Obama's Reform After Scott Brown: Retreat!

President Obama is retreating on health reform after Scott Brown's upset win in Massachusetts, and that raises a number of interesting questions for business.

“I would advise that we try to move quickly to coalesce around those elements of the package that people agree on,” Obama told ABC News yesterday. “We know that we need insurance reform, that the health insurance companies are taking advantage of people. We know that we have to have some form of cost containment, because if we don’t, then our budgets are going to blow up, and we know that small businesses are going to need help so that they can provide health insurance to their families.”

Let's start with insurance reform. Insurance companies, including UnitedHealth Group Inc., Aetna Inc., and WellPoint Inc., will go along with reforms as long as the government mandates that everyone buy health insurance so risk is spread across a greater number of people. For instance, the insurers say they have to deny coverage based on preexisting conditions now because the sickest people drive up premiums for everyone. Require everyone to buy health insurance and you balance the pool with a population of healthy people paying into the system.

But if the government mandates that we all buy insurance (a controversial aspect of the reform plan), it will also have to subsidize the people who can't afford to buy it. That costs money, and it's not going to be something everyone can agree on.

How do you help small business? Small-business groups said the current legislation wasn't going to help them. So it's unclear how a compromise on reform is going to aid these firms that generally pay more for insurance coverage than their big-company counterparts. And what happens to mandates for employers to cover their workers?

To further parse the president's words: "some form of cost containment" is vague. One of the criticisms of the Democratic reform plan was that it didn't do enough to cut costs. In fact, a large part of the reform package is being paid through business taxes, which is another sticking point.

None of this bodes well for Obama's signature domestic policy issue.