24 June 2009 
Let’s look at what the President said about health care reform in his press conference yesterday:
Like energy, this is legislation that must and will be paid for. It will not add to our deficits over the next decade. We will find the money through savings and efficiencies within the health care system — some of which we’ve already announced.
The first sentence is good. By using “must” and “will be,” he is telling Congress that “not add[ing] to our deficits over the next decade” is a bright line. It’s only one part of the test of a fiscally responsible bill, and a too-weak test at that. As JD Foster and some other commenters have pointed out, however, not adding to an already unsustainable future deficit path means you will have left an unacceptable situation unchanged. It’s even worse, because to offset the new entitlement, Congress will take the politically easiest Medicare and Medicaid spending cuts that would otherwise be used to bring future deficits in line. They will have swapped the least popular Medicare and Medicaid spending for popular new entitlement spending, making it harder to address this unsustainable spending trend in the future.
I believe the President is referring to this week’s prescription drug announcement when he says, “We will find the money through savings and efficiencies within the health care system … some of which we’ve already announced.” This is mixing apples and kumquats. Budget rules require you to offset government spending increases with tax increases or cuts in government spending. The pharmaceutical industry announced they would reduce the amounts they would charge Medicare beneficiaries by $80 B over the next ten years. The industry proposal will save money for seniors, not for the government. So the health care savings and efficiencies “which we’ve already announced” have nothing to do with [federal budget] “deficits over the next decade.”
We will also ensure that the reform we pass brings down the crushing cost of health care. We simply can’t have a system where we throw good money after bad habits. We need to control the skyrocketing costs that are driving families, businesses, and our government into greater and greater debt. …
… Unless we act, premiums will climb higher, benefits will erode further, and the rolls of the uninsured will swell to include millions more Americans. Unless we act, one out of every five dollars that we earn will be spent on health care within a decade. And the amount our government spends on Medicare and Medicaid will eventually grow larger than what our government spends on everything else today.
At some point this excellent language, which the President uses frequently, must confront the reality that nothing Congress is contemplating would actually do this. I can find only one provision in the Kennedy-Dodd draft that could claim to reduce private health care spending – a provision which would give the Secretary of HHS authority to mandate that firms effectively lower the premiums they charge by rebating a portion of those premiums to consumers. Even this provision does not address the primary driver of health cost growth, which is the interaction between low-deductible insurance and new medical care technology.
Aside from that (highly objectionable) provision, I can find nothing that would provide information and incentives to consumers, medical professionals, health plans, employers, or governments to slow the growth of long-term private health care spending.
I believe the President means this when he says it. His staff and the Congress are failing to deliver on this goal. At some point soon, it will be too late to introduce these needed but politically painful changes into legislation.
There’s no doubt that we must preserve what’s best about our health care system, and that means allowing Americans who like their doctors and their health care plans to keep them.
… Well, no, no, I mean — when I say if you have your plan and you like it and your doctor has a plan, or you have a doctor and you like your doctor that you don’t have to change plans, what I’m saying is the government is not going to make you change plans under health reform.
The legislation being developed does not fulfill this goal. Then again, no legislation could. This is a Presidential overpromise (and a serious tactical error) that the Congress will be unable to fulfill. CBO says the Kennedy-Dodd bill would cause 10 million people to lose their current employer-based insurance because their employer stops offering it, even if those people like their health plan and want to keep it.
I think in this debate there’s been some notion that if we just stand pat we’re okay. And that’s just not true. You know, there are polls out that show that 70 or 80 percent of Americans are satisfied with the health insurance that they currently have. The only problem is that premiums have been doubling every nine years, going up three times faster than wages. The U.S. government is not going to be able to afford Medicare and Medicaid on its current trajectory. Businesses are having to make very tough decisions about whether we drop coverage or we further restrict coverage.
So the notion that somehow we can just keep on doing what we’re doing and that’s okay, that’s just not true. We have a longstanding critical problem in our health care system that is pulling down our economy, it’s burdening families, it’s burdening businesses, and it is the primary driver of our federal deficits. All right?
