The Obama administration has told the court that if it invalidates the mandate it should also invalidate two key insurance reforms that would prevent discrimination because of preexisting conditions. On this, the administration has a somewhat unusual ally: The insurance industry. Although insurers have fought many parts of the health law, they have long favored the establishment of a mandate, which requiresÌýalmost everyoneÌýwho can afford it toÌýbuy health insuranceÌýor pay a fee, saying the reformed market cannot function without it. (Critics point out that a mandate would also help insurers generate more business.)

Legally, the administration’s argument is as potent as it is risky. The Constitution says that the federal government may do whatever is “necessary and proper” to carry out its other functions. The Supreme Court historically has interpreted that power broadly. If insurance market reform really is more prone to failure without a mandate, that fact alone could, in the eyes of the justices, make the law constitutional.

But is the administration’s claim correct? For some clues, the justices could examine what happened in New Jersey, a state that tried to reform its insurance markets without a mandate — and failed pretty miserably.

Deconstructing The New Jersey Experience
The New Jersey effort began in the late 1980s, when rising health care costs were getting the attention of business and political leaders across the country. And a big worry then, as now, was what to do about people who couldn’t get insurance from a large employer. When those people tried to get coverage in the individual or small-group market, they underwent scrutiny from insurers, who were wary of taking on big medical risks. “Insurance companies make their money not by being efficient, or managing care, but by weeding out the sick and insuring only the healthy,” a frustrated Jim Florio, then governor of New Jersey, said in 1992.

The exception was Blue Cross and Blue Shield of New Jersey, which was an “insurer of last resort.” By law, and in exchange for its tax-exempt status, Blue Cross could not turn away applicants because of pre-existing conditions. Because that arrangement saddled Blue Cross with sicker and more costly beneficiaries, the state effectively decreed that hospitals charge the insurer less. But that approach was financially straining the state’s hospitals, particularly as the number of people without insurance and seeking charity care rose. Blue Cross, meanwhile, maintained that it was struggling even with the extra subsidies — and kept asking state regulators for permission to impose impressive premium increases.

Eventually the state’s stakeholders sat down with lawmakers and, in a negotiation that seems quaintly non-partisan by today’s standards, hashed out a deal as part of a broader package of health care initiatives. Blue Cross would no longer be the lone insurer of last resort. Instead, the state would create something called the “Individual Health Coverage Program.” Insurers wishing to sell coverage to individual customers would have to do so through this program. And insurers could not deny coverage or charge higher premiums to the sick. In other words, they had to practice what policy wonks call “guaranteed issue” and “community rating.” The new law applied similar, although not identical, rules to insurers that sold to small businesses.

The hope was to recreate an environment that had existed many decades before, when the early Blue Cross plans first established modern health insurance in this country. From the 1930s to the 1950s, Blue Cross plans dominated the market, making coverage available to nearly everybody who had the money to pay for it. But then commercial insurers entered the market, targeting only healthy beneficiaries whose small medical needs required much lower premiums — and leaving the Blue Cross plans with sicker patients, forcing them to raise premiums to unsustainable levels. Around the country, Blue Cross plans bled money, gave up on community rating and guaranteed issue, or some combination of the two — in other words, they had become victims of what health policy analysts call an “adverse selection death spiral.”

New Jersey officials realized their new system might be subject to similar problems. Forcing insurers to charge the same rates universally meant that older, sicker people would pay less — but younger, healthier people would pay more. Plans might find new, more subtle ways of competing to attract the lowest medical risks, in ways that left other plans with ever-sicker, ever-more expensive beneficiaries. And healthier people might put off buying insurance altogether, since they could always wait until they got sick before getting coverage. To ward off that possibility, the state decided that insurers making more money would subsidize those making less.

The plan went into effect in late 1993, not long before President Bill Clinton’s efforts to reform health insurance nationally started foundering. And, for a while, it looked like Florio and his advisers had done what Clinton and his advisors could not. Nobody believed New Jersey’s plan would bring universal coverage to the state. But “people thought this would have a significant impact,” says Bruce Siegel, who was the state health commissioner and is now president of the National Association of Public Hospitals. “They thought it would … change the situation for the uninsured.”

An early assessment of the program, by researchers at Harvard and sponsored by the Robert Wood Johnson Foundation, declared the experiment a success. But, by 1996, enrollment in the regulated plans started to slide after peaking at about 186,000. By 2001, it was down to about 85,000. Not coincidentally, the mix of people left in the program changed dramatically. According to a study published inÌý, the median age for enrollees jumped from 41.9 years to 48.4 years in just five years, and premiums rose by between 48 percent and 155 percent, depending on the plan.

These were the tell-tale signs of adverse-selection death spiral: An exodus of healthy people from the insurance pool, leaving behind a population of ever-sicker people whose high health costs keep driving up prices. (The rest ended up uninsured or found their way into other forms of coverage). Ward Sanders, director of the New Jersey Association of Health Plans, says that’s exactly what all the stakeholders were seeing. “We had quarterly reports on demographics,” says Sanders, who was the state’s chief regulator for the individual insurance market during the program’s first few years. “And it was empirically indisputable that the claims experience, the medical needs of the population, just went way up.”

New Jersey reacted by scaling back its reforms and, in 2003, created a “Basic and Essential” insurance alternative offering fewer benefits, at lower rates. Today, approximately 85,000 have taken up this option. But the B and E plans, as New Jersey calls them, don’t cover prescription drugs, rehabilitation, chemotherapy, or transplants. They have no protection against catastrophic expenses, cover delivery but not prenatal care and allow insurers to charge women higher premiums.

Meanwhile, just 49,000 people are still getting comprehensive insurance through the regulated individual market. Overall, those people may still be better off than they would be if New Jersey had never created it. “In a state that allowed medical underwriting – that allowed insurers to turn away anybody with health problems – these people would be uninsured,” says Joel Cantor, one of the lead authors on that Health Affairs study. But the price of that change is higher insurance premiums overall: By most reckonings, health insurance in New Jersey is among the nation’s most expensive.

New Jersey’s experience hardly seems unusual. Kentucky, New York and Vermont all tried to reform their insurance markets without a mandate. All ended up with higher premiums, lower enrollment in insurance or some combination of the two.

Does The Mandate Make A Difference?
Would a decision to strike down the Affordable Care Act’s mandate impose a similar fate on the U.S. as a whole? That’s a more complicated question. Cantor, who is director of the Center for State Health Policy at Rutgers University, notes that other factors were also at work in New Jersey. Not long after the program started, the state rescinded the scheme for compensating insurers that attracted bad risks, because officials came to believe some insurers were gaming the system. The state also stopped offering subsidies to people in the individual market. (Lawmakers did so in order to move funding over to the newly created State Children’s Health Insurance Program, which attracted federal matching funds.)

In these respects, the Affordable Care Act might be more resilient. It has relatively generous subsidies, particularly for lower incomes. It also has a “risk adjustment” mechanism that should, in theory, help protect insurers from adverse selection effects. Those buffers are one reason why researchers from the Urban Institute, Rand Corporation, and Congressional Budget Office, as well as Massachusetts Institute of Technology economist Jonathan Gruber, all predict the numbers of Americans without insurance would decline even if the law proceeds without a mandate. It’s also possible that, in response to a court decision striking down the mandate, Congress would find alternative methods of boosting participation in the insurance market. (Paul Starr, a Princeton sociologist and historian of health care, has been a prominent proponent of this possibility.)

Still, the economists all believe that the mandate, as envisioned by the law, will make a significant difference in reform’s impact. Gruber has suggested that removing the mandate from the law would diminish the number of newly insured by nearly two-thirds and raise premiums overall by 30 percent. The Rand Institute researchers predict that eliminating the mandate would have little effect on premiums for individuals. But they, too, believe that health insurance coverage would fall dramatically — from 27 million additional people insured to just 15 million.

Those are just projections, but the experts note that one state has managed to impose insurance reforms without weakening its insurance market. It’s Massachusetts, which happens to be the one state that also imposed an individual mandate. More than 98 percent of the state’s residents now have insurance, by far the highest percentage in the country. Premiums in the non-group market have fallen by 50 percent, relative to national trends, while premiums in the group market aren’t rising any faster than they were before the reforms began.

Veterans of the New Jersey experiment certainly think Massachusetts got it right — and warn that the ultimate effects of reform without a mandate could be even more catastrophic than the mathematical models suggest. “I think the lesson of New Jersey,” Sanders says, “is that when you’re down to the individual market, where the decision to purchase coverage is in the hands of somebody who is buying for themselves and knows their own health status, it’s very hard to make that market work if there’s not a mandate coupled with subsidies for folks who need help to meet that responsibility.”

Cantor agrees. “If there is guaranteed issue and no mandate, I think it essentially spells the end of the health insurance industry as we know it,” Cantor says. “Eventually the insurance market would become so dysfunctional that carriers would pull out, premiums would go through the roof, and enrollment would collapse. That’s certainly consistent with what happened in New Jersey.”

Jonathan Cohn is a senior editor at .

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Under the terms of the debt deal, which President Obama reached with Republican leaders in late July, a bipartisan “super committee” has until Thanksgiving to come up withÌýat leastÌý$1.2 trillion, over 10 years, in deficit reduction proposals. But if this committee can’t agree on recommendations or if Congress fails to pass them – two very distinct possibilities – then a series of across-the-board spending reductions would take effect. Some of them would take money from Medicare.

The fear is that those cuts would leave the elderly without adequate financial protection or access to medical care. It’s a rational fear but, perhaps, not a necessary one. Talk to policy analysts, industry lobbyists, or advocates for the elderly, and you’ll detect an emerging, if tentative, consensus: The impact of automatic cuts would be relatively modest and, most likely, less severe than whatever that super committee would devise as an alternative.

By design, the actual benefit structure of Medicare would be exempt from the automatic cuts. That’s a critical distinction given some of the ideas under discussion in the past few months. At various points, negotiators from the administration and Congress talked about raising the age at which people become eligible for Medicare, charging higher premiums to beneficiaries with higher incomes, and forcing holders of supplemental Medigap policies to face bigger out-of-pocket charges for routine medical care. For better or for worse, or maybe for both, all of these changes would have meant less insurance coverage for seniors.

The automatic cuts, by contrast, would affect providers exclusively, by reducing what Medicare pays them by up to 2 percent. “Providers” is wonk-speak for the people, institutions, and companies that provide medical care – not just doctors and hospitals, but also skilled nursing facilities and the insurance companies that deliver Medicare benefits to some seniors. In 2013, the first year the automatic cuts would take effect, that 2 percent would work out to something in the neighborhood of $12 billion, according to estimates from the .

By itself, and in the context of all U.S. health care spending, that’s not a ton of money. But it’d be in addition to Medicare cuts, roughly three times as large, that the Affordable Care Act is imposing. And unlike the cuts in the Affordable Care Act, many of which are in the form of payment reforms designed to penalize low-quality providers or reward high-quality ones, the automatic cuts in the debt deal would not make such fine distinctions.

That last part is important: Across the health care industry and even within particular parts of it, some providers can, and should, cope with reductions better than others. Paying less to specialists might be a good idea, for example, given all the data on excessive procedures in American medicine. But reducing income to family doctors could make an existing shortage of those physicians even worse. “Some see this as too blunt an instrument,” says Tricia Neuman, a vice president of the Kaiser Family Foundation. (KHN is an editorially-independent program ofÌýthe foundation.)

But, as Neuman also notes, scale is important. Even if the automatic cuts took effect, the total reductions in Ìýproviders would face over the next decade would likely be smaller, relative to the size of the program, than the ones they faced a little more than a decade ago, thanks to the Balanced Budget Act of 1997. Although Congress ultimately restored a portion of those 1997 cuts, by and large the health care industry adapted to the new reality, frequently by finding new ways to become more efficient. While automatic cuts from the debt ceiling deal could have a harsher effect, experts like Paul Ginsburg, president of the Center for Studying Health System Change, agree they would likely be “indiscriminate but not severe.”

