Healthcare Reform or Health Insurance Bailout?

What is the real endgame of healthcare debate in Washington? Is it going to be a bailout of the insurance industry as opposed to a plan to provide healthcare for every American? The original jumping off point for this entire debate was that the United States is the only major industrialized country that does not have a national healthcare system. The debate has moved away from “how do you get healthcare” to “how do you get health insurance.”

Even if we accept that the discussion is more properly about reforming insurance than providing healthcare, the debate still focuses on how insurance could be paid for rather than how insurance could be fair. Funny thing is, when Congress voted to bailout the financial institutions, no one asked how they would pay for it. Millions of Americans wrote, emailed, faxed and called their representatives in Washington in opposition to the 2008 bailout. That bill was passed. Yet, with millions of Americans clamoring for healthcare, decades passed with no action. Even now, as we become accustomed to the idea that the federal government will take a stand on how healthcare is paid for – without the government actually paying for it – there are 5 different bills, topping 1,500 pages each, and nothing is even close to being done. George Will told This Week anchor George Stephanopoulos that Congress won’t spend the five minutes it would take to put all five versions of the bill on the internet because then people will know what’s in it – and Congress doesn’t want that. Imagine the hell we-the-voters would rain down on them if we knew what they are up to?

The scariest part of the potential legislation is the notion of creating an “insurance exchange.” It appears the federal government has already forgotten the trouble that these market exchanges create. The requirement that you give your retirement money (IRA, 401k, etc.) to a financial institution to qualify for favorable tax treatment from the IRS may have done more to inflate the stock market (investment exchange) bubble than all the risk-loving financial institution CEOs combined. All that pension and retirement money is the fuel that the financial institutions used to inflate the bubble. The “market exchange” idea did nothing for air pollution. Similarly, it will likely do nothing for improving access to or the cost of healthcare.

All of the Sunday morning talk shows (October 25, 2009) debated the “public option.” This sub-debate apparently holds the political key to getting legislation passed, whether or not enough senators and representatives will vote “yes” that there won’t be a filibuster or a veto. The “public option” comes in three flavors. One version is that health insurance will be mandatory and the government will provide an insurance program at a (presumably) very competitive price to consumers. The second version has an opt-out component: insurance is not mandatory so you could opt-out of coverage even under the government’s insurance program. The third version, known as the “trigger”, would set up a deadline, say two to three years after passage, during which time either the insurance industry will stop abusing policyholders – for example, by canceling your insurance the first time you get sick – or the federal government will enter the industry and provide some real competition. According to John Podesta, President and CEO of the Center for American Progress, the public option is key to getting enough votes to pass this in the Senate. He seems to have forgotten that only the House of Representatives can authorize the federal government to spend money – this is not properly the Senate’s turf.

Cynthia Tucker, of the Atlanta Journal-Constitution, stated it with perfect clarity on ABC’s This Week: The provision of the public option is only a sliver of healthcare reform. It is neither the panacea that the left-wing believes it to be nor the evil plan envisioned by the right-wing. It is all about the 60 votes required to overcome a filibuster in the Senate.

If only it were as simple as right-wing/left-wing, red-state/blue-state divisions. Democratic Senator Russ Feingold told CBS’s Bob Schieffer on Face the Nation that the lack of a public option “would be a serious gap” in any legislation. He spoke forcefully about the need to control abuses by insurance companies. He went so far as to say that the trigger version of the public option would simply give the insurance companies two or three years to manipulate the system to their advantage. “We need to take action now,” Feingold said, to slow insurance company abuse.

Not surprisingly, Feingold was not among the Senators receiving Clusters of Cash from the Health Care lobbyists and their clients in the most recent campaign fundraising cycle, according to the Center for Responsive Politics. That might explain his position – or maybe his position explains the lack of contributions.

Back in October 2008, then Treasury Secretary Paulson advised insurance companies they could qualify for TARP bailout funds. On April 8, 2009, now Treasury Secretary Geithner opened the tap to send TARP funds to insurance companies. One month later, Neal S. Wolin was confirmed by the Senate to serve as the Deputy Secretary to Geithner at Treasury. Until 2008, Wolin worked for The Hartford Financial Services Group, Inc. as President and Chief Operating Officer. On June 12, 2009, Hartford announced that it would receive $3.4 billion under the TARP. Several other insurance companies that applied back in October eventually declined to take TARP money.

If you still don’t see how cozy the insurance industry is with the federal government in that series of events, listen to Bill Moyers explain it on PBS. “Money not only talks, it writes the prescriptions.”

During the summer, I thought the Republicans were opposed to the public option as a Trojan Horse – meant only to move us one step closer to a single payer system that would have the federal government paying for all healthcare. Now that it’s just about the federal government paying for all health insurance, Republicans seem to be favoring it. Wonder who will end up the loser at the end?

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.