Sen. Jay Rockefeller (D-WV) doesn’t believe the Congressional Budget Office (CBO) when it says that tort reform could reduce the use of ‘defensive medicine’ and save the federal government $54 billion over 10 years. In a six page letter to ‘Doug’ (Elmendorf, the director of the CBO), Rockefeller points out that the CBO recent conclusion reverses years of precedent and relies on academic studies that actually undermine the budget office’s final conclusion:

CBO’s recent letter to Senator Hatch creates more questions that it answers. The several cited reports contain conflicting data, which tends to support CBO’s prior conclusion that the evidence available on the issue of defensive medicine is “inconsistent” and “mixed.” It is impossible for CBO to conclude that we will see cost savings from a reduction in health care services without analyzing the effects on patient health.

“CBO has repeatedly concluded that cost savings associated with medical malpractice reforms would be minimal and the at evidence concerning defensive medicine is ‘inconsistent,’” Rockefeller writes, noting that the budget office has previously determined that “the effect of medical malpractice reform “would be relativley small — less than 0.5 percent of total health care spending” and would “save [only] $5.6 billion over 10 years.”

Indeed, states that have adopted tort reform have failed to significantly lower health care costs. When Texas capped non economic medical malpractice damages to $250,000 in 2003, most conservatives argued that the reform would free doctors from having to prescribe unnecessary treatment. It didn’t happen. According to the Dartmouth research on disparities in health care spending, many Texan doctors are still prescribing aggressive treatments that don’t improve outcomes. In fact, as of 2006, Texas was still at the top of the list of high-spending states.

A physician’s motivation for engaging in ‘defensive’ behavior or overtreatment is far more complicated than the fear of lawsuits, health expert Maggie Mahar explained during an interview with the Wonk Room:

It may be that he saw a case like this once before and it went sour, and he doesn’t know why and so he wants to be extra careful. It may be that he has been seeing Ms. O’Connell for years, she is a dear person and he really cares for her and he just wants to make sure that no stone is left unturned. Could be that he has been seeing Ms. O’Connell for years, she is a pain in the ass, and he knows that if he doesn’t order every treatment that her neighbor says he needs, he’s going to be hearing from her. And it could be that he is afraid of being sued. If I were the doctor, I wouldn’t be able to untangle my motives and say to what degree fear of malpractice suits is driving my actions.

Experts believe that the current reimbursement structure does more to shape practice patterns than fear of liability. “The current health system reimburses doctors, hospitals, and other health care providers based on the number of visits and procedures that are done. As a result, health care providers’ revenues and profits increase when they deliver more services and the cost of health care goes up,” Ellen-Marie Whelan, a Senior Policy Analyst at the Center for American Progress, wrote in a recent report.

The current reform legislation attempts to re-align the incentives in the current system. It encourages providers to coordinate primary care services, expands pilot programs that reimburse providers in bundles and for episodes of care and allows the Secretary of Health and Human Services or the Center for Medicare and Medicaid Services to expand successful models. These kinds of reforms have saved money in places like Cleavland Clinic and the Mayo Clinic and will likely do more to reduce defensive medicine than the largely unsubstantiated reliance on tort reform.

Wellpoint, the nation’s largest insurer, has issued 14 reports on how health care reform would affect the premiums in 14 states. The insurer claims that the low individual mandate penalties in the Senate Finance bill and narrow age rating bands, will lead to higher premiums for Americans currently purchasing coverage in the individual and small group markets. “[W]ithout a strong individual mandate, the market reforms will have a direct impact on premiums and we believe will exceed any aggregate savings that can potentially be achieved through other elements of proposed legislation,” the report concludes:

Currently, a young and healthy individual may purchase comprehensive health insurance coverage for $107 per month in the individual market, and it is very reasonable that in the absence of a strong individual mandate, other elements of reform cannot overcome the impact of insurance market reforms and will multiply this premium for those purchasing coverage post-reform. We believe the pages that follow reflect a reasonable, honest assessment of the impacts those purchasing coverage would see post-reform. As shown, we do expect some individuals that currently exhibit higher risks to experience a drop in premiums as the result of reform. However, most purchasers will face higher premium costs post-reform, and as shown, purchasers of average age and average health are expected to face higher premiums post-reform.

If policy makers don’t require enough younger and healthier applicants to join the risk pool (and offset the costs of covering sicker applicants), premiums will increase for everyone, Wellpoint says. And it’s a valid point: modified community rating and guarantee issue can only lower costs if the size of the risk pool is expanded and the healthy balance out the costs of the sick. The merged senate bill should certainly adopt stronger mandate measures. But comparing today’s individual market policy with a post-reform product from the exchange (or even in the remaining individual market) is apples to oranges. If properly designed, the post-reform insurance plan will not be the porous, inadequate, high deductible policy currently available in the non-group market. Americans would be purchasing regulated policies from insurers that can’t rescind coverage or deny certain basic benefits. In other words, if you’re paying more, you’re getting a better plan.

