Obama

You are currently browsing articles tagged Obama.

President Obama’s Health Care Plan

March 1, 2010 in Public Policy | 9 comments

Here’s my take on President Obama’s health care plan.

  • Tax credits for Health Insurance Premiums.  This will do nothing to change how much health care costs, it will just change who pays the premiums.  For middle class individuals, these subsidies will help make health insurance more affordable.  Because the wealthy won’t receive any subsidy (the maximum family income to be eligible for the credit is $88,000), they will simply pay higher taxes.
  • Health Insurance Mandate.  Obama does not call this a mandate, but rather titles this section of the proposal “Improve Individual Responsibility.”  Individuals who don’t buy health insurance will be fined.  A health insurance mandate in and of itself doesn’t make much sense to me (if you don’t want it or can’t afford it, you shouldn’t be punished).  However, if laws that prohibit-pre-existing pricing insurance plans based on pre-existing conditions, a mandate may be needed so individuals can not avoid paying health insurance premiums until they fall ill and only then pay the premiums.
  • Employer Mandate.  If you don’t provide health insurance for your worker, you have to pay a fine of $3,000.  This is true for firms with 50 employees or more.  The employer mandate does not make much sense.  Business could offer health insurance to attract employees, but firms should not be forced into being in the health insurance business.  It makes more sense to instead make it easier for businesses to provide insurance.  For instance, the government could allow small businesses to band together to buy health insurance product under the umbrella of a common organization.  The economies of scale should reduce insurance costs.
  • Federal financing to all States for the expansion of Medicaid.  Helps the state budgets, hurts the federal budget.
  • Closing the Medicare prescription drug “donut hole” coverage gap.  This will increase the cost of the program, but it makes sense to have a more standardized benefit package with a deductible and flat coinsurance rate rather than the complex product with the donut hole.
  • Strengthening the provisions to fight fraud, waste, and abuse in Medicare and Medicaid.  This is a throw-away point.  Every politician tries to do this, but it is often difficult to determine what is fraud, waste and abuse and what is just expensive care for a needy patient.
  • Eliminate Pay-for-Delay.  Pay-for-dealy occurs when brand-name pharmaceutical companies pay their generic competitors to keep its drug off the market for a period of time.  This generally seems like a good idea, but one economist says eliminating these payoffs may make it less likely generics will be developed in the first place.
  • Increasing the threshold for the excise tax on the most expensive health plans.  I am not a supporter of this bill.  Health insurance is expensive either because 1) the health plan is very generous or 2) the person is sick and it is expensive to cover them.  The excise tax will cut down on the number of super generous plans, but it will punish sick individuals in the non-group market.  Eliminating the deductibility of group health insurance benefits makes more sense and will raise more revenue to help pay down the deficit.
  • Broaden the Medicare Hospital Insurance (HI) Tax Base.  This means that unearned income (capital gains, dividends, interest) will now also be subject to Medicare taxes.
  • Creating a new Health Insurance Rate Authority.  Many states already have a body that regulates insurance companies.  Having an additional body may just be a waste of taxpayer dollars.  The federal government may think health insurance rate increases are “too high” but I doubt the government will know what the “right” premiums would be more than a private insurance company.
  • Invest in Community Health Centers.  Community health centers can help people who fall through the cracks: those without health insurance, immigrants.  However, a more comprehensive health reform (which would fund a majority of the health insurance cost for these disadvantaged individuals) would allow poor people to choose which health care provider they wanted rather the having to rely on community health centers.  Expanding Medicaid may be a more effective use of these dollars than investing in these centers if Medicaid could be expanded to all individuals.  If the U.S. wants to provide immigrants with poor medical care (i.e., make them ineligible for Medicaid) as a disincentive to immigrate, than community health centers may be a better option than additional Medicaid funding.
  • More federal funding for SCHIP.
  • Eliminating the Nebraska FMAP provision.  Eliminates one example of pork, but there are likely many others in the bill.

