Responding to the barrage of criticism over the so-called “Cornhusker Kickback” — a special deal added to the Senate health care bill that would have funded Nebraska’s Medicaid expansion for perpetuity — Sen. Ben Nelson (D-NE) announced that he is “working for reform to treat all states equally on Medicaid expansion“:

“I’ve been in serious discussions with Senate leaders and others to secure changes in the bill to treat all states equally,” Nelson added. “At the end of the day, whatever Nebraska gets will apply to all states.” Among options Nelson has discussed would be for the House and Senate conference committee to change the legislation to provide full federal funding of the Medicaid costs for all states, or allow every state the ability to opt out of the expense they’ll begin to pay in 2017. “My view is: either fund it or un-mandate it,” Senator Nelson said.

While fully funding Medicaid expansion may be unrealistic (given President Obama’s $900 billion ceiling), Nelson’s new plan to allow states to opt-out of Medicaid funding is better than his earlier idea to “ask states to opt in”. The politics of taking away a federal benefit would likely force most states to stay in the program under his new proposal. In fact, policymakers could strengthen the provision by introducing language requiring states to prove that the expansion-population can find affordable health insurance elsewhere before allowing them to opt out. Alternatively, they could design a trigger mechanism that would opt states back in if the uninsurance rate is still too high.

But again, if states opt out of the Medicaid expansion, fewer Americans would have access to affordable health care. Residents below 133% FPL would have to buy unaffordable and unsubsidized coverage from the exchange or the individual health insurance market. Most would likely go uninsured, increasing costs in the long run. In other words, Nelson — who wasn’t too keen on reforming the health care system in the first place — would be undermining two key goals of health care reform: (1) expanding coverage (2) lowering health care spending.

And he’s wrapping his demands in the cloak of “equality.” The word has a nice ring to it, but doesn’t make a whole lot of sense when it comes to determining the federal government’s contribution to the Medicaid program. After all, why shouldn’t the government consider each state’s unique economic conditions and circumstances in determining its reimbursement rates? Not all states are created the same — they have different Medicaid programs, income disparities and poverty levels. Some states need more help than others. In fact, even today, the federal matching formula varies from state to state, depending on each state’s poverty level.

Nelson’s desire to eliminate “unfunded federal mandates” is certainly understandable, but his stance suggests that states either pay for the Medicaid expansion or spend nothing at all. He sets up a false choice.

Under the Senate bill, the federal government is funding the expansion for the first several years and increasing its contribution to Medicaid over the long term. States, which have a certain degree of flexibility in how the implement the Medicaid program, are required to partly finance the Medicaid expansion in out-years of the 10-year budget window. But in doing so, they’re also make an investment towards lowering health care costs. With reform, states would be spending less on health care than they would if they did nothing at all. Without reform, costs continue to rise. States are forced to spend millions on uncompensated care for the uninsured. Residents with coverage are paying higher premiums to compensate emergency room services. State must stretch their Medicaid budgets, particularly during periods of economic recession, and have little to spend on other social services.

From the state perspective, neither picture looks particularly appealing — each requires a certain level of investment. But by opposing reform, states are simply putting off inevitable spending.

As Congress works to reconcile the House and Senate health care bills, President Obama is reportedly pressuring House Democrats to accept the Senate’s 40% excise tax on insurance plans worth more than $23,000 per year (for a family of four). The administration believes that the tax could slow the growth of health care spending by pushing employers and employees into less-generous plans. Employers would consequently put the savings into higher wages.

But House Democrats strongly oppose the mechanism. They worry that less-generous plans “could be taxed because they are costly for other reasons” and fear that employers would “lower the cost of plans by increasing deductibles and co-pays,” which “would not necessarily bring down health-care cost.” “It’s not a very popular initiative in the House or in the public. It’s something the president is committed to, and we’ll see how it works out,” House Speaker Pelosi (D-CA) said after a White House meeting this afternoon with Obama. Stopping the excise tax is the “#1 priority” of the House Democrats who claim to have “signatures of 190 Democrats on a letter opposed to the excise tax on high-end “Cadillac” insurance plans.”

Yesterday, the Economic Policy Institute (EPI) released a report that could potentially strengthen the House’s argument. The report questioned the administration’s claim that “health care cost increases have been a major driving force in constraining wage growth and that wages will grow more strongly by curtailing employer health costs via the excise tax.” “There is logic to their argument, but it is only skin-deep and deeper examination will show it to be simply not true”:

1. Health care costs are not large enough to substantially move wages as these proponents claim;

2. Examination of actual wage and benefit trends confirms that changes in the trajectory of health care costs did not materially affect wage trends over the last 20 years; and

3. The wage behavior described—accelerating in the late 1990s and more slowly thereafter—actually best characterizes wage growth for low-wage workers who have minimal access to employer-based health care. Conversely, this pattern of wage-growth over time is least pronounced for higher paid workers with the most health coverage.

