Exclusive: Click here to see slides from the McKinsey report. 

Ask doctors, hospitals, drugmakers, or insurers for their opinion of President Obama’s health care proposals, and you’ll likely get an earful about how reform will severely hurt their bottom line. Ask many liberals, and you’ll hear the opposite complaint: that the current incarnation of reform won’t affect these industries enough to significantly alter their behavior.

Now there’s a document that suggests both sides are wrong: The medical-care industry would need to make significant, and socially beneficial, changes in response to the bills currently moving through Congress; but such changes won’t come remotely close to destroying the industry’s profitability. Of course, reports on health care come out all the time. But this one deserves special attention--because it was prepared by the nation’s most famous consulting firm and was never meant to see the light of day.

Sometime in August, McKinsey & Company created a PowerPoint document called “Health Care Reform and Implications for Key Stakeholders: What this Could Mean for Client X.” Over the course of 44 slides full of charts and graphs, the firm examines the potential impact of reform on insurers, doctors, hospitals, and the drug industry. McKinsey tells Client X that the presentation’s purpose is to “help inform your understanding of the broader healthcare system impact and what this might mean for your key customers and Client X going forward.” After a source supplied me with the document--which is marked “confidential”--I contacted McKinsey. A spokesperson told me that “Client X” is not a particular company. Instead, he explained, the document is a broad overview of how McKinsey expects health care reform to play out. (It also appears to be a presentation that McKinsey consultants could adapt based on a client’s particular situation.)

Although legislation has evolved, McKinsey’s predictions about reform’s basic design and scope seem right on target, which is no small achievement. Remember that, in August, it seemed entirely possible Congress would pass no health care reform at all. But McKinsey identifies as the “most probable outcome” passage of a bill with somewhere between $750 billion and $1.05 trillion in federal outlays, a functional insurance exchange, a possible cap on the employer tax benefit, some cuts in reimbursements, and a severely watered-down public option. That outline describes, with uncanny precision, the bill Congress will probably pass sometime in the next two months.

But it’s the forecasts about what reform will mean afterward that matter to McKinsey’s clients. And perhaps the most surprising element of McKinsey’s analysis is its prediction that legislation really will force the medical-care industry to change its ways.

The bills moving through Congress use a number of strategies to induce such change. On the one hand, there are relatively heavy-handed efforts that would simply cut (or attempt to cut) the sheer volume of cash flowing into health care: reduced fees to insurance companies that offer private coverage to Medicare enrollees, a tax on the most expensive health insurance plans that would prod employers and individuals to buy cheaper coverage, and a dramatic strengthening of the commission that recommends changes in Medicare payments.

At the same time, the bills include more narrowly focused reforms. There would be bonuses for doctors who organize into integrated group practices, which tend to foster better care. There would be penalties for hospitals that have high rates of avoidable readmissions. And there would be funding for studies of which drugs work better than others, so that Medicare and insurers could stop paying for the less effective alternatives.

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McKinsey seems convinced that this entire package of reforms will influence behavior. Over and over again, it tells Client X that the world is changing. Hospitals, McKinsey says, will face “increased requirements to coordinate care across system/care continuum,” “significantly more value-conscious consumer decision-making,” and “intensified focus on performance measurement and improvement.” It has even starker warnings for the drug industry: “Big Pharma faces the largest potential revenue risk,” the document predicts. Partly that’s because of existing trends in the drug industry. But it’s also because studies of comparative effectiveness are sure to reduce the sale of drugs that don’t work as well. McKinsey suggests that the drug industry can survive and even thrive in this environment “by focusing on ‘productive’ innovation (supported by strong evidence), collaborating with payors and providers in new ways, and revamping commercial and R&D models to significantly improve effectiveness and efficiency.” 

These are precisely the sorts of changes that the architects of reform want the drug industry--and, more broadly, the entire health care sector--to make. “One generally comes away with the sense that [McKinsey] sees reform as changing incentives, first more modestly and then, potentially, in a more fundamental way in later years,” says Larry Levitt, vice president for special projects at the Kaiser Family Foundation, who reviewed the document at TNR’s request. “That’s a good sign.”

Meanwhile, McKinsey’s analysis suggests that--as long as they adjust to the new incentives--doctors, hospitals, and insurers will be just fine. While predictions carry uncertainty, McKinsey states, “it appears that providers overall (both hospitals and doctors) and payors may be largely unharmed (but with lots of variation across them).” “One comes away with the impression that this is also very manageable for the various sectors and, at least in the case of hospitals, maybe a net positive,” Levitt says.

To be sure, McKinsey’s recommendations track closely with the firm’s self-interest. As a consultant that sells strategic advice on how to adapt to changing markets, McKinsey wants companies to believe, on the one hand, that dramatic changes are coming--but, on the other hand, that they can still prosper if they follow McKinsey’s advice.

Still, McKinsey’s report struck me as well-reasoned, and the conclusions themselves are hardly outlandish. Moreover, everyone--from McKinsey to the Congressional Budget Office to think tanks--has biases, and no one is operating with perfect information. So I don’t think McKinsey’s conclusions can be dismissed out of hand. And if they’re right? Then it’s decent news for Client X, and better news for the rest of us.

Jonathan Cohn is a senior editor of The New Republic.

Polls show that Americans are confused about what health care reform means. And, if you listen to members of Congress on television, you get the impression that some of them aren’t certain, either. But figuring out what health care reform entails isn’t hard. All you have to do is look at Massachusetts.

Almost three years ago, the state introduced an ambitious initiative designed to make sure nearly all residents have health insurance. Under this scheme, the state requires employers to contribute toward the cost of covering workers, while requiring individuals to get insurance. It sets up regulated marketplaces, through which individuals and small businesses can obtain insurance, and it forbids insurers from denying coverage, or charging higher rates, because of preexisting conditions.

These are the same key elements you’ll find in the reform bills moving through Congress--which is precisely what has a lot of people worried, on both ends of the ideological spectrum. Conservatives tend to see Massachusetts as a classic case of government run amok. Liberals, although more sympathetic to the basic idea, say the reforms have provided too little coverage for too much money. There’s even one argument on which critics from both sides agree: Massachusetts hasn’t figured out a way to restrain the overall growth in health care costs. If national health care reform fares no better, the country could be in serious fiscal trouble.

The critics have some valid points, particularly on the question of costs. And, with key details about national health care reform still unresolved, understanding the shortcomings in Massachusetts could help lawmakers make the right choices. But the more significant story about Massachusetts is the one that gets told too rarely: the story of what’s gone right. If Massachusetts offers a preview of where we are headed nationally, then Americans can look forward to a health care system that, however imperfect, will be vastly better than the one we have now.

