The President's silly health care announcement

The President spoke about health care in the cross-hall today, flanked by the heads of several major health lobbying groups (“trade associations,” in Washington vernacular):

  • hospitals — the American Hospital Association (“AHA”);
  • doctors — the American Medical Association (“AMA”);
  • insurance companies — America’s Health Insurance Plans (“A-Hip”);
  • the drug manufacturers — Pharmaceutical Research and Manufacturers of America (“Pharma”);
  • the medical device manufacturers — Advanced Medical Technology Association (“AdvaMed”); and
  • health care worker unions — the Service Employees International Union (“SEIU”).

The President announced,

[T]hese groups are coming together to make an unprecedented commitment. Over the next 10 years — from 2010 to 2019 — they are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.

This is one of the sillier White House announcements I have seen. Let me draw a sports parallel.

Imagine if the mayor of your nearest big city were to hold a press conference with the General Manager of the city’s Major League Baseball team. The Mayor announces that the GM, working with the coaches and players, has committed that he will work to develop plans for the team to hit the Mayor’s new goal of winning 40 more games this season than they otherwise would have won. Those plans will improve the team’s hitting, pitching, and fielding. The Mayor also announces that the manager’s plans, combined with the Mayor’s new policy initiative for better parking at the stadium, will make fans happier and help the team win more games.

Baseball fans would reply, “Great, I’m all for it.” They might then ask a few questions:

  • What do you mean the GM “will develop plans”? Doesn’t he have any specific plans yet? How will he improve hitting, pitching, and fielding?
  • How are we supposed to verify that the team won 40 more games than they otherwise would have, since we will never know how many games they would have won?
  • Other than picking the number 40, why is the Mayor involved in this press conference? What does the Mayor’s new parking initiative have to do with the coaching changes, and how will the new parking initiative help the team win more games?
  • If this is such a good idea, what has changed to make it happen now? Is the Mayor claiming that his persuasive powers alone are worth 40 more wins? Why didn’t the GM make these changes before?

The only substance to this announcement is that the manager agreed to the Mayor’s target of winning 40 more games.Everything else is fluff or unrelated.

The same questions apply to the President’s announcement today. The letter from the provider groups says:

We will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate — savings $2 trillion or more. … To respond to this challenge, we are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health care system.

Not “We have developed proposals and here they are,” but instead “We are developing consensus proposals.” So today the groups actually announced (1) that they accept the President’s quantitative goal, and (2) they will work together to reach that goal. Neither the interest groups nor the Administration announced any substantive plan to achieve the goal.

The letter from the groups states some warm-and-fuzzy non-specific ideas:

  • Implementing proposals in all sectors of the health care system, focusing on administrative simplification, standardization, and transparency that supports effective markets;
  • Reducing over-use and under-use of health care by aligning quality and efficiency incentives among providers across the continuum of care so that physicians, hospitals, and other health care providers are encouraged and enabled to work together towards the highest standards of quality and efficiency;
  • Encouraging coordinated care, both in the public and private sectors, and adherence to evidence-based best practices and therapies that reduce hospitalization, manage chronic disease more efficiently and effectively, and implement proven clinical prevention strategies; and,
  • Reducing the cost of doing business by addressing cost drivers in each sector and through common sense improvements in care delivery models, health information technology, workforce deployment and development, and regulatory reforms.

This is the parallel to the baseball manager saying he will improve the team’s performance by improving their hitting, pitching, and fielding. Everyone agrees that it makes sense, and everyone wants to know how he’s going to do it. The same applies here. Without specifics, these are empty promises. Nothing in this list is concrete enough to translate into specific actions by anyone.

The letter does urge some increased spending on health care, for “health promotion and disease prevention to reduce the prevalence of chronic disease and poor health status, which leads to unnecessary sickness and higher health costs.” This is a repeat of a common health policy fallacy — that increased government spending on preventive care will reduce overall health expenditures. While it is true for specific individuals, it is generally false for the population as a whole, because you end up spending money on preventive care for people who would not otherwise have gotten sick. The Congressional Budget Office takes a skeptical view toward the claim that this will save money, at least in the 5-10 year short run.

