The Purple and Gold Health Care Debate

If President Obama wants to be able to govern, he will have to sign into law some ideas that at least a handful of Republicans can live with.  Following the election of Scott Brown in Massachusetts, he (and Pelosi and Reid) no longer have the votes to run Washington as if it were a one-party system. Democrats may still be the party in power, but they can no longer maintain the illusion that they have absolute power.  Now they will have to – at least to a degree – compromise.

However, compromising will not be an easy task for Obama and the Democrats, for now they will have to balance the desires of an increasingly hostile American public and an opposition party they no longer have the votes to run over – not completely, at least – with the often contradictory desires of their twin puppet masters: Labor and Big Business.

It has been an interesting sport to see the duel between Labor and Big Business (the label Tim Carney gives them in his latest book, Obamanomics) for the reign of power over the Democratic Party under Obama. One could imagine that the new Prince song, Purple and Gold, was not inspired by the Minnesota Vikings football team so much as it was by the Purple team (which I call SEIUcorn, such as the White House’s most frequent visitor and lobbyist-in-chief SEIU president Andy Stern) and Gold team (those people on his heavily pro-Big Business, Goldman Sachs influenced economic team) Obama assembled when he moved into the White House.

My observation is that Obama’s heart leans towards Purple, based on his long career at their service.  Remember: this is a man who became a community organizer and lawyer for ACORN by rejecting Wall Street (though he did work there briefly, an experience he describes as ‘sleeping with the enemy’).  However, as president, Obama has had to give more sway over his decision making to the Gold than perhaps he may feel comfortable with, if but for no other reason other than to maintain power.

The healthcare reform debate illustrates this dynamic well. Originally, Obama, as well as many Democrats, favored a Purple bill – meaning a public option. This proposal failed, not because of the Republicans being “The Party of No” as they are described, because the Republicans had too few votes in either the House or Senate to stop Obama, but because of the power of the Gold team and their relationship with Big Business.  Big Business -- in this case the insurance companies -- simply did not want to compete against such a powerful new competitor, the US government, which would not only have a relatively unlimited access to funding with no profit motive and obviously little compunction against running up debt, but would have the power to legislate as well. It would have been like being in a boxing match against both Floyd Mayweather and Richard Steele. That is not is not a fight Big Business would be favored to win.

So Big Business asserted its considerable influence to see that the public option failed. And Big Business influence over the Obama White House is considerable. Remember, the Obama Gold team is lead by Wall Street darlings Larry Summers, who collected millions of dollars from companies like JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch under the pretext of being compensated for speeches and appearances; though it strains belief that Summers could have anything so profound to say in a speech that that is what he was really getting paid seven figures for, and Timothy Geithner, who recently was shown to have bent over backwards to protect AIG and Goldman Sachs.  Furthermore, let’s not forget that Obama himself received more in campaign donations from Big Business than rival McCain, or any other presidential candidate in history.

So, without the expressed support of Obama and other leading Democrats who cannot afford to oppose Big Business, the public option failed in favor of what the Gold team really wants – the individual mandate, an obvious boon to insurance companies, even if other conditions of healthcare form, such as being forced to cover those with preexisting conditions, is put into law.  Of course the Purple team wailed against this in defeat. One of its chief media spokesmen, Keith Olbermann, ranted that “Health care reform that benefits the industry at the cost of the people is intolerable and there are no moral constructs in which it can be supported. And if still in the bill, and this heinous mandate become law, there is yet further reaction required. I call on all those whose conscience urges them to fight to use the only weapon that will left to us if this bill as currently constituted becomes law.  We must not buy federally-mandated insurance, if this cheesy counterfeit of reform is all we can buy.  No single payer?  No sale. No public option? No sale. No Medicare buy-in? No sale.” But these sorts of rants fell on deaf ears in Washington.  Besides, the Democrats had the Republicans to blame for the failure of the public option, and that soon became the media narrative.

Republican and public opposition to the individual mandate is not nearly as strident as it was to the public option. I see it as necessary ingredient to any healthcare reform package that hopes to drive insurance costs down, though I have come to believe that it would be better to incentivize those who can afford insurance to buy it rather than to force them to, which may be unconstitutional. Therefore there is only one serious obstacle remaining to a bipartisan healthcare reform bill, and that is interstate competition.

Interstate competition may not be the best option for everyone. But it is almost indisputable that allowing consumers to buy health insurance across state lines will save the consumer money.  The Center for Freedom and Prosperity Foundation released a study showing that it could save some families 30% on their health insurance costs. And because insurance will be cheaper, it will then be more available to the consumer. According to Katherine Kersten of the Minnesota Star Tribune, “One study has found that 12 million more Americans could purchase coverage if this reform were adopted.” However, Obama has opposed this measure, both as a Senator and now as President.

The President recently stated the nominal reason why Democrats oppose interstate competition. At the House Republican Retreat speech, he addressed the issue twice. Once during his speech:

Allowing insurance companies to sell coverage across state lines to add choice and competition and bring down costs for businesses and consumers -- that's an idea that some of you I suspect included in this better solutions; that's an idea that was incorporated into our package. And I support it, provided that we do it hand in hand with broader reforms that protect benefits and protect patients and protect the American people.

