On Friday, the 13 co-sponsors of Sens. Ron Wyden’s (D-OR) and Bob Bennett’s (R-UT) Healthy Americans Act wrote a letter to President-elect Barack Obama outlining their shared principles for reform:

Ensure that all Americans have health care coverage;
Make sure health care coverage is affordable and portable;
Implement strong private insurance market reforms;
Modernize federal tax rules for health coverage;
Promote improved disease prevention and wellness activities, as well as better management of chronic illnesses;
Make health care prices and choices more transparent so that consumers and providers can make the best choices for their health and health care dollars; and
Improve the quality and value of health care services.

Most progressive champions of health care reform — Kennedy, Baucus, Clinton, Obama and grassroots organizations — warmly embrace Wyden’s principles but oppose the crux of his plan. As Ezra Klein explains, Wyden’s plan would dissolve employer-based insurance and mandate every employer who had covered his employees to “convert the total they spent on insurance into salary increases creating, in one day, the single largest pay raise America has ever seen.”

Individuals would be required to purchase health care from “one of the options offered by their state’s newly formed Health Help Agency (HHA). The HHA’s will have a menu of private insurance plans, all of which must provide coverage equal to or better than the Blue Cross Blue Shield Standard Plan used by Congress. All plans will be community rated by the state, meaning an end to adverse selection and preexisting condition problems,” the government would offer subsidies of “up to 400 percent of the poverty line,” and “employers will contribute through a set equation related to business size and yearly profits.”

Conversely, the Baucus, Clinton, and Obama health care proposals all build on the employer-based model, thus ensuring that workers keep the insurance that they currently have.

This position is quite popular. According to a recent Gallup poll, for instance, 67 percent of Americans said that they were either completely or somewhat satisfied with the health insurance benefits that their employer offered and businesses seek to build on the employer model.

For these reasons, Wyden’s proposal is politically tricky. Congressional forces for reform and the various coalition groups that are pressuring Obama to make a major push for universal coverage, are all rallying around the employer-system. Wyden’s plan does have bipartisan support, but as other more employer-friendly plans start to wind their way through the new Congress, expect some Democrats and moderate Republicans — who may have signed up for his plan to be “for” something — to support a more mainstream version of reform.

This summer, Republicans argued that curbing the excessive federal reimbursements to Medicare Advantage plans would undermine choice and strip millions of enrolless of insurance. Conservatives also claimed that the private insurance plans that participate in Medicare Advantage provide better care than traditional Medicare and should not be cut.

Responding to these arguments, the Wonk Room pointed out that while Medicare Advantage plans “are paid 13% more than traditional Medicare pays for similar seniors,” there is no evidence to suggest that they deliver “a better cost/quality result” than traditional Medicare programs. Today, three studies published in Health Affairs concur, finding that private plans “have increased the cost and complexity of the program without any evidence of improving care.”

One paper by Carlos Zarabozo and Scott Harrison explains that private plans were intended to “achieve efficiency through care coordination.” The initial design “called for plans to be paid 95 percent of projected fee-for-service spending for each enrollee — generating a 5 percent savings to Medicare.” Policy makers hoped to encourage private plans to compete on efficiency and offer extra benefits to enrollees. However, since “payment increases have been so large that plans no longer need to be efficient to offer extra benefits,” Medicare now pays “an average 12.4 percent more per enrollee in 2008 compared to what the same enrollee would have cost in the traditional Medicare fee-for-service program”:

The higher MA payment rates have financed what is essentially a Medicare benefit expansion for MA enrollees, without producing any overall savings for the Medicare program, and with increased costs borne by all benefices and taxpayers…the additional benefits have not resulted in improved quality among MA plans.

Insurance companies pocket the extra dollars. In fact, according to a Government Accountability Report (GAO) released just in June, private plans participating in Medicare Advantage earned greater profits and spent less on benefits:

Because organizations spent less revenue on medical expenses than projected, they earned higher average profits than projected. On average, MA organizations’ self-reported actual profit margin was 5.1 percent of total revenue, which is approximately $1.14 billion more in profits in 2005 than MA organizations projected…Nearly two-thirds of beneficiaries were enrolled in health benefit plans offered by MA organizations for which the percentage of revenue dedicated to profits was greater than projected and the percentage of revenue dedicated to expenditures (medical and non-medical combined) was lower than projected.

Fortunately, President-elect Barack Obama has promised to eliminate this subsidy to insurers and use the extra savings ($62 billion over 5 years, $169 billion over 10 years) to finance comprehensive health care reform.