This is a straw man. As an example, I strongly oppose both the Kennedy-Dodd draft and the House draft of health care legislation, but I don’t believe that if we just stand pat “we’re okay.” There will be health insurance and health provider interest groups arguing we need to maintain elements of the status quo because they benefit financially from those elements. The President’s comments, however, ignore that there are others who agree with him on the goal of slowing health care cost growth, but have a different way to go about it.
I would repeal the current-law exclusion for employer provided health insurance and replace it with a standard deduction not tied to employment. I would make changes in health insurance law to allow you to take your health insurance with you when you left your job (“portability”), and to shop outside your state to buy health insurance so that insurers were forced to compete for your business. I would change medical malpractice laws. All of these changes would actually slow private health cost growth by creating incentives for individuals to shop for high-value health care. I, for one, am not for the status quo, even though I oppose the bills being developed in the Congress. (I will explain my proposal in more detail at a later date.)
So if we start from the premise that the status quo is unacceptable, then that means we’re going to have to bring about some serious changes. What I’ve said is, our top priority has to be to control costs. And that means not just tinkering around the edges. It doesn’t mean just lopping off reimbursements for doctors in any given year because we’re trying to fix our budget. It means that we look at the kinds of incentives that exist, what our delivery system is like, why it is that some communities are spending 30 percent less than other communities but getting better health care outcomes, and figuring out how can we make sure that everybody is benefiting from lower costs and better quality by improving practices. It means health IT. It means prevention.
It means changing incentives. More precisely, it means eliminating policy-induced incentives that encourage people to ignore the costs of the health insurance they buy and the medical care they use. It means repealing the tax treatment of employer-provided health insurance.
Conventional wisdom is that the Obama White House is afraid of political blowback if they endorse this reform, especially from organized labor. They are leaving the door open to it if Congress chooses to include it.
I hope the President’s negotiators are privately offering specific proposals to change incentives in private sector health insurance markets and health care delivery, because they have offered no such proposals publicly. The President and his team have offered specific proposals to increase the amount of information available, but not to change the incentives. As CBO and I have explained, you need to do both.
Number two, while we are in the process of dealing with the cost issue, I think it’s also wise policy and the right thing to do to start providing coverage for people who don’t have health insurance or are underinsured, are paying a lot of money for high deductibles.
But the Kennedy-Dodd draft would increase federal health entitlement spending by 11%. The savings being proposed are far exceeded by the new entitlement expansion.
Also, when you expand government-financed health insurance coverage, private sector health spending goes up, not down. So while a new government insurance program will help those people who were previously uninsured, it will make solving the long-term health cost growth problem more difficult.
Now, the public plan I think is a important tool to discipline insurance companies. What we’ve said is, under our proposal, let’s have a system the same way that federal employees do, same way that members of Congress do, where — we call it an “exchange,” or you can call it a “marketplace” — where essentially you’ve got a whole bunch of different plans. If you like your plan and you like your doctor, you won’t have to do a thing. You keep your plan. You keep your doctor. If your employer is providing you good health insurance, terrific, we’re not going to mess with it.
This is the most frequent argument for a public health option – that it will “discipline insurance companies.” It’s a useful political argument because insurers are unpopular.
In most other sectors, however, we rely on market competition to discipline sellers. If you don’t like the company that sells you X, you instead buy from their competitor. I have not seen any evidence, nor heard any arguments from the Administration, to demonstrate that market competition among insurance companies is ineffective. Are there antitrust issues or market barriers that necessitate government intervention? Do the President’s advisors believe that insurers do not operate in a competitive market? For this argument to have validity they need to make this case. I am skeptical but would like to hear the argument.
Q: Won’t [a government option for insurance] drive private insurers out of business?
THE PRESIDENT: Why would it drive private insurers out of business? If private insurers say that the marketplace provides the best quality health care, if they tell us that they’re offering a good deal, then why is it that the government … which they say can’t run anything … suddenly is going to drive them out of business?” That’s not logical.
I am reminded of the old George Carlin joke: “Think for a moment about flamethrowers. The Army has all the flamethrowers. I’d say we’re ****ed if we have go up against the Army, wouldn’t you?”
The government option for insurance would drive private insurers out of business because the government has tools available to it that the private sector does not. Imagine if a private firm could set the rules under which it competes for business with other private firms. The playing field will not be level when one option has the power and force of the government behind it. The Army has all the flamethrowers.