Other commentaries worth reading:

Tags: ,

President Obama’s Healthcare Summit

February 25, 2010 in Current Events, Public Policy | 7 comments

How did Obama’s Healthcare Summit go?  It was basically a pile of bad ideas.  Senator Harkin gave the best explanation of what’s truly needed, but I’ll save that for last.

Examples of BAD IDEAS include

Starting over.  John McCain asked to “Go back to the beginning” and Republican Senator Lamar Alexander said ”If we can start over, we can write a healthcare bill.”  The whole start over rhetoric is dumb.  If you don’t like the current proposals, say what you don’t like about them.  If you have suggestions on how to do it better, say them.  Suggesting a “do over” is not helpful.  Even if you think health care in the U.S. is perfect and prefer the status quo, you should stand up and say that rather than asking for a clean slate.

Health Reform will lower the deficit. Expanding federal entitlement programs will NOT lower the deficit.  In the short-run, additional tax revenue and cuts to other programs may decrease the deficit in the very short run, but adding or expanding big government programs never lowers the deficit.

Reforming medical malpractice.  I have documented that the medical malpractice system does not work well (see here and here).  However, malpractice costs are a small share of the overall health care dollars.  If physicians prescribe too many tests and treatments because they wish to avoid being sued, than tort reform could decrease costs more drastically.  However, this issue is more of a partisan one where Republicans can pander to their physician supporters and Democrats can pander to their attorney supporters.

End Waste and Abuse.  This is a laudable goal, but determining what is waste and abuse is difficult.  If you get an MRI for an injury, you may not need the MRI, but it will provide the doctor with some helpful information.  This is certainly not fraud, but it may be waste.  Having Medicare administrators who are far from the hospital floor determine what is wasteful is not as easy as political rhetoric makes it sound.  Further, although there is much waste in the Medicare system, there is much waste when doctors are paid by private insurers as well.  Every President promises to reduce Medicare fraud and waste, but few succeed.

“We actually create more diabetes through the food stamp program and the school lunch program.”  - Senator Coburn.  Do poor people buy more unhealthy food?  Yes.  Is it because of these programs?  No.  The poor have less money and fast food is cheap.  Fresh fruits and vegetables are expensive.  Increasing redistribution would allow the poor to eat healthier, but if Senator Coburn wants to mandate that poor people eat healthy, I think that is going too far.  People on food stamps aren’t all of a sudden start shopping at Whole Foods.  The food police are not the solution to health reform.

Here’s where the GOOD IDEAS were:

Incremental Reform doesn’t work.  Senator Wyden said, “The evidence says incremental reform not only does less, it costs more.”

The most sensible comments came from Senator Harkin.  In order to reduce health insurance premiums and Medicare expenses, we need cost control (i.e., rationing).  We need to limit the medical care we make available to ourselves.  Every person should not be able to receive every medical treatment they think will improve their lives.  Determining which treatments to exclude form Medicare or private insurance is full of tough decisions, but they must be made, otherwise health insurance premiums will gobble up more and more of our wages.

Of course, no senator could support rationing care, but that is what Senator Harkin is essence supporting.   Here is a quotation:

“Well, quite frankly, if we want insurance reforms you can only do that if everybody is in the pool. You can only get everybody in the pool if you make it affordable for middle class families and others. You can only make it affordable for middle class families and others if you have cost controls.”

The full transcript of the summit can be found in three parts (1, 2, 3).  NPR also has some good analysis here.

Tags: , , ,

Obama’s State of the Union Address: The Healthcare Economist’s Take

January 27, 2010 in Current Events, Public Policy | 2 comments

Below are healthcare-related excerpts from President’s Obama’s State of the Union Address with my comments afterward.

Now let’s be clear – I did not choose to tackle this issue to get some legislative victory under my belt. And by now it should be fairly obvious that I didn’t take on health care because it was good politics. True.  Support for Obama’s health reform policies are hitting all-time lows.