Of course, neither Ginsburg nor anybody else can be sure about that, in part because of some outside variables. Chief among them is the fate of separate, already-planned cuts to physicians under what is known as the Sustainable Growth Rate formula. In recent years, Congress has postponed the SGR cuts – the “doc fix.” If Congress doesn’t postpone them again, physicians would see much more dramatic declines in income – the kind that might discourage them from seeing Medicare patients, just as low Medicaid reimbursements presently discourage specialists from seeing people who get insurance from that program.

Still, the unknowns of leaving deficit reduction to the super committee loom larger. If Congress meets the deadline for approving the super committee’s recommendations, reductions could start taking effect a year earlier than automatic cuts, on Jan. 1, 2012. “For businesses that prefer to plan ahead,” Politico’s Jennifer Haberkorn last week, “the trigger could seem more stable and predictable.”

And timing isn’t the only issue. According to Chris Jennings, president of Jennings Policy Strategies and longtime advisor to Democrats, both advocates and industry insiders are realizing that “any likely deal emerging from the super committee would include policies that are significantly bigger in size and scope than the fall-back sequesterthey get that if this political environment produces anything, it would almost inevitably be new and large Medicaid cuts and a package of Medicare savings that would dwarf the 2 percent cap on Medicare spending, which the sequester limits to approximately $130 to $140 billion in savings.”

Not that the automatic cuts are ideal in anybody’s estimation. A frequent complaint about the Affordable Care Act was that it didn’t reduce health care spending quickly enough. As , a senior fellow at the Hudson Institute and former Bush Administration official, notes, “the lack of severity may also coincide with a lack of significant impact on the budgetary side.” Even for progressives, the best possible outcome might be for Congress to head off the automatic cuts by enacting significant, but more carefully designed, Medicare reductions as part of a balanced deficit reduction plan that mixed spending cuts with new revenue.

Obama and his allies tried for such a deal a few weeks ago. They didn’t get one, primarily because Republicans refused to consider it. Unless that political reality changes, progressives may find that a set of automatic Medicare cuts are the lesser of evils, both as politics and as policy.

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A little over two weeks ago, while most of you were paying attention to the debate about how to raise the debt ceiling, those of us who study health care policy were following hearings before the House Budget Committee. The purpose of the hearings was to scrutinize the Independent Payment Advisory Board, a commission that the Affordable Care Act created as part of its apparatus to control health care costs. And the hearings produced some genuinely interesting testimony on everything from the scope of the board’s authority to the limits of its legal power. If we were in the middle of a dialogue about how to improve the board’s structure and function, that testimony would be extremely useful.

But we’re not having a discussion about whether to reform the IPAB. We’re having a discussion about whether to repeal it. Opponents of the Affordable Care Act see the IPAB as an instrument of, and metaphor for, everything that is wrong with the new health care law. The problem with this law, they keep saying, is that it tries to solve the health care cost problem through “central planning.” At best, they say, this strategy will misallocate resources in ways that stifle innovation and make access to care more difficult. And at worst? It will ration care in ways that deny life-saving treatment to people who need it. As one Republican lawmaker put it recently, “It will destroy the very core of what has made our medical system the best in the world.”Ìý

Yes, these arguments should sound familiar. They are the same ones critics began making in the summer of 2009, when enactment of the law first seemed imminent. And since neither the argument nor the people making it are going away, maybe it’s a good time to take a step back and remind everybody what the IPAB is; how it will work; and why it (or something very much like it) is essential to making health care accessible to all seniors and, eventually, all Americans.

Despite the fanciful attacks from some conservatives, the IPAB will not be a modern-day Politburo that brings to American health care.ÌýIt will be, instead, a board comprised of 15 experts on health care policy, including consumer representatives. The president will appoint the members, subject to Senate confirmation, and they will serve six-year staggered terms. Their job will be to issue recommendations on how Medicare can spend its money more wisely.

A similar commission already exists. It’s called the Medicare Payment Advisory Commission, or MedPAC. But its recommendations, however intelligent, usually end up collecting dust on the bookshelves of policy wonks like me. IPAB’s proposals shouldn’t meet the same fate. Whenever the cost of Medicare grows faster than the targets set by the law, IPAB will make proposals that would reduce the program’s spending by as much as to 1.5 percentage points, depending on the circumstances. At that point, Congress would have three choices: Allow the recommendations to take effect, come up with alternatives that would achieve the same savings or opt to let Medicare costs grow up faster than planned. The one key caveat is that the final course of action, allowing Medicare to grow without further restraint, would require a three-fifths vote in the Senate.

The thinking behind this structure reflects a long-standing consensus among health care experts that Medicare needs better, smarter management. Relative to private insurance, the program has actually done a pretty good job of managing costs overall, thanks to the natural efficiencies of such a massive program and the lack of investors to satisfy with profits. But Medicare is still getting too expensive, too quickly — and there’s a ton of data to suggest it doesn’t do a very effective job of fostering good quality. Probably the best known evidence along these lines are the Dartmouth Atlas studies, which show that Medicare spends far more in regions like Miami than in regions like Minneapolis, but without achieving better results.

If we want to keep providing seniors with comprehensive coverage, while still getting the program’s costs under control, the obvious way to do it is to operate the program more carefully. One way to do this is to adopt payment models that reward quality and efficiency. And that’s not something Congress is likely to do on its own, particularly with lobbyists for every health care special interest, from device makers to local hospitals, crawling all over Capitol Hill. The hope is that an independent commission of experts, insulated from politics but still accountable to the president and Congress, can succeed where our lawmakers have failed.

The more extreme critics of IPAB claim it will abuse its power — that it will issue treatment edicts that keep the sick and elderly from getting cancer drugs, expensive surgeries and the like. But the new health law explicitly prohibits IPAB from changing the program’s benefits or imposing anything that would amount to “rationing.” Besides, all insurance plans, public and private, must choose what to cover and what not to cover. That includes Medicare, which already exercises this power routinely. At most, IPAB would increase the influence of scientists and reduce the influence of lobbyists over these decisions. Would critics really prefer it the other way around? (Actualy, maybe some would. Many IPAB critics, including Democrats, have benefitted from large health industry donations.)

The less extreme, more honest criticism of IPAB is that it will encourage payment schemes that lead to indirect rationing, by restricting access to the people who provide care. According to this argument, doctors are already turning away patients because of low reimbursements. Once IPAB ratchets down payments further, they’ll turn away even more patients. But the stories about doctors turning away Medicare patients turn out to be mostly anecdotal, at least at this point. The best data available, from MedPAC among others, suggests most doctors still see Medicare patients — and are more open to them than they are to privately insured patients. Particularly given the Affordable Care Act’s other reforms, which provide financial incentives that reward efficient styles of care, providers should be able to offer care as good if not better than what they offer now — while charging less money per patient.

But what if the critics are right? What if IPAB changes really did make it more difficult for seniors to see providers? That would be a problem, obviously. But the alternative is to cut spending on Medicare in ways that will affect beneficiaries more directly and more severely. The House Republican budget, which most of these critics support, is a prime example. Instead of introducing a commission to manage Medicare more efficiently, it eliminates the government program and hands seniors a voucher that, according to every reliable estimate, would provide far less financial protection. Even if competition among plans reduced the cost of care, seniors would still have a far tougher time getting care — with large numbers forced to choose between health care and other necessities, much as they were in the days before Medicare came into existence. Somehow I think that’s not a reality most seniors would like.

Jonathan Cohn is a senior editor at .

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Are you better off with Medicaid than if you had no insurance at all? The answer seems like a no-brainer: Of course you are. But, for the last few months, a of writers and intellectuals has argued that the program doesn’t actually help beneficiaries and may actually hurt them. To prove their point, they’ve cited a handful of studies in which Medicaid recipients ended up in worse health than people with no coverage whatsoever. According to Medicaid’s critics, this evidence suggests that expanding the program, as the Affordable Care Act would, is a bad idea.

Most I know these arguments. The reason: When you’re comparing people on Medicaid to people with no health insurance, there’s no simple, sure-fire way to account for the underlying differences in the two populations. For example, if you know you suffer from serious medical problems, you’re more likely to sign up for public insurance when it’s available. As a result, the Medicaid population may be fundamentally sicker than the uninsured population — and end up with worse medical outcomes, even if they’re benefiting from the program’s coverage.

The best studies attempt to account for this possibility. And, mostly, they show that people on Medicaid benefit from the program: They have an easier time getting medical care and, as a result, they end up healthier. But even their adjustments aren’t perfect. There simply hasn’t been a way to conduct an experiment that cleanly and randomly separated the Medicaid population from the uninsured population. At least until now.

In 2008, officials in Oregon decided to make Medicaid available to more of the state’s residents. But they appropriated only enough money to add 10,000 people to the rolls — and 90,000 people applied. To cull the list, officials held a lottery, creating the sort of random experiment that would be impossible to create under different circumstances. After all, the only obvious difference between those who ended up on Medicaid and those who didn’t was that 10,000 of them got the right lottery number.

Experts have been watching to see what happens and, on Thursday, they published their initial findings through the . Their conclusions? The past studies, like the intuition about Medicaid, appear to have been correct. People with Medicaid really are better off than people without insurance. A lot better off, in fact.

Among the most obvious differences that researchers observed in the two populations was what wonks call “health care utilization” and everybody else calls “getting medical care.” Compared to people who did not get Medicaid, most of whom remained uninsured, the Medicaid beneficiaries were 15 percent more likely to use prescription drugs, 20 percent more likely to get cholesterol monitoring, 35 percent more likely to use outpatient care, and 60 percent more likely (!) to get mammograms. The people on Medicaid also reported that they were healthier because of the program: According to the paper, 25 percent said in surveys that they were in “excellent” health, rather than “fair” or “poor.”

Of course, more health care services don’t always lead to better health. And people don’t always assess their own medical status precisely. The truth is that more objective measures of health probably won’t show big changes, in one direction or the other, for some time. The benefits of taking high blood pressure medicine, for instance, might not show up until many years in the future, when (hopefully) fewer people suffer heart attacks and require expensive medical interventions.

But the study demonstrates clearly, and persuasively, a different benefit of Medicaid: It provides beneficiaries with economic security. The Medicaid population was 40 percent less likely to borrow money or avoid paying other bills because of high medical expenses. The likelihood that unpaid medical bills ended up with a collection agency was also 25 percent lower. Not coincidentally, people on Medicaid were 55 percent more likely to report having a doctor they see regularly and 70 percent more likely to report they had an office or clinic for care.

To be fair, not all of the findings in the new paper make the case for expanding Medicaid easy, at least in the political sense. Emergency room use does not appear to have declined, confounding a promise reformers frequently make, although such a decline might also take time to materialize. And the study found that the total spending on health care for the new Medicaid beneficiaries increased by 25 percent, even though reformers say that expanding health insurance will lead to reduced spending on health care overall.

Then again, that last finding makes sense: These new Medicaid recipients got more medical care and, from the looks of things, they needed it. It was bound to cost more money at the outset. But getting these people into more stable health insurance arrangements can make the health care system as a whole more efficient. And by lowering the overall burden of charity care that doctors and hospitals must provide, expanding Medicaid can create political support for reforms that will effectively pay these providers of care less over the long run. That, more or less, is how the Affordable Care Act is supposed to control health care costs in the long run.

Might future research show this study, too, has flaws? Sure. No research project is foolproof and even the study’s authors caution about extrapolating too much from this one study. But it’s not just this study’s design that makes it unusually significant. It’s the all-star team of scholars that produced it. Among the paper’s authors are Harvard’s Joseph Newhouse, whose analysis of the 1970s Rand “Health Insurance Experiment” is still the gold standard for health policy research, and MIT’s Jonathan Gruber, arguably the nation’s most respected authority on modeling the outcome of health care policy interventions. And although Gruber is a well-known advocate for Medicaid who advised Democrats during the Affordable Care Act debate, one of his co-authors is Harvard’s Katherine Baicker. She served on the Council of Economic Advisers during the Bush Administration.