It’s easiest to make this case by example:
- Fannie Mae and Freddie Mac had a government imprimatur and specific policy advantages granted by the government that allowed them to dominate the mortgage securitization markets.
- The federal government set a statutory “fence” to protect the Tennessee Valley Authority (a government-run power company) from competing for customers with privately-owned utilities. They are immune from state rate regulation and have a different tax system.
- Ford Motor Company is now at a significant competitive disadvantage relative to the bailed out General Motors and Chrysler.
- Private property and casualty insurers are not selling terrorism insurance above a certain amount. They were crowded out by the government program.
- Direct student loans from the government are crowding out loans offered by private banks.
Q: Is [the inclusion of a government option for insurance] non-negotiable?
THE PRESIDENT: In answer to David’s question, which you co-opted, we are still early in this process, so we have not drawn lines in the sand other than that reform has to control costs and that it has to provide relief to people who don’t have health insurance or are underinsured. Those are the broad parameters that we’ve discussed.
There are a whole host of other issues where ultimately I may have a strong opinion, and I will express those to members of Congress as this is shaping up. It’s too early to say that. Right now I will say that our position is that a public plan makes sense.
Translation: Yes, it’s negotiable.
Now, by the way, I should point out that part of the reform that we’ve suggested is that if you want to be a private insurer as part of the exchange, as part of this marketplace, this menu of options that people can choose from, we’re going to have some different rules for all insurance companies — one of them being that you can’t preclude people from getting health insurance because of a pre-existing condition, you can’t cherry pick and just take the healthiest people.
So there are going to be some ground rules that are going to apply to all insurance companies, because I think the American people understand that, too often, insurance companies have been spending more time thinking about how to take premiums and then avoid providing people coverage than they have been thinking about how can we make sure that insurance is there, health care is there when families need it.
This is important, and it requires a full post in response. There are two points here:
- The President wants to change the rules for private health insurance, whether or not there’s a government option. I believe these rule changes will increase premium costs for most people.
- Even if the government option drops out of legislation, health insurance will largely become a function of government.
I will endeavor to keep you briefed as the health care debate continues. I expect a lot more activity over the next six weeks.
(photo credit: whitehouse.gov)
Keith, – Thanks for all you’re doing. I’m in the Insurance Business in NE In. The Obama plan is a JOKE! There’s no “Blanking” way their going to lower the cost. We keep hearing the Politicians say that “Americans need Quality AFFORDABLE Health Care”! Qusetion: What’s the definition of AFFORDABLE? None of them are defining “AFFORDABLE” Is it FREE? Does it mean (if somebody else pays for it)? I can assure you that the word Affordable has a different meaning to Ted Kennedy, than it does to Joe the Plummer. I can assure you that by the time the Gov. gets done “Reforming Health Care”, (Raising Income Taxes, Taxing Everything else that moves, ie, Alcohol, Soft Drinks, Employer Provided Health Coverage, we’ll be spending more than the Premiums we currently spend Today! We’ll have less choice of Providers, and it will lead to RATIONING! When the Gov. starts Taxing Health Care Benefits, No one in an Employer Sponsored Plan, is going to stay in that plan. Their gonna “Skate” to the Public Plan. (So much for a LEVEL PLAYING FIELD)! Here’s a suggestion on one way to Reduce Cost to Medicaid. Start allowing Medicaid to cover Vasectomies! Think about it! A Vasectomy is CHEAPER than Additional Accidental Babies being born that end up on MEDICAID! Keep up the Good Work! Scott Bond – ANGOLA, IN
Keith,
Suggestion -to reduce Health Insurance Premiums.
The Health Insurance Industry should do away with the ( CO-PAY Prescription Drug Card). Why? I’m a perfect example. I take Lipitop.
I get it for $20.00 / mo. (My CO-PAY DRUG CARD). The Retail Price is probably in excess of $100.00 / mo. That’s the price the Drug Company puts on the Drug because they know the “DEEP POCKETS” Insurance Co. will pay the diff. This is than reflected in my Health Ins. Premiums. We all learned in Econ 101 that the price of most any product is determined by what the Market will pay for it! So, if I don’t have a Drug Card, and I can’t afford $120.00 /mo. I don’t buy Lipitor. If we Americans can’t afford Lipitor (and as a result, don’t buy it), watch the Price of Lipitor Drop. (Supply and Demand)!! Lipitor should probably cost around $53.00 / mo. (Just Guessing)!