The approach we’ve taken would protect every American from the worst practices of the insurance industry. Here, Obama may be referring to the fact that he wants to prohibit insurers from denying insurance coverage based on pre-existing conditions.  In many cases this is a good thing.  It is hard for people who have diseases to get insurance coverage, and when they don’t get coverage, they may forego necessary care.  However, when insurance companies don’t deny coverage to individuals with pre-existing conditions, each person has an incentive NOT to buy health insurance until they come down with a serious disease.  This way, you’ll save money on health insurance and when you decide to buy health insurance when you’re sick, it’ll cost the same as it does for healthy people.

It would give small businesses and uninsured Americans a chance to choose an affordable health care plan in a competitive market. The subsidies individuals would get to purchase nongroup insurance would help people purchase insurance for individuals who work for a business that does not offer a group plan.  However, the small businesses generally oppose health reform.

It would require every insurance plan to cover preventive care.  Most already do.

And by the way, I want to acknowledge our First Lady, Michelle Obama, who this year is creating a national movement to tackle the epidemic of childhood obesity and make our kids healthier. Although losing weight will generally improve your health, calling obesity an epidemic is a bit of a hyperbole.

Our approach…would reduce costs and premiums for millions of families and businesses. And according to the Congressional Budget Office – the independent organization that both parties have cited as the official scorekeeper for Congress – our approach would bring down the deficit by as much as $1 trillion over the next two decades.  Cost will decrease for some people.  Those who are newly eligible for Medicaid will see lower health insurance premiums.  Those who receive subsidies to buy health insurance will see lower premiums.  However, the taxpayer will have to cover this cost.  Thus, there will be winners and losers if health reform passes.  The Medicare cost cuts the Obama is proposing are small in comparison with the fast rate of growth of overall Medicare spending.  Further, political pressure will make it difficult to actually enact these cuts.  Although Obama may claim the health reform will decrease federal spending, insurance companies believe health reform will increase health care costs.  I’ve already stated my belief that the cost-cutting measures in the health reform bills are meager.

As temperatures cool, I want everyone to take another look at the plan we’ve proposed. There’s a reason why many doctors, nurses, and health care experts who know our system best consider this approach a vast improvement over the status quo.  Providers should support health reform.  In general it expands the number of people with insurance (i.e., it expands their potential market).  Further, because there is little cost cutting, doctors and nurses should see an increase in profits.  Doctors and nurses may also believe that health reform is good for their patients, but without a doubt it will benefit the provider’s pocketbook.

Do not walk away from reform. Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people.  In other words: “Please pass health reform.  Pretty please!”

Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will.  A spending freeze sounds like a great idea to reduce the debt.  However national security (21%), Medicare & Medicaid (23%), Social Security (21%), other mandatory spending (10%) and interest on the debt (8%) make up most of the federal budget.  This leaves only 17% of the budget which is not under a spending freeze.  That is like saying, “Yeah, I’ll keep living in this house I can’t afford and driving this car I can’t afford, but when I go to Taco Bell I’ll get the regular taco instead of the taco supreme.”  That is not the way to financial security.  Additionally, some of the discretionary programs will be cut but others will receive increased funding.  Obama even campaigned against spending freezes in the election.

More importantly, the cost of Medicare, Medicaid, and Social Security will continue to skyrocket. That’s why I’ve called for a bipartisan, Fiscal Commission, modeled on a proposal by Republican Judd Gregg and Democrat Kent Conrad. Read: “I know it’s not a good idea politically to cut Medicare, Medicaid or Social Security.  So instead I’ll call for a commission to write a report that gets ignored a year from now.”

We are helping developing countries to feed themselves, and continuing the fight against HIV/AIDS.  Feeding the poor and helping those with AIDS are important goals.  They are also goals that few people would oppose politically.

Conclusion: Overall, Obama has proposed nothing new on health reform, but has just asked nicely for Congress to pass it.  He has imposed a spending freeze on 17% of federal budget while letting entitlements continue to gobble up more and more of worker’s incomes through taxes.  There is no solution to the impending budget shortfalls for Medicare and Social Security.  To sum up, on the health care front it’s more of the same.

Tags: , , , ,

Health Reform Bill Passes in the House: Who wins and who loses?

