The President’s silly health care announcement
11 May
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.
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Since the Canadians won’t be able to come here for timely care, because it will be rationed, and since lots of Americans will be looking for a place to get timely care, because it will be rationed, the solution is for entrepeneurial health care companies to establish modern fee for service hospitals and clincs in the Carribean, staffed by expat Canadian and American doctors and nurses. Air carriers will step in with cheap shuttle flights, hotels will spring up if not already there. If you need your hip replaced, you can just hop on a plane and go get it done, instead of waiting Gaia knows how long. Off shore insurance companies will sell health care insurance for major medical procedures (not for every office visit). As the health caare system of the US becomes more like Canada, and then like Britain, the Carribean will be the only place to go. I exclude Cuba, which is already a health care paradise.
Scott,
About those sports metaphors, I was just pointing out that Keith’s metaphor was broken.
And you seem not to want plans, but Keith wants plans. I don’t know which side to argue. I guess I want plans, but I want to know that all stakeholders have a seat at the table and that the process is open.
As for the “thuggishness”, I am not so sure. After 8 years with Bush/Cheney, culminating with the treasury bullying the banks, Obama is a breath of fresh air.
I really don’t think Obama has been a bully. Yes, he played hardball with GM, but do you really think that any other president would have done differently? Well, maybe Ron Paul or Dennis Kucinich.
People have different ideas about liberty. Your liberty is another person’s slavery. Give the ideas a chance. Maybe they will work, if not, we surely will see a revival of the Republican Party.
Allan,
Please explain at some length how my liberty is another person’s slavery. I am very interested in how my making my own choices places another person in chains of bondage, and who this other person is… If you can string together even a few logical implications in this endeavour I promise to look really hard in 0bama’s press release for these “ideas” I’ve heard so much about.
The savings are ludicrous. The following table shows the savings are trivial
Year Business as Usual President’s Proposal Savings
2010 $2,644,132 $2,619,188 $24,945
2011 $2,802,780 $2,750,147 $52,633
2012 $2,970,947 $2,887,654 $83,293
2013 $3,149,204 $3,032,037 $117,167
2014 $3,338,156 $3,183,639 $154,517
2015 $3,538,446 $3,342,821 $195,625
2016 $3,750,752 $3,509,962 $240,790
2017 $3,975,797 $3,685,460 $290,337
2018 $4,214,345 $3,869,733 $344,612
2019 $4,467,206 $4,063,220 $403,986
Cumulative Costs/Savings $34,851,767 $32,943,862 $1,907,905
Cumulative Percent Savings 5.47%
We could begin to lower the rate of spending on administrative costs by forcing all providers and insurers including Medicare and Medicaid to use the same coding system internally and externally. (This is a way to emulate a single payer system in a multipayer framework) (BTW insurers add about 6 to 7 cents in healthcare costs because they are subject to adverse selection and prefer to be cream skimmers or they attempt to. Simple adjustments to the type of insurance offered would reduce the risk of adverse selection.) At the same time we need to force providers to implement cost accounting to align prices with costs, price transparency. These reforms would force hospitals to abandon their chargemasters and begin to do business like other businesses. These reforms could save as much as 20 cents of every healthcare dollar and eliminate the cost inflation related to administrative costs. This is all low hanging fruit waiting to be picked by smart regulators (do we have any?). It would eliminate the cottage industry of code matching and make shopping for healthcare possible. It would eliminate discriminatory pricing. These reforms would naturally move providers to pay attention to price for performance as their prices would be easily discoverable and comparable. Together with other reforms of health insurance underwriting to implement true catastrophic policies. These policies from individual insurers could be reinsured above some excess and the risk further spread out. I would have been impressed if Obama had made such a proposal but he kowtowed to the industry and got them to forego a meager cumulative 5.5% of future revenues. They must have high fived eachother on the way out.
The difficult part of cost containment and cost trajectories surrounds the diffusion of medical technology and new surgical procedures as well as new pharmaceuticals. This is where everyone’s ox gets gored including the patient. If we remove incentives to innovate we may contain costs and reduce healthcare cost inflation but kill people in the process. However, is there a middle way to avoid the cost increasing aspect of medical innovation? I think that is the difficult question and another one that the big O refuses to face. He’s refused the low hanging fruit why should we expect him to drink the apple smoothie on the high shelf, fear of brain freeze? (I am waiting for the cartoonists to picture him as a little boy without a clue, what a newbie.)