Keep up the good work!
Scott Bond Angola In
That comment about not seeing why the government would drive private companies out of business is absolutely astonishing. I don’t expect Obama to be a Ph.D. in Economics, but I would hope that he is informed enough to understand how silly that statement is.
The health care debate really came home for me this week. I run a small business and our health provider, Oxford, just jacked up our premiums for the plan by 25% year-over-year. That’s just an incredible increase. My response has been to seek out a plan that is geared towards only catastrophic coverage and not towards paying only $15 to see a doctor. I’ve never understood exactly how our conception of “insurance” expanded from protection against injury, accident or chronic condition to the idea that we should never, ever pay a $ our of our own pockets for even basic service. I suppose the answer is that health care (for employees) is a tax free, “invisible” benefit, so they have the incentive to push for heavier coverage as they don’t see the cost.
Vlad,
Well said about the President’s comment on driving out private insurance providers. Even the home town crowd had to know that was a load. Aside from all the great points Keith made, what about the fact that the government doesn’t have to make a profit to stay in business? Running at a loss?…borrow some more money. No problem. How does the private sector compete with that? We’ve all heard about large corporations selling product at a loss for a period of time to drive out competition before raising the prices back up. Well the government won’t raise prices after the competition is gone, they’ll raise taxes.
This just goes to show why there needs to be an informed debate on this issue, not just a one-sided infomercial. Even I could have debated that softball.
Vlad,
Well said about the President’s comment on driving out private insurance providers. Even the home town crowd had to know that was a load. Aside from all the great points Keith made, what about the fact that the government doesn’t have to make a profit to stay in business? Running at a loss?…borrow some more money. No problem. How does the private sector compete with that? We’ve all heard about large corporations selling product at a loss for a period of time to drive out competition before raising the prices back up. Well the government won’t raise prices after the competition is gone, they’ll raise taxes.
This just goes to show why there needs to be an informed debate on this issue, not just a one-sided infomercial. Even I could have debated that softball.
OH! You’re my new favorite blogger fyi
Keith,
This is a long comment. I include comments from the blog Junkfood Science and recommend her site because of what I see as a very clever systematic attack on liberty by this administration. It seems that all of their efforts interlock to provide an overall program that is at the same time inexorable and invisible if one doesnt spend all of ones time tracking it. None of us has the time for that. Hence the inclusion of other applicable references. I hope that the length nor the references offend.
We simply cant have a system where we throw good money after bad habits.
how can we make sure that everybody is benefiting from lower costs and better quality by improving practices
It means prevention
These three items taken together will put the government in your life as nothing before has. Like so much in this administration, major emphasis is put on a list of nostrums and myths prevalent in the nanny world of leftist politics for the past 45 years. The stimulus bill contains a provision for about $1.2 million is to be given to the private organization, Institutes of Medicine, for it to recommend the national priorities that will be supported or funded by the government making its recommendations for what treatments and strategies will be supported, the IOM says, to enable doctors and patients to make smart health decisions.( http://junkfoodscience.blogspot.com/2009/06/comparative-effective-research-what-it.html). This private outift will provide is findings this month. You can be sure that it will contain all the foolishness about obesity, lack of exercise, sugar consumption, red meat consumption, etc. that weve all been bombarded with since they won in the tobacco wars. The problem is, they dont work: Todays preventive health strategies promote certain diet and lifestyle behaviors; as well as screenings, tests and treatments of health risk factors; with little credible evidence they improve outcomes for most people, no matter how intuitively correct they may sound. Prevention is not the slam dunk being marketed to consumers . (http://junkfoodscience.blogspot.com/2009/06/comparative-effective-research-what-it.html)
We need to realize that prevention is not going to help reduce the growth of medical spending, said Dr. Russell. Its touted as one [a panacea] but it is not. In fact, prevention has contributed to our rising medical costs.
