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February 26
09:37 2018

Public Policy Analysis & Opinion

A renewed focus on spreading the risk of loss across large populations dominates policy development

As 2018 began, the Democrats started to reconfigure their approach to healthcare policy and the insurance mechanisms that support it.

On January 8, 2018, the Associated Press (AP) published a story headlined: “Democrats Shift Strategy on Health Care Reform.” The story described the Democratic Party’s desire to retake the offensive on healthcare issues, which party strategists believe will attract votes in both the 2018 midterm elections and beyond.

As a society we suffer from paying higher premiums for health insurance than commercial competitors around the world, and that also withdraws purchasing power from our national economy.

In December 2017, as part of the tax reform legislation, Republican congressional majorities worked with the Trump Administration to pass into law a repeal of the individual mandate to buy health insurance under the Affordable Care Act (ACA) of 2010.

The move did not “repeal” the ACA. Instead it removed the dedicated funding mechanism, which provided subsidies to insurance carriers that wrote business in the ACA exchanges. If the administration and Congress do not lose their political nerve and putter around to find alternative funding sources—like selling more bonds to the Chinese—cutting the funding mechanism will end carriers’ participation in the exchanges.

When the repeal of the mandate received final consideration, the nonpartisan Congressional Budget Office (CBO) opined that the action would remove 13 million Americans from the private insurance pool. These Americans make too much money to qualify for Medicaid coverage but cannot afford unsubsidized health insurance products.

The reduction of risk-spreading across 13 million people, coupled with the cost shifting of their inevitable health insurance costs to insured individuals, will result in premium increases across the private market. The CBO forecasted double-digit annual increases.

Nevertheless, the repeal of the individual mandate does not repeal the overall ACA, which remains the law of the land.


Oddly enough, the individual mandate provision that Republican lawmakers targeted was a proposal developed by the Heritage Foundation, an ultra-conservative think tank. During the debates on the Clinton healthcare plan, Senators Orrin Hatch (R-Utah) and John Chafee (R-R.I.) introduced legislation based on the Heritage Foundation proposal.

The concept of an individual mandate languished in Republican policy circles for decades. Often it served as a “figleaf” proposal donned by conservative lawmakers who had no interest in legislating on healthcare care matters but understood that they had to say “something.”

In 2006, Massachusetts Governor Mitt Romney picked up the individual mandate proposal when crafting his massive overhaul of the state’s healthcare financing system. When running for president in 2008 and 2012, Romney scurried away from the term “individual mandate” because the term proved poison with voters.

Then, during the 2008 Democratic presidential primaries, then-Senator Hillary Clinton picked up the banner of the individual mandate for health insurance. The former Goldwater Girl had a history of infatuation with proposals aimed at making her adorable to various business lobbies, such as the “managed competition” proposal of the “Jackson Hole Group” (of managed care organizations) in 1993-1994.

Ms. Clinton always seems to believe that she can buy support from a political opponent by offering public subsidies, only to see the opponent accept the subsidy and then work to undermine her anyway. It is just what Hillary does. At least in the last decade, she seems to have demanded some speaking fees along the way to the back room where she gets the “bad news” from her “friends” in the financial lobby.

The Clinton individual mandate proposal countered a proposal that featured an employer mandate promoted by then-Senator Barack Obama (D-Ill.) The (not-yet-disgraced) former Senator John Edwards (D-N.C.) also proposed an individual mandate, but offered a much more uniform and generous set of subsidized benefits.

Just before the 2008 Democratic national convention in Denver, the Clinton and Obama campaigns declared peace to assure that the gathering would present a four-day-long informercial devoid of actual convention business. It seems that part of that peace treaty required the Obama team to welcome many of the Clinton machine’s conservative economic advisors.

These advisors filled the offices, cubes, and work stations of the new Obama Administration. Some high-ranking Clintonites, such as Obama’s first White House Chief of Staff Rahm Emanuel, argued in favor of dropping the entire effort on healthcare reform.

As the debate over healthcare legislation stretched on in 2009, the Clintonite members of the administration earned a reputation for falling victim to the moving goalpost in legislative negotiating. These policy advisors convinced the president that opposition to healthcare legislation and resulting law would melt away if Obama just accepted the individual mandate. Right!

The inclusion of the individual mandate did little to secure support for the legislation that became the ACA, but it succeeded in inserting a poison pill into the law.

The poison pill was expelled by the purgative powers of the 2017 tax reform legislation. Many Democrats feel freed from defending a policy approach that they only grudgingly accepted to tender a compromise.

Moving on

The AP story quoted several leadingDemocrats who represent different wings of the party, who agreed that they had tired of defending the individual mandate-based public policy.