What a bunch of “USEFUL IDIOTS”: trade associations, labor unions. They are just so many fat pigs lined up to feed at the socialist trough. They will be the 1st to be made into ham to grace the tyrant’s table.
Dear Mr. President,
We promise to behave from now on. Please, please, please, don’t make us lose our profit machine. We’ll curb costs, and look out for the consumer, we promise. We promise we’ll keep costs from rising as much as they have been.
We like the “preventive” care model, where we sell health care to healthy people, that doesn’t even require RESULTS. We’d like to get away from the “disease treatment” model and just refuse care to all those low-life’s who get sick since they obviously didn’t pay enough attention to the “prevention” part.
Oh, and please don’t ever mention “SCIENTIFIC EVIDENCE” because it really doesn’t support our marketing model at all.
Sincerely,
The “Health Care” Industry.
This just in from the ballplayers:
Players state, “Insired by the GM’s plans, we will now give a full 110% effort as compared to what we might have given in absence of the GM’s plans.”
Obama is supposed to be a smart man. Is he really stupid enough to write this drivel? Is this the work of a speechwriter?
Presidents used not to have speechwriters? That was much better: they were forced to think, and we could see how they thought. Read Lincoln for inspiration—he wrote, and thought out, all his speeches himself. He even engaged in real debates with Douglas, not the idiocy the calls itself a “presidential debate” today.
What else would we expect from the Ministry of Silly Stimulus Packages?
Michael:
Are you under the impression that, prior to Obama’s election, actors in the healthcare marketplace did not adhere “to evidence-based best practices and therapies that reduce hospitalization, manage chronic disease more efficiently and effectively, and implement proven clinical prevention [s]trategies”?
Medicare has been kicking people out of hospitals “quicker and sicker” for years. Yet, I note, Medicare is still going broke. The healthcare industry has been making incredible strides forward with respect to managing chronic illnesses since before anyone knew who Barack Obama was. And I suppose you believe that prior to January 20, 2009, healthcare providers stubbornly refused to implement proven prevention strategies? (Laughing)
The Obama Cult will ignore any empirical rebuttal, of course, because it is an emotional universe where facts do not matter. But facts do matter in the larger world, and given that Obama’s signature achievement so far is the tripling of the federal deficit, the chickens will come home to roost in a particularly brutal way.
Allan,
I said “no plans are better than bad plans.” Surely, that much is inarguable. But if Obama’s plan was this: “My fellow Americans, because the government has shown a singular capacity to mess up healthcare (see Medicare, VA, Medicaid, etc), I think it’s best we let the market decide what healthcare products we should have,” I would heartily support it.
But we know he won’t propose that. It would defeat his primary motive: the acquisition of power. Getting power is the elemental motive of Barack Obama’s career.
And yes, Obama is a thug. He strong-armed bondholders to give up property rights in the Chrysler situation, and almost daily he is hounding someone he does not like. (Funny how he never hounds Saudi monarchs and Latin American tyrants!) I would agree than Bush did the atrocious things in the last months of his presidency. In fact, in his last term Bush spent like a drunken Democrat. But that’s beside the point. Obama is president now and I was talking about *his* behavior.
Finally, you write “People have different ideas about liberty. Your liberty is another person’s slavery.” Orwellian cliches to the contrary notwithstanding, Allan, words have defined meanings that we can reference. It is not “liberty” for Allan to take Scott’s money so Allan can have the things he wants. It is not “liberty” to make people dependent on the government. Indeed, the chief form of bona fide slavery in the last century was socialist/statist strangleholds on economic decisions in most of the world–exactly the type of thing you suggest we should “give a chance” with respect to Obama on healthcare, auto manufacturing, and probably everything else. And I should point out that the various socialist panaceas of the last century were sold with the same siren song: “Don’t worry. The government will relieve you of those pesky choices and annoying responsibilities.”
No thanks. We do not need to prove again that two and two can never equal five, just because people make themselves willfully ignorant of history and basic economics and refuse to open their eyes before buying the snake oil.
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.
People are already schlepping to India for all kinds of stuff, but the Caribbean sounds much better for any number of reasons: I think they can prescribe umbrella drinks for medicinal purposes.
Gotta love Cuba. You can’t get paper plates in the Worker’s Paradise, but there’s a “doctor” on every block dutifully chronically your menstrual periods and who’s sleeping with whom.