The reality is, some reform provisions would tend to make premiums higher than current-law premiums; other provisions would “tend to make them lower.” Americans from different income brackets will pay different amounts for health care, but on the whole an analysis of Congressional Budget Office data suggests that reform will offer health insurance policies that are more affordable than what is currently available in the individual market.

If premiums do increase, however, insurers bear a fair share of the blame. As Families USA points out, insurers are “like a poker player who complains about his hand when, in fact, he is the dealer.” For all their concern about health care costs, Wellpoint has a poor track record of controlling prices or providing adequate coverage. According to a 2008 study by the American Medical Association, “WellPoint controls the largest market share in 9 of 42 states studied (CA, GA, IN, KY, ME, MO, NY, OH, and VA), dominating 71 percent of the market in Maine, 58 percent of the market in Indiana, and over half the market in Georgia, Kentucky, and Virginia.” It is the poster child for why progressives want to force large for-profit conglomerates to compete with a public option that places people before profits.

Wellpoint is heavily invested in the individual health insurance market and “has been among the most aggressive in pursuing healthy customers who are less likely to use benefits to pay for medical care.” The company has a “long history of putting its bottom line ahead of the welfare of its policyholders and their health care providers”:

- WellPoint Inc. has been barred from adding customers to Medicare plans after it denied prescription drugs to the elderly, endangering their lives.

- In 2006, WellPoint’s profits increased 34% as premiums and fees surged.

- WellPoint Inc., the nation’s largest health insurer that covers about 1 in 10 people in the U.S., fared the worst among its peers in a survey gauging how quickly HMOs process and pay claims to doctors.

- In March 2007, the state’s Department of Managed Health Care fined Blue Cross of California and its parent company, WellPoint, $1 million after an investigation revealed that the insurer routinely canceled individual health policies of pregnant women and chronically ill patients.

- California regulators uncovered more than 1,200 violations of the law by the company in regard to unfair rescission and claims processing practices.

- In December 2007, Insurance Commissioner Steve Poizner announced his office was imposing a $12.6 million fine against Blue Shield, saying the company had “committed serious violations that completely undermine the public trust in our healthcare delivery system.

Consider the source, but also understand the criticism. If we want to ensure affordable and comprehensive coverage we have to improve affordability standards (by injecting some real competition into the marketplace) and hold insurers accountable.

Most news outlets are reporting that Majority Leader Harry Reid (D-NV) may include an opt-out public option in the merged Senate legislation. “Mr. Reid met with President Obama at the White House Thursday to inform him of his inclination to add the public option to the bill, but did not specifically ask the president to endorse that approach, a Democratic aide said.”

Here the reports diverge. The NYT is reporting that Obama “asked questions” about the opt-out, “but did not express a preference at the meeting.” POLITICO quotes a ‘Democratic source’ as saying that Obama “appeared” to prefer a trigger option. And The Plum Line’s Greg Sargent clarifies, via a White House response, that “Reid was specifically raising the possibility of a public option with an opt-out clause as one potential route.” “Reid has not made a final decision to take this route,” Sargent reports.

At this point, Reid may not have the votes to move a national opt out off of the floor; he is introducing a national opt-out with the understanding that it would become a state-based ‘trigger’ when the Senate formally takes up the measure. The maneuver is meant to satisfy progressives — Congress tried — but the final bill will include a mechanism that triggers a state-based public option if a certain affordability threshold is not satisfied (if 5% of the state population does not have access to at least two “affordable” options, for instance). The policy will then be presented as ‘the best deal we could get’ and embraced by both Reid and the White House.

But a state-based approach won’t have the ability to significantly lower health care costs or change delivery patterns. Progressives point to existing state-based employee ‘public options’ or Medicaid programs that contract out to private insurers and thus don’t provide a meaningful alternative or competition. A state triggered public option, would lead to the same outcome, they argue.

To avoid this scenario, the White House needs to stop sending clarification statements to Sargent and stake out a firm position — they will never find the votes if they don’t whip them. Why not start on higher negotiating ground and embrace the HELP bill’s (relativley) strong public plan (it establishes state-based public plans that are controlled by the Secretary)? If Reid was to include the HELP bill’s plan in the merged Senate legislation, he could conceivably negotiate it down to an opt-out public option with a trigger — ensuring that states could only opt out of the public option if the private market offers meaningful and affordable coverage. Similarly, the public plan could start paying providers at market rates but convert to Medicare-like reimbursements if costs don’t decrease.

That kind of compromise preserves the integrity and goals of the public plan and presents the final product as a compromise of warring factions. That kind of compromise lowers the cost of the bill and makes coverage more affordable for families. It becomes ‘the best deal we could get’ and it’s better politics and policy. It scores better and it looks better (Congress made coverage more affordable and struck back at insurers and their self-serving reports). Starting the debate with the state-based approach cedes too much ground and does very little to improve the actual policy in the bill.

Of course, all of this is based on the premise that the public option is subject to change. Some observers believe that Reid won’t have enough votes to amend the public plan during floor debate. They think that whatever he inserts into the bill will stay there. Then the question becomes: will the national opt-out sink the entire effort?

The policy is still up in the air, but so far, the opt-out is winning mixed reviews from moderate Republicans and centrist Democrats: Read more