The second problem with the announcement is that it is unverifiable. We obviously cannot wait ten years to test the claim, and countless other factors will have changed during that time, making it impossible to know what the growth rate would otherwise would have been.

The third problem is that there is no obvious linkage between today’s announcement and the government, much less the President. Today the President said,

Their efforts will help us take the next and most important step — comprehensive health care reform — so that we can do what I pledged to do as a candidate and save a typical family an average of $2,500 on their health care costs in the coming years. Let me repeat that point. What they’re doing is complementary to and is going to compatible with a strong, aggressive effort to move health care reform in Washington with an ultimate result of saving health care costs for families, businesses and the government.

The President is attempting to claim credit for savings that (a) do not yet exist, (b) are not backed up by any specific changes in industry practices or government policies, and (c) are related to him only in that the groups announced they were adopting his quantitative goal. For all three of these reasons, the President’s claim that these savings will materialize is wildly unrealistic, and it is absurd to attach a per-family savings number to it. This is like the Mayor claiming credit for the 40 additional wins now, and telling fans that he will be responsible for the team winning the pennant. No one should take these claims seriously.

This artfully constructed sentence misleads:

What they’re doing is complementary to and is going to be compatible with a strong, aggressive effort to move health care reform in Washington with an ultimate result of saving health care costs for families, businesses, and the government.

If the groups had specific plans to change industry practices to hit their new quantitative goal, then those changes in private-sector behavior would save money for families, businesses, and government.

The President deserves credit for proposing some modest changes to Medicare and Medicaid that would slow the growth of government spending, although not nearly enough.

But the President has not yet proposed any policy changes as part of “health care reform in Washington” that would save families or businesses any money. He has proposed government spending increases that would improve the information available, but has proposed no changes to the financial incentives that people or firms have to use that information.Information by itself won’t significantly slow the growth of health care spending. You need incentives as well. (The Congressional Budget Office agrees.)

While the President’s announcement was silly and meaningless as a policy matter, it is tactically significant as the legislative battle over expanding taxpayer-financed health care heats up. The health insurance companies were a major industry opponent of HillaryCare in 1993-1994, and it appears they are trying to ingratiate themselves with the new President. Similarly, the drug manufacturers, who have historically aligned themselves with Republicans, are doing everything possible to get on the President’s good side. They want to share in the spoils of increased government spending on health care, they want to avoid being the political and policy targets of legislation, and they see no political downside to supporting a popular and powerful President with Democratic supermajorities in both the House and Senate.

Today’s announcement was about a budding political coalition that could support the President’s legislative push. Nothing more.

42 responses

  1. Hi,

    I enjoyed your analogy.

    What is your opinioin regardign Orzag’s announcement that the deficit is much larger than (he) expected?

    • The bulk of the savings are in the out years and they do nothing to significantly bend the curve we’re still at about 18% of GDP in 2019 rather than BAU of 20%. We’re looking at a federal budget of over $5 trillion in 2019 add to that about $2 trillion of private spending on healthcare then between the government and healthcare we have over $7 trillion of spending. But nominal GDP should be at about $23 trillion by then so we should be able to afford it. But we’ve done nothing to reduce the burden of healthcare on the average citizen we’ve only made it worse at a slightly lower rate, 1,000 cuts rather than 1,001. Who are we kidding.

  2. Hrumph.

    They have to start somewhere. And it is a positive that this is going on in the open.

    No, there are no plans, but that is to be expected. I hope there will be plans. If none are forthcoming, I expect that you will vilify the adminstration, and rightly so. I also expect that you will be against whatever plan the administration offers.

    Sports teams do this all the time to pump up their fan base. Coaches at the end of one season say they will do better the next, after the draft and after trades. But they have no plan at that time. Fans can take it for bluster. But fans can also talk about what they want and give their opinions as opening day draws near.

  3. Pingback: Instapundit » Blog Archive » KEITH HENNESSEY: The President’s Silly Health-Care Announcement. “The President is attempting to c…

  4. I am glad to see the “lifestyle interventions will save money” fallacy being debunked, finally.

    We had a whole unit on this in pharmacy school 25 years ago. There are many advantages to longer, healthier lives, but cost savings isn’t one of them.