Oh, did I mention that the paper’s principal co-investigator is Amy Finkelstein, also of MIT. Conservatives frequently cite her research on Medicare as evidence of that program’s limits. I’ve always thought conservatives misinterpret those particular findings, but it speaks to the respect her work commands. And her conclusion about Medicaid seems pretty unambiguous. “Some people wonder whether Medicaid coverage has any effect. The study findings make clear that it does.”

I’m not naïve enough to think this paper will make Medicaid’s most ardent critics rethink their position. But it should.

Jonathan Cohn is a senior editor at .

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McKinsey and Company has finally released the detailsÌýof its controversial paper on the likely effects of health care reform. And it looks like the paper’s critics (including yours truly) were right to raise questions about it. Based on what the company has said, the paper offers no new reason to think Americans with employer-sponsored insurance will lose that coverage because of the Affordable Care Act.

Politically, that’s good news for President Barack Obama, since he told insured Americans that the law wouldn’t take away the coverage they already had. But what does it mean in terms of policy? Should we be happy that health care reform is unlikely to reduce substantially the current system’s dependence on employer-based insurance? That’s another, much more complicated question.

Let’s start by looking closely at the paper, which suggested that as many as half of all employers would seriously readjust their employee benefits and as many as a third would drop coverage altogether once the health law took full effect in 2014. The theory behind the claim was that employers would find it financially advantageous to stop offering insurance because workers could instead get subsidized coverage through the new insurance exchanges. In other words, workers would happily take salaries — instead of insurance — from their employers. Even though firms that employ more than 50 employees — which account the majority of American jobs —Ìýwould have to pay a penalty for failing to offer health benefits, the McKinsey consultants said, the financial advantages of dropping coverage would more than offset that cost.

But the basis for that prediction was a survey of high-ranking corporate officials. And it turns out the survey had a fewÌýweaknesses. For one thing, a quarter of respondents didn’t know the salary breakdowns of their companies — in other words, how many workers were making high salaries and how many were making low salaries. In addition, more than half of respondents weren’t even aware of what their companies spent on health benefits. The survey didn’tÌýask respondents about the ages of their employees. Were they relatively old? Young? A mix of the two? And when survey administrators “educated” respondents about the health law, they didn’t remind them about the effects of the employer tax exclusion, which makes job-based health insurance worth a lot more to employees.

Surveys asking employers to predict behavior are never that reliable. But these issues make the McKinsey study a particularly poor forecasting tool. In general, younger and poorer workers might be better off getting insurance through the new exchanges, because they will get bigger subsidies from the government and because they benefit less from the tax exclusion.ÌýIt is a different storyÌýfor older and richer workers.Ìý

More sophisticated studies of employer behavior account for these and other variables, typically by creatingÌý“synthetic” firms and predicting how employers will act, based on data on past employer behavior. Sure enough, these studies have consistently shown a very different result: that the majority of employers will continue to offer health insurance, even after health care reform. In fact, just this week, new analyses by Ìýand the Ìýcame to the same conclusion. (The basis for the Robert Wood Johnson prediction was another projection from the Urban Institute’s model.)

While these predictionsÌýcould be wrong, obviously, their findings are consistent with what happened in Massachusetts, where a similar coverage scheme actually bolstered employer-sponsored insurance. Indeed, even McKinsey itself now acknowledges that its study couldn’t make projections as reliably as these other efforts. In its official June 20 , it stated flatly that its prediction was “not comparable to the health care research and analysis conducted by others such as the Congressional Budget Office, RAND and the Urban Institute.”

But here’s the irony: Most people like the insurance they get from their employers, which is why you hear politicians from both parties constantly promising to keep that coverage in place. In the long run, though, workplace-based insurance is probably not an arrangement worth preserving.

Private, employer-based coverage became the norm in the U.S. in the 1940s and 1950s because the arithmetic of health insurance works only with large groups of relatively randomly selected people, and large businesses naturally create such groups. But employer-based coverage makes workers too dependent on their bosses while saddling employers with a financial liability over which they have only partial control. More importantly, it leaves out people who don’t have steady, full-time work.

An ideal health care system would not merely include everybody. It would also give everybody access to the same set of coverage arrangements, regardless of their place of employment (or lack thereof). It would also liberate employers from the responsibility of administering health benefits for workers, allowing them to concentrate on other, more productive activities. Let the car companies make cars and the grocery stores sell groceries and the software firms design software. They don’t need to be running health insurance plans, too.

A single-payer system, with a combination of basic government insurance and private supplemental coverage, would be a much better alternative. So would a “competition” system that looks like what is currently in place in the Netherlands or Switzerland, or what Sen. Ron Wyden, D-Ore., back in 2007. The Affordable Care Act could evolve into such a system, particularly if the new insurance exchanges work well and workers feel comfortable the insurance available there is as good as what they’d get from employers. But that transition would probably take a lot of time, no matter what corporate officials were telling the survey-takers at McKinsey.

Jonathan Cohn is a senior editor at .

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Opponents of the Affordable Care Act had another day in court on Wednesday, this time before federal judges in Georgia, representing the 11th Circuit Court of Appeals. These opponents want the judges to uphold a ruling, made by a lower federal judge in Florida, that the law is unconstitutional. It’s the third such appeal to go before a Circuit Court — and perhaps a prelude to consideration before the Supreme Court.

As you probably know, the primary focus of the plaintiffs in these lawsuits is the “individual mandate” — the requirement that all people with economic means contribute toward the cost of their health care by obtaining insurance or paying a tax penalty. The constitutional objections to this scheme are varied and complicated. But one argument by the plaintiffs deserves extra scrutiny, because it suggests the plaintiffs misunderstand health care policy, are misapplying a crucial court precedent, or some combination of the two.

The argument is about Article I, Section 8 of the Constitution, which empowers the federal government “to regulate commerce among the several states.” The Commerce Clause, as it is known, is one of three constitutional provisions that the government has cited as justification for imposing the individual mandate. And its origins should be familiar to anybody with even rudimentary knowledge of American history. In the first years after independence, the country’s governing charter was the Articles of Confederation, in which state autonomy hindered security and hobbled prosperity.

Frustration with this situation led to the 1787 Constitutional Convention, where, as legal scholar Andrew Koppelman noted recently in the ,Ìýdelegates agreed that the new Congress should “legislate in all cases to which the states are separately incompetent, or in which the harmony of the United States may be interrupted by the exercise of individual legislation.” That resolution eventually evolved into the Commerce Clause.

The clause’s final text is vague enough to allow honest debate over its meaning and limits. But, except for a relatively brief period from the 1890s until the 1930s, the courts have interpreted it very broadly. In the early 1940s, for example, the Supreme Court agreed that the federal government could place strict quotas on a farmer’s wheat production, even limiting what the farmer could grow for his own family and livestock, because the aggregate effect of more farmers doing the same thing would depress the price of wheat nationally and imperil the then-fragile economy.

In the 1990s, the court retrenched just a bit, producing the key decision upon which the health care lawsuits now rely. In that decision, United States v. Lopez, the Supreme Court threw out a federal law establishing “gun-free zones” around schools. The federal government had cited the Commerce Clause as justification for its law, arguing that gun possession led to violence and fear, preventing students from gaining skills they need for the job market — and that the aggregate effect depressed economic growth nationally. The Supreme Court said that “pil[ing] inference upon inference” in that way was not sufficient to warrant federal intervention. Years later, the court made a similar ruling about national efforts to protect violence against women.

Opponents of the health care law say the Lopez principle ought to invalidate the Affordable Care Act, too, because the argument for an individual mandate relies on a similar pile of inferences — namely, that people going without health insurance drive up prices for everybody else. But is that really the sort of argument the justices meant to reject in Lopez? Are the inferences in the two cases really similar? I don’t think so. At its core, the Lopez case was about the distinction between state and federal responsibilities. The “inferences” that drew the justices’ ire were the ones arguing that gun violence near schools demanded federal, rather than state, action — even though many states already had laws dealing with the problem.

Health care is different. It is very clearly a national problem beyond states’ ability to control. Hospitals routinely charge for services that insurers from other states must pay. Employers negotiate premiums for workers in multiple states. And so on. As Koppelman noted, “Statues that horn in on matters that are purely local, such as the federal ban on the possession of handguns near schools that the Supreme Court struck down in Lopez, exceed the commerce power. But the national health care insurance market is not a purely local matter.”

To put this in more practical and specific terms, imagine that you are the governor of New Jersey. You’ve signed a law establishing universal coverage and, heeding the advice of health policy experts, you’ve established an individual mandate. But the governor in Pennsylvania has not done these things. Therefore, in the greater Philadelphia area, which spans your states’ common border, younger and healthier residents are moving to Pennsylvania because they figure they don’t need insurance and there they won’t be forced to obtain it. The result is that your population is getting gradually sicker, prompting insurers to raise their premiums and diminish their offerings. But your only recourse is to hurl insults across the Delaware River. It’s a textbook case of the states being “separately incompetent” to solve a problem.

You don’t have to take my word for this, by the way. Officials in Massachusetts, the one state that already enacted health reform with an individual mandate, filed an in defense of the health law.ÌýIn that brief, they cite their limited ability to reduce the price of health care without a national regulatory system that includes an individual mandate. California, which came within one state legislature vote of enacting a similar system several years ago, filed a making the same argument.Ìý

Could the courts throw out the Affordable Care Act without using Lopez in the way the law’s opponents do? Sure. The case, again, is more complicated than that. But it would be one more sign that the courts are establishing new limits on federal power, rather than recognizing existing ones. That is not something conservative judges, in particular, say they like to do.

Jonathan Cohn is a senior editor at .

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Even before Tuesday’s special election in New York, in which Medicare figured so prominently, congressional Republicans and their supporters had altered their rhetoric about the cherished government health insurance program. Instead of defending their plan to effectively end Medicare, at least in its current form, they accused Democrats of being the real culprits out to do in the program.

Their argument goes like this: Democrats enacted huge cuts to Medicare as part of the Affordable Care Act. President Barack Obama has since proposed even deeper cuts as part of his deficit reduction plan. These cuts will inevitably mean less care for seniors, one way or another. And so it is the Democrats, not the Republicans, who are out to destroy Medicare.

At least, that’s what the talking points are. And, like most political claims, these have some elements of truth. Democrats really did enact substantial Medicare cuts as part of their health care reform law and Obama really has proposed still deeper cuts as part of a deficit reduction plan. And it’s a good thing, too, because the financial burden of Medicare would eventually become unsustainable if the program keeps growing in the way that it has been. Reforming the program and, yes, slowing that growth is the responsible thing to do.

But the question for voters isn’t whether the Democrats are cutting Medicare spending. The question is what effects those cuts would have — and how they would compare to cuts that Republicans propose in their budget. Medicare cuts come in all shapes and sizes, after all.

The key distinction between Democrats and Republicans — er, one of the key distinctions — is that Democratic cuts to Medicare focus on the providers and producers of Medicare. The most obvious and well-known among these are reductions in payments to private insurance companies that offer seniors coverage through what’s known as the Medicare Advantage program. This is basically an effort to eliminate some corporate welfare.

Less well-known but equally important are the Democrats’ proposed reductions in payments to the rest of the health care industry. These reductions will take place alongside a series of experiments, offering financial bonuses to doctors, hospitals and other providers who can learn to operate more efficiently or effectively. The idea is that, together, these changes will nudge the health care industry in the direction of providing more care for less money.

The Republicans and their allies argue that all of these cuts will eventually affect beneficiaries negatively. Medicare Advantage insurers will stop offering extra benefits, doctors and hospitals will stop seeing so many patients, and so on. I don’t happen to think they are right, for reasons I’ve explained previously. But even if they were correct, it’s hard to see how Republicans could argue, simultaneously, that their changes would somehow leave seniors in better shape.

For one thing, notwithstanding their rhetoric, the Republicans have actually voted to keep most of those Democratic-backed changes in place for the next ten years. The dirty little secret of the House Republican budget, which most Senate Republicans just voted to endorse, is that it lets stand the health law’s early payment reforms — the very same ones Republicans and conservatives started attacking long before President Obama signed them into law.