Health care reform in Massachusetts was actually the product of a long struggle that dates to the 1980s, when the state passed a law requiring employers to offer coverage to their employees or contribute toward the cost of covering uninsured workers. It was an ill-fated, if noble, effort: Before the law took effect, employers won repeal of its central provisions. Chastened, lawmakers in the ensuing years focused on incremental reforms, such as expansions of public programs for children and the restructuring of a fund to help subsidize charity care. The initiatives helped, but plenty of residents still struggled to find affordable medical care--either because their insurance was inadequate or because they were among the 10 percent of residents who had no coverage at all.

In 2006, though, reform advocates finally got a chance to try something big again. It was all thanks to a fortuitous political circumstance--one that spawned an unlikely alliance between Republican Governor Mitt Romney and Democratic leaders in the legislature. The Bush administration had decreed that it would not renew a special “Medicaid waiver,” under which Massachusetts channeled some federal money to large safety-net hospitals, unless the state redirected the money toward expansion of insurance coverage. Compelled to act, Romney and the legislature agreed on a scheme that blended ideological approaches and demanded compromise from both sides. There would be insurance for everybody, but everybody would have to pay what they could for it. Liberals wouldn’t get a single-payer plan or anything close to it; conservatives would have to put up with a large expansion of government, even by Massachusetts standards. Fittingly, Senator Ted Kennedy--who’d helped orchestrate the deal from Washington--appeared alongside Romney at the signing ceremony in Boston’s historic Faneuil Hall. 

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Three years later, that system remains in place, and Massachusetts residents deal with health insurance in virtually the same way that all Americans would if Congress were to pass health care reform. By law, anybody living in Massachusetts must obtain health insurance or face a penalty, which this year will be as much as $1,068. For the majority of people, who work for large companies, that means buying the coverage their employers make available. For those who don’t have insurance through a large employer, that means using the “Connector,” a regulated market administered by state-appointed officials.

The goal of the Connector is to give everybody the same sorts of choices people working for large employers already have. It screens insurance plans to make sure they meet basic standards, like covering all essential care and limiting out-of-pocket expenses to $10,000 per family. Because buying insurance can be expensive--Massachusetts has the nation’s highest premiums, at more than $13,000 a year for the average family policy--the Connector also makes subsidies available. Money for the subsidies comes from a variety of sources, including (token) contributions from medium and large employers who choose to pay a fee rather than provide health benefits for employees.

There’s no disputing that the reforms have expanded coverage. During a period in which the proportion of Americans without health insurance has remained stuck at more than 15 percent, the proportion of Massachusetts residents without coverage has fallen dramatically, to below 3 percent, according to official figures. That is by far the lowest percentage of any state.

Of course, coverage by itself is meaningless if it doesn’t translate into more access to medical care or less financial hardship because of medical bills. And there is evidence, mostly anecdotal, that some people are really struggling under the new scheme, either because it’s tough to pay the insurance premiums or because, even with coverage, their medical bills are a burden. But the overall picture looks encouraging. According to a study that two Urban Institute researchers published this spring, the number of working-age adults reporting that they skipped care because of high costs fell from 17 percent to 11 percent in the first two years after the law took effect. The gap was even more dramatic among those eligible for subsidized insurance through the Connector--that is, people making less than three times the poverty line, or around $66,000 per year for a family of four. Among those people, the proportion skipping care because of cost fell from 27 percent to 17 percent. And that’s despite a rough leveling-off in the second year, most likely due to the fact that the recession meant lots of people were out of work and counting their pennies. When the economy rebounds, the number should decline even more.

Still, there is the problem of overall cost. The new rules for the individual insurance market have brought down premiums for people buying coverage on their own, which is no small feat. But the Massachusetts reforms haven’t brought down prices on the whole. In fact, premiums for people who get insurance through employers are rising a tad faster than they are in the country at large. If costs continue to skyrocket, the state’s health care reforms will become unsustainable, requiring either large cuts or tax increases.

Then again, until recently, Massachusetts hadn’t seriously tried to reduce costs. The goal was simply to expand coverage and, perhaps, deal with costs later--which seems to be what’s happening now. In July, a special task force recommended far-reaching changes in the way insurance pays for medical care, by, for example, paying physicians an annual fee per patient rather than a fee for every additional service. For years, experts have said such reforms could save money. But these arguments are only now getting political traction, and many in Massachusetts credit the reforms. As this argument goes, the new system, by giving the state a greater stake in health care costs, has focused public attention on the problem and provided the government with more leverage to solve it. The left also seems more invested in the cost issue now, if only because it recognizes that controlling costs is necessary to sustain the recent coverage expansions.

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That doesn’t mean Massachusetts will succeed. Many experts, in fact, think only the federal government has the power to make serious changes in the way medical care is financed and, as a result, practiced. But there are signs that such changes may be coming. President Obama and his allies have focused on costs in ways that the Massachusetts reformers never did. Many experts believe that the most aggressive measure on the table, the Senate Finance Committee bill, would, over time, reduce the annual increases in health care spending.

Of course, every cost-cutting measure offends at least one powerful interest. Already, groups representing doctors, hospitals, device-makers, and the drug industry have been striking deals with the White House or congressional committees--deals designed to shield their members from changes that hold out promise for long-term spending reductions. But, if Massachusetts proves anything, it is that you don’t have to get everything right on the first try. Simply by addressing the coverage problem, you create political conditions for addressing the cost problem. And, in the meantime, you’ve put access to affordable health care within reach of nearly the entire population. It wouldn’t be everything reform could be. But it would be a historic accomplishment all the same.

Jonathan Cohn is a senior editor of The New Republic.

When conservatives scream about socialized medicine and death panels, you should tune them out. But lately conservatives have been making an argument you should hear. It's about whether we can believe Congress when it promises to raise taxes or cut spending--and, as such, whether we can believe that health care reform can actually be fiscally responsible.

As you may know, many promoters of health care reform say that the proposals in Congress will pay for themselves and, over the long run, actually reduce what we spend, as taxpayers and as a society. As proof, they point to (among other things) a series of changes in the way Medicare pays for services--changes that would, over time, pay the providers of medical care less and, accordingly, restrain the growth in overall Medicare spending. They also cite a reduction in the tax subsidy for the most generous health job-based insurance policies, or so-called "Cadillac plans." Experts believe this will induce employers and employees to seek out cheaper, more efficient insurance arrangements.

The Congressional Budget Office agrees that these measures would save the government money. (CBO doesn't predict the effect on health care spending overall, but it's a reasonable inference.) Still, the CBO delivered that judgment with a caveat: Cost control will only work if future lawmakers let those changes take effect. As CBO noted--and as conservatives have been arguing, in some cases very loudly--that's hardly a sure thing.

A big reason for doubt is the fate of a law called the "Sustainable Growth Rate." SGR is basically an effort to set a hard budget on physician payments in Medicare. After any year when Medicare reimbursements grew more quickly than the SGR, the government is supposed to cut those payments back. But thanks in no small part to physician lobbying, Congress has in recent years flinched at letting the cuts go into effect, instead passing yearly "postponements."

