Why Health Care Overhaul Now?

Rising Costs Of Health Care

Alyson Hurt/NPR

Lawmakers, industry groups and lobbyists are working at a fevered pace to negotiate proposals to remake by President Obama's October deadline how health care is delivered. But one element of overhaul is not up for debate: Any policy changes put forth must slow down the skyrocketing growth rate of health care spending. A look at the numbers.

You'd think with two wars and a stumbling economy, it would be enough for a new administration to focus on the big-ticket and national security issues — and leave a health-system makeover for calmer times.

But President Obama and the Democrats say a major retooling is an essential element in the nation's economic recovery.

The hard realities are that the country now spends more than $8,000 per person per year on health care, and companies are spending so much on health care that they've become uncompetitive in many global industries.

And what do Americans get for this money? Far less than in most other developed countries — where coverage is universal, the choice of doctors and hospitals is less restrictive, and treatments and tests are just as advanced as in the United States.

Indeed, while spending one-sixth of its economy on health care, the U.S. ranks lower on life expectancy, infant mortality and preventable deaths than most other industrialized nations.

The urgency for change comes from a combination of these factors and the increasing insecurity Americans feel about their financial security and their health coverage. That's why advocates of change say the stars are aligned this year for a major overhaul.

Broad Public Support

Roughly three-quarters of Americans support what they're hearing from Washington on health care, according to a June survey from the Employee Benefits Research Institute.

The ideas they favor include an option to purchase insurance from a government-run plan (aka "the public plan"); requiring insurers to cover all people regardless of their health problems; expanding Medicare and Medicaid; and mandating that everyone have insurance and that all employers pay toward coverage.

This is an about-face for the American middle class. In the past, the vast majority has had a generous health safety net sitting beneath them to fall back on ever since companies started offering health insurance to workers on a massive scale during World War II.

So during President Clinton's health crusade back in 1994, the comfortable middle class didn't rise up to support the major changes proposed by the president and Hillary Rodham Clinton. But all that's changed now. Today, only 16 percent rate the U.S. health care system as excellent or very good, according to a survey by the Employee Benefit Research Institute.

Health care experts trace that shift to the rise of HMOs and other managed care plans in the early 1990s. After more than a decade of restrictions on which doctor or hospital they can use, being hassled over claims and watching their out-of-pocket costs rise ever higher, the American middle class is willing to try something new.

But it's not just the public that's calling for a health system redo — the major players in health care are behind a remake, too.

The doctors, hospitals, drug companies and insurers who defeated President Clinton's health care plan are all at the table this time at least for now. They disagree on some of the details, but they are backing many of the sweeping changes, including a mandate that everyone have health insurance.

Even many businesses, which have long opposed any requirement that companies provide health insurance, are warming up to the idea. Giants like Wal-Mart have thrown their support behind an overhaul.

Many have little choice. As it is, whole sectors of business, such as the automobile industry, are shrinking under the crushing weight of rising health-insurance premiums — up 119 percent between 1999 and 2008.

What's On Tap?

What's being proposed, mostly by Democrats, is sweeping. Somewhere around $1 trillion would be spent over the next 10 years to expand and rework the current insurance system. That's roughly $100 billion a year. Supporters point to the $160 billion being spent on two wars in 2009 as justification enough for spending more to cover the uninsured.

The most expensive proposal is the "public plan." It's not yet clear how many of the nation's 46 million uninsured this would actually cover.

The health system itself would remain largely in private hands, though the federal government would significantly increase its regulation of the health insurance industry. The Medicaid program would be expanded to cover poor people who don't qualify now.

Insurers would be forbidden from rejecting clients with pre-existing health conditions. Premiums couldn't be based on past health claims, age or health habits. Insurers would have to provide a minimum set of benefits, set by the government.

These restrictions are necessary, supporters say, if everyone's going to be required to have health insurance. An "individual mandate" is central to the Democrats' proposals.

Insurers Flip

The insurance industry has long opposed these changes. But last fall they did a turnabout. They now favor covering anyone willing to pay for a policy, whatever their health problems.

"No one should fall through the cracks of our health care system," says Karen Ignagni, president and CEO of America's Health Insurance Plans. "Universal coverage is within reach and can be achieved by building on the current system."