Of course, after 10 years, the Republican Medicare plan diverges dramatically from the Democrats’ health care plans. Starting in 2022, under the Republican scheme, the traditional, government-run Medicare insurance plan would not accept new retirees. At that point, all seniors would instead purchase a private insurance plan. Government would offer seniors a subsidy, to help seniors pay for the coverage. But the value of that subsidy would rise far more slowly than the price of medical care.

This is the essential point that Republicans and their supporters never mention. Over time, they would provide the program with dramatically less money than the Democrats would. It’s difficult to find a hard estimate of how much exactly. But if you include proposed cuts to Medicaid (which pays for long-term care and other services the elderly use) and do some math based on the official projections, you’ll see that the Republican budget would reduce federal health care spending by an additional 7 to 9 points of gross domestic product by 2050. That’s an immense difference.

Republicans claim, as Democrats do, that their plan will nudge the whole health care system in the direction of more efficiency — not by changing the behavior of providers, as Democrats prefer, but by changing the behavior of consumers, in ways that will create a more vibrant and competitive market. It’s a highly dubious argument, given that private insurance has higher overhead and less bargaining power than government insurance. (Remember, the Democratic plans would take money back from private insurers serving the Medicare population, for precisely the same reason.) But even if it were true, there’s no credible expert who thinks the savings from competition would be large enough to offset the massive reduction in funding Republicans have in mind.

In short, it’s true that Obama, the Democrats and their supporters have backed cuts to Medicare. But those cuts are smaller and more carefully designed than what the Republicans would impose. It’s the difference between saving Medicare and destroying it — no matter what the Republicans and their allies want you to believe.

Jonathan Cohn is a senior editor at .

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LOS ANGELES — I’ll never forget the first time I visited the about seven years ago, because it’s the first time I heard about a grisly intruder pediatricians sometimes find in young children’s ears: Cockroaches.Ìý

It’s a problem endemic to poorly maintained, low-income housing, of which there is quite a lot in the South Central neighborhood surrounding St. John’s. And it’s one reason the staff there are so aggressive about confronting the health hazards of their patient population. Instead of merely treating problems like asthma, lead poisoning and, yes, insects tucked into children’s ear canals, St. John’s also offers home environmental assessments — complete with instructions for tenants on how to clean up hazards and, where possible, to pressure slumlords into fixing dilapidated properties.

St. John’s was a more modest enterprise back then: just a handful of clinics operating on a shoestring budget. When I returned last week, I could see it had grown. Thanks to a combination of philanthropy and increased federal funding, under both the Bush and Obama administrations, it has expanded to 10 clinics with an annual budget of $25 million, serving a predominantly Latino and African-American population in what remains one of the nation’s most medically undeserved communities.

And the future seems more promising still. The Affordable Care Act will pump more money into these clinics, both directly by giving them subsidies and indirectly by giving more of their patients insurance. At the same time, the law provides incentives for providers that offer integrated care, which St. John’s is in position to do. It’s long been what the experts call a “medical home,” establishing long-term relationships with patients and tending to their health, rather than simply their illnesses. Now it’s working with other clinics and local hospitals to develop a fully coordinated, multispecialty network of care — or what the experts, and the health overhaul, call an “accountable care organization.” The result should be medical care that is, at once, more comprehensive and more efficient.

But none of that will happen if the congressional leaders of the Republican Party and their supporters get their way. Not only have they vowed to repeal the health law, taking away its clinic subsidies and massive expansion of insurance to low- and middle-income Americans. They have also voted, via the House Republican budget, to dramatically reduce funding for Medicaid.

A new from the Kaiser Family Foundation suggests that, if fully implemented, the House Republican budget would reduce Medicaid enrollment nationally by between 14 million and 27 million people. (Kaiser Health News is an editorially independent program of the Foundation.) That’s above and beyond the 17 million who would not get Medicaid because the Republicans would also repeal the health law.ÌýAnd while conventional wisdom suggests Republicans will not succeed fully in either endeavor, the latest signs from Washington suggest the Republicans could very easily extract significant Medicaid reductions before the budget negotiations are over.

What would that mean for a clinic like St. John’s? I put that question to longtime director Jim Mangia, who responded by sketching out its finances. As a federally qualified health clinic, St. John’s gets extra payments for every Medicaid patient it sees. This is by design: It’s meant to subsidize care for the uninsured, who generally pay very little or nothing at all. And that’s precisely what happens at St. John’s. Medicaid patients are about 30 percent of the patient mix but 40 percent of the revenue. “It’s our best payer, our bread and butter,” Mangia says. And if the clinics’ Medicaid population shrinks, the clinic’s revenue will shrink with it.

Mangia refused to speculate on how he and his staff would respond, but it seems likely they’d have to reduce spending somewhere, particularly since the state of California is already contemplating major Medicaid cuts. And, as I walked around the clinic, I didn’t get the impression that downsizing would be easy. The facility I saw was clean but hardly lavish. The big investments, such that they were, seemed to be standard equipment and a new electronic medical records system. In its public filings, Mangia said, St. John’s reports an operating margin of just 2 percent.

At one point, Mangia mentioned St. John’s had started offering its patients podiatry. That sounded a bit superfluous — is bunion care really a taxpayer responsibility? — until Mangia explained the rationale. It seems clinic staff see many diabetics with severe, untreated foot problems, because of poor circulation. But Mangia said the county’s public hospitals, frequently the uninsured’s only option for specialty care, generally have a six- to nine-month waiting list for treatment — and patients end up requiring amputations before they see specialists. “My doctors came in here, and said we can’t in good conscience keep referring these folks to the county,” Mangia explained. The clinic ended up hiring twoÌý podiatrists. Mangia isn’t sure the investment saved the clinic dollars, but he estimates it saved about 750 limbs in the last year.

Clinics like St. John’s have a way of finding their ways through financial crises. Mangia, who is obviously a gifted fundraiser, could try to lean more heavily on philanthropy. But the cuts that Republicans are proposing and that Washington is contemplating are too large to be offset with donations. The medical safety net of clinics and hospitals would inevitably end up offering fewer services or seeing fewer people, even as the withdrawal of Medicaid coverage forced more low-income Americans to seek charity care. “It’d be disastrous,” Mangia says. I’m inclined to take his word for it -– and you should be, too.

Jonathan Cohn is a senior editor at . His California-based reporting for this column was done in conjunction with the Kaiser Family Foundation Media Fellowships Program.

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A new

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For the better part of two years, the debate over how to control health care costs had a certain one-sided quality to it, because the Democrats had a plan and their critics did not. Democrats were forced to put their ideas on paper, with specifics, and subject them to nonpartisan accounting. All the critics had to do was attack.

And attack they did. Sometimes they said the Democrats’ plan, which eventually became the Affordable Care Act, did too little. (It’ll blow up the deficit! It’ll bankrupt the government!) Sometimes they said it did too much. (It’ll stop innovation! It’ll create death panels!) Sometimes they even said the two things simultaneously, which is the kind of neat rhetorical trick politicians can pull off only when they have no plans of their own.

All of that changed this month, when House Budget Committee Chairman Paul Ryan, R-Wis., released his budget proposal and included within it radically conservative reforms of the nation’s major health care programs. Ryan would repeal altogether the coverage expansions of the health law. He also would increase the eligibility age for Medicare and then turn it into what most of us would call a “voucher scheme,” eliminating in 2022 the traditional government-run insurance plan for everybody who retires in that year and replacing it with a fixed financial subsidy that seniors can apply toward the cost of regulated private insurance policies. Last but not least, Ryan would transform Medicaid into a block grant. Instead of guaranteeing federal funds to cover everyone that becomes eligible for the program, Washington would simply give the states a pre-determined, lump sum of money — and let states figure out how best to use it.

On paper, the Ryan plan saves the government a lot of money, at least in the long run. But upon closer inspection, the savings turn out to be illusory, cruel or some combination of the two. In fact, far from proving the superiority of conservative health reforms, Ryan’s plan validates what his political adversaries have said all along. The Affordable Care Act represents a serious and realistic approach to controlling the cost of medicine — one that would be even more serious and realistic if the long-term budget changes President Barack Obama just recommended become law.

Although privatization has its own ideological appeal to conservatives, the real reason Ryan’s program would reduce government spending and deficits dramatically, at least over the long term, is that it substantially reduces the amount of insurance people would get. Repealing the health law would deprive more than 30 million people of insurance and leave others with more limited benefits. Meanwhile, the fixed formula Ryan would use to calculate the Medicaid block grants and Medicare vouchers would cause the value of each to rise far more slowly than the cost of health care. States would end up reducing enrollment or scaling back benefits or both. And, according to the Congressional Budget Office, seniors would end up individually responsible for more than two-thirds of their medical costs.

The theory behind this effort is that, by making individuals more conscious of the cost of health care, they will act more like consumers — thinking twice before getting extra treatments and shopping around for insurance policies that provide better value at lower costs. But Republicans take this argument, which has some truth, way too far. The Medicare Advantage program, which already offers seniors the option to enroll in private insurance, hasn’t produced vast savings. Experiments with high-deductible coverage suggest it causes beneficiaries to skimp on useful care, including preventive treatments that prevent most costly, acute episodes later on.ÌýAs Len Nichols, an economist at George Mason University, puts it, Ryan and his allies are “substituting algebra for health care policy.”

And that’s to say nothing of the political perils in Ryan’s strategy. As presently structured, his plan envisions a seismic shift away from traditional Medicare to a voucher worth considerably less money. Older voters are famously sensitive to even modest alterations in government benefit programs for the elderly. The idea that lawmakers would stand behind such an abrupt change, and then let it evolve in a way that so drastically reduces the federal contribution toward retiree health care, is difficult to accept.

The alternative is to control health care costs a bit more gradually, which is what the federal health overhaul does. Like Ryan’s plan, the Affordable Care Act attempts to restrict the federal government’s contribution toward health care expenses, via constraints limiting the growth in Medicare (although not Medicaid) costs as well as the tax subsidy working-age Americans get for employer-sponsored insurance. But the constraints are looser. For example, unlike Ryan’s plan, which uses a fixed-value voucher to set Medicare spending, the health law sets less restrictive growth targets (which the president’s debt plan would further tighten) and then calls upon an independent commission — the Independent Payment Advisory Board — to recommend reforms when Medicare costs exceed those targets. IPAB’s recommendations can change what Medicare pays the providers of care, but the board, by law, cannot alter Medicare benefits or eligibility.

In addition, the health law’s formula doesn’t attempt to reduce spending by focusing exclusively on direct cuts to individual beneficiaries. On the contrary, the law distributes spending reductions across the health care system, affecting virtually everybody — whether it’s reducing Medicare payments to hospitals, eliminating extra subsidies for private Medicare Advantage plans or demanding greater rebates from pharmaceutical companies that contract with government insurance programs.

Most important, the Affordable Care Act doesn’t merely limit health care spending, in the faint hope that consumers, on their own, will produce a more efficient market. The law also introduces reforms that will put in place technological infrastructure and financial incentives to promote higher quality care. To some extent, that means sweeping, system-wide changes like the introduction of electronic medical records or the creation of an institute that will determine which treatments work better than others. But it also means dozens of more narrowly focused efforts, like a new public-private partnership to promote patient safety or pilot programs in “smart malpractice reform.” The idea is to experiment with virtually every payment reform experts have tried successfully on a small scale, in the hopes of replicating the successful ones across the country.

In short, the Republican vision for health care reform, as expressed by Ryan, is to limit federal spending on medical care, at levels far below what we spend today, and then let individuals make the best of the situation. By contrast, the health law calls for more gradual, more shared sacrifice by everybody involved with health care — with a focus on promoting efficiency so that lower spending needn’t result in lesser care. That’s not only a more realistic approach to controlling costs. It’s also a more humane one.

Jonathan Cohn is a senior editor at


.