You can see where this argument is going. If politicians in Washington aren't willing to let the SGR take effect, why should we believe they'd be willing to let the planned Medicare reductions and insurance taxes take effect? It's a good question. But, it turns out, there are some good answers, as well.

For starters, the policies are structured differently. The SGR is a cut, plain and simple, that would affect physicians no matter how they changed their behavior. The planned Medicare reductions are part of a broader package, full of financial incentives that should, at least in theory, reward more efficient care. There would be bonuses, for example, that would reward the formation of integrated groups that deliver more coordinated chronic care. Similarly, both employers and employees would be able to avoid paying the Cadillac tax by shifting to plans that don't cost as much.

Severity and timing of the changes is another distinction. At least today, SGR is a joke because--if it went into effect--the reduction in physician payments would be a highly disruptive 20 percent. The adjustments in the new reform law would be less stark and, in the case of the insurance tax, less direct. The Cadillac tax falls on the insurer, not the individual. That ought to soften the political blow--not entirely, for sure, but perhaps enough to make a difference.

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Keep in mind that, notwithstanding the SGR experience, lawmakers in Washington have--from time to time--stuck by decisions to impose higher taxes or hold the line on Medicare spending. It happened in 1990, when President George H.W. Bush and a Democratic Congress agreed to raise taxes; it happened in 1993, when President Bill Clinton and a Democratic Congress agreed to raise taxes again; and it happened in 1997, when Clinton and a Republican Congress agreed to cut Medicare and Medicaid spending, although it later backed off some of the cuts.

Decision-makers in Washington stood by those changes because, during those periods, there was political will to reduce budget deficits. The same seems to be true today. President Obama has insisted reform be fiscally neutral, forcing Capitol Hill to reduce significantly the benefits reform will offer. Just two weeks ago, an effort to wipe out the SGR forever collapsed because, without offsetting revenues or savings, Congress itself was unwilling to authorize the extra money.

That doesn't mean the will to maintain fiscal balance will prevail throughout the next decade, or beyond, as the planned Medicare changes and insurance tax take full effect. But health care reform, done right, should make it easier to maintain that discipline in the future--not only by putting cost-saving measures on the books, putting the onus of action on those who wish to cancel them, but also by getting everybody covered.

For reasons that have as much to do with politics as policy, it's simply easier to control the cost of medicine if most people have insurance. As proof, just look at Massachusetts, where--three years after extending coverage to include 97 percent of the population--the state is looking seriously at truly sweeping changes in the way medical care is organized.

To be clear, a lot of reform advocates--this writer included--would support expansions of coverage even if it didn't reduce the deficit, purely on moral principle. And the case that health reform, as currently written, will actually pay for itself is a lot stronger than the case that health reform will restrain future medical spending. When it comes to the actions of future politicians, there are never guarantees.

But that's not a reason to oppose health care reform. It's a reason to push even harder on cost control--now, while lawmakers are still writing legislation, and in the future, when they have opportunities to improve upon it. Instead of ignoring complaints about cost control, reform advocates should answer them.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.

The insurance industry did itself no favors last week when it released a report purporting to show that health care reform would cause insurance premiums to skyrocket. The report focused on only a few specific changes contained in the various reform bills, rather than the bills in their entirety. And the report came out just a day before the Senate Finance Committee, the last of five congressional panels with jurisdiction, was scheduled to vote on a bill. Most of Washington interpreted the report as an effort to delay, if not derail, the reform debate--which it almost surely was. The industry quickly found itself on the defensive. And the Senate Finance Committee pressed ahead, passing a bill just as it was expected to do.

But buried inside the insurers' new piece of propaganda were two perfectly valid arguments--arguments that advocates of reform would be foolish to ignore.

The first of these arguments is about what's come to be known as the individual mandate. A central element of every reform bill that's gone through committee is a requirement that everybody obtain insurance. 

There's a moral argument for the mandate: We want a system that includes everybody, and that means everybody paying what they can for coverage.  There's also a more practical rationale. Without a mandate, young and relatively healthy people might decide not to buy insurance, because they figure they're unlikely to have high medical expenses. (Insurance only works when there's a large number of people paying in, so there are enough contributions from the majority who are healthy to offset the costs of those who are sick.) Besides, even young and healthy people can end up with high medical expenses, from an accident or a serious disease. Forcing them to get insurance is actually in their own interest.

Trouble is, individual mandates are not necessarily popular. Just ask President Obama, who exploited that fact during his presidential campaign. Remember, Hillary Clinton was the Democrat proposing a mandate; Obama attacked her for it. As the Senate Finance Committee deliberated over its version of reform, it decided to weaken its version of the mandate. It made it easier for people to opt out of the requirement, by demonstrating that buying insurance would be a hardship. It also reduced the penalty that people would face if they didn't comply. 

Neither effort was particularly controversial, although both should have been. At some point, if the mandate becomes too weak, it ceases to be effective. People ignore it and then we're back to the problem of young, healthy people opting out of the system. It's not clear whether the reductions the Senate Finance Committee proposed went that far; experts offer different opinions. But the weakening of the mandate is, at the very least, risky.

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The senators eager to scale back the mandate, including Democrat Charles Schumer and Republican Olympia Snowe, defended their moves on the grounds that it was unfair to make people pay for insurance that's not affordable. And it's hard to argue with that kind of logic. But that merely gets to the second problem that the insurers rightly cited in their flawed report: The bills in Congress don't do enough about the cost of coverage.

In theory, reform can reduce insurance premiums in a number of ways. It can wring out waste, by creating standard methods of billing and creating electronic medical records to reduce duplication of services. It can focus payment on treatments--and methods of care--that actually make people better. It can change the tax treatment of health insurance, a move most economists believe will encourage people to seek out more efficient policies. And it can leverage government pricing power, by setting hard caps on premiums or creating a public insurance plan that could help drive down prices. 

Most of the bills in Congress take some of these steps. But they don't take all of them. And even the cost-cutting reforms the bills do include could stand to be stronger. The Finance Committee, for example, cut a deal with both the drug industry and the hospitals under which the industries agreed to put up with relatively modest cuts in exchange for a promise to face no further reductions. Those industries, and other sectors of the health care system, could stand to give up a lot more. The House and Senate Health, Education, Labor and Pensions Committee bills both include a public insurance option. But even the House version--the stronger of the two--wouldn't save as much money as possible. To be sure, there's reason to think that the cost-cutting measures still in the bills will do at least some good. But it's clear they could go a lot farther.

Unfortunately, the insurance industry hasn't been entirely helpful in making such improvements. The insurers oppose not just a public option but, it turns out, changes to the tax treatment of benefits. They have come out for a strong individual mandate, but, of course, that's an idea that quite obviously helps their bottom line. (The more people who have to buy insurance, the more money for them.) And while they've called for stronger cost control, they haven't gone after groups like the drug makers or hospitals publicly. Instead, they've concentrated their fire on the public plan and, now, reform as a whole. 