It's a big shift. The catch is that the industry also supports requiring everyone to have health insurance and all businesses to contribute to coverage. That way, the industry is guaranteed a huge influx of cash as millions of new consumers sign up.

Potential Deal Breaker

But the insurance industry parts ways with the Democrats on one of the major issues in this year's debate — the creation of the government-run public insurance plan.

In theory, this public plan would be cheaper than private insurance plans because it would have much lower administrative costs, such as marketing. The government would have no need to make a profit to serve shareholders. The total savings could trim 10 to 20 percent — or more — from current premium costs.

"If the private insurance companies have to compete with a public option, it will keep them honest and it will help keep their prices down," President Obama says. "The public plan, I think, is an important tool to discipline insurance companies."

Ignagni bristles at the idea.

"A government-run plan, no matter how it is initially structured, would dismantle employer-based coverage, significantly increase costs for those who remain in private coverage, and add additional liabilities to the federal budget," she says.

The details of the public plan are far from being worked out — basics like who would qualify, what benefits would be included and how much it would cost. The nitty-gritty will only emerge late in the year, as final deals are cut behind closed doors in a House-Senate conference committee.

And it's by no means assured that a public plan will even get that far. Key Republicans like Sen. Charles Grassley of Iowa are adamantly opposed. "I'm not going to be a part of any effort of the government to take over health care in America," he says.

President Obama dismisses such talk as scare tactics.

"When you hear somebody say, 'Obama's proposing a government takeover of health care,' you know, that's an old argument that's been used for years," he said at a recent town hall meeting in Virginia. "Don't let people scare you out of reforming a system that we know is not working."

In addition to near-complete opposition to his plans by Republicans, the president also faces challenges from conservative Democrats. They don't like the public plan or the prospect that taxes might be raised.

So the president has to keep enough moderate and liberal Democrats in the stable. Most are insisting on a public plan. It's a make-or-break issue for them.

Paving The Way For Single Payer?

Many like the public plan because they see it morphing someday into a "single-payer" system, where the government takes in all the money and processes all the claims, eliminating the insurance middleman.

"A single-payer reform could save about $400 billion annually by shrinking health care bureaucracy," says Dr. Stephanie Woolhandler of Physicians for a National Health Program. "Everyone would be covered with no net increase in U.S. health spending."

But Obama has repeatedly stated that a single-payer system is not up for discussion this year.

New Taxes?

Much of the debate will focus on revenue. The major options being considered are limiting itemized deductions for people with incomes over $250,000, a new tax on health benefits themselves, a tax "surcharge" on high incomes or a combination of all three.

Also being debated is whether the current system can be restructured so that expanding insurance will pay for itself without the need for new taxes. That would likely mean lower government payments to doctors, hospitals and other health care providers in the Medicare and Medicaid programs.

The limit on tax deductions is favored by President Obama. He's against the proposal to tax health benefits, but hasn't said he'd veto such a tax, either. He hasn't taken a specific position on the tax, though he's endorsed a House bill that contains it.

The new tax on benefits could be the most potent, in terms of generating revenue. If fully implemented, it would have the potential to raise up to $300 billion a year to pay for health care. But it's inconceivable that Congress would find a full tax on all health benefits politically palatable.

What several are proposing instead is a threshold above which benefits would be taxed — probably somewhere around $17,000 a year and above. The current price of a policy for a middle-class family of four is about $12,000, so most Americans would not see any tax increase. It would raise something on the order of $320 billion over 10 years.

Polls have consistently shown that Americans are split pretty evenly on whether they would be willing to pay more to improve health care access for everyone, either through taxes or increased insurance premiums. Six in 10 say that if lawmakers make the right choices, the system can be reformed without costing people more.

That's a view that Grassley shares and one that he's holding out for in the Senate Finance Committee, where he is the ranking Republican.

What's Next?

Over the coming weeks and months, three comprehensive health bills will be written on Capitol Hill — two in the Senate and one in the House. After the various committees are finished amending and revising the proposals, it's expected that one bill will emerge on the Senate floor and one will be voted on in the House.

If the bills pass sometime this fall — and that's still a big "if" — a Senate-House conference committee will then hammer out the differences between the two bills sometime before the end of the year. President Obama has pressed lawmakers to have a finished health care bill for him to sign by October, but even early in the game, that schedule already seems overly optimistic.

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