November 9, 2009 in Current Events, Health Insurance, Public Policy | 2 comments

A Health Reform Bill passed in the House despite declining support among the American people.  The Kaiser Family Foundation has a nice summary of what is included in the bill.  Today, I will review who wins and who loses from different aspects of the bill.

Individual Mandate.

  •  Winners: High cost individuals.  Premiums (may) decline if younger, healthier individuals are forced to buy insurance and the insurance companies.  This will only decrease premiums, however, if insurance companies can’t charge lower rates to these healthier individuals.
  • Losers: Those who don’t want health insurance or can’t afford it.  All individuals will have to pay a penalty if they do not buy “acceptable health coverage.”  Low-income families are exempt from this requirement. 

Employer funding requirements.

  • Winners: Requiring employers to pay for health insurance simply means that individuals will see lower wages in the long run.  The big winner here is big business.  They already provide health insurance for their employees.  Small company competitors however
  • Losers: Health insurance is more expensive for small companies.  Making them pay for health insurance will drive up their costs and force them to cut wages more than big businesses will.  This may make working at a small firm less attractive, especially for younger employees.  However, the smallest companies are exempt from this requirement and the government will provide subsidies to cover some health insurance cost initially.

Expand Medicaid to all individuals with incomes below 150% of the Federal Poverty line (FPL).  

  • Winners: Lower middle class individuals who are now covered by Medicaid who were not in the past.
  • Losers: Taxpayers. 

Require CHIP enrollees with incomes  above 150% FPL to obtain coverage through the Health Insurance Exchange.

  • This depends on how well the Health Insurance Exchange works.  If it is an efficient system, poor children could get better coverage and the taxpayer bill could decrease.  Or poor children could get worse coverage and the taxpayer bill could increase.  

Subsidies to individuals with incomes below 400% of the FPL to  to obtain coverage through the Health Insurance Exchange.

  • Winners: Middle class families not eligible for Medicaid who now will received subsidized insurance.
  • Losers: Taxpayers not eligible for the subsidy.

Reinsurance program for individuals aged 55-64.

  • Winners: Employees of this age bracket.  They will be more attractive to employ since their health care costs will be capped.
  • Losers: Taxpayers not aged 55-64.

Tax of 5.4% on individuals with modified adjusted gross income exceeding $500,000 ($1m for families).

  • Winners: Individuals getting subsidies, expanded public programs, etc.
  • Losers: The Rich.

The Public Option and the Health Insurance Exchange.

  • Here, the devil is in the details.  If the Public Option provides superior health care at lower cost, everyone wins (except private insurance companies).  If the public option provides superior health care but runs a deficit every year, consumers will win while taxpayers and private insurance companies will lose.  If the public option loses money and provides low quality care, everyone loses except for government employees now hired to run the public option. Similarly, the health insurance exchange may provide more choice to consumers, a standardized benefit package so the consumers can price shop, or it may reduce insurance choice by limiting the products insurers can offer. 

Savings from Medicare and Medicaid

  • Winners: If the savings come from reduced waste, Medicare enrollees will benefit (fewer unnecessary procedures will increase their health) as will the taxpayers. However, if the savings come from cuts to necessary services, Medicare enrollees will be harmed.
  • Losers: Doctors and hospitals. Cuts to Medicare mean that doctors and hospitals will get less money. If the cuts are from waste, only inefficient doctors will see their earnings hurt. If the cuts come from necessary care, then good and bad doctors will see their incomes fall.

Tags: , , , , ,

AHIP claims health reform will increase premiums. Will it really?

October 14, 2009 in Current Events, Health Insurance, Public Policy | No comments

The lobbying group America’s Health Insurance Plans (AHIP) is touting a study by PriceWaterhouseCoopers showing that health reform would increase premiums significantly.  The findings claim that insurance premiums would rise between “26 percent between 2009 and 2013 under the current system and by 40 percent during this same period” if these four health reform provisions are implemented.  The White House disagrees with the analysis and says that the PWC report is cherry-picking these four provisions.  Let’s see who is right.

