Unbiased Analysis of Today's Healthcare Issues

Obama Address to AMA

Written By: Jason Shafrin - Jun• 15•09

President Obama addressed the American Medical Association in Chicago today.  His goal was push through his health care reform agenda.  On Saturday, his Weekly Address also focused on health care reform.   What is this agenda and how will it be paid for?

 Obama wants a public health care plan for the uninsured.  The total cost of his proposed health reform is about $1 trillion (although some disagree with these estimates).  He has proposed a number of ways to raise this money.

Additional Revenues

  • Increasing taxes for high income Americans.  Whether you are for or against this likely depends on your income bracket and political leaning.
  • Ending the tax-deductibility of employer-provided health care.  I agree with this proposal.  Tax deductible health insurance gives individuals an incentive to purchase more generous health insurance packages with lower copays and deductibles.  Further, this deduction is much larger for high income individuals who not only have more expensive health plans, but who also have a higher income level.  Uninsured individuals should not have to pay more for health insurance than CEOs.  Opponents would say that the tax deductibility increasing the incentive to pool insurance at the employer level.  Although this is true, the cost benefits in terms of lower load factors almost always makes employer-provided health insurance a better deal than non-group, individually purchased plans.



Obama also has come up with $635 billion of additional “savings.”  These include:

  • Incorporate productivity adjustments into Medicare payment updates.  Read: pay doctors less.
  • Reduce subsidies to hospitals for treating the uninsured as coverage increases.  This means eliminating the DSH payments.  It makes sense that if most or all individuals are insured, then DSH payments can be drastically reduced.  I do wonder, however, whether immigrants (legal and illegal) will be eligible for the public insurance plan.
  • Pay better prices for Medicare Part D drugs.  This means negotiated lower prices with drug companies.  It would be preferable to significantly limit the duration of patents in order that generics can more quickly compete with patented medicine.  Further, shortening patent life will lead to new add-ons and innovations based on these patents.
  • Less Money for MRIs and CT scans.  Technically, Medicare will double “the assumed utilization rate for calculating practice expense RVUs for the technical portion of reimbursement from 25 hours per week (50% utilization) to 45 hours per week (100% utilization).”  This means that Medicare that the equipment will be used more hours per week which reduces the price per scan.  One reason for the lower compensation, is because areas with more MRI machines and CT scanners do not have better health outcomes, only higher prices.
  • Cut Fraud and abuse; increase Medicare payment accuracy.  This is easier said then done.  Dr. Rich is skeptical that fraud programs will significantly cut healthcare costs.  He cites his own experience with anti-fraud programs.
  • Improve Quality.  Also easier said than done.  The Obama administration attempts to reduce hospital readmissions.  This may mean lower payments for patients who are readmitted to the hospital for the same disease.  If this is the case, hospitals may provide subpar care to patients who are re-admits or they may recode the patients as having a different disease to increase reimbursement.  The government also wants to expand the Hospital Quality Improvement Program. Because medical quality is so difficult to measure, some of these measures may be counterproductive.  

Presents for Physicians

The President propose two changes that doctors do like.

  • Less paperwork.  Simpler paperwork would help smooth the operation of physician offices, especially for physicians in smaller practices.  However, making the paperwork simple isn’t so simple.  The more transparent the paperwork, the less information the government has and the less they know about the procedures they are paying for.  Further, Obama claims to clamp down on physician fraud.  More fraud-fighting requires more–not less–paperwork.
  • Limits on malpractice claims.  Limiting malpractice claims will have little direct effect on health care costs. The indirect effect, however, could be large.  If physicians decide to do less tests and less precautionary medicine, this could significantly reduce health care costs.  Yet Barack Obama did say that “I’m not advocating caps on malpractice awards, which I personally believe can be unfair to people who’ve been wrongfully harmed…”

A final note

This leaves one question: is former Illinois senator Barack Obama a Green Bay Packers fan?  Probably not, but he did praise Green Bay as a place where health care costs are below the national average while excellent health care is available.

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