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The Obama administration has told the court that if it invalidates the mandate it should also invalidate two key insurance reforms that would prevent discrimination because of preexisting conditions. On this, the administration has a somewhat unusual ally: The insurance industry. Although insurers have fought many parts of the health law, they have long favored the establishment of a mandate, which requiresÌýalmost everyoneÌýwho can afford it toÌýbuy health insuranceÌýor pay a fee, saying the reformed market cannot function without it. (Critics point out that a mandate would also help insurers generate more business.)

Legally, the administration’s argument is as potent as it is risky. The Constitution says that the federal government may do whatever is “necessary and proper” to carry out its other functions. The Supreme Court historically has interpreted that power broadly. If insurance market reform really is more prone to failure without a mandate, that fact alone could, in the eyes of the justices, make the law constitutional.

But is the administration’s claim correct? For some clues, the justices could examine what happened in New Jersey, a state that tried to reform its insurance markets without a mandate — and failed pretty miserably.

Deconstructing The New Jersey Experience
The New Jersey effort began in the late 1980s, when rising health care costs were getting the attention of business and political leaders across the country. And a big worry then, as now, was what to do about people who couldn’t get insurance from a large employer. When those people tried to get coverage in the individual or small-group market, they underwent scrutiny from insurers, who were wary of taking on big medical risks. “Insurance companies make their money not by being efficient, or managing care, but by weeding out the sick and insuring only the healthy,” a frustrated Jim Florio, then governor of New Jersey, said in 1992.

The exception was Blue Cross and Blue Shield of New Jersey, which was an “insurer of last resort.” By law, and in exchange for its tax-exempt status, Blue Cross could not turn away applicants because of pre-existing conditions. Because that arrangement saddled Blue Cross with sicker and more costly beneficiaries, the state effectively decreed that hospitals charge the insurer less. But that approach was financially straining the state’s hospitals, particularly as the number of people without insurance and seeking charity care rose. Blue Cross, meanwhile, maintained that it was struggling even with the extra subsidies — and kept asking state regulators for permission to impose impressive premium increases.

Eventually the state’s stakeholders sat down with lawmakers and, in a negotiation that seems quaintly non-partisan by today’s standards, hashed out a deal as part of a broader package of health care initiatives. Blue Cross would no longer be the lone insurer of last resort. Instead, the state would create something called the “Individual Health Coverage Program.” Insurers wishing to sell coverage to individual customers would have to do so through this program. And insurers could not deny coverage or charge higher premiums to the sick. In other words, they had to practice what policy wonks call “guaranteed issue” and “community rating.” The new law applied similar, although not identical, rules to insurers that sold to small businesses.

The hope was to recreate an environment that had existed many decades before, when the early Blue Cross plans first established modern health insurance in this country. From the 1930s to the 1950s, Blue Cross plans dominated the market, making coverage available to nearly everybody who had the money to pay for it. But then commercial insurers entered the market, targeting only healthy beneficiaries whose small medical needs required much lower premiums — and leaving the Blue Cross plans with sicker patients, forcing them to raise premiums to unsustainable levels. Around the country, Blue Cross plans bled money, gave up on community rating and guaranteed issue, or some combination of the two — in other words, they had become victims of what health policy analysts call an “adverse selection death spiral.”

New Jersey officials realized their new system might be subject to similar problems. Forcing insurers to charge the same rates universally meant that older, sicker people would pay less — but younger, healthier people would pay more. Plans might find new, more subtle ways of competing to attract the lowest medical risks, in ways that left other plans with ever-sicker, ever-more expensive beneficiaries. And healthier people might put off buying insurance altogether, since they could always wait until they got sick before getting coverage. To ward off that possibility, the state decided that insurers making more money would subsidize those making less.

The plan went into effect in late 1993, not long before President Bill Clinton’s efforts to reform health insurance nationally started foundering. And, for a while, it looked like Florio and his advisers had done what Clinton and his advisors could not. Nobody believed New Jersey’s plan would bring universal coverage to the state. But “people thought this would have a significant impact,” says Bruce Siegel, who was the state health commissioner and is now president of the National Association of Public Hospitals. “They thought it would … change the situation for the uninsured.”

An early assessment of the program, by researchers at Harvard and sponsored by the Robert Wood Johnson Foundation, declared the experiment a success. But, by 1996, enrollment in the regulated plans started to slide after peaking at about 186,000. By 2001, it was down to about 85,000. Not coincidentally, the mix of people left in the program changed dramatically. According to a study published inÌý, the median age for enrollees jumped from 41.9 years to 48.4 years in just five years, and premiums rose by between 48 percent and 155 percent, depending on the plan.

These were the tell-tale signs of adverse-selection death spiral: An exodus of healthy people from the insurance pool, leaving behind a population of ever-sicker people whose high health costs keep driving up prices. (The rest ended up uninsured or found their way into other forms of coverage). Ward Sanders, director of the New Jersey Association of Health Plans, says that’s exactly what all the stakeholders were seeing. “We had quarterly reports on demographics,” says Sanders, who was the state’s chief regulator for the individual insurance market during the program’s first few years. “And it was empirically indisputable that the claims experience, the medical needs of the population, just went way up.”

New Jersey reacted by scaling back its reforms and, in 2003, created a “Basic and Essential” insurance alternative offering fewer benefits, at lower rates. Today, approximately 85,000 have taken up this option. But the B and E plans, as New Jersey calls them, don’t cover prescription drugs, rehabilitation, chemotherapy, or transplants. They have no protection against catastrophic expenses, cover delivery but not prenatal care and allow insurers to charge women higher premiums.

Meanwhile, just 49,000 people are still getting comprehensive insurance through the regulated individual market. Overall, those people may still be better off than they would be if New Jersey had never created it. “In a state that allowed medical underwriting – that allowed insurers to turn away anybody with health problems – these people would be uninsured,” says Joel Cantor, one of the lead authors on that Health Affairs study. But the price of that change is higher insurance premiums overall: By most reckonings, health insurance in New Jersey is among the nation’s most expensive.

New Jersey’s experience hardly seems unusual. Kentucky, New York and Vermont all tried to reform their insurance markets without a mandate. All ended up with higher premiums, lower enrollment in insurance or some combination of the two.

Does The Mandate Make A Difference?
Would a decision to strike down the Affordable Care Act’s mandate impose a similar fate on the U.S. as a whole? That’s a more complicated question. Cantor, who is director of the Center for State Health Policy at Rutgers University, notes that other factors were also at work in New Jersey. Not long after the program started, the state rescinded the scheme for compensating insurers that attracted bad risks, because officials came to believe some insurers were gaming the system. The state also stopped offering subsidies to people in the individual market. (Lawmakers did so in order to move funding over to the newly created State Children’s Health Insurance Program, which attracted federal matching funds.)

In these respects, the Affordable Care Act might be more resilient. It has relatively generous subsidies, particularly for lower incomes. It also has a “risk adjustment” mechanism that should, in theory, help protect insurers from adverse selection effects. Those buffers are one reason why researchers from the Urban Institute, Rand Corporation, and Congressional Budget Office, as well as Massachusetts Institute of Technology economist Jonathan Gruber, all predict the numbers of Americans without insurance would decline even if the law proceeds without a mandate. It’s also possible that, in response to a court decision striking down the mandate, Congress would find alternative methods of boosting participation in the insurance market. (Paul Starr, a Princeton sociologist and historian of health care, has been a prominent proponent of this possibility.)

Still, the economists all believe that the mandate, as envisioned by the law, will make a significant difference in reform’s impact. Gruber has suggested that removing the mandate from the law would diminish the number of newly insured by nearly two-thirds and raise premiums overall by 30 percent. The Rand Institute researchers predict that eliminating the mandate would have little effect on premiums for individuals. But they, too, believe that health insurance coverage would fall dramatically — from 27 million additional people insured to just 15 million.

Those are just projections, but the experts note that one state has managed to impose insurance reforms without weakening its insurance market. It’s Massachusetts, which happens to be the one state that also imposed an individual mandate. More than 98 percent of the state’s residents now have insurance, by far the highest percentage in the country. Premiums in the non-group market have fallen by 50 percent, relative to national trends, while premiums in the group market aren’t rising any faster than they were before the reforms began.

Veterans of the New Jersey experiment certainly think Massachusetts got it right — and warn that the ultimate effects of reform without a mandate could be even more catastrophic than the mathematical models suggest. “I think the lesson of New Jersey,” Sanders says, “is that when you’re down to the individual market, where the decision to purchase coverage is in the hands of somebody who is buying for themselves and knows their own health status, it’s very hard to make that market work if there’s not a mandate coupled with subsidies for folks who need help to meet that responsibility.”

Cantor agrees. “If there is guaranteed issue and no mandate, I think it essentially spells the end of the health insurance industry as we know it,” Cantor says. “Eventually the insurance market would become so dysfunctional that carriers would pull out, premiums would go through the roof, and enrollment would collapse. That’s certainly consistent with what happened in New Jersey.”

Jonathan Cohn is a senior editor at .

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Under the terms of the debt deal, which President Obama reached with Republican leaders in late July, a bipartisan “super committee” has until Thanksgiving to come up withÌýat leastÌý$1.2 trillion, over 10 years, in deficit reduction proposals. But if this committee can’t agree on recommendations or if Congress fails to pass them – two very distinct possibilities – then a series of across-the-board spending reductions would take effect. Some of them would take money from Medicare.

The fear is that those cuts would leave the elderly without adequate financial protection or access to medical care. It’s a rational fear but, perhaps, not a necessary one. Talk to policy analysts, industry lobbyists, or advocates for the elderly, and you’ll detect an emerging, if tentative, consensus: The impact of automatic cuts would be relatively modest and, most likely, less severe than whatever that super committee would devise as an alternative.

By design, the actual benefit structure of Medicare would be exempt from the automatic cuts. That’s a critical distinction given some of the ideas under discussion in the past few months. At various points, negotiators from the administration and Congress talked about raising the age at which people become eligible for Medicare, charging higher premiums to beneficiaries with higher incomes, and forcing holders of supplemental Medigap policies to face bigger out-of-pocket charges for routine medical care. For better or for worse, or maybe for both, all of these changes would have meant less insurance coverage for seniors.

The automatic cuts, by contrast, would affect providers exclusively, by reducing what Medicare pays them by up to 2 percent. “Providers” is wonk-speak for the people, institutions, and companies that provide medical care – not just doctors and hospitals, but also skilled nursing facilities and the insurance companies that deliver Medicare benefits to some seniors. In 2013, the first year the automatic cuts would take effect, that 2 percent would work out to something in the neighborhood of $12 billion, according to estimates from the .

By itself, and in the context of all U.S. health care spending, that’s not a ton of money. But it’d be in addition to Medicare cuts, roughly three times as large, that the Affordable Care Act is imposing. And unlike the cuts in the Affordable Care Act, many of which are in the form of payment reforms designed to penalize low-quality providers or reward high-quality ones, the automatic cuts in the debt deal would not make such fine distinctions.

That last part is important: Across the health care industry and even within particular parts of it, some providers can, and should, cope with reductions better than others. Paying less to specialists might be a good idea, for example, given all the data on excessive procedures in American medicine. But reducing income to family doctors could make an existing shortage of those physicians even worse. “Some see this as too blunt an instrument,” says Tricia Neuman, a vice president of the Kaiser Family Foundation. (KHN is an editorially-independent program ofÌýthe foundation.)

But, as Neuman also notes, scale is important. Even if the automatic cuts took effect, the total reductions in Ìýproviders would face over the next decade would likely be smaller, relative to the size of the program, than the ones they faced a little more than a decade ago, thanks to the Balanced Budget Act of 1997. Although Congress ultimately restored a portion of those 1997 cuts, by and large the health care industry adapted to the new reality, frequently by finding new ways to become more efficient. While automatic cuts from the debt ceiling deal could have a harsher effect, experts like Paul Ginsburg, president of the Center for Studying Health System Change, agree they would likely be “indiscriminate but not severe.”

Of course, neither Ginsburg nor anybody else can be sure about that, in part because of some outside variables. Chief among them is the fate of separate, already-planned cuts to physicians under what is known as the Sustainable Growth Rate formula. In recent years, Congress has postponed the SGR cuts – the “doc fix.” If Congress doesn’t postpone them again, physicians would see much more dramatic declines in income – the kind that might discourage them from seeing Medicare patients, just as low Medicaid reimbursements presently discourage specialists from seeing people who get insurance from that program.

