Former Gov. George Pataki (R-NY), who is heading up an effort to petition the government to “repeal and replace” the new health care law, took a shot at Mitt Romney today, telling a Connecticut newspaper that Massachusetts’ health care reform law contained an “unconstitutional” individual mandate:

Former New York Gov. George Pataki blasted the Bay State’s health care reform created under former Gov. Mitt Romney today, telling the Herald it’s “unconstitutional.” He also conceded that Romney is “probably the (Republican) front runner” in the 2012 presidential election.

“I think the idea of what they call an individual mandate … is not just wrong, in all likelihood it’s unconstitutional,” Pataki told the Herald in a telephone interview today [...] Pataki, who would not rule out a 2012 presidential run, is kicking off his push to repeal health care reform at the Paul Revere park on Sunday. He’s started a non-profit called “RevereAmerica.org” and plans to tour campaign hot spots like Iowa and California. “We want to mobilize people who understand our freedom is at risk again and we have to wake up and reclaim our government,” said Pataki. He’s pushing to rake in $15 million for the campaign along with millions of signatures from congressional districts to show politicians where the average American stands.

Pataki’s comments come as a growing number of conservatives are beginning to question Romney’s ability to successfully distance himself from national health care reform, given its similarities to the Massachusetts plan. Since President Obama signed the reform bill, Romney moved quickly to condemn the new law as an abuse of federal power, arguing that health care reform is a right reserved for the states. He has also defended the success of his own, very similar, proposal. Many conservatives, however, don’t believe that voters will make the distinction.

Early last month, The Club for Growth mocked Romney for calling his plan “the ultimate conservative plan” and the CATO Institute has now put together a video explaining the fundamental similarities between RomneyCare and ObamaCare.

The conservative American Spectator is also warning Republicans that a Romney presidential bid could undermine any effort to repeal the national law. “Romney would not be able to credibly campaign against the national health care law,” Phillip Klein wrote today on the AmSpecBlog. “And as a result, were he the Republican nominee, it would kill the movement to repeal ObamaCare.”

Romney himself may even agree with Pataki. He has repeatedly praised the individual mandate for insuring 98% of all Massachusetts residents, but has also argued that the measure violates the sovereignty of the states. “I think it’s unconstitutional on the 10th Amendment front,” he said last week.

The new health care law will add approximately 16 million Americans to the public Medicaid program and private health insurers are positioning themselves to enter this expanded market. For all the talk about government involvement in health care, the state-federal Medicaid program is predominantly filtered through private companies which claim to lower costs by managing care and providing better access to primary doctors.

From the program’s beginnings in the mid-1960s, states have struggled with skyrocketing health care costs and diminishing provider participation (the program’s reimbursement rates are generally lower than private insurers or Medicare). By the 1990s, policy makers began to see managed care as a way to control spending and improve patients’ access to primary care physicians. Approximately 70% of Medicaid enrollees are already covered by some sort of managed-care plan “rather than by a fee-for-service model in which the states simply pay bills for care.”

Now, private insurers are hoping to expand that reach. Yesterday, UnitedHealth Group Inc. released a report “describing a variety of managed-care strategies it says will help cash-strapped states solve budget problems and doctor shortages that hobble the government health-care programs for the poor.” While cash strapped states are strongly considering partnering with private insurers — Florida has five counties that are are administered solely by managed-care companies and legislators are considering measures to bid out the rest of the state — evidence on the degree to which managed care actually accomplishes these goals varies. Medicaid patients in some states seem to have better access to doctors, while other surveys have found that overall improvements in access associated with managed care are minimal.

