Health reform gets new hope

WASHINGTON—The election of Barack Obama as president will change the health care legislative landscape dramatically when the Illinois Democrat takes office in January.

For the first time since Bill Clinton assumed the presidency in 1993, the occupant of the Oval Office will have as a goal developing federal legislation to drastically reduce the number of people who lack health insurance.

"This will be a president whose vision is one of a move toward universal coverage, with the federal government playing a much larger, though not an exclusive role," said Frank McArdle, a consultant with Hewitt Associates Inc. in Washington.

During the campaign and in his position papers, Sen. Obama laid out in broad terms his view on the direction health care reform should take. His plan is roughly comparable to a 2006 state law that has moved Massachusetts very close to universal health insurance coverage.

Like Massachusetts' approach, Sen. Obama's plan backs a play-or-pay system in which employers--except the smallest firms--would be required to offer coverage meeting federal standards or pay a fee to help fund coverage for the uninsured. Lower-income individuals would have their health insurance premiums subsidized by the federal government, which would contract with commercial health insurers to offer coverage.

Last year, just over 15% of the U.S. population, or 45.7 million people, lacked health insurance, according to the U.S. Census Bureau.

While a Massachusetts-style program may be Sen. Obama's current vision of the best way to move the nation closer to universal coverage, he almost certainly will be open to change, Washington observers say.

They contrast Sen. Obama's background, which includes four years in the U.S. Senate, with Bill Clinton and then-First Lady Hillary Rodham Clinton, who developed a massive universal health insurance plan in 1993 only to see it fall apart for a variety of reasons, not the least of which was the Clintons' failure to bring in key lawmakers in shaping the package to build bipartisan support for it.

"(Sen. Obama) understands that health care reform can't be engineered top-down. It has to be an inclusive process in which the administration works with legislators and major stakeholders," said Paul Dennett, senior vp-health care reform with the American Benefits Council in Washington.

With his Washington experience, "he understands that give and take is necessary," Mr. McArdle said.

Still, while Sen. Obama's Capitol Hill experience may put him in a better position to achieve passage of major health care reform than the last Democrat in the Oval Office, passage of Massachusetts-type legislation is not a sure thing.

Near-term odds of such a measure winning passage are low for a variety of reasons.

"While there is strong interest, there is not a consensus. And as to an employer mandate, the great majority of employers will fight that tooth and nail," said James Gelfand, senior health policy manager at the U.S. Chamber of Commerce in Washington.

Aside from the current lack of consensus on the direction health care reform legislation should go, a major expansion of coverage would run up against a glaring fiscal reality: the lack of money, due to massive budget deficits and the costly--perhaps as much as $1 trillion--federal bailout of financial institutions.

"Whether the resources are there to pay for an expansion is an open question," Mr. McArdle said.

"There isn't a lot of new money available," added the Chamber's Mr. Gelfand.

In fact, Sen. Obama may initially concentrate his health care initiatives on relatively noncontroversial programs, such as one that provides health insurance coverage to millions of children in lower-income families.

In the past year, Congress twice passed legislation to expand the State Children's Health Insurance Program, which President Bush vetoed, saying the legislation went too far and expanded coverage more than was necessary.

In the end, legislators simply extended the current SCHIP program through March 31, 2009, and observers say Sen. Obama's first health initiative will be working with Congress to win passage of an expanded SCHIP program.

"Phase one will be reauthorization and expansion of SCHIP," Mr. Gelfand said.

"At first, there may be some nibbling around the edges with legislators looking at SCHIP and the 'doughnut hole,"' said Blaine Bos, a worldwide partner in the Minneapolis office of Mercer L.L.C. "Doughnut hole" is the common term used to describe a coverage gap in the Medicare Part D prescription drug benefit.

On another issue, though, business groups may have to play defense once Sen. Obama takes the oath of office. That concerns the tax-favored status of health savings accounts linked to high-deductible health insurance plans, a centerpiece of the Bush administration's health care reform initiatives that went into effect in 2004.

Many congressional Democrats, especially those in the House of Representatives, are no fans of HSAs, which have been embraced by employers as a way to lower their cost of providing health insurance coverage. In the just-concluded congressional session, the House approved a bill that effectively would have increased the costs associated with administering HSAs.

But the Senate never considered that measure, in part because of President Bush's veto threat.

While Sen. Obama said little about HSAs during the campaign, at minimum he lacks President Bush's enthusiasm for the arrangements. And that could embolden congressional opponents to press for legislation to curb, if not kill, the appeal of HSAs.

"It could be a death by a thousand cuts," said the Chamber's Mr. Gelfand.

Others, though, doubt that legislators--fearful of a public backlash--would want to add HSAs to their health care reform agenda.

"I don't see them going away. While I don't see anything being done to make them more attractive, I also don't see how Congress would want to antagonize" the 6 million people enrolled in health plans linked to HSAs, said Steve Raetzman, a senior health care consultant with Watson Wyatt Worldwide in Arlington, Va.

For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com