“We’re tired of just playing defense,” said Sen. Tim Kaine (D-Va.), the party’s 2016 vice presidential candidate. “It is now time to talk about the next big idea. It is a good time for everybody to put their big ideas on the table.”

As this edition of Rough Notes goes to press, one third of Democrats in the Senate co-sponsor single-payer healthcare legislation, known as Medicare for all. Expanding the Medicare program into a national health service financing model would eliminate the need for Medicaid and myriad high-risk pools and other arrangements—thus reducing expense items now paid for by states, which could prove popular with new governors in 2019. As with the Medicare program, a regulated market in supplemental policies would accompany the national healthcare financing system.

The AP story also cited an effort by Yale Professor Jacob Hacker that he refers to as Medicare Part E. The concept focuses on individuals who do not qualify for group health insurance coverage. Funding would come from a combination of taxes on employers that do not offer health insurance and means-tested individual premiums. As such, the proposal does not spread the risk across the largest possible population, but still encompasses a significant population.

Further, the AP story referred to a proposal championed by Senator Tim Kaine and Senator Michael Bennet (D-Colo.) called Medicare Part X. This proposal builds on the ACA exchanges. In communities where the insurance market “lacks competition,” individuals could purchase a public option plan, which would fund services delivered from the Medicare provider network. Also, it would empower Medicare to negotiate drug prices.

None of these proposals have the support to pass in the current Congress, and the White House would not give final approval to any of these plans. If, as the polls suggest, the Democrats win in a “wave election,” the calculations would change dramatically as the 2020 presidential campaign season begins.

The young left

Polling data generated in conjunction with the Virginia state elections conducted in November 2017 show strong support for candidates who associate themselves with preserving and expanding Medicare and Medicaid.

Democratic strategists seem convinced that even if proposals resemble the Clintonesque two-step of handing large sums of money to financial institutions and hoping that the benefits trickle down to the citizenry, this “third way” approach does not garner voter support.

Even young voters, who may possess only tangential knowledge of the initials FDR or LBJ, seem drawn to their handiwork. As with their move to ordering Jameson or Bourbon, the Millennials seem to go for the “straight stuff.” The exploration with Obamacare seems to be the “last call” for the Cosmopolitans, or even “Moscow Mules,” of healthcare financing policy.

What does the straight stuff entail as applied to insurance mechanisms? The Supreme Court provided an answer to that question more than a century ago.

In an opinion that policymakers and consumer advocates too often overlook, the court addressed the nature of the insurance mechanism in German Alliance Insurance v [Kansas Insurance Commissioner] Lewis 233 U.S. 389 (1914):

The effect of insurance—indeed, it has been said to be its fundamental object—is to distribute the loss over as wide an area as possible. In other words, the loss is spread over the country, the disaster to an individual is shared by many, the disaster to a community shared by other communities; great catastrophes are thereby lessened, and, it may be, repaired.

Separate systems of healthcare financing, including cost shifting for individuals who cannot or do not participate in an insured pool, do not distribute the loss over the widest possible area. As a society we suffer from paying higher premiums for health insurance than commercial competitors around the world, and that also withdraws purchasing power from our national economy.

Furthermore, the incessant disaster of personal bankruptcies caused by healthcare-related losses are catastrophes felt by families and the economy, which could be lessened and repaired.

In the German Alliance opinion, the court ruled that the necessary public participation in insurance mechanisms, and the public benefits that come from those mechanisms, make it appropriate for public oversight to be exercised over those mechanisms—public or private.


National polling data suggests that young voters do not seem to connect with Cold War-era diatribes about “socialized medicine.” Nor does today’s youth envision a world where they signon with a company and work for 40 years. Spreading the risk of loss across the country does not sound outlandish to a population that embraces mobility.

The Democrats and allied groups do not seem confident in the hope that the youth vote will wander into the polls and cast a ballot in 2018. The party is organizing to prevent a replay of the McGovern ’72 campaign or even Hunter S. Thompson’s nearly successful “Aspen Freak-Power Uprising of 1970.”

For example, retired financial executive Tom Steyer’s political action committees, NextGen America and NextGen Rising, will spend $30 million to register, organize, and get young voters to the polls in 2018.

A strong, disciplined turnout by young voters in the 2018 primary and general elections could reshape Congress and advance the Democratic Party’s agenda for healthcare financing.

Meanwhile, back in the House chambers, Speaker of the House Paul Ryan (R-Wis.) channels the ghost of Ayn Rand and dreams up an America without social insurance mechanisms. The speaker experiences visions of an atavistic return to the aristocratic Russia of Ayn’s youth.

Mr. Speaker, Ms. Rand is dead, and she does not vote anymore.

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Companies and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.


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