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Health-reform headaches the Democrats don't need

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Wednesday, January 13, 2010

One of the few things we can be sure of when Congress finally enacts health-care reform is that the battle will rage on, unabated. Republicans will attack the law's weaknesses (and strengths), while Democrats will point to provisions that are popular and take effect immediately, such as the ban on insurers denying coverage for preexisting conditions.

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But there are some provisions in the pending legislation that, if included in the final bill, may well drape Democratic candidates with "Kick Me" signs come November. One of these is the excise tax on more costly health insurance policies, a feature of the Senate bill that President Obama supports but that is opposed by organized labor and most House Democrats. Another is the fine to be paid by individuals who decline any coverage -- it's a relatively small amount (the Senate bill sets it at $95 for the first year) but an issue that could loom large in the political wars to come.

In a speech Monday, AFL-CIO President Richard Trumka raised the specter of the 1994 election, when "working Americans . . . couldn't tell the difference between the two parties." This time around, Trumka warned, unless the president and Congress step up their efforts at job creation, bank regulation and labor law reform, and unless they drop the proposal to fund health reform through the excise tax -- which, he said, would be levied on 31 million Americans -- Democrats might be looking at another electoral debacle.

Economists are united on the need to slow the upward spiral of health insurance costs -- a concern the House bill addressed by creating a public plan to compete with the private ones. But since conservative Senate Democrats have effectively killed the public option, House Democrats and labor leaders fear that the new cost-control panacea of taxing high-end plans as income could engender a backlash -- pitting one group of workers against the uninsured -- that Republicans could exploit, much as the GOP fomented a racial backlash against the Great Society programs of the '60s. The political mess in which the Democrats could find themselves would be worsened by the fact that the tax would kick in promptly, while the subsidies it would help fund to enable people to buy insurance on the exchanges wouldn't be available until 2013 or 2014.

After meeting with Obama on Tuesday, labor leaders emerged convinced that Obama would not back off the excise tax but that the thresholds at which the tax would kick in are not engraved in stone, and that the president was also open to additional funding options for health reform. It seems unlikely, however, that there's enough give in Obama's position (and the Senate's) to defuse this issue.

Another political time bomb could be the fee on those Americans who, despite the subsidies, refuse to purchase insurance. In such libertarian-leaning regions as the Mountain West, which has been trending Democratic in recent elections, the issue could loom large even before the fee is imposed (which wouldn't be until the exchanges are up and running in three or four years). Indeed, precisely because the fee won't yet exist, the accounts of its magnitude can, and surely will, be exaggerated by Republican opponents.

If Democrats want to avoid this headache, they could follow the recommendation of my American Prospect colleague Paul Starr. Instead of fining those who go without insurance, Starr has proposed this: "For five years they would become ineligible for federal subsidies for health insurance and, if they did buy coverage, no insurer would have to cover a pre-existing condition of theirs." They would not be fined for avoiding the new system, but neither could they benefit from or exploit it. This period of ineligibility, Starr adds, "deters opportunistic switches in and out of the public funds, and it helps to prevent the private insurers from cherry-picking healthy people and driving up insurance costs in the public sector."

Yet another pitfall the Democrats would be advised to sidestep is the Senate bill's creation of 50 state insurance exchanges instead of the one national exchange created in the House bill. With one national pool and one set of regulations, consumers' ability to get a good deal would be maximized. With states free to make their own regulations, however, some may craft exchanges to insurers' specifications, and hard-right states -- South Carolina, anyone? -- may balk at setting up effective exchanges altogether, transferring the political battles over health care from the national to the state level. Establishing one national exchange is plainly better policy, but if that's not sufficient incentive for congressional Democrats, they should remember it's also better politics.

meyersonh@washpost.com



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