Still, the unknowns of leaving deficit reduction to the super committee loom larger. If Congress meets the deadline for approving the super committee’s recommendations, reductions could start taking effect a year earlier than automatic cuts, on Jan. 1, 2012. “For businesses that prefer to plan ahead,” Politico’s Jennifer Haberkorn last week, “the trigger could seem more stable and predictable.”

And timing isn’t the only issue. According to Chris Jennings, president of Jennings Policy Strategies and longtime advisor to Democrats, both advocates and industry insiders are realizing that “any likely deal emerging from the super committee would include policies that are significantly bigger in size and scope than the fall-back sequesterthey get that if this political environment produces anything, it would almost inevitably be new and large Medicaid cuts and a package of Medicare savings that would dwarf the 2 percent cap on Medicare spending, which the sequester limits to approximately $130 to $140 billion in savings.”

Not that the automatic cuts are ideal in anybody’s estimation. A frequent complaint about the Affordable Care Act was that it didn’t reduce health care spending quickly enough. As , a senior fellow at the Hudson Institute and former Bush Administration official, notes, “the lack of severity may also coincide with a lack of significant impact on the budgetary side.” Even for progressives, the best possible outcome might be for Congress to head off the automatic cuts by enacting significant, but more carefully designed, Medicare reductions as part of a balanced deficit reduction plan that mixed spending cuts with new revenue.

Obama and his allies tried for such a deal a few weeks ago. They didn’t get one, primarily because Republicans refused to consider it. Unless that political reality changes, progressives may find that a set of automatic Medicare cuts are the lesser of evils, both as politics and as policy.

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A little over two weeks ago, while most of you were paying attention to the debate about how to raise the debt ceiling, those of us who study health care policy were following hearings before the House Budget Committee. The purpose of the hearings was to scrutinize the Independent Payment Advisory Board, a commission that the Affordable Care Act created as part of its apparatus to control health care costs. And the hearings produced some genuinely interesting testimony on everything from the scope of the board’s authority to the limits of its legal power. If we were in the middle of a dialogue about how to improve the board’s structure and function, that testimony would be extremely useful.

But we’re not having a discussion about whether to reform the IPAB. We’re having a discussion about whether to repeal it. Opponents of the Affordable Care Act see the IPAB as an instrument of, and metaphor for, everything that is wrong with the new health care law. The problem with this law, they keep saying, is that it tries to solve the health care cost problem through “central planning.” At best, they say, this strategy will misallocate resources in ways that stifle innovation and make access to care more difficult. And at worst? It will ration care in ways that deny life-saving treatment to people who need it. As one Republican lawmaker put it recently, “It will destroy the very core of what has made our medical system the best in the world.”Ìý

Yes, these arguments should sound familiar. They are the same ones critics began making in the summer of 2009, when enactment of the law first seemed imminent. And since neither the argument nor the people making it are going away, maybe it’s a good time to take a step back and remind everybody what the IPAB is; how it will work; and why it (or something very much like it) is essential to making health care accessible to all seniors and, eventually, all Americans.

Despite the fanciful attacks from some conservatives, the IPAB will not be a modern-day Politburo that brings to American health care.ÌýIt will be, instead, a board comprised of 15 experts on health care policy, including consumer representatives. The president will appoint the members, subject to Senate confirmation, and they will serve six-year staggered terms. Their job will be to issue recommendations on how Medicare can spend its money more wisely.

A similar commission already exists. It’s called the Medicare Payment Advisory Commission, or MedPAC. But its recommendations, however intelligent, usually end up collecting dust on the bookshelves of policy wonks like me. IPAB’s proposals shouldn’t meet the same fate. Whenever the cost of Medicare grows faster than the targets set by the law, IPAB will make proposals that would reduce the program’s spending by as much as to 1.5 percentage points, depending on the circumstances. At that point, Congress would have three choices: Allow the recommendations to take effect, come up with alternatives that would achieve the same savings or opt to let Medicare costs grow up faster than planned. The one key caveat is that the final course of action, allowing Medicare to grow without further restraint, would require a three-fifths vote in the Senate.

The thinking behind this structure reflects a long-standing consensus among health care experts that Medicare needs better, smarter management. Relative to private insurance, the program has actually done a pretty good job of managing costs overall, thanks to the natural efficiencies of such a massive program and the lack of investors to satisfy with profits. But Medicare is still getting too expensive, too quickly — and there’s a ton of data to suggest it doesn’t do a very effective job of fostering good quality. Probably the best known evidence along these lines are the Dartmouth Atlas studies, which show that Medicare spends far more in regions like Miami than in regions like Minneapolis, but without achieving better results.

If we want to keep providing seniors with comprehensive coverage, while still getting the program’s costs under control, the obvious way to do it is to operate the program more carefully. One way to do this is to adopt payment models that reward quality and efficiency. And that’s not something Congress is likely to do on its own, particularly with lobbyists for every health care special interest, from device makers to local hospitals, crawling all over Capitol Hill. The hope is that an independent commission of experts, insulated from politics but still accountable to the president and Congress, can succeed where our lawmakers have failed.

The more extreme critics of IPAB claim it will abuse its power — that it will issue treatment edicts that keep the sick and elderly from getting cancer drugs, expensive surgeries and the like. But the new health law explicitly prohibits IPAB from changing the program’s benefits or imposing anything that would amount to “rationing.” Besides, all insurance plans, public and private, must choose what to cover and what not to cover. That includes Medicare, which already exercises this power routinely. At most, IPAB would increase the influence of scientists and reduce the influence of lobbyists over these decisions. Would critics really prefer it the other way around? (Actualy, maybe some would. Many IPAB critics, including Democrats, have benefitted from large health industry donations.)

The less extreme, more honest criticism of IPAB is that it will encourage payment schemes that lead to indirect rationing, by restricting access to the people who provide care. According to this argument, doctors are already turning away patients because of low reimbursements. Once IPAB ratchets down payments further, they’ll turn away even more patients. But the stories about doctors turning away Medicare patients turn out to be mostly anecdotal, at least at this point. The best data available, from MedPAC among others, suggests most doctors still see Medicare patients — and are more open to them than they are to privately insured patients. Particularly given the Affordable Care Act’s other reforms, which provide financial incentives that reward efficient styles of care, providers should be able to offer care as good if not better than what they offer now — while charging less money per patient.

But what if the critics are right? What if IPAB changes really did make it more difficult for seniors to see providers? That would be a problem, obviously. But the alternative is to cut spending on Medicare in ways that will affect beneficiaries more directly and more severely. The House Republican budget, which most of these critics support, is a prime example. Instead of introducing a commission to manage Medicare more efficiently, it eliminates the government program and hands seniors a voucher that, according to every reliable estimate, would provide far less financial protection. Even if competition among plans reduced the cost of care, seniors would still have a far tougher time getting care — with large numbers forced to choose between health care and other necessities, much as they were in the days before Medicare came into existence. Somehow I think that’s not a reality most seniors would like.

Jonathan Cohn is a senior editor at .

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Are you better off with Medicaid than if you had no insurance at all? The answer seems like a no-brainer: Of course you are. But, for the last few months, a of writers and intellectuals has argued that the program doesn’t actually help beneficiaries and may actually hurt them. To prove their point, they’ve cited a handful of studies in which Medicaid recipients ended up in worse health than people with no coverage whatsoever. According to Medicaid’s critics, this evidence suggests that expanding the program, as the Affordable Care Act would, is a bad idea.

Most I know these arguments. The reason: When you’re comparing people on Medicaid to people with no health insurance, there’s no simple, sure-fire way to account for the underlying differences in the two populations. For example, if you know you suffer from serious medical problems, you’re more likely to sign up for public insurance when it’s available. As a result, the Medicaid population may be fundamentally sicker than the uninsured population — and end up with worse medical outcomes, even if they’re benefiting from the program’s coverage.

The best studies attempt to account for this possibility. And, mostly, they show that people on Medicaid benefit from the program: They have an easier time getting medical care and, as a result, they end up healthier. But even their adjustments aren’t perfect. There simply hasn’t been a way to conduct an experiment that cleanly and randomly separated the Medicaid population from the uninsured population. At least until now.

In 2008, officials in Oregon decided to make Medicaid available to more of the state’s residents. But they appropriated only enough money to add 10,000 people to the rolls — and 90,000 people applied. To cull the list, officials held a lottery, creating the sort of random experiment that would be impossible to create under different circumstances. After all, the only obvious difference between those who ended up on Medicaid and those who didn’t was that 10,000 of them got the right lottery number.

Experts have been watching to see what happens and, on Thursday, they published their initial findings through the . Their conclusions? The past studies, like the intuition about Medicaid, appear to have been correct. People with Medicaid really are better off than people without insurance. A lot better off, in fact.

Among the most obvious differences that researchers observed in the two populations was what wonks call “health care utilization” and everybody else calls “getting medical care.” Compared to people who did not get Medicaid, most of whom remained uninsured, the Medicaid beneficiaries were 15 percent more likely to use prescription drugs, 20 percent more likely to get cholesterol monitoring, 35 percent more likely to use outpatient care, and 60 percent more likely (!) to get mammograms. The people on Medicaid also reported that they were healthier because of the program: According to the paper, 25 percent said in surveys that they were in “excellent” health, rather than “fair” or “poor.”

Of course, more health care services don’t always lead to better health. And people don’t always assess their own medical status precisely. The truth is that more objective measures of health probably won’t show big changes, in one direction or the other, for some time. The benefits of taking high blood pressure medicine, for instance, might not show up until many years in the future, when (hopefully) fewer people suffer heart attacks and require expensive medical interventions.

But the study demonstrates clearly, and persuasively, a different benefit of Medicaid: It provides beneficiaries with economic security. The Medicaid population was 40 percent less likely to borrow money or avoid paying other bills because of high medical expenses. The likelihood that unpaid medical bills ended up with a collection agency was also 25 percent lower. Not coincidentally, people on Medicaid were 55 percent more likely to report having a doctor they see regularly and 70 percent more likely to report they had an office or clinic for care.

To be fair, not all of the findings in the new paper make the case for expanding Medicaid easy, at least in the political sense. Emergency room use does not appear to have declined, confounding a promise reformers frequently make, although such a decline might also take time to materialize. And the study found that the total spending on health care for the new Medicaid beneficiaries increased by 25 percent, even though reformers say that expanding health insurance will lead to reduced spending on health care overall.

Then again, that last finding makes sense: These new Medicaid recipients got more medical care and, from the looks of things, they needed it. It was bound to cost more money at the outset. But getting these people into more stable health insurance arrangements can make the health care system as a whole more efficient. And by lowering the overall burden of charity care that doctors and hospitals must provide, expanding Medicaid can create political support for reforms that will effectively pay these providers of care less over the long run. That, more or less, is how the Affordable Care Act is supposed to control health care costs in the long run.

Might future research show this study, too, has flaws? Sure. No research project is foolproof and even the study’s authors caution about extrapolating too much from this one study. But it’s not just this study’s design that makes it unusually significant. It’s the all-star team of scholars that produced it. Among the paper’s authors are Harvard’s Joseph Newhouse, whose analysis of the 1970s Rand “Health Insurance Experiment” is still the gold standard for health policy research, and MIT’s Jonathan Gruber, arguably the nation’s most respected authority on modeling the outcome of health care policy interventions. And although Gruber is a well-known advocate for Medicaid who advised Democrats during the Affordable Care Act debate, one of his co-authors is Harvard’s Katherine Baicker. She served on the Council of Economic Advisers during the Bush Administration.

Oh, did I mention that the paper’s principal co-investigator is Amy Finkelstein, also of MIT. Conservatives frequently cite her research on Medicare as evidence of that program’s limits. I’ve always thought conservatives misinterpret those particular findings, but it speaks to the respect her work commands. And her conclusion about Medicaid seems pretty unambiguous. “Some people wonder whether Medicaid coverage has any effect. The study findings make clear that it does.”