The insurance industry, in short, has done nothing but look out for itself, much as it always has. But a bill that's bad for insurers could be bad for the rest of America, as well. The insurers don't deserve to get their way. But we might be better off if they did, at least on these two key issues.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.

President Obama and his allies in Congress are doing everything they can to rally 60 senators behind health care reform. But, for one red-state senator, even 60 "yes" votes won't do. It has to be 65. "I think anything less than that would challenge its legitimacy," he said in late September. It's a ludicrously high standard for passage--the sort you'd expect from a Republican opponent. But this comment came from Democrat Ben Nelson. And, while Nelson may be an extreme case who revels in opportunities to buck his party, he's not the only conservative Democrat arguing that health care reform--even the scaled-back version moving through the Senate Finance Committee--may be too much, too fast.

Even though the bill, as constructed, would leave millions uninsured and millions more with scant coverage, several of Nelson's Democratic colleagues have talked about weakening the bill even more, by further reducing its funding. They say they're worried about controlling the cost of medical care, and yet, they've eschewed obvious ways to cut costs, such as taking more money from the drug or hospital industries. And they oppose a voluntary public insurance plan, which is among the most efficient ways of delivering affordable, reliable coverage.

What are their motives? The charitable explanation is that Nelson and his allies are acting out of principles they come by honestly--that they simply can't abide even this modest expansion of government. But sincerity does not guarantee good public policy. And, in this case, their opposition wouldn't seem to serve their constituents well: 12.8 percent of Nelson's Nebraska constituents lack health insurance, as do 17.5 percent of Blanche Lincoln's in Arkansas and 20.2 percent of Mary Landrieu's in Louisiana. Many additional people in those states are "underinsured," meaning their coverage doesn't meet their needs. Because the Senate Finance bill does not offer financial assistance to people making more than three times the poverty line--and because the insurance it guarantees is less protective than what other, more expensive versions of reform would require--many of these people will remain exposed to the severe financial, not to mention medical, risks of inadequate coverage. More generous reform would ameliorate that problem, and few of its beneficiaries would bear the price, since the money to pay for it would likely come from taxes on the rich and on expensive benefit plans.

A less charitable explanation for the obstructionism of red-state Democrats is that they are trying to curry favor with health industry interests that help finance their campaigns. (Nelson has always been a favorite candidate of the health insurance industry, for example.) But there's a political cost to watering down reform: It might produce a bill that voters don't like. A reform crafted to appease the health care industry would extract minimal concessions from it: It would let drugmakers and hospitals get off with minimal sacrifice, even as both stand to gain the business of millions of new customers. Such reforms would do little to tamp down the skyrocketing prices of drugs and hospital stays (and, for that matter, the prices of devices and doctor visits). Insurers would have more leeway to raise their own prices and treat their sicker patients badly. Employers would continue to operate with minimal interference, which would mean fewer guarantees for Americans who get insurance through their jobs. By insisting that reform conforms to the interests of these groups, conservative Democrats can perhaps secure their campaign contributions--but only at the risk of alienating constituents. Lincoln will have Wal-Mart. But will she win her next election?

To be fair, Nelson, Lincoln, and others do have constituencies that express some seriously right-wing views. And, while polls sometimes show that conservatives support reform, voters in these states may well be skeptical. Perhaps what these senators need is a clever way out of their political dilemma--a way to produce change without supporting reform that is perceived as too liberal. Fortunately, the procedures of the Senate allow for just such a convoluted arrangement. Obama and his allies are focused on getting 60 votes because that's what it takes to break a filibuster. But a senator can vote to break a filibuster without voting for the bill being filibustered. Nelson and others can simply support cloture and then vote "no" on the final bill (or merely abstain). As long as Democrats have 50 "yes" votes--and they almost surely do--the bill will pass.

This approach would let an important bill come to a full vote and would allow a simple majority to pass the legislation. It's more democratic than allowing a minority inflated by the over-representation of small states to block the newly elected president's central domestic policy promise. Surely that's enough legitimacy for Nelson--particularly when it's also the right thing to do.

Ten years from now, if health care reform is a boondoggle, you might be able to trace that failure back to a decision in the wee hours of last week's Senate Finance Committee hearings.

It happened on Thursday night, just before midnight, when John Kerry put forward an amendment. It was amendment C-8: "Empowering State Exchanges to be Prudent Purchasers." The title may sound innocuous, if a bit arcane. But if you've followed the health care reform debate, then you know (or should know) that anything involving the insurance exchanges is important.

And Kerry's amendment is very important.

The idea of an insurance exchange is relatively straightforward. If you work for a big company or, say, the federal government, every year you choose from among a set of insurance plans--all of them conforming to some minimal standard, all of them available to you regardless of pre-existing medical condition. They've been chosen by your human resources or benefit department, who--ideally--have some clue about what they're doing, more at least than you do.

If, by contrast, you work on your own or in a small company, then you may have just one choice--or no choice at all. Affordable coverage probably won't be available to you if you have existing medical problems; even if you're healthy, the coverage you get could have major gaps or be otherwise unreliable. It'd be good to know which policies work and which ones don't. But unless you happen to be an actuary or insurance broker yourself, chances are you're clueless when it comes to navigating this complex world.

It's you, the individual or small businessperson trying to buy insurance, for whom the exchanges are being created. They're basically regulated marketplaces, where you get to choose from among insurance plans more or less the same way folks in large companies do. Your premiums should be more affordable, since now you're part of a large bargaining group. You should be able to get coverage regardless of preexisting conditions, since insurers can't pick and choose which exchange customers to cover. And you should have the peace of mind that the coverage is good, since you know it's been screened by the exchange.

The concept has been around for a while, although it's gone under different names. The reform plan that Bill Clinton put forward in 1993 proposed to create health "alliances" that would serve roughly the same purpose. And while that vision never came to fruition, one state, Massachusetts, managed to create such an institution three years ago, when--as part of a more comprehensive health reform plan--it started a pair of insurance pools for small businesses and individuals who couldn't get coverage through employers.

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The results, so far, are encouraging. People once unable to penetrate the private insurance market because of income or medical condition can now go online and select from a menu of insurance options--all of them covering essential services and providing solid financial protection, for rates not previously available. And although overall medical costs in Massachusetts have continued to rise, as they have across the country, premiums for what's known as the Commonwealth Care plans--the insurance option that the exchange manages most closely--have risen at a far slower rate.

Washington has taken notice. The bills moving through Congress all set up exchanges modeled more or less on what Massachusetts has done. But there are a few critical differences. Among the most important is a difference in how the exchanges would select which plans to offer people.

