrat."

The current U.S. debate on health care reform reminds us of what this means. The nation is close, very close, to writing legislation and securing a coalition that will create universal health care coverage. This is arguably the most important social policy achievement since President Lyndon B. Johnson signed the Medicare bill in 1965 that guaranteed health care coverage for senior citizens.

Still, if the Democrats aren't careful, they could, once again, snatch defeat from the jaws of victory.
Type of health care funding still undetermined

And the primary reason is that aforementioned diverse, unwieldy nature of the Democratic Party. It's an inherently less-cohesive, ideologically-wider coalition than the Republican Party, and it's created the major hurdle to health care reform legislation: the type of funding for the new health care expense.

Selected Senate Democrats favor a tax on employer-provided health benefits, which would have provided about $320 billion in revenue, but House Speaker Nancy Pelosi (D-Calif.) said the House bill won't tax those benefits, The New York Times (NYT) reported, and given the unlikelihood that a partial benefits tax could be negotiated in a conference committee, the benefits tax appears to be a non-starter.

That leaves two potential funding options: 1) a federal income tax surcharge, which has strong support among House Democrats but less support among Senate Democrats, of 2-3 percentage points on Americans earning more than $250,000, with the higher amount starting at $500,000 in annual income; or 2) extending a portion of the 1.45 percent Medicare tax to capital gains – perhaps one-half or three-quarters of one percent (0.50-0.75 percent). An additional corporate tax is possible, but there appears to be little support for one, at this juncture.

Comment: Originally, it appeared the extension of the capital gains would not gain much support, but the view from here argues you may see the Senate Democrats favor it, if it's linked to a smaller income tax increase on wealthy Americans (incomes above $250,000). Most Senate Republicans will oppose the plan, but that's expected for almost any universal health care bill that's up for a vote.

Public plan option: Essential for reform?

The health care reform legislation's second hurdle concerns the public plan option. President Obama has made it a priority, House Democrats favor it, save about 20 moderate/conservative House Democrats, House Republicans will oppose it almost unanimously, most Senate Democrats favor it, as will perhaps 4-5 Senate Republicans.

President Obama argues the public option is vital to restoring marketplace competition. By providing the public with a public plan, private insurers will not be able to raise premiums and/or cut benefits with impunity because there will always be a second provider – the federal health insurance plan - to turn to.

Comment: The inclusion of a public option in universal health care legislation would be a good move, but look for the Obama Administration to offer a compromise, if the gesture can secure an additional 5-10 votes in the Senate. Ideally, health care insurance reform should secure at least 70 Senate votes, and the pragmatic Obama is not above reasonable compromise to secure that level of overwhelming support. The compromise would change the public option to a 'kick in' insurance that citizens qualify for, with subsidies for low-wage workers, if private insurers can not reduce premiums to a specified level in the years ahead.

All the other elements needed for health care reform are in place, and a vote on a universal health care bill could occur as early as later this month, or in early August, before Congress recesses for the summer. Hospitals have already provided at least $155 billion in cost reductions, and will likely provide more, if pushed by Congress or the Obama administration. The nation's physicians have been generally supportive – their stance is one of 'just make sure we get a fair payment for our services, nothing worse.' The pharmaceutical industry's stance, likewise, has been one of cooperation with the Obama administration. And the nation's health insurers, while lobbying hard, have nevertheless taken the stance of finding the best way to insure everyone, while still protecting most of their portion of the pie.

In fact, the status of health care reform legislation can perhaps be best characterized by the stance by the health insurance lobby. They know a health care system with 47 million uninsured (and growing), where uninsured citizens routinely show up in U.S. hospital emergency rooms at $1,000 a visit and up, is untenable. And they also know that, given short-term and long-term factors, President Obama's already large popular support – his coalition – is growing. In 2010, it will be larger, and there will be even more Democrats in the House and Senate. Hence, the private insurers know that if universal health care is achieved with much of the private sector insurance system still in place, they will have secured a victory.

And the health insurers also know they may not get that chance again in two years.

Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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