Below are the reforms PWC analyzes:

  • Insurance regulation (including guaranteed issue requirement, no preexisting condition limits, no rating based on health status, limiting the differential between age bands in rating). In essence, this policy restricts the ability of insurers to price insurance based on an individual’s risk.  Because of this, the insurance companies will have a sicker population of individuals to cover in their pool and thus average premiums will certainly rise.  This does not really mean that prices are rising.  Prices will rise for people who already had insurance, however, for individuals who could not afford insurance in the past because they were too old or too sick, prices will fall.  Because these “high priced” individuals were not counted in the price of insurance (because they never bought it), their price decreases are not factored into the analysis.  In general we have a tradeoff, the average level premiums paid will increases but a higher percentage of people will be able to get insurance.  If you’re young and healthy, you don’t like this provision.  If you’re old and sick, these reforms are great.
  • New minimum benefit requirements. This provision will raise prices.  The tradeoff is that individuals will receive more comprehensive insurance coverage.  The problem is that the government will be choosing the benefits including in the policies, not the customers.  Thus, if the government does a good job of aligning the benefit requirements with individual needs, then this will again be a transfer of money from those who are receive treatment under diseases now covered by the minimum requirements from those who did not need treatment under those requirements.  However, if speicalists’ lobbyists persuade the government to include lots of low value, high cost treatments in the new benefit requirements, then the extra cost will not produce a material amount of additional value for consumers.
  • Weak individual mandate.  If there is a weak individual mandate, as insurance becomes more and more generous and prices rise higher and higher, young healthy individuals will opt-out if there is a weak individual mandate.  Thus, the people who will be left in the insurance pool will be the sick, high cost individuals, and insurance premiums will rise to better reflect the average cost to cover the relevant population.  I am not sure whether the mandate is indeed weak, but this manifestation of adverse selection could be a problem.
  • Excise tax on Cadillac plans.  Thus will drive up cost of course, but just for those who have these ‘cadillac’ plans.  What is a cadillac plan?  How does one determine what medical care is necessary and what is not?  Rather than impose this tax on Cadillac plans, Obama should just end the tax-deductibility of employer-provided health insurance..  Regardless, the tax will drive up health insurance premiums for those with more generous plans.  Ezra Klein reports that PWC does not take into account behavioral changes; taxing Cadillac plans means that fewer people will have this type of insurance.  Thus, cost increases will be smaller.  Nevertheless, a tax will drive up premiums for those that do decide to remain in these more generous plans.
  • Cost shifting. As Medicare and Medicaid becomes less generous, this could increase the cost of care for private health insurance.  However, this is only directly a problem for elderly individuals who have private insurance and Medicare.  Indirectly, the study seems to imply that physicians will raise their prices for private health insurance as Medicare and Medicaid prices drop.  This may or may not happen, but the magnitude of the effect should be very small.  Physicians likely try to maximize their profits currently from private insurance.  If Medicare/Medicaid cut rates, will they try harder to increase profits?  Why weren’t they maximizing profits from the private sector in the first place?  Are the private health insurers claiming that docs will now provide unnecessary services for individuals with private health insurance to increase profits?  The target income hypothesis could motivate this cost shifting, but again, I doubt cost shifting will have a large impact on overall premiums.
  • Fees on insurers, pharmaceutical and medical device companies.  Some portion of these will be passed on to consumers.

Obama’s blog responds with the following:

  • Grandfather policy that assures that if you like the plan you have, you can keep it.  This means that the reforms won’t affect cost in the short run for those who keep their current health insurance plan.  In the long run, however, people will switch plans and the reforms will have an effect.
  • Premium credits.  Premium credits mean that the amount of money the consumer pays will decrease even if the cost of the policy as a whole increases.  Even with premium credits, consumers as a group do pay for the additional premium costs through higher taxes.
  • A tax on insurers that provide the highest cost health plans will contribute to lowering premiums.  This argument does not make any sense. I don’t know of any tax that has worked to reduce prices…ever.
  • Medicare savings from reduced cost and abuse.  One of two things will happen.  There will be little cost savings, because the potentially savings from reducing cost and abuse is small.  Detecting these items is extremely difficult, especially with Medicare’s historically low administrative costs.  Or, there will be a real reduction in cost from decrease Medicare benefits.  Reducing cost significantly by cutting waste is a promise made by every president for the last 30 years and none has shown able to fulfill this promise.