  5. I don’t think it’s fair to expect actual proposals and stuff especially not before the media can explain what all of this means for me and my family. We’ll find out tonight on the tv and everything will be fine. You’ll see.

  6. This just goes to show that Obama’s achilles heel can be found in one simple word:

    “How?”

    When enough people start asking Lord Zero, “How?”…that’ll be the beginning of the end for him.

    Obama: “New! Improved! With twice the vapidity and incompetence of the leading political bargain brands!”

  7. The more exact parallel would be an announcement that the team would slow the rate at which it would lose more games than the year before–1.5 percent of the delta.

    This seems to be a preemptive move by the (c)(6)s. As many have pointed out, the administration seems be involved in a giant two-step: first get coverage, then control costs to pay for it. That route very possibly would entail letting employers drop group plans for a fee (presumably less than the coverage cost, levied to pay for universal coverage) and the establishment of a quasi-Medicare subsidized payer. That would crush AHIP, of course, and face providers, labor and consumers (read seniors) with widespread and progressive cost controls and crypto-rationing.

    With this phony-baloney initiative, the TA’s avoid damage at the front end and have ten years to fight cost controls at every step. Everybody wins but taxpayers.

  8. Reminds me of when Bush stood up there with the mortgage bank representatives to announce their voluntary efforts to help homeowners in danger of foreclosure. I would have preferred a government-created plan with oversight, rules and consequences.

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  10. Real reform will need to be more than 1.5% per year…or we are doomed. Health care cost reductions of 50% are what is needed. Unfortunately this is not doable because there are too many people earning a living on health care. We need a machete not a scapel. Get rid of the need for the practice of defensive medicine will likely save a ton. Get rid of advertising for drugs…no other country allows this, why should the US? Start paying based on diagnosis related groups to all parties. Get rid of conventional Medicare (fee for service) will help, other wise Medicare is definitely not going to exist. Signicantly reward people who meet can meet standardized height-weight tables. Open up the markets…have all American’s buy their insurance online. My belief is that the end result will likely not be much more than 5-10% initially, because the very same companies who are to lose are the ones that paid for the law makers re-election. I have zero faith that anything significant and definitely anything long-term will result unless a machete is brought in dismantle most of the present system. But I do admire Obama for doing something.

  11. # Reducing over-use and under-use of health care by aligning quality and efficiency incentives among providers across the continuum of care so that physicians, hospitals, and other health care providers are encouraged and enabled to work together towards the highest standards of quality and efficiency

    One thing that is never mentioned here, likely because those spouting off don’t have a clue, is that this is currently impossible. Medicine is as much an art as it is a science. And it is extremely hard to compare the care given by one provider with that of another. For example, maybe one guy in a specialty orders more of a certain type of test or procedure than another guy in that specialty. Is he less efficient? We don’t know, because we don’t know his patient mix. It could just as easily be that he is treating sicker patients. Diagnosis codes aren’t much help here, since their granularity is fairly gross, plus some providers do up-code for just this sort of situation.

    And, since the Obama Administration is filled with lawyers (including Obama and Biden), it is no surprise that one of the major driving forces behind over-prescription of testing and procedures is the possibility of malpractice suits. I have little doubt that malpractice juries are not going to give a lot of credence to a defense that “best practices” as defined by the government justified skipping tests that might have detected whatever caused the injury being litigated.

  12. I don’t see how you can dub thisone the silliest. Closing Gitmo in a year… Greg Craig will tell you how as soon as he’s figured out a process. Stem cell research has many ethical considerations that Obama has wrestled with…NIH will figure all that out. In Obama’s world, it’s all about process, primarily the process of coming up with a plan to hit phony targets. My personal fave is that without the Stimulous Bill, the unemployment rate would go as high as 8.9 per cent!

    Whoops.

  13. A few simple questions before we wholesale change 20% of the US economy…
    HOW MUCH will it COST me and my family??
    And what services will we receive?
    I already KNOW what I get, and what I pay.
    To change, I would need to receive MORE for LESS..
    Otherwise, why enact any change?
    Make sense?