In the bills that passed three House committees and the Senate Health, Education, Labor, and Pensions (HELP) Committee, the exchange would be a "prudent purchaser." In other words, it would have a staff that bargained with insurers to bring down premiums--and that made sure all plans lived up to strict guidelines for coverage and customer service. In effect, any insurer that wants to offer coverage through the exchanges has to get the equivalent of a "Good Housekeeping Seal of Approval" from the administrators. This is precisely how it works in Massachusetts.

By contrast, the Senate Finance bill envisions much weaker exchanges. Instead of choosing which plans to make available, the exchange administrators would, by law, have to accept any plan that meets a relatively minimal set of standards.

Jon Kingsdale, who runs the Massachusetts exchange, calls that a recipe for "policy disaster," as consumers faced a dizzying array of more expensive, less regulated choices. "It would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. ... The exchanges would be nothing more than an automated Yellow Pages."

Kingsdale is among several Massachusetts-based policy experts who have been ringing the alarm bells about this flaw in the Finance bill. And it's no coincidence that it's a Massachusetts senator, Kerry, who now proposed to fix it by giving the exchanges the same powers envisioned in the House and HELP bills.

But when Kerry introduced his plan last week, he couldn't get the votes to pass it. The reason, several sources on Capitol Hill say, was opposition from Olympia Snowe, the Maine Republican who also sits on Senate Finance. Snowe seems to be concerned that a more aggressive exchange would amount to more government--which, in fact, it would be. But, as Massachusetts has shown, sometimes more government is exactly what health care needs.

Chances are reasonably good that Kerry's vision of reform will prevail, if not during the Senate floor debate then afterwards, when a conference committee merges whatever passes from the two congressional chambers. But it's not a sure thing, which is why this seemingly narrow question deserves a lot more attention.

Exchange design doesn't get the attention of controversies like the public option, abortion, or supposed death panels. In the long run, though, it could be far more decisive in whether reform works.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.

"You can’t really have reform without a public option," former governor Howard Dean, a prominent public-option advocate, said recently. "If you really want to fix the health care system, you’ve got to give the public the choice of having such an option." Promising as this sounds, it seems increasingly likely that the public option will be a liberal dream deferred. Republicans and conservative Democrats, panicked that the government plan will squash competition and the medical industry as we know it, are slowly killing the idea. Even President Obama, who has endorsed the idea unambiguously, has indicated a willingness to compromise on the issue.

Liberals, understandably, are in agony. But they can take at least some comfort in looking overseas--where one tiny country has managed to build a popular and successful universal health care program based entirely on private insurance. That country is the Netherlands, which several years ago overhauled its health care system and achieved most of the goals the liberal reform movement holds dear: near-universal coverage, affordable insurance, and quality health care.

Under the new system, the Dutch government has required that everybody gets insurance; in return, it makes sure insurance is available to everybody, regardless of pre-existing medical conditions or income. Although the government finances long-term care through a public program, it has turned over the job of providing basic medical coverage exclusively to private insurers, including some for-profit companies. Surveys show that the Dutch are happier with their health care than are Americans--or the people of any other developed country, for that matter. There are even signs, albeit faint ones, that the insurers are achieving what’s become the Holy Grail of health reform: using their leverage to improve the quality of care that doctors and hospitals provide--by improving the coordination of treatments for the chronically ill or steering patients to providers that get the best outcomes.

Still, there’s a catch. A big catch. Private insurance in the Netherlands works because it operates more or less like a public utility. The Dutch government regulates industry practices tightly--more tightly than the reforms now moving through Congress propose to do in the United States. The public insurance option was supposed to make up for that deficiency, at least in part, by setting a standard for service and affordability that the private industry would have to meet--and by offering a fail-safe option in case the private plans simply couldn’t keep up. If Congress ends up gutting the public plan, in part or in whole, then it needs to work even harder on making private insurance work. And it’s an open question whether that will happen.

What makes private insurance work in the Netherlands? It starts with tradition. The Netherlands first extended insurance coverage to everybody during Germany’s occupation of World War II. (It is, the Dutch like to say, the one good thing to come of that experience.) But, by the end of the century, frustration had set in. At the time, government provided insurance directly to people with incomes below a certain threshold; everybody above bought coverage on their own. The left found the system inequitable, since people with private coverage sometimes had better access to care; the right found it inefficient, since they thought public insurance interfered with the natural forces of competition. Eventually, they brokered a deal: Create a seamless system to cover everybody, regardless of income or medical condition, but do it all through private carriers.

The new system came on line in 2006 and, so far, the results are encouraging. Everybody picks an insurance carrier once a year, more or less the same way employees of large companies routinely do here in the United States, during annual open enrollment periods. By law, the coverage is generous, no matter which carrier somebody chooses. Plans cover all medically necessary services--as defined by the government, in consultation with independent experts and medical societies--and they pay for all but a tiny fraction of the bills. The government provides income-based subsidies, and roughly two-thirds of the population gets some assistance. In surveys of major countries by the Commonwealth Fund (which financed my own travel to the Netherlands), the Dutch were least likely to report forgoing care because they couldn’t afford it.

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But the real secret to success is what happens behind the scenes, in the way government watches and regulates the insurers. The big worry with private insurance is always that carriers, eager to make a profit, will try to avoid paying the large medical bills that people with serious health problems inevitably generate. And the main way insurers do that is by avoiding such people altogether--a practice known as "cherry-picking"--which can ultimately destabilize the entire insurance system.

The Dutch government prohibits cherry-picking. Insurers cannot turn away applicants, or charge them more, because of pre-existing medical conditions or risk of illness. For example, they can’t demand that you pay higher premiums just because you happen to work in a physically hazardous job. And, because clever insurers can find ways around such rules--by, for example, marketing largely to young people--the Dutch government takes some crucial additional steps. It makes sure the minimum-benefits package pays for ongoing chronic-disease treatments, as well as for medically intensive services for the seriously ill. It has also been collecting and publishing easy-to-understand data about insurers and providers--not just prices, but consumer reactions and quality indicators as well. The hope is that people will use the data to guide their coverage decisions from one year to the next.

Perhaps more important, the Dutch have what some would consider the world’s most sophisticated scheme for "risk equalization." Because even the best regulations may not stop people in relatively good health from congregating in certain plans--and because such separation can wreak havoc with the whole insurance system--the government audits each plan’s enrollment every year. Insurers with really healthy beneficiaries--say, a lot of young single people--pay a fee. Insurers with really unhealthy beneficiaries--plans with lots of diabetics or retirees--get a subsidy. In effect, the program takes away the financial reward for shunning unhealthy patients.

