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Health Care for the Blue Dogs

By Jacob S. Hacker
Tuesday, July 28, 2009

The fate of health-care reform hangs on what President Obama and leading Democrats do in the next few weeks. In particular, it hinges on an effective response to moderate Democrats in the House -- known as "Blue Dogs" -- who are threatening to jump ship.

The main worry expressed by the Blue Dogs is that the Congressional Budget Office has predicted that leading bills on Capitol Hill won't bring down medical inflation. The irony is that the Blue Dogs' argument -- that a new public insurance plan designed to compete with private insurers should be smaller and less powerful, and that Medicare and this new plan should pay more generous rates to rural providers -- would make reform more expensive, not less. The further irony is that the federal premium assistance that the Blue Dogs worry is too costly is the reform that would make health-care affordable for a large share of their constituents.

The Blue Dogs are right to hold Obama and Democratic leaders to their commitment to real cost control. But they are wrong to see this goal as conflicting with a new national public health insurance plan for Americans younger than 65. In fact, such a plan, empowered to work with Medicare, is Congress's single most powerful lever for reforming the way care is paid for and delivered. With appropriate authority, it can encourage private plans to develop innovations in payment and care coordination that could spread through the private sector, as have past public-sector innovations.

Increasing what doctors and hospitals are paid by the new public plan, as the Blue Dogs desire, would only raise premiums and health costs for their constituents. It would also fail to address excessive payments to hospitals and specialists that private insurers say they have lacked the leverage to bring down. Offering public plan rates at close to Medicare levels while giving doctors and hospitals the choice of accepting them -- as the House legislation does -- is a way to test the market. If providers accept the rates, as the CBO projects they will, the Blue Dogs will get what they want: lower costs. If not, the bill in the House contains provisions for adjusting the rates, including nearly $10 billion to raise rates in rural areas if an independent study determines that higher rates are needed.

Many Blue Dogs fret that a new public health insurance plan will become too large, despite the CBO's projection that the overwhelming majority of working people will have employer coverage and that the public plan will enroll less than 5 percent of the population. Their concern should be that a public plan will be too weak. A public health plan will be particularly vital for Americans in the rural areas that many Blue Dogs represent. These areas feature both limited insurance competition and shockingly large numbers of residents without adequate coverage. By providing a backup plan that competes with private insurers, the public plan will broaden coverage and encourage private plans to reduce their premiums. Perhaps that's why support for a public plan is virtually as high in generally conservative rural areas as it is nationwide, with 71 percent of voters expressing enthusiasm.

Yet the Blue Dogs have mostly ignored the huge benefits of a new public plan for their districts. They have also largely ignored the disproportionate benefits promised by new federal subsidies for low- and medium-income workers. Right now, large swaths of farmers, ranchers and self-employed workers can barely afford a policy in the individual market or are uninsured. They will benefit greatly from the premium assistance in the House legislation promised for workers whose earnings are up to 400 percent of the poverty line, from additional subsidies for small businesses to cover their workers, and from a new national purchasing pool, or "exchange," giving those employers access to low-cost group health insurance that's now out of reach.

And given that Blue Dogs are worried about the federal cost of reform, they should applaud the House bill's requirement that all but the smallest of employers make a meaningful contribution to the cost of coverage. This will not just raise much-needed revenue. By ensuring that most employers contribute to the cost of insurance, it will also reduce the incentive for employers to drop coverage and let their workers go into the pool, increasing the size of the exchange and the public plan.

Blue Dogs have the future of health-care reform in their hands. If they hold firm to their principles of fiscal responsibility and effective relief for workers and employers in their districts, what's good for Blue Dogs will also be good for America.

The writer is a political science professor at Yale University and author of "The Great Risk Shift: The New Economic Security and the Decline of the American Dream."

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