  14. The Chicago Annenberg Challenge established by Educator/Terrorist William Ayers, and for which Obama was a founding director, seems to have been a prelude for Obama’s “visionary reform” style of governing the spending of other peoples’ money — although on a more modest level of a city’s education system compared to health, energy, and education policies of the entire nation.

    For the Chicago Annenberg Challenge, Obama and Ayers had “only” about $100 million dollars to spend on their social laboratory for educational reform in Chicago.

    But now, at least thus far, Obama has tapped into trillions and trillions in deficit spending for his national experimental lab.

    One of the criticisms identified in a post-mortem on the Chicago Annenberg Challenge: combining broad goals with vague strategies.

    For the full review, see:

    http://ccsr.uchicago.edu/content/publications.php?pub_id=60

    The grade, as found by the above review: expenditure of a hundred million dollars by the Chicago Annenberg Challenge did not make a significant difference in improving educational programs it funded as compared to programs that it did not.

    Sound familiar? The full report on the successes, failures, and lessons learned from the Chicago Annenberg Challenge under the governance of Ayers, Obama, and others makes interesting reading as a thorough assessment of Obama’s only foray – prior to assuming the presidency about a hundred days ago – into responsibility for directing expenditures of enormous sums of someone else’s money to advance the social goals of Obama and his pals.

    Now, the entire nation gets to watch (and finance) Obama while he directs — with “broad goals and vague strategies” — expenditures of trillions and trillions of taxpayer dollars, with skyrocketing deficits far into the future, to finance his own national social laboratory for the reform of energy, health and education.

    As described above, he pretends that his broad goals and his vague strategies will succeed as measured by scales that are even more amorphous than his strategies, and in fact totally meaningless.

    The dice are loaded and ready for the suckers’ bets.

    JR

  15. Your post is silly since the criticisms here can be applied to any announcement by any President, past and fututre – of course it will not be specific and of course it will be full of platitudes and taking credit, etc.

    But the quote below is significant:

    adherence to evidence-based best practices and therapies that reduce hospitalization, manage chronic disease more efficiently and effectively, and implement proven clinical prevention trategies

    That is pretty major and fairly specific and different from the current practice

  16. Pingback: You Can’t Handle the Savings | Constant Conservative

  17. Allan writes: “No, there are no plans, but that is to be expected. I hope there will be plans. If none are forthcoming, I expect that you will vilify the adminstration, and rightly so. I also expect that you will be against whatever plan the administration offers.”

    Given Obama’s thuggish intervention with the automakers, we should probably hope no plans are forthcoming. No plans are better than bad plans, and Barack Obama, a statist, is probably genetically barred from endorsing any plan that (a) gives Americans choice in health care while (b) not forcing other Americans to pay for it. Doing (a) but not (b) leads to rationing, loss of choice, and collapse in quality. Besides, why should I pay for your healthcare, and why should someone else pay for mine. This is an overriding moral issue, to which Obama is blind.

    Allan also wrotes: “Sports teams do this all the time to pump up their fan base. Coaches at the end of one season say they will do better the next, after the draft and after trades. But they have no plan at that time. Fans can take it for bluster. But fans can also talk about what they want and give their opinions as opening day draws near.”

    If management of the US healthcare system were a sport, you might have a point. Alas, it’s not. The right to decide *and* provide for one’s healthcare choices is inseparable from human liberty. I want to make my healthcare decisions on my own (and only my own) terms. There is no “team” aspect to this problem. I do not want my healthcare choices to be determined by what any other actor does or does not do. I certainly do not trust any part of the US government to know better than I do what is good for me.

    What Obama will propose will not honor these principles. Obama has no innate understanding of human liberty, which is a combination of choice and responsibility. Obama only seeks power. This is why it is instructive to see what Obama is doing and will do with GM and Chrysler. First, the bailout. Then the takeover with the strong-arm tactics. Then, when people just don’t want to buy cars subsidized by the government, there will come the coercion to do so. This is inevitable. Obama wants to herd us into government-run healthcare.

    Obama knows best, according to Obama. In his mind, we should forget about liberty and just be grateful he’s president and can give us goodies. He’s the important thing, not the free market system, not the United States Constitution, and certainly not the wisdom of the ages. Obama knows best.

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