I’m not naïve enough to think this paper will make Medicaid’s most ardent critics rethink their position. But it should.

Jonathan Cohn is a senior editor at .

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McKinsey and Company has finally released the detailsÌýof its controversial paper on the likely effects of health care reform. And it looks like the paper’s critics (including yours truly) were right to raise questions about it. Based on what the company has said, the paper offers no new reason to think Americans with employer-sponsored insurance will lose that coverage because of the Affordable Care Act.

Politically, that’s good news for President Barack Obama, since he told insured Americans that the law wouldn’t take away the coverage they already had. But what does it mean in terms of policy? Should we be happy that health care reform is unlikely to reduce substantially the current system’s dependence on employer-based insurance? That’s another, much more complicated question.

Let’s start by looking closely at the paper, which suggested that as many as half of all employers would seriously readjust their employee benefits and as many as a third would drop coverage altogether once the health law took full effect in 2014. The theory behind the claim was that employers would find it financially advantageous to stop offering insurance because workers could instead get subsidized coverage through the new insurance exchanges. In other words, workers would happily take salaries — instead of insurance — from their employers. Even though firms that employ more than 50 employees — which account the majority of American jobs —Ìýwould have to pay a penalty for failing to offer health benefits, the McKinsey consultants said, the financial advantages of dropping coverage would more than offset that cost.

But the basis for that prediction was a survey of high-ranking corporate officials. And it turns out the survey had a fewÌýweaknesses. For one thing, a quarter of respondents didn’t know the salary breakdowns of their companies — in other words, how many workers were making high salaries and how many were making low salaries. In addition, more than half of respondents weren’t even aware of what their companies spent on health benefits. The survey didn’tÌýask respondents about the ages of their employees. Were they relatively old? Young? A mix of the two? And when survey administrators “educated” respondents about the health law, they didn’t remind them about the effects of the employer tax exclusion, which makes job-based health insurance worth a lot more to employees.

Surveys asking employers to predict behavior are never that reliable. But these issues make the McKinsey study a particularly poor forecasting tool. In general, younger and poorer workers might be better off getting insurance through the new exchanges, because they will get bigger subsidies from the government and because they benefit less from the tax exclusion.ÌýIt is a different storyÌýfor older and richer workers.Ìý

More sophisticated studies of employer behavior account for these and other variables, typically by creatingÌý“synthetic” firms and predicting how employers will act, based on data on past employer behavior. Sure enough, these studies have consistently shown a very different result: that the majority of employers will continue to offer health insurance, even after health care reform. In fact, just this week, new analyses by Ìýand the Ìýcame to the same conclusion. (The basis for the Robert Wood Johnson prediction was another projection from the Urban Institute’s model.)

While these predictionsÌýcould be wrong, obviously, their findings are consistent with what happened in Massachusetts, where a similar coverage scheme actually bolstered employer-sponsored insurance. Indeed, even McKinsey itself now acknowledges that its study couldn’t make projections as reliably as these other efforts. In its official June 20 , it stated flatly that its prediction was “not comparable to the health care research and analysis conducted by others such as the Congressional Budget Office, RAND and the Urban Institute.”

But here’s the irony: Most people like the insurance they get from their employers, which is why you hear politicians from both parties constantly promising to keep that coverage in place. In the long run, though, workplace-based insurance is probably not an arrangement worth preserving.

Private, employer-based coverage became the norm in the U.S. in the 1940s and 1950s because the arithmetic of health insurance works only with large groups of relatively randomly selected people, and large businesses naturally create such groups. But employer-based coverage makes workers too dependent on their bosses while saddling employers with a financial liability over which they have only partial control. More importantly, it leaves out people who don’t have steady, full-time work.

An ideal health care system would not merely include everybody. It would also give everybody access to the same set of coverage arrangements, regardless of their place of employment (or lack thereof). It would also liberate employers from the responsibility of administering health benefits for workers, allowing them to concentrate on other, more productive activities. Let the car companies make cars and the grocery stores sell groceries and the software firms design software. They don’t need to be running health insurance plans, too.

A single-payer system, with a combination of basic government insurance and private supplemental coverage, would be a much better alternative. So would a “competition” system that looks like what is currently in place in the Netherlands or Switzerland, or what Sen. Ron Wyden, D-Ore., back in 2007. The Affordable Care Act could evolve into such a system, particularly if the new insurance exchanges work well and workers feel comfortable the insurance available there is as good as what they’d get from employers. But that transition would probably take a lot of time, no matter what corporate officials were telling the survey-takers at McKinsey.

Jonathan Cohn is a senior editor at .

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Opponents of the Affordable Care Act had another day in court on Wednesday, this time before federal judges in Georgia, representing the 11th Circuit Court of Appeals. These opponents want the judges to uphold a ruling, made by a lower federal judge in Florida, that the law is unconstitutional. It’s the third such appeal to go before a Circuit Court — and perhaps a prelude to consideration before the Supreme Court.

As you probably know, the primary focus of the plaintiffs in these lawsuits is the “individual mandate” — the requirement that all people with economic means contribute toward the cost of their health care by obtaining insurance or paying a tax penalty. The constitutional objections to this scheme are varied and complicated. But one argument by the plaintiffs deserves extra scrutiny, because it suggests the plaintiffs misunderstand health care policy, are misapplying a crucial court precedent, or some combination of the two.

The argument is about Article I, Section 8 of the Constitution, which empowers the federal government “to regulate commerce among the several states.” The Commerce Clause, as it is known, is one of three constitutional provisions that the government has cited as justification for imposing the individual mandate. And its origins should be familiar to anybody with even rudimentary knowledge of American history. In the first years after independence, the country’s governing charter was the Articles of Confederation, in which state autonomy hindered security and hobbled prosperity.

Frustration with this situation led to the 1787 Constitutional Convention, where, as legal scholar Andrew Koppelman noted recently in the ,Ìýdelegates agreed that the new Congress should “legislate in all cases to which the states are separately incompetent, or in which the harmony of the United States may be interrupted by the exercise of individual legislation.” That resolution eventually evolved into the Commerce Clause.

The clause’s final text is vague enough to allow honest debate over its meaning and limits. But, except for a relatively brief period from the 1890s until the 1930s, the courts have interpreted it very broadly. In the early 1940s, for example, the Supreme Court agreed that the federal government could place strict quotas on a farmer’s wheat production, even limiting what the farmer could grow for his own family and livestock, because the aggregate effect of more farmers doing the same thing would depress the price of wheat nationally and imperil the then-fragile economy.

In the 1990s, the court retrenched just a bit, producing the key decision upon which the health care lawsuits now rely. In that decision, United States v. Lopez, the Supreme Court threw out a federal law establishing “gun-free zones” around schools. The federal government had cited the Commerce Clause as justification for its law, arguing that gun possession led to violence and fear, preventing students from gaining skills they need for the job market — and that the aggregate effect depressed economic growth nationally. The Supreme Court said that “pil[ing] inference upon inference” in that way was not sufficient to warrant federal intervention. Years later, the court made a similar ruling about national efforts to protect violence against women.

Opponents of the health care law say the Lopez principle ought to invalidate the Affordable Care Act, too, because the argument for an individual mandate relies on a similar pile of inferences — namely, that people going without health insurance drive up prices for everybody else. But is that really the sort of argument the justices meant to reject in Lopez? Are the inferences in the two cases really similar? I don’t think so. At its core, the Lopez case was about the distinction between state and federal responsibilities. The “inferences” that drew the justices’ ire were the ones arguing that gun violence near schools demanded federal, rather than state, action — even though many states already had laws dealing with the problem.

Health care is different. It is very clearly a national problem beyond states’ ability to control. Hospitals routinely charge for services that insurers from other states must pay. Employers negotiate premiums for workers in multiple states. And so on. As Koppelman noted, “Statues that horn in on matters that are purely local, such as the federal ban on the possession of handguns near schools that the Supreme Court struck down in Lopez, exceed the commerce power. But the national health care insurance market is not a purely local matter.”

To put this in more practical and specific terms, imagine that you are the governor of New Jersey. You’ve signed a law establishing universal coverage and, heeding the advice of health policy experts, you’ve established an individual mandate. But the governor in Pennsylvania has not done these things. Therefore, in the greater Philadelphia area, which spans your states’ common border, younger and healthier residents are moving to Pennsylvania because they figure they don’t need insurance and there they won’t be forced to obtain it. The result is that your population is getting gradually sicker, prompting insurers to raise their premiums and diminish their offerings. But your only recourse is to hurl insults across the Delaware River. It’s a textbook case of the states being “separately incompetent” to solve a problem.

You don’t have to take my word for this, by the way. Officials in Massachusetts, the one state that already enacted health reform with an individual mandate, filed an in defense of the health law.ÌýIn that brief, they cite their limited ability to reduce the price of health care without a national regulatory system that includes an individual mandate. California, which came within one state legislature vote of enacting a similar system several years ago, filed a making the same argument.Ìý

Could the courts throw out the Affordable Care Act without using Lopez in the way the law’s opponents do? Sure. The case, again, is more complicated than that. But it would be one more sign that the courts are establishing new limits on federal power, rather than recognizing existing ones. That is not something conservative judges, in particular, say they like to do.

Jonathan Cohn is a senior editor at .

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Even before Tuesday’s special election in New York, in which Medicare figured so prominently, congressional Republicans and their supporters had altered their rhetoric about the cherished government health insurance program. Instead of defending their plan to effectively end Medicare, at least in its current form, they accused Democrats of being the real culprits out to do in the program.

Their argument goes like this: Democrats enacted huge cuts to Medicare as part of the Affordable Care Act. President Barack Obama has since proposed even deeper cuts as part of his deficit reduction plan. These cuts will inevitably mean less care for seniors, one way or another. And so it is the Democrats, not the Republicans, who are out to destroy Medicare.

At least, that’s what the talking points are. And, like most political claims, these have some elements of truth. Democrats really did enact substantial Medicare cuts as part of their health care reform law and Obama really has proposed still deeper cuts as part of a deficit reduction plan. And it’s a good thing, too, because the financial burden of Medicare would eventually become unsustainable if the program keeps growing in the way that it has been. Reforming the program and, yes, slowing that growth is the responsible thing to do.

But the question for voters isn’t whether the Democrats are cutting Medicare spending. The question is what effects those cuts would have — and how they would compare to cuts that Republicans propose in their budget. Medicare cuts come in all shapes and sizes, after all.

The key distinction between Democrats and Republicans — er, one of the key distinctions — is that Democratic cuts to Medicare focus on the providers and producers of Medicare. The most obvious and well-known among these are reductions in payments to private insurance companies that offer seniors coverage through what’s known as the Medicare Advantage program. This is basically an effort to eliminate some corporate welfare.

Less well-known but equally important are the Democrats’ proposed reductions in payments to the rest of the health care industry. These reductions will take place alongside a series of experiments, offering financial bonuses to doctors, hospitals and other providers who can learn to operate more efficiently or effectively. The idea is that, together, these changes will nudge the health care industry in the direction of providing more care for less money.

The Republicans and their allies argue that all of these cuts will eventually affect beneficiaries negatively. Medicare Advantage insurers will stop offering extra benefits, doctors and hospitals will stop seeing so many patients, and so on. I don’t happen to think they are right, for reasons I’ve explained previously. But even if they were correct, it’s hard to see how Republicans could argue, simultaneously, that their changes would somehow leave seniors in better shape.

For one thing, notwithstanding their rhetoric, the Republicans have actually voted to keep most of those Democratic-backed changes in place for the next ten years. The dirty little secret of the House Republican budget, which most Senate Republicans just voted to endorse, is that it lets stand the health law’s early payment reforms — the very same ones Republicans and conservatives started attacking long before President Obama signed them into law.

Of course, after 10 years, the Republican Medicare plan diverges dramatically from the Democrats’ health care plans. Starting in 2022, under the Republican scheme, the traditional, government-run Medicare insurance plan would not accept new retirees. At that point, all seniors would instead purchase a private insurance plan. Government would offer seniors a subsidy, to help seniors pay for the coverage. But the value of that subsidy would rise far more slowly than the price of medical care.