Ken Terry explains that the real attraction to states is not that manged care is able to significantly lower health care costs, but that it helps states “budget their Medicaid expenditures.” However, “If that budgeting was working so well — in other words, if it meant the states could drive hard bargains with private insurers — they wouldn’t be complaining that Medicaid is eating up more and more of their revenues. And insurance companies wouldn’t be seeing Medicaid as the goose that promises to lay golden eggs”:

The big golden egg, of course, is healthcare reform, which is expected to boost Medicaid rolls by 30 percent nationwide starting in 2014. That windfall isn’t evenly distributed: Texas and California are expected to add about 2 million new Medicaid enrollees each, while Florida anticipates adding 1 million new Medicaid recipients as a result of the federal law. Overall, ten states will increase their Medicaid populations by at least 50 percent.

United argues that moving most of these patients — as well as more of the current Medicaid recipients — into managed care will save about $90 billion. A larger share of the projected savings, United contends, will come from applying managed-care techniques to long-term care. Much of United’s argument rests on the theory that better care coordination reduces costs. Which is a fine argument so far as it goes. So far, however, commercial managed care plans mainly save money by paying doctors and hospitals less than they could earn from fee-for-service plans or Medicare.

It’s unclear how managed care plans will fare in reducing costs over the long term. What is clear, however, is that now that health reform is law and private insurers are positioning themselves to enter new markets, the plan seems a lot less government centered than both opponents and proponents envisioned.

The new federal health care law requires that insurers spend at least 80% of customers’ premiums on medical care in the individual insurance market, and 85% in the employer/group market. Starting in 2011, insurers that don’t meet these requirements will have to issue rebates to consumers “based on the amount insurers’ spending falls below these minimums.” Yesterday, a new report released by the Senate Committee on Commerce Science and Transportation found that while many of the nation’s largest insurers “modestly increased the percentage of premium dollars they spent on medical care in 2009,” the disparities “in medical spending between market segments remained larger than ever.

Health insures, in other words, still view the individual and small group markets as their most profitable sectors and they continue to spend a smaller percentage of premium dollars on actual medical care — shifting a significant amount towards administrative expenses and profits. For example, while the largest insurers used about 15 cents out of every premium dollar for administrative expenses in the large group market, “they used more than 26 cents out of every individual premium dollar for administrative expenses,” the report notes. [Note: the original report says "medical expenses" rather than "administrative expenses." I contacted the staff and they said that this was a mistake.]

Some insurers are already meeting the new federal requirements, while others will have to spend more on medical care to comply with the law:

The analysis found that the largest for-profit health insurers spend a lower percentage of their customers’ premium dollars on patient care than other health insurers. The analysis also found that in the individual and small group markets, health insurers spend a significantly smaller portion of each premium dollar on medical care than they do in the large group market.

Look:

The problem will come when insurers that fall short, try to meet the new minimums. The ratio is closely monitored by Wall Street investors and so insurers will have every incentive to continue spending less on care and increasing profits. They may try to artificially inflate their MLR by reclassifying administrative costs as ‘medical care.’ Already, WellPoint — the nation’s largest insurance company — announced that it has reclassified some of its administrative costs as medical spending in order to increase its medical loss ratio. As the report notes, “By reclassifying these expenses as medical benefits, the executives projected that WellPoint’s 2010 medical loss ratio (which the company calls its “benefit expense ratio”) would increase by 170 basis points, or 1.7%. Because WellPoint expects to collect more than $30 billion in premiums from its commercial health care customers in 2010, this “accounting reclassification” means that the company has converted more than a half a billion dollars of this year’s administrative expenses into medical expenses.”

Health and Human Services Secretary Kathleen Sebelius has written a letter to the National Association of Insurance Commissioners (NAIC) requesting their assistance in defining medical loss ratio (MLR) standards in the new health care law and has issued two formal requests for public comment on how best to define the term. Since the MLR requirements are one of the few ways to prevent insurers from earning outrageous profits before most of reform’s provisions kick in, HHS “and state insurance commissioners will have to remain vigilant and focused on ensuring that consumers get the benefit of the new federally mandated medical loss ratios.” These definitions, in other words, have to be air tight to ensure that companies can’t simply reclassify their expenses.