That, of course, is all well and good for the enlightened Dutch. But how would you replicate such a system in the United States? To begin with, mandating transparency could help a lot. One way insurers here take advantage of consumers is through confusion. They don’t always make clear what’s covered, they don’t always provide basic information in ways that allow consumers to easily comparison shop, and they aren’t currently required to submit data about their activities to any single authority. Fortunately, that’s one set of problems reform seems likely to fix. A provision first introduced by Representative Rosa DeLauro and Allyson Schwartz, along with Senator Jay Rockefeller, would mandate a "coverage label" modeled on the nutrition label that all food products must include. The label would let consumers see, in plain terms, what protection different policies covered. In addition, the plans under consideration in Congress would establish minimum-benefit standards, initially for individuals and small businesses. (They could later extend to all plans.) Consumers who bought plans governed by the standards wouldn’t have to wonder whether a plan covers preventative services or chronic care, because that coverage would be part of the law--just like in the Netherlands.

But, as in the Netherlands, the more important work is what consumers won’t see directly: the way the government will regulate insurers. And it’s not so clear that the reforms under consideration will do everything they must. A key goal, here as there, is preventing insurers from cherry-picking. In theory, all of the plans would prohibit insurers from excluding or charging higher rates to people in poor health. But the bill now before the Senate Finance Committee, for example, would allow insurers to vary rates according to age--which can be a proxy for health--by a factor of five. (Adequate subsidies can help mitigate this, but the Finance bill doesn’t have those, either.) What’s more, because all the plans before Congress allow companies to vary offerings considerably, insurance companies could tilt their coverage in ways that attract healthier beneficiaries. An aggressive risk-equalization scheme, like the one in the Netherlands, could help thwart such efforts--but the reform bills don’t specify how aggressive those schemes will be.

One additional issue, not to be overlooked, is the question of price. Dutch consumers don’t have to worry about paying a lot of money for their health care, even if they are sick, in part because the insurance has very little cost-sharing--and in part because the government continues to play a strong role in setting prices, although it’s been gradually relaxing them. But there’s nothing in the current bills approaching the type of price controls that the Netherlands has. In the Senate Finance bill, some middle-class people could spend almost one-third of their incomes--$20,000--on medical care. The House bill has better protection, but there may not be political support for it.

Unless, of course, progressives can create political pressure for such regulations. Most of the left is focused on preserving the public option, in some form; and, overall, that does still seem like a highly effective way to make private insurance work. But, if they can’t succeed, improving the other elements of reform becomes all the more important. The U.S. health care system will never look entirely like the one in the Netherlands: the demographic, cultural, and political differences are simply too vast. But, with sufficiently strong regulation, it can achieve some of the same virtues. And that would be an accomplishment of which the left could still feel proud.

Jonathan Cohn is a senior editor at The New Republic.

We’ve heard Glenn Beck’s rants on Fox and read Sarah Palin’s posts on Facebook. We’ve watched LaRouche supporters disrupt town hall meetings and seen teabaggers descend upon Washington. We’ve talked about immigrants, abortion, and death panels--and listened to a woman named Betsy McCaughey explain why reform will mean pulling the plug on grandma.   

But, at the end of the day, the central challenge in crafting health care reform remains exactly what it’s always been: Coming up with the money to pay for it. And this week, just maybe, we’ll learn whether the Democrats and their allies can do it.

This week is crucial because the Senate Finance Committee will be debating how to write reform legislation. Finance is one of five committees with a say over health care. The other four--three in the House, one in the Senate--have already passed their bills. But most observers consider Finance the most crucial committee politically. Thanks partly to the filibuster, the Senate is where reform bills will have the harder time passing. And unlike the Health, Education, Labor, and Pensions Committee--the other Senate panel with a piece of reform legislation--Finance has actual jurisdiction over methods of raising money.

That helps explain why Finance has taken so long. Health care reform is about making sure everybody has health insurance--and that the health insurance everybody has actually insures. Financially speaking, that requires the government to make two very large commitments. It must expand Medicaid, the federal-state program for the poor, so that it covers everybody under a certain income threshold (133 percent of the poverty line) and not just narrow categories like single women with children. And it must provide subsidies to higher-income people who struggle to pay the price of insurance.

It’s that second part, really, where the things get dicey--because those subsidies aren’t cheap for the government to finance. We just learned this week that the average health insurance policy for a family of four will cost more than $13,000 annually this year. For a family making $35,000 or even $55,000 that’s an awful lot of money--particularly if the family is still expected to shoulder large out-of-pocket costs in the forms of deductibles, co-payments, and non-covered services. That’s why the reform plans that President Obama and his allies originally proposed offered financial assistance to people making up to four times the poverty line--$88,000 a year for a family of four, with the subsidies phasing out with income. (A family making $85,000 would get almost nothing; a family making $35,000 would get a ton of help.) One reason to offer so much money was that these original plans set a reasonably high standard: Insurance plans couldn’t leave people saddled with huge out-of-pocket costs.  

But providing such comprehensive coverage makes the insurance itself a bit more expensive, at least for the first 10 years before other system reforms kick in (ideally, generating enough savings to offset the cost of the subsidies). The best estimates are that, at a very bare minimum, it takes close to $1 trillion over 10 years. And while a lot of that money can come from savings in other programs, there has to be some new revenue, as well. Congress, in other words, has to pass some kind of tax.

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The trouble for the Finance committee--and, really, the Senate as a whole--is that there’s no consensus on how to do this. The House reform bills all proposed to get the necessary revenue by taxing the rich, a strategy President Obama himself once endorsed, albeit in slightly different form. But neither a majority on the Finance Committee nor anything resembling a majority of senators seem willing to do that, undoubtedly because--again--the membership of both is more conservative. So Max Baucus, chairman of the Finance committee, is pushing a different strategy, one first proposed by Finance member John Kerry: Taxing high-benefit insurance plans, albeit indirectly by taxing the insurers who provide them rather than the people who have them.  

There is, in fact, a lot to recommend this approach on paper. Economists are virtually unanimous that the existing tax break for health insurance is both unjust and unwise--unjust because it gives a bigger break to wealthier people, unwise because it dampens incentives to shop for cheaper insurance. It’s also a huge pot of money. The tax break--which is, technically, an exclusion from income taxes--is worth more than $200 billion a year, enough to pay for health reform with enough money left over to buy a new fleet of aircraft carriers. Even a partial rollback, one that affected people with unusually generous coverage, would generate a ton of revenue.

Still, even that partial rollback would make some people unhappy--and not just wealthy people. Lots of union members have expensive plans, partly because they’ve won them in negotiations and partly because their demographic profile results in higher costs within their insurance groups--that is, they are older, or work in physically hazardous jobs. These workers have pretty good representatives on the Finance committee: West Virginia’s coal miners have Jay Rockefeller and Michigan’s auto workers have Debbie Stabenow, just to name two. There’s also the fact that some parts of the country happen to have unusually high medical costs, which means insurance for even middle-class people are expensive by national standards. Among them are Maine, New York, and New Jersey, all of which are also represented on Finance--by Olympia Snowe, Charles Schumer, and Robert Menendez.