This is the essential point that Republicans and their supporters never mention. Over time, they would provide the program with dramatically less money than the Democrats would. It’s difficult to find a hard estimate of how much exactly. But if you include proposed cuts to Medicaid (which pays for long-term care and other services the elderly use) and do some math based on the official projections, you’ll see that the Republican budget would reduce federal health care spending by an additional 7 to 9 points of gross domestic product by 2050. That’s an immense difference.

Republicans claim, as Democrats do, that their plan will nudge the whole health care system in the direction of more efficiency — not by changing the behavior of providers, as Democrats prefer, but by changing the behavior of consumers, in ways that will create a more vibrant and competitive market. It’s a highly dubious argument, given that private insurance has higher overhead and less bargaining power than government insurance. (Remember, the Democratic plans would take money back from private insurers serving the Medicare population, for precisely the same reason.) But even if it were true, there’s no credible expert who thinks the savings from competition would be large enough to offset the massive reduction in funding Republicans have in mind.

In short, it’s true that Obama, the Democrats and their supporters have backed cuts to Medicare. But those cuts are smaller and more carefully designed than what the Republicans would impose. It’s the difference between saving Medicare and destroying it — no matter what the Republicans and their allies want you to believe.

Jonathan Cohn is a senior editor at .

This <a target="_blank" href="/medicare/052511cohn/">article</a&gt; first appeared on <a target="_blank" href="">KFF Health News</a> and is republished here under a <a target="_blank" href=" Commons Attribution-NonCommercial-NoDerivatives 4.0 International License</a>.<img src="/wp-content/uploads/sites/8/2023/04/kffhealthnews-icon.png?w=150&quot; style="width:1em;height:1em;margin-left:10px;">

LOS ANGELES — I’ll never forget the first time I visited the about seven years ago, because it’s the first time I heard about a grisly intruder pediatricians sometimes find in young children’s ears: Cockroaches.Ìý

It’s a problem endemic to poorly maintained, low-income housing, of which there is quite a lot in the South Central neighborhood surrounding St. John’s. And it’s one reason the staff there are so aggressive about confronting the health hazards of their patient population. Instead of merely treating problems like asthma, lead poisoning and, yes, insects tucked into children’s ear canals, St. John’s also offers home environmental assessments — complete with instructions for tenants on how to clean up hazards and, where possible, to pressure slumlords into fixing dilapidated properties.

St. John’s was a more modest enterprise back then: just a handful of clinics operating on a shoestring budget. When I returned last week, I could see it had grown. Thanks to a combination of philanthropy and increased federal funding, under both the Bush and Obama administrations, it has expanded to 10 clinics with an annual budget of $25 million, serving a predominantly Latino and African-American population in what remains one of the nation’s most medically undeserved communities.

And the future seems more promising still. The Affordable Care Act will pump more money into these clinics, both directly by giving them subsidies and indirectly by giving more of their patients insurance. At the same time, the law provides incentives for providers that offer integrated care, which St. John’s is in position to do. It’s long been what the experts call a “medical home,” establishing long-term relationships with patients and tending to their health, rather than simply their illnesses. Now it’s working with other clinics and local hospitals to develop a fully coordinated, multispecialty network of care — or what the experts, and the health overhaul, call an “accountable care organization.” The result should be medical care that is, at once, more comprehensive and more efficient.

But none of that will happen if the congressional leaders of the Republican Party and their supporters get their way. Not only have they vowed to repeal the health law, taking away its clinic subsidies and massive expansion of insurance to low- and middle-income Americans. They have also voted, via the House Republican budget, to dramatically reduce funding for Medicaid.

A new from the Kaiser Family Foundation suggests that, if fully implemented, the House Republican budget would reduce Medicaid enrollment nationally by between 14 million and 27 million people. (Kaiser Health News is an editorially independent program of the Foundation.) That’s above and beyond the 17 million who would not get Medicaid because the Republicans would also repeal the health law.ÌýAnd while conventional wisdom suggests Republicans will not succeed fully in either endeavor, the latest signs from Washington suggest the Republicans could very easily extract significant Medicaid reductions before the budget negotiations are over.

What would that mean for a clinic like St. John’s? I put that question to longtime director Jim Mangia, who responded by sketching out its finances. As a federally qualified health clinic, St. John’s gets extra payments for every Medicaid patient it sees. This is by design: It’s meant to subsidize care for the uninsured, who generally pay very little or nothing at all. And that’s precisely what happens at St. John’s. Medicaid patients are about 30 percent of the patient mix but 40 percent of the revenue. “It’s our best payer, our bread and butter,” Mangia says. And if the clinics’ Medicaid population shrinks, the clinic’s revenue will shrink with it.

Mangia refused to speculate on how he and his staff would respond, but it seems likely they’d have to reduce spending somewhere, particularly since the state of California is already contemplating major Medicaid cuts. And, as I walked around the clinic, I didn’t get the impression that downsizing would be easy. The facility I saw was clean but hardly lavish. The big investments, such that they were, seemed to be standard equipment and a new electronic medical records system. In its public filings, Mangia said, St. John’s reports an operating margin of just 2 percent.

At one point, Mangia mentioned St. John’s had started offering its patients podiatry. That sounded a bit superfluous — is bunion care really a taxpayer responsibility? — until Mangia explained the rationale. It seems clinic staff see many diabetics with severe, untreated foot problems, because of poor circulation. But Mangia said the county’s public hospitals, frequently the uninsured’s only option for specialty care, generally have a six- to nine-month waiting list for treatment — and patients end up requiring amputations before they see specialists. “My doctors came in here, and said we can’t in good conscience keep referring these folks to the county,” Mangia explained. The clinic ended up hiring twoÌý podiatrists. Mangia isn’t sure the investment saved the clinic dollars, but he estimates it saved about 750 limbs in the last year.

Clinics like St. John’s have a way of finding their ways through financial crises. Mangia, who is obviously a gifted fundraiser, could try to lean more heavily on philanthropy. But the cuts that Republicans are proposing and that Washington is contemplating are too large to be offset with donations. The medical safety net of clinics and hospitals would inevitably end up offering fewer services or seeing fewer people, even as the withdrawal of Medicaid coverage forced more low-income Americans to seek charity care. “It’d be disastrous,” Mangia says. I’m inclined to take his word for it -– and you should be, too.

Jonathan Cohn is a senior editor at . His California-based reporting for this column was done in conjunction with the Kaiser Family Foundation Media Fellowships Program.

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A new

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For the better part of two years, the debate over how to control health care costs had a certain one-sided quality to it, because the Democrats had a plan and their critics did not. Democrats were forced to put their ideas on paper, with specifics, and subject them to nonpartisan accounting. All the critics had to do was attack.

And attack they did. Sometimes they said the Democrats’ plan, which eventually became the Affordable Care Act, did too little. (It’ll blow up the deficit! It’ll bankrupt the government!) Sometimes they said it did too much. (It’ll stop innovation! It’ll create death panels!) Sometimes they even said the two things simultaneously, which is the kind of neat rhetorical trick politicians can pull off only when they have no plans of their own.

All of that changed this month, when House Budget Committee Chairman Paul Ryan, R-Wis., released his budget proposal and included within it radically conservative reforms of the nation’s major health care programs. Ryan would repeal altogether the coverage expansions of the health law. He also would increase the eligibility age for Medicare and then turn it into what most of us would call a “voucher scheme,” eliminating in 2022 the traditional government-run insurance plan for everybody who retires in that year and replacing it with a fixed financial subsidy that seniors can apply toward the cost of regulated private insurance policies. Last but not least, Ryan would transform Medicaid into a block grant. Instead of guaranteeing federal funds to cover everyone that becomes eligible for the program, Washington would simply give the states a pre-determined, lump sum of money — and let states figure out how best to use it.

On paper, the Ryan plan saves the government a lot of money, at least in the long run. But upon closer inspection, the savings turn out to be illusory, cruel or some combination of the two. In fact, far from proving the superiority of conservative health reforms, Ryan’s plan validates what his political adversaries have said all along. The Affordable Care Act represents a serious and realistic approach to controlling the cost of medicine — one that would be even more serious and realistic if the long-term budget changes President Barack Obama just recommended become law.

Although privatization has its own ideological appeal to conservatives, the real reason Ryan’s program would reduce government spending and deficits dramatically, at least over the long term, is that it substantially reduces the amount of insurance people would get. Repealing the health law would deprive more than 30 million people of insurance and leave others with more limited benefits. Meanwhile, the fixed formula Ryan would use to calculate the Medicaid block grants and Medicare vouchers would cause the value of each to rise far more slowly than the cost of health care. States would end up reducing enrollment or scaling back benefits or both. And, according to the Congressional Budget Office, seniors would end up individually responsible for more than two-thirds of their medical costs.

The theory behind this effort is that, by making individuals more conscious of the cost of health care, they will act more like consumers — thinking twice before getting extra treatments and shopping around for insurance policies that provide better value at lower costs. But Republicans take this argument, which has some truth, way too far. The Medicare Advantage program, which already offers seniors the option to enroll in private insurance, hasn’t produced vast savings. Experiments with high-deductible coverage suggest it causes beneficiaries to skimp on useful care, including preventive treatments that prevent most costly, acute episodes later on.ÌýAs Len Nichols, an economist at George Mason University, puts it, Ryan and his allies are “substituting algebra for health care policy.”

And that’s to say nothing of the political perils in Ryan’s strategy. As presently structured, his plan envisions a seismic shift away from traditional Medicare to a voucher worth considerably less money. Older voters are famously sensitive to even modest alterations in government benefit programs for the elderly. The idea that lawmakers would stand behind such an abrupt change, and then let it evolve in a way that so drastically reduces the federal contribution toward retiree health care, is difficult to accept.

The alternative is to control health care costs a bit more gradually, which is what the federal health overhaul does. Like Ryan’s plan, the Affordable Care Act attempts to restrict the federal government’s contribution toward health care expenses, via constraints limiting the growth in Medicare (although not Medicaid) costs as well as the tax subsidy working-age Americans get for employer-sponsored insurance. But the constraints are looser. For example, unlike Ryan’s plan, which uses a fixed-value voucher to set Medicare spending, the health law sets less restrictive growth targets (which the president’s debt plan would further tighten) and then calls upon an independent commission — the Independent Payment Advisory Board — to recommend reforms when Medicare costs exceed those targets. IPAB’s recommendations can change what Medicare pays the providers of care, but the board, by law, cannot alter Medicare benefits or eligibility.

In addition, the health law’s formula doesn’t attempt to reduce spending by focusing exclusively on direct cuts to individual beneficiaries. On the contrary, the law distributes spending reductions across the health care system, affecting virtually everybody — whether it’s reducing Medicare payments to hospitals, eliminating extra subsidies for private Medicare Advantage plans or demanding greater rebates from pharmaceutical companies that contract with government insurance programs.

Most important, the Affordable Care Act doesn’t merely limit health care spending, in the faint hope that consumers, on their own, will produce a more efficient market. The law also introduces reforms that will put in place technological infrastructure and financial incentives to promote higher quality care. To some extent, that means sweeping, system-wide changes like the introduction of electronic medical records or the creation of an institute that will determine which treatments work better than others. But it also means dozens of more narrowly focused efforts, like a new public-private partnership to promote patient safety or pilot programs in “smart malpractice reform.” The idea is to experiment with virtually every payment reform experts have tried successfully on a small scale, in the hopes of replicating the successful ones across the country.

In short, the Republican vision for health care reform, as expressed by Ryan, is to limit federal spending on medical care, at levels far below what we spend today, and then let individuals make the best of the situation. By contrast, the health law calls for more gradual, more shared sacrifice by everybody involved with health care — with a focus on promoting efficiency so that lower spending needn’t result in lesser care. That’s not only a more realistic approach to controlling costs. It’s also a more humane one.

Jonathan Cohn is a senior editor at


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