It’s unclear to what degree health care costs determine wages. Since the report compares the variation in health care spending to wage growth across the entire business community, it incorporates data for businesses that don’t offer any health care coverage. A more specific analysis of industries with high percentages of insurance offering could have demonstrated a closer correlation between health care costs and wages.

Still, proponents of the excise tax must carefully balance the twin interests of controlling health care costs (by getting rid of very wasteful plans) and ensuring that Americans aren’t pushed into inferior coverage. The current bill offers all kinds of transitions and exemptions for Americans in high-risk categories but, since the tax is not indexed to health care spending, it will hit more families over time. Roughly a quarter would be affected by 2019. Employees won’t experience a dollar-for-dollar increase in wages, and could face higher cost sharing in their new (cheaper) health policies.

Already, “lawmakers are considering several ways to alter the Senate’s controversial proposal to tax high-cost insurance plans offered by employers so as to protect middle-class families from the tax.” According to Inside Health Policy, “One alternative under discussion would assess the tax based on the value of a plan’s benefits rather than its costs, the House aide said; another, the union source said, would be to exempt plans with a predominance of elderly workers.” Making too many exemptions, of course, would undermine the tax’s ability to contain costs and force lawmakers to look for other financing mechanisms.

A new analysis of how health care reform will affect the states suggests that if Senators and Representatives dropped their ideological allegiance and voted to advance the interests of their constituents, the health care reform effort would would actually attract bipartisan support. Writing in Health Affairs, Claudia Schur and Marc Berk examine how Congress’ different approaches to financing health reform (tax on the rich vs. tax on high-cost plans) would benefit the states and conclude that “States with the most to gain under health care reform are overwhelmingly represented by Republicans, while those states likely to do worse are much more likely to have Democratic senators”:

Here’s how our categorization of states works—we classified states as “High Benefit” if the percentage of uninsured is above the national average and as “Low Benefit” if the rate is less than the national average. We then classified states by whether they would be “High Cost”—the top half of the distribution—for each of the financing approaches.

As Exhibit 1 shows, the states most likely to “win” as a result of health care reform are Arkansas, Idaho, Kentucky, North Carolina, Oklahoma, Tennessee, and Utah. All of these states have a relatively high number of uninsured and all are in the bottom half of states in terms of cost under both financing mechanisms….Among the states most likely to “lose” are Delaware, Nebraska, and New Hampshire as well as the District of Columbia. Each of these states has a relatively lower-than-average proportion of uninsured residents, and each would fall in the “High Cost” category under either of the financing options. There are four states—Alabama, Indiana, Michigan, and Rhode Island—that while also “Low Benefit” are “Low Cost” as well.

Look for yourself:

The authors note that “The benefits of reform, as we measure them, are higher in ‘red’ states. This is not surprising. Medicaid eligibility correlates with lack of insurance, which in turn is our measure of potential benefit, and conservative states are less likely to provide broad social-welfare benefits for the poor.” This line of reasoning also suggests that conservative states leading the health care industry-funded effort to repeal health care reform are working to deprive reform from Americans who need it the most.

On Tuesday, Sen. Ben Nelson (D-NE) contacted the Fremont Tribune to explain that the President should have fixed the economy before tackling the health care crisis — a problem that Nelson sees as completely unrelated to the state of American business or the larger economy. “I think it was a mistake to take health care on as opposed to continuing to spend the time on the economy,” he said.

Still, Nelson admitted that there is some benefit to passing reform. He explained that 220,000 Nebraskans who are currently unable to acquire private health insurance because of pre-existing medical conditions will be able to get it, “127,000 Nebraskans that are going to be able to change from their expensive individual policies to a less costly private group plan,” tax credits “will be aimed at helping middle class families afford private insurance, and helping small businesses afford group plans. Adding “more people on the insurance rolls” “will reduce the amount of uncompensated medical care expenses that get shifted onto the premiums of people who have insurance.”

In short, Congress passed the right bill and the wrong time. Nebraskans would have benefited MORE if the benefit was delayed for another 10-20 years and Congress instead undertook some “undefined” jobs plan that did not deal with the health care economy. Tellingly, Nelson did not reveal his secret jobs program or recognize that Congress has been walking and chewing gum at the same time. Obama signed a stimulus package, the House passed a jobs bill, and the administration has “outlined a broad new proposal to try to spur jobs and give more help to Main Street consumers and businesses.”

Nelson characterized the “rush” to pass health care reform as a realistic approach to policy making — “Deadlines and crises are the very nature of how legislation passes,” he said — but then criticized the administration for setting deadlines to ensure that “legislation passes.” “In this case, it was so public for so long, with all the anger and all the town hall meetings and all the coverage that this kept getting, that’s why I think everybody’s felt rushed, because they set a number of different deadlines and didn’t meet them. I think it was unwise in retrospect,” he said.

Wisdom came only after Nelson “took a bad bill and made it better,” by inserting the so-called “Cornhusker Kickback” — which, unlike the body of the bill “was not intended to be a special perk for Nebraska” — and tightening the abortion restrictions. “There was never a time when I fought to get something only for Nebraska; not then and not now,” he added.