Rockefeller, for one, has made public his desire to scrap changes to the tax on insurance policies--and instead adopt an approach more like what the House has. But even if there were political support for such an approach, switching would raise another problem. The presence of the insurance tax reform is the reason that the Congressional Budget Office (CBO) determined that Baucus’ bill, unlike the House counterpart, would not only pay for itself completely in 10 years but also reduce spending over the long term. Switching over completely to a tax on the wealthy, then, would require strengthening the House’s proposal even more--in ways that would likely make it even more difficult to adopt politically.

There’s a way out of this dilemma. Since the Kerry proposal taxes insurers rather than individuals, it would be relatively straightforward to dictate that groups facing high costs because of age, unusually large regional variations, or physical risk don’t see their prices go up by that much (or at all). And while carving out some exceptions to the insurance tax change would mean reducing the revenue from the tax, that money could be made up by making the tax itself larger--or adding some other revenue source, whether it’s a smaller version of the House income tax or maybe even a small tax on sugary sodas.

Can the Democrats--and their lone potential supporter among Republicans, Snowe of Maine--get behind such a compromise? They’d better, in no small part because the Baucus proposal needs more money than Baucus himself has put on the table. His proposal has lower subsidies and offers less insurance protection than the House bills or the HELP bill. Before voting the bill out of committee and onto the Senate floor, Finance really needs to make it stronger--which means coming up with more money, not less. If they can’t do that, they’re going to be stuck with a bill that reaches not enough people--and gives the people it does reach not enough protection. As always, it’s all about the money.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.

Ciudad Juárez, Mexico, is a bleak, dusty factory town across the border from El Paso, Texas. Long a nexus for drug runners vying for control of smuggling routes, it has earned a reputation for gunfights, abductions, and murdered women. In recent weeks, the violence fueled by drug cartels has spiked, and not for the first time. There have been beheadings, public shootouts, and murders of dealers, police, and bystanders. The U.S. Consulate has issued a travel advisory for the area. And, in the midst of all this, Juárez has a message for you: Looking for a good deal on heart surgery?

At around 2 p.m. on Wednesday, a few supporters and television cameras gathered near the Capitol to watch as two burly men unloaded 1.3 million signatures on 61,000 pages of paper from an ambulance onto a stretcher. The stretcher was wheeled over to a small stage stuffed with Republican congressmen and conservative talk radio hosts. There, speakers such as Senator Kay Bailey Hutchison, carrying a "National Health Care: A Lethal Injection" t-shirt, expressed solidarity with the petition-signers and spouted some vague but familiar talking points: 1) Reform may be necessary, but 2) it shouldn't drive up costs or taxes, and 3) we should help our neighbors so they don't need health care anyway. The petition was similarly fuzzy and brief, with a call for pleasant-sounding nouns like choice, access, fairness, and responsibility. There was no mention of death panels, abortions, or rationed care.

The event, in other words, hardly seemed to merit its own dramatic life-and-death entrance.

But the spectators who gathered to watch seemed to be in tune with the intended imagery. Most town hall events weren’t the crazy hate events they were reported to be, and indeed yesterday the crowd was mostly calm. Talk show host Janet Parshall called the assembled normal Americans painted by the press as "swastika-wearing people ... programmed by someone in Washington. These are people who are saying enough is enough." But every single audience member I spoke to said other things, as well. The government is promoting an "evil plan" and has a "pro-death agenda," a retired physician named Karl Hunt told me moments before he asked me to pray with him and handed me a copy of the New Testament. Death panels weren't mentioned by name, but Hunt and his friend Andrew Puryear seemed certain such a thing could exist if the health care reform bill passed. "Let's look at Nazi Germany--if someone was disabled, they were put to death," Puryear said. "It can happen that easily with a bad administration."

It's already happening in other countries with socialized medicine, said Rayna Voychak and Debbie Gonzalez, who traveled from New York and Florida, respectively, to attend the press conference. Their grandfather, who was Canadian, died of cancer 15 years ago, receiving morphine in lieu of treatment for the final eight months of his life. "He was old, he was 67, and he was retired. He wasn't putting any taxes into the system, so why keep him alive?" Voychak said. When asked whether he requested treatment for his disease, they were unsure.

Why would the government want to do such a thing? Maybe to maintain control, Gonzalez said. Hunt theorized that Obama's administration had been infiltrated with Hemlock society members and pedophile defenders--"all they've got in their heart is evil."

So what did they want from Obama? For starters, he should listen to the Republicans, with every speaker arguing that Republican plans would be far less harmful than the current proposals. One hopeful talk radio host, Dennis Prager, said he hoped Obama would use his address to Congress to say "I love the American people and I am scrapping this plan." (Obama didn’t.) At the very least, the speakers said they were hopeful that the petition wouldn't fall on deaf ears.

Perhaps it won't--1.3 million signatures aren’t insubstantial. But the end of the demonstration was dismal to witness. As the talk radio hosts spoke, the politicians stepped off the platform and walked back to their offices, the burly men stacked the 15 boxes of signatures back onto the stretcher and wheeled it away, and the crowd dispersed--back to sight-seeing or other Wednesday afternoon activities. The Capitol went back to looking exactly as it had two hours earlier, and the ambulance drove away, never having turned on its sirens.

President Obama will deliver a historic speech tonight. Standing before both houses of Congress and the American public, he’s expected to clearly outline his vision for government-run national health care and explain how and why such a plan is tenable in the United States. One way he could help make his case is by showing that a successful plan of that description is already in place: the one administered by the Department of Veteran Affairs (VA).

Actually, Obama has already pointed to the VA hospitals, albeit briefly. Back in July, a small-business owner at a town-hall meeting asked, “What current long-term social program created and run by the government should we look to as a model of success?” Part of the president’s longer response: the VA hospitals, which “have very high satisfaction rates.”

Indeed they do. The VA, which oversees the Veterans Health Administration (VHA), runs the nation’s largest integrated health-care system. In order to meet the diverse and complicated needs of veterans, the VHA operates 153 hospitals, 909 outpatient clinics, 232 Vet Centers, 135 nursing homes, 47 rehabilitation treatment programs, and 108 home-care programs. According to the VA, nearly 8 million veterans were enrolled in the VA health-care system in 2008, while 5.5 million individuals used a VA health-care facility.

Despite its broad mandate and difficult mission, the VHA’s quality indicators have gone up, not down, in recent years. A 2003 studyby the New England Journal of Medicine found that the quality of care at veterans’ health facilities was “significantly better” than Medicare, which is a fee-for-service model. A 2005 survey by the National Committee for Quality Assurance, an independent health-care watchdog, found that veterans’ facilities consistently outperformed the nation’s top private hospitals.

