While billed as a health care reform project, the bulk of the details on the health plan concern Medicare: who is going to pay for it, how it is going to be restructured. There are three key components. The first is changing the bidding process on Medicare Advantage plans, which the Administration estimates will generate 175 Billion dollars over 10 years. The second is to force costs lower on services to Medicare, particularly the drug rebates that companies now must give. The third is tighter management of practitioners and health providers. Obama has signaled a willingness to work on the "details" of the plan, but has laid down how much he is willing to pay. The amount is 100 billion a year over the next ten years by high end estimates, but has budgeted an average of 63.4 Billion a year.
What is in here is upper income tax increases in the form of tightened deduction rules. This is half of the fund, estimated on average to be 31 billion a year in additional revenue. It is also clear that Obama’s target is Medicare costs, not a general health care reform. Indeed, by focusing on give backs on Medicare, he invites companies to attempt to make up the lost revenue on other parts of the health care system. It’s a variation on "starve the beast" tactics, because part of the problem of Medicare is that it takes much of the most unprofitable health services off the books of insurance companies, while still providing for profits for the services to health care providers. By pushing costs back on to the insurerers and providers, they will either have to eat some of the profits, or they will have to charge more to their private customers, or both. This could work, or it could back fire badly, by creating a large wave of uninsured, the way mandates have in Massachusetts. Trying to get people to pay who have falling real wages is trying to get blood from a stone.
It isn’t that there are not inefficiencies in the system One study reports on how regional differences can double the cost of Medicare treatment without improving outcomes.
This is then, a technocrat’s first draft of tightening the screws on the current system. It starts with Medicare, which is currently the most efficient cost for outcome part of the system, but which is 500 billion out of a total of 2.2 trillion for all of US health care spending. As America ages, that number is expected to more than double, peaking around 12% of GDP as people live longer, and interventions become more common late in life. It takes profits out of one sector of health care, and expects to use that money to provide universality of health care. But the promise of universality was couched in "should" and "could" not "would."
The best paradigm to understand Obama is "Clintonomics Part II" – work on balancing the budget, cut costs around the corners, contain run away segments of the economy by compression – but with an even greater commitment to gradualism than the Clinton administrations. Clinton’s health care plan did not pass, but the threat of passage hung over health care companies, who restrained cost increases for much of the decades. Absent the pressure to reform under Bush, health inflation exploded. Insurers dropped in the market, with the belief that "cost cutting" would hit profits, even as they hoped that mandates would broaden the base of payers into the system. But where insurers see risk and peril other industry groups see the chance to break in with cheaper treatments and potential profit. While segments of the health industry fret about their current revenue, many others see controlling health costs as key to controlling employment costs. The take away is that investors believe that this plan will hurt insurers, the health payor index was down 5.2% today, but biotechnology stocks moved with the broader market.
The other takeaway from the Clinton experience is to leave plans vague, and let Congress fill in the details, as Peter Oszag stated: "We’re going to try to avoid the mistakes of the past and not lay down a fully detailed plan, rather work constructively with Congress." This may well mean dropping the plan into the house, and then working it back to the right in the Senate, as was done with the Stimulus bill and TARP.
Obama has said that "entitlement reform" is a top priority, and with this plan he makes absolutely concrete that entitlement reform is his number one budget priority, and after getting past the current crisis, his number one economic priority. His plan is to increase taxes on upper incomes, push down costs, but retain the current system in almost every detail, and then use some of that savings to fund access. Single payor? No. Patient driven? No. In fact, oversight driven. Universal? Perhaps. It’s most important virtue however, is that the price tag is fixed, and interests in Congress will have to fight within a very tight range, limiting the chances for cost over runs. It’s most important defect is that it neither is, nor leads to, significant savings. To underline the essential point. The plan offers savings of roughly 33 billion a year, when, by best estimates, the amount of over charging in the US health care system is 700 billion. The plan then addresses roughly 5% of the current problem. That is enough to contain costs, and enough to keep the system going longer, but not enough to put the system on a sustainable footing. The cost reductions envisioned by Obama’s plan shave, at best, 1.2% of GDP off the future peak of 12% of GDP of Medicare expenses. When combined with a potential Health IT program, the ground work being put in the budget by Obama, this could produce further savings of another 1% of GDP in the rest of health care, but in his incarnation at CBO, OMB Director Orszag cautioned against rosy estimates from computer systems.
The take away is that this plan reflects a belief that the problem with the health care system is about 5% of the costs of the total system, that it lies in process problems which can be addressed by going into the weeds and resting inefficiencies out, and that oversight and containment will be enough, because that is the amount budgeted for "comprehensive" reform, and that is the method given to achieve the results desired.
Related posts:
- The Max Tax: Would Baucus’ Medicare Changes Really Reform Health Care?
- Liveblogging the Obama Health Care Presser: Cost Control Up Front; Politics Pushed Aside?
- Senate Finance Dawdles While Thousands Die Waiting Without Health Care
- Humana Sucks Money Out of Medicare Advantage
- Breaking: Pelosi Unveils Merged House Health Care Reform Bill
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CTuttle???
Where is CT. He gets the ZED and Runs?
Better than just getting the runs.
(Smiling ever so slightly.)