Overall, I am tending to side with the insurance companies on this one.  I can’t verify whether their exact numbers or methods are correct, but many Obama’s reforms will increase cost overall.  Consumers will be more insulated from these cost increases, however, because the government (i.e., taxpayers) will subsidize premiums and expand Medicaid.  The major achievement of Obama’s reform proposals is that he will expand insurance coverage to many more Americans.  The major drawback, as I have pointed out in the past, is that Obama’s reform do little to cut costs.

Tags: , ,

Obama v. Nixon

September 14, 2009 in Current Events, Public Policy | 8 comments

In 2009, President Barack Obama addressed the nation calling for healthcare reform.  In 1974, President Richard Nixon also addressed the nation calling for healthcare reform.  Let us analyze Nixon’s speech and compare it to Obama’s.

  • “Today the need [for reform] is even more pressing because of the higher costs of medical care.”  Obama echoes this sentiment. 
  • “…the 25 million Americans who remain uninsured.”  Nixon hoped to expand coverage for the 25 million Americans who, in 1974 who did not have health insurance.  He planned to do this using with the creation of “Assisted Health Insurance, covering low-income persons.”  In 2009, there are 46 million uninsured Americans.  Obama also proposes using tax credits to help poor and middle class individuals afford private insurance.  Obama also proposes a public option.
  • “Americans who do carry health insurance often lack coverage which is balanced, comprehensive and fully protective.”  Health insurance was originally created as protection against serious illnesses and hospital stays.  Routine physician visits were not covered.  This often meant that check-up and preventive care was not covered and Nixon wanted to expand the scope of insurance coverage.  In the present day, most individuals who have insurance have relatively comprehensive health insurance.  In fact, as a reaction to the expanding scope of present day health insurance, Republicans support HSAs which use high deductibles to transfer more of the cost of care towards the individual patient.
  • Comprehensive Health Insurance Plan (CHIP).  This was Nixon’s solution to the problem that many individuals who had insurance had only partial insurance.  It basically expands the scope of insurance coverage. In the present day, most individuals who do have insurance have relatively comprehensive coverage.
  • “Third, it builds on the strength and diversity of our existing public and private systems of health financing and harmonizes them into an overall system.”  Nixon’s CHIP plan aims to provide subsidies for health insurance and aims to reform health care, but will not overhaul the system (à la a single payer system or the elimination of Medicare in exchange for all private insurance).  Obama’s currently proposes reforms to the current system that also builds on the existing healthcare infrastructure.
  • “Fourth, it uses public funds only where needed and requires no new Federal taxes.”  Nixon claims that his plan will not use any new taxes.  Obama did not claim he would not raise taxes, but did assert that “I will not sign a plan that adds one dime to our deficits.”  However, the government’s spending on health care as a share of GDP has accelerated over time.  This was true in Nixon’s time, is true now, and most expert believe it will continue into the future.
  • “Sixth, it encourages more effective use of our health care resources.”  Obama wants to “eliminate is the hundreds of billions of dollars in waste and fraud” as well as “create an independent commission of doctors and medical experts charged with identifying more waste in the years ahead.”  More effective use of health care resources was, is and will continue to be a laudable goal; actually realizing these efficiency gains in practice, however, is more difficult.
  • “No family would ever have annual out-of-pocket expenses for covered health services in excess of $1,500, and low-income families would face substantially smaller expenses.”  Nixon planned a cap on patient annual out-of-pocket costs.  Currently, Nixon’s proposal has become commonplace.  Most group health insurance plans offer an out-of-pocket cap as does Medicare and Medicaid.  However, for non-group health insurance, these caps are often not available.  Obama proposed that health insurance companies “…will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or a lifetime.”
  • “Medicare, however, does not cover outpatient drugs, nor does it limit total out-of-pocket costs.”  Nixon believed that Medicare should cover drug costs and limit out-of-pocket costs.  Medicare does limit out-of-pocket costs and, with the creation of Medicare Part D, most prescription drug costs are covered for seniors. 
  • COST: “the total new costs…would be about $6.9 billion.”  Obama’s plan would cost “$900 billion over ten years.” 
  • Nixon wanted to “increase the supply of physicians.”  Nixon believed that increasing the supply of physicians will drive down costs as competition increases.  With patient paying less and less money out of pocket, this may no longer hold.  If supplier-induced demand exists, an increase in the supply of physicians will increase demand and costs and not necessarily decrease prices.  Obama did not discuss physician shortages in his speech.  
  • “On December 29, 1973, I signed into law legislation designed to stimulate, through Federal aid, the establishment of prepaid comprehensive care organizations.”  HMOs now control a significant portion of the health insurance market.
  • “I also contemplate in my proposal a provision that would place health services provided under CHIP under the review of Professional Standards Review Organizations. These PSRO’s would be charged with maintaining high standards of care and reducing needless hospitalization.“ This is similar to Obama’s “independent commission of doctors and medical experts charged with identifying more waste in the years ahead.”