Most people dont understand prevention or cost effective analysis, she explained. Prevention rarely saves money when studies examine actual costs. People dont realize that studies claiming savings arent usually looking at medical costs and savings, she said. You will see studies claiming that a preventive intervention saves five dollars for every one dollar spent, she said. What they are doing is valuing every life saved at the future earnings of the person and including those dollars along with medical costs and savings. (http://junkfoodscience.blogspot.com/2009/06/comparative-effective-research-what-it.html)
As with the prostitution of global warming science, medical intervention science is oriented around one thing and one thing only, to control your life and render you absolutely dependant on the government.
It means health IT
Health IT, will be used in conjunction with the treatments and strategies the government is pushing to control what your doctor is providing to you in terms of information and treatment. It will be the source of data dumps and correlation studies to create and sell new government treatments and strategies to enable doctors and patients to make smart health decisions. It will help to make sure that you are still marching in lockstep. And, finally, it will be the source of unending losses of all of your information to hackers just as happens now with way too many government data bases.
you cant preclude people from getting health insurance because of a pre-existing condition
start providing coverage for people who dont have health insurance or are underinsured
Pure. Unadulterated. Welfare. These alone will swell to unmanageable costs within ten years. Just as did Medicaid, Medicare, Social Security, and all other federal welfare programs
Are there antitrust issues or market barriers that necessitate government intervention?
I have mentioned this before but there is a federal antitrust decision that applies to this. In the late 19th century, insurance companies were numerous and activity was extreme with players entering the market at an ever increasing rate until competition became cutthroat. Many states saw this as a tax windfall and used those powers unmercifully and, at the same time, imposed large numbers of regulations that were highly variable between the states. State supervision was in many cases ignorant and corrupt as well. The companies were trapped between extremely high competition and equally high government-imposed costs and petitioned Congress for relief through a national regulation scheme with basic standards that they could all work under. This was stymied by a Scotus decision (Paul vs, Virginia, 1868) which essentially ruled that insurance was a contract as opposed to commerce and, hence couldnt be controlled by the national government. The Gordian Knot of state control continued. Again, legislation to eliminate this would seem a useful place to start for the federal government, and a more constitutional application of the purpose of government.
All of the efforts as regards health care would show more promise for the bulk of citizens if they concentrated on getting the feds out of it rather than more solidly imbedded in it. Of course theres no power payoff in that strategy
I just saw this testimony of Stephen Parente, Ph Dlinked over at Hot Air. Included in his analysis of proposed health care reform, Parente testified:
CBO scored the Kennedy Bill last week at approximately a 30% reduction
for 1 trillion over ten years. Using the ARCOLA model, we found nearly everyone
would be covered if all elements of the Kennedy bill were enacted at a ten year
cost of 4 trillion. That 4 trillion estimate over 10 years assumes a public option
plan with Bronze, Silver and Gold levels in the proposed insurance exchange with
a subsidy for premium support that is income-adjusted and calibrated for assistance
at the Silver level. The Silver level is equivalent of PPO plan with medium levels
of generosity, something with 15% coinsurance rate, manageable copays and
average level of access to physicians and hospitals. We accounted for the public
plan being reimbursed at 10% above Medicare reimbursement, which is also 10%
below commercial insurance premiums.
Parente seems to be particularly critical of President Obama’s claims that expansion of health care is needed to “bend the cost down.” Parente was an advisor to Senator McCain’s health care plan and evidently was considered for a position in the Obama administration. Perhaps someone can answer a question that I don’t understand. Where is President Obama’s plan that he touted while running for office? Is Kennedy Dodd supposed to represent the essence of the plan Obama claimed during the campaign? This question came up for me after viewing the president last night criticizing aspects of McCain’s plan last night on ABC and again while reading Parente’s testimony.
Keith,
Is it true that Congress will Exempt itself from the PUBLIC PLAN, once it becomes THE PLAN for the rest of us?
Secondly, is OBAMA serious about “NOT TAXING The UNIONS Health Care Benefits?
Of course we all know why he wouldn’t!!!
Scott Bond sb@scottbond.net
Your don’t have to be a healthcare finance wizard to accept the U.S. Chamber of Commerce opinion on U.S. healthcare.
Just sign the petition at: http://www.friendsoftheuschamber.com/takeaction/index.cfm?ID=40