Actually CT would call it the “quick step”.
Anything for aerobic exercise.
Sorry for the grabass, this is a very well thought out post.
I can’t figure out the rest of the 2.2. Veterans medical care. SCHIP? I’m only scratching the surface, aren’t I?
does this mean the majority of insurance and big pharma entitlements are not “on the table” – or do i have it wrong?
The speech:
President Obama’s call for “comprehensive” healthcare reform in his speech to Congress last Tuesday night.
The reality:
“comprehensive” = 5%
Yes, yes it is. And greatly welcomed, to be able to see past the rhetoric and find the reality don’t fit my progressive lens. Sigh. More feets, more fires . . . . it’s a daily ritual.
Time to clean and sharpen pitchforks and soak torches. Gonna be a lot of emailing, calling, and more before we get what we want. We gotta make him do it, otherwise it all comes back at us in another year.
Thanks again Stirlling . . .
mostly but not entirely OT…. via barry at the big picture: dilbert on the bailouts
Given what Stirling presents, yer right as rain. It’s as pure as New York Snow.
One third of all money spent on healthcare is due to over charging. Sterling.. do you know how much of this 33 percent is over charging government vs overcharging private insurance companies?
“Earth to Major Tom: They’re broke, there is nothing left to lend. And you’re trying to create an artificial situation, which does not, can not and will not work, in which people are invited to borrow their own money, given by the state to the banks, which will skim off their usual margins. Make that more than their usual margins: they have huge debts to pay off. For the taxpayer, all this constitutes the worst possible deal.”
” Mr. Bernanke added there are cases in which the nation needs to “trade off the short-term moral hazard issues against the broader good.”
Translation: the mighty shoudl be allowed to rob the nation blind, because that’s good for the people in the long term. Bernanke is not a politician, but he is one of those in power. And they don’t want to find a new and potentially better system, they want to restore the one that got them where they are. The political system is as dysfunctional as the economic one. And that’’s why all that is done makes everything worse, not better. It’s inevitable. It’’s built into the structure.”
“Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth. He was supposed to regulate many of the largest bank holding companies in the United States. Far too many of these institutions are now deeply insolvent because the banks they own are deeply insolvent. The law mandated that Geithner and his colleagues place troubled banks in receivership long before they became insolvent. Why are the banking regulators, particularly Treasury Secretary Geithner, continuing to disobey the law?”
First shoe dropping. What’s the second?
This is a serious lack of courage on healthcare. I am not surprised though. I reassured friends in the industry that Obama was not for universal healthcare. Apparently he is not for very much healthcare at all.
Exactly what Prez. Obama said last night . . . entitlements. Social Security, slowly raided and transferred to non taxable National Savings Plans (based on who knows what). Oh, and taxed upon usage in our golden years, at who knows what rates or user prohibitions . . .
I haven’t seen much on trimming the War Dept’s budget, one of my top concerns. I’ve run across a very interesting, to me at least, statement by Noam Chomsky in a 1976 interview with the BBC. Go about half way down the page to the question:
Part of Chomsky’s response:
Not a long piece and well worth the read, particularly his comments re Defense Dept.
And yes, I know that SS drawdowns are taxed now . . . a progressive system would have those drawdowns in our golden years NON taxable, further stretching our dollars when we need it the most.
If corps get tax breaks, then SS recipients should too. Fair at the top, fair at the bottom for the sheeple.
The positives here are that Obama is willing to raise taxes on the wealthy by closing loopholes, and he is willing to go into the weeds on improving the Medicare System. These are both necessary and long over due.
However, there is a great deal of money being left on the table, and the question is whether there is the political will to pick more of that money up and improve the quality and coverage of care.
It’s early, I know that . . . but so far the political will I’ve seen is to LEAVE money out there. So they can raid it later?
It’s HARD to fully trust any of these guys, including the prez. So we gotta ’make him do it’ . . . and I guarantee the MOMENT we lay pitchforks and faxes down, the raiding will resume in earnest.
Thanks again for this read and a few before it, also . . . . always an informative process to read your thoughs. ’Preciate it . . .
The Defense budget is slated for some cuts. The real question is when Iraq draw down finishes, when the involvement in Afghanistan ends, and the fate of a large number of very expensive weapons programs.
From my point of view we should not look at “cutting” the DoD, so much as shifting from a war footing to demobilization. Most of the money we save will have to be spent moving people to a civilian economy.
“…improving the Medicare System.”
Improving the Medicare sytem or just cutting it back?
One of the pluses of this plan is that it focuses on reducing costs to the medicare system, without focusing on benefit cuts to Medicare beneficiaries. The cost savings are coming out of what the government pays for Medicare services, not out of services.
I don’t know the details–but it seems to me if the profits of insurance companies get cut into they’re going to start cutting back on coverage for services.
As with everything else I have seen from Obama there is much less here than meets the eye.
I agree it looks like any costs that insurance companies or Big Pharma might have to eat out of Medicare they can just make up for by raising costs to their non-Medicare customers. This is more about cost shifting than cost reduction. And as you also note where this becomes problematic the insurance companies can simply bail.
This has what is fast becoming the hallmark of Obama programs, which is: “Be nice to the pirates.”