Furthermore, a report by the RAND Corporation concluded that “VA patients were more likely [than patients in a national sample] to receive recommended care,” and had “received consistently better care across the board, including screening, diagnosis, treatment and follow up.” Finally--perhaps more telling and certainly most important--veterans themselves rate their overall satisfaction with VA health care at high levels: In a recent survey, 81 percent of VHA hospital patients expressed satisfaction with the care they received. The VHA’s broad success is due to a variety of factors, including top chronic-disease-management programs, state-of-the-art electronic recordkeeping, and a savvy emphasis on long-term preventative care--many of the same initiatives contained in the administration’s public-option plan, as it turns out. Of course, no system is perfect, and the VA’s is not without problems, particularly structural inefficiencies. These include redundant disability evaluations with the Department of Defense (or DoD, which is a separate entity from the VA, and responsible for the well-documented 2007 failings at Walter Reed Army Medical Center), inadequate information sharing with DoD, and outdated disability-evaluation criteria. Yet one can attribute the majority of these problems to supply being overtaken by demand. According to the VA, the number of patients it treated increased from 4.2 million in 2001 to nearly 5.5 million in 2008. This growth spurt, due to an increase in veterans from Iraq and Afghanistan as well as aging Vietnam veterans, has overwhelmed the system. Meanwhile the VA’s annual budget has not kept pace, rising only nominally from $67 billion in 2003 (adjusted for inflation) to $82 billion in 2007--an average of $3 billion per year. The result has been poor patient case management and a backlog of claims. The VA, however, has recognized its ills and has begun taking steps to remedy them, including prioritizing unresolved claims and soliciting recommendations for improvement from VA staff. Given proper resources and leadership, a public option--if that is indeed what President Obama calls for tonight--modeled and sold on the strengths of the VA system, could serve as a viable framework for quality, affordable, and yes, tenable, government-run national health care.

Lawrence J. Korb, a senior fellow at the Center for American Progress, served as Assistant Secretary of Defense in the Reagan administration. Sean E. Duggan is a research associate at the Center. The two are co-authors of the forthcoming book, Serving America’s Veterans.

Republicans have a message for America’s senior citizens: President Barack Obama and the Democrats want to take away your health care. And if the polls are right, America’s seniors believe it.

For a while now, people over 65 have been skeptical about Democratic reforms. Although the skepticism reflects some broader political feelings--seniors have always been a tough political audience for Obama--it also reflects a seemingly fair judgment about the policies Obama has put forward. In order to help pay for the rest of his reforms, Obama has called for reducing the growth in Medicare expenditures.

The bill that passed three House committees over the summer included some cuts along these lines, with more likely to come later in the legislative process. In all, the government would probably tend up taking a few hundred billion dollars out of the program.

But despite those numbers, the Democrats aren’t the real threat to Medicare. The Republicans are, precisely because they oppose changes in the health care system.

If nothing in the health care system changes--in other words, if the Republicans succeed and reform fails--Medicare will quickly find itself in a world of financial trouble. Medical care is getting more and more expensive. Soon the subsidies and taxes that support the program will not be enough, while simply running even higher deficits probably won’t be an option, given the way the debt picture looks. There will be pressure to cut the program--and really cut it, in ways that will hurt beneficiaries.

How can I be sure? Because it's happened precisely that way before--back in the 1990s, just after Speaker Newt Gingrich and his GOP colleagues took control of Congress.

They swept into power promising a radical transformation of the welfare state, with a transformation of Medicare high on their list. Citing the program's looming financial problems--one not unlike the situation Medicare faces today--the Republicans proposed to slash the program’s funding. Premiums for seniors would go up, while the program’s protection would go down. Since Republicans also planned to open new private insurance options for seniors, many experts believed the net effect would be to see a gradual erosion of the program, as wealthier and healthier seniors left to buy better options on the private market--Medicare would, as Gingrich famously boasted, "wither on the vine."

President Clinton refused to go along, shutting down the government rather than agreeing to a budget with the cuts. (In one famous exchange over the proposed Medicare changes, Clinton told the Republicans that if they wanted to get their way, "you'll have to get someone else to sit in this chair.") But while Clinton prevailed in that fight, two years later the Republicans put together another budget that many Democrats voted for and Clinton signed.

While these reductions helped stabilize Medicare finances, at least for a little while, they still sent a shock through the system--enough that Congress later restored a bit of the funding.

Fine, so the Republicans tried to take advantage of Medicare’s fiscal problems, using them an excuse to gut the program. Isn't Obama doing the same thing?

Actually, no. Here--with apologies--it's important to look at some actual numbers. The House reform bill would, on net, take a little more than $200 billion out of the program over ten years. That may sound like a lot. But when you measure it relative to the current size of the program--and its projected growth--it’s actually far smaller than what the Republicans did in the 1990s.

According to rough calculations by Tricia Neuman, vice president of the Kaiser Family Foundation and director of its Medicare policy project, the 1997 cuts reduced expected Medicare spending by two to three times as much as the House bill now proposes. And, don’t forget, those 1997 cuts were not even as extreme as the ones Republicans tried to pass in 1995 (KHN is a project of the Foundation).

What's more, all cuts to Medicare are not created equal. When Gingrich and the Republicans first proposed their Medicare scheme, they didn’t have overly specific reductions in mind. They simply believed--or hoped--that massive reductions in reimbursements and subsidies would force consumers to shop around for better deals (while forcing providers to give them).

Obama and his supporters, by contrast, have in mind very targeted changes--changes that, they believe, can yield efficiencies so that Medicare ends up delivering more, not less.

A classic example of this is a proposal to reduce the subsidies that go to private insurers who handle Medicare customers through the Medicare Advantage program. Study after study has suggested the subsidies are unwarranted--that private insurers don’t actually deserve the extra money. Or consider proposed changes to the way hospitals are paid. The whole point of these changes is to realign payments, so that the government stops spending money on treatments that are redundant or simply not warranted. If they go well, seniors should end up with medical care that is actually more effective--and a program that is easier to sustain in the future.

To be sure, that’s a big "if." Skeptics will argue that government wouldn't always get the cuts right; that a few of the reductions might trickle down to seniors and impact their care negatively. On the other hand, the sorts of changes both the House and administration have in mind include adding benefits to the program--chiefly, by filling in the "donut hole" that presently exposes seniors to high prescription drug costs. Even if seniors lose something, they’ll be gaining something, as well.

As is so often the case with health care, the choices aren’t exactly as the public perceives them. Seniors don’t have the luxury of picking between the Democrats’ plan and the status quo. Instead, the choice between them is between the Democrats' plan and a steady deterioration in the program’s finances--all but forcing the sort of radical scaling back that Republicans tried to push through in the early 1990s. Of course, that’s not the message Republicans are trying to deliver. But maybe, on Wednesday night, President Obama can.

Jonathan Cohn is a senior editor of The New Republic. This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.