And later while answering a question from Congressman Marsha Blackburn of Tennessee:

I think one of the proposals that has been focused on by the Republicans as a way to reduce costs is allowing insurance companies to sell across state lines. We actually include that as part of our approach. But the caveat is, we've got to do so with some minimum standards, because otherwise what happens is that you could have insurance companies circumvent a whole bunch of state regulations about basic benefits or what have you, making sure that a woman is able to get mammograms as part of preventive care, for example. Part of what could happen is insurance companies could go into states and cherry-pick and just get those who are healthiest and leave behind those who are least healthy, which would raise everybody's premiums who weren't healthy, right?

With these answers, Obama is attempting to sell his opposition to allowing the consumer the freedom to buy insurance across state lines as a desire to protect the consumer from his or her own ignorance. To clarify, Obama is saying that if I were allowed the freedom to buy health insurance from one of the 1300 companies other than the 64 or so insurance companies licensed to sell insurance in the state of New Jersey, I would somehow buy a health insurance policy that would be worse for me.  Therefore, Obama will only allow me the freedom to buy health insurance across state lines if he can set a federal minimum standard; or, in the words of Rep. Shadegg of Arizona, Obama’s “bill nationalizes federal insurance regulation and gives the average American family no relief from expensive mandates that drive up the cost of health insurance.” So Obama once again has to make sure I will be protected from me, by him and the federal government, with more mandates.  Thank you, President Obama.  Where would I be without you?

Unfortunately for Obama, his argument falls apart when one realizes that, although each state has differing standards for selling insurance, each state already has an existing minimum standard for selling insurance. So even if Idaho does have a lower minimum standard than New Jersey, that minimum standard I presume is good enough for Idahoans, so why not for me? Conversely, if the Idaho standards for insurance are indeed so poor, why should Idahoans be limited to buying insurance from companies licensed to sell in Idaho? Why shouldn’t they be allowed to buy insurance from a NJ company?

But I don’t believe this is the true reason for Obama’s opposition to allowing me to be able to buy insurance across state lines, or least without expensive new federal mandates. I believe the real reason is that Big Business, specifically insurance companies, does not want it. Many insurance companies have a monopoly over the citizens of a particular state. For example, in North Dakota, Blue Cross Blue Shield has 90% of the market. Obviously, if you are a North Dakotan, you are buying your health insurance from Blue Cross Blue Shield, which is how Blue Cross Blue Shield likes it. Why would Blue Cross Blue Shield want to compete for North Dakotan business from another 1300 health insurance providers?  They wouldn’t, and they will only accept such a dramatic increase in competition if they can be compensated by a creation of these “minimum federal standards” that will essentially force many consumers to buy more coverage than they either want or need.

We saw the Democrats being influenced by Big Business in the healthcare reform debate several times. When asked why the Democrats would not support tort reform, Howard Dean, former head of the Democratic National Committee, said that “the reason why tort reform is not in the bill is because the people who wrote it did not want to take on the trial lawyers.”  Another example is in the high salaries of US doctor.  As Wallstreetpit.com points out, “One reason we might have a “health care crisis” due to rising medical costs, and the world’s highest physician salaries is that we turn away 57.3% of the applicants to medical schools. What we have is a form of a “medical cartel, which significantly restricts the supply of physicians, and thereby gives its members monopoly power to charge above-market prices for their services. In his classic book Capitalism and Freedom, Milton Friedman describes the American Medical Association (AMA) as the “strongest trade union in the United States” and documents the ways in which the AMA vigorously restricts competition.”

Or perhaps the clearest example of the Big Business’s influence on the healthcare debate is the relationship between Obama and Big Pharma. As a reward for Pharma’s support for healthcare reform – which included spending $150 million in pro-reform ads, not to mention donating $1.1 more to the Obama campaign that any candidate in history had ever received from them – they received (as part of a deal with the White House that was supposed to be secret until it leaked out in August) an $80 billion dollar deal “to oppose any congressional efforts to use the government's leverage to bargain for lower drug prices or import drugs from Canada -- and also agreed not to pursue Medicare rebates or shift some drugs from Medicare Part B to Medicare Part D, which would cost Big Pharma billions in reduced reimbursements,” as reported by The Huffington Post. As Tim Carney writes, “Obama’s gift to pharmaceuticals went beyond the pay-offs to get them on board for ‘reform.’ The reform itself would increase their profits through subsidies funded by taxpayers and mandate imposed on individuals and employers. Even outside the reform debate, Obama helped the industry with his agenda of tearing down Bush-era pro-life regulations, including ethical limits on federal funding of embryo research. After the drug makers proved a handy foil for Obama during the campaign, they also proved an indispensible partner once he was in the White House.”

Obama claims he is pushing for healthcare reform for us. At the House Republican Retreat he stated that reform was needed for ‘small businesses that are being gouged and the 15,000 Americans are losing coverage every single day.’ He speaks in the populist language of the Purple. But in deeds, Obama seems to be on the Gold team. And nowhere is that more evident than in this healthcare debate.

-- DK