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Obama’s Rx for Change

Jun
12
2008

Clinton has quit, Obama has three times McCain’s resources, and the country is fed up with the Republicans’ war, corruption and toadying to corporations. Democrats have won three “safe” Republican house seats in recent months. It’s their election to lose, and assuming that the fences between rivals really are mended, it might be a landslide.

I’ve written previously that I don’t think Obama is serious about pursuing health care reform. But this week in at a Health Care Town Hall held immediately after he clinched the nomination, he repeated that by the end of his first term, there would be universal healthcare.

In an Obama administration, we’ll lower premiums by up to $2,500 for a typical family per year. And we’ll do it by ….covering every single American and making sure that they can take their health care with them if they lose their job…..We’ll do it by the end of my first term as President of the United States……

Coming from someone who had relatively little to say about health care until goaded into it by former rivals John Edwards and Hillary Clinton this counts as a turning up of the rhetoric. So let’s imagine that there is a solid Democratic majority in the House and Senate with a strong Democratic President.

What type of health care reform might actually pass into law?

Obama’s proposed plan is complicated so the plan’s trip through Congress will be tortuous. And some details are still not aligned. Although Obama says most employers would have to provide insurance, he doesn’t mandate that individuals to buy insurance. But then he says we’d get to universal coverage by having people buy insurance, rather than having the government provide it for free.

The Obama theory is that if insurance becomes cheaper, more people will buy it, and those that truly can’t afford it will be subsidized. But that’s not realistic. Ten percent of people account for more than 50 percent of health care costs and the current game in insurance is to avoid covering that 10 percent.

It looks fairly inevitable that the worst excesses of current insurance practices – avoiding people with chronic conditions – will be banned. But the next step, which is spreading that uneven cost of health care across wider populations, means healthy folks who are not paying their “fair share” will have to pay more. That’s necessary if those paying the most – or in reality, currently unable to get insurance – get to pay less. And those who will have to pay more will likely outnumber those getting a better deal right now. So the Obama plan will look like a cost increase to many. This has largely been the experience in the new Massachusetts “universal insurance” plan.

Obama’s way around this is to have the U.S. government subsidize some of the most expensive cases. That’s the source of his $2,500 a family savings. He’ll also allow people to buy into an equivalent of the Medicare system. Both of these safeguard proposals mean big increases in government subsidies that will require more taxes. But this is all likely to be proposed during a recession. The Federal budget is already heading for another record deficit. Add in the opposition from much of the health insurance industry to these reforms (as they will put some of its members out of business), and you can see how hard this will be to pass Congress.

There is one place Obama can go for the money to pay for his plans. The Medicare program continues to run more or less as it did in the 1960s, incenting doctors and hospitals to provide more and more services, at a total cost of some $460 billion in 2008. Remember that Obama says he needs less than $100 billion to cover everybody.

For the past two decades Medicare “reform” has meant paying private plans to take on more of the Medicare population. But more than 80% of Medicare recipients are still in the traditional program, and worse, it’s turned out that it costs Medicare more overall to send a senior into a private plan. So serious reforms of the mainstream Medicare program are going to be necessary.

Any such reforms will have winners and losers. Losers will presumably be those making money providing “too much” acute care now. You can imagine the ability of those “loser” hospitals and doctors to rally political support. So although there be reallocation of funds within Medicare and for the rest of Obama’s plan to work there’ll need also to be an overall reduction in Medicare spending to help pay for the expansion of subsidies to cover more of the uninsured.

So my quick forecast, regardless of who wins in November: We’ll see cuts in Medicare as part of a series of necessary and positive changes in how we pay for health care services. If Obama wins, we’ll also see greater regulation of insurers to prevent the bad behavior we’ve seen in the last few years.

Whether we’ll see real efforts to “cover every single American” is much less likely.

Share  Posted by Matt Holt at 8:22 AM | Permalink

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