Tags: , , ,

A Critque of the Republican Response to Obama’s Health Care Speech

September 10, 2009 in Current Events, Public Policy | 3 comments

Today, I will review the Republican Response to President Obama’s health care reform speech. To sum up, Republicans propse:

  • malpractice reform (likely damage caps)
  • allowing individuals to buy health insurance across state lines,
  • allowing small businesses and individuals to pool together (not the same as creating a health insurance exchange),
  • refundable tax credits for low- and modest-income Americans, and
  • no public option/co-op.

Below are some highlights from the speech [with my comments in brackets].

“Good evening. I’m Dr. Charles Boustany…” [read: Because I'm a doctor, you can trust me...right? Here's a profile on Boustany.]

it’s time to start over on a common-sense, bipartisan plan focused on lowering the cost of health care while improving quality. [Who doesn't want high quality at lower cost? The difficulty is to actually implement a plan that will accomplish this.]

Replacing your family’s current health care with government-run health care is not the answer. In fact, it will make health care much more expensive. [Generally, the government has not done a good job of containing costs. On the other hand, neither has private health insurance. ]

And it cuts Medicare by $500 billion, while doing virtually nothing to make the program better for our seniors. The president had a chance, tonight, to take the government-run health care off the table. Unfortunately, he didn’t do it. [Obama says, "I will protect Medicare," with exception of cuts where waste and fraud occur. The Republicans claim Obama will decrease Medicare funding significantly. I am not sure which is the truth. However, these two sentences make the Republican stance confusing. They say don't cut Medicare, but "take government-run health care off the table." Medicare is government-run health care! If Republicans were truly against government health care, they would oppose Medicare and try to replace it with vouchers or some other system. ]

One, all individuals should have access to coverage regardless of pre-existing conditions. [This is one area where Obama and the Republicans agree.]

Two, individuals, small businesses and other groups should be able to join together to get health insurance at lower prices, the same way large businesses and labor unions do. [I don't see much of a proposal here. Currently, small businesses and individuals can group together to buy insurance. However, these pools often don't work well because the sickest individuals and small businesses with sick employees are the ones who most want to join these groups. This is known as the problem of adverse selection. If premiums rise in these pools as healthier individuals drop out, this results in a death spiral. Republicans do not seem to be advocating a health insurance exchange as Obama proposed, only not to make it illegal for individuals and small business to group together--which they can do already.]

Three, we can provide assistance to those who still cannot access a doctor. [According to a recent Republican proposal, this would entail making health insurance tax-deductible even if it is purchased through a nongroup plan and creating refundable tax credits for low- and modest-income Americans. ]

And four, insurers should be able to offer incentives for wellness care and prevention. [This is not a real proposal; insurers currently are able to offer incentives for wellness care and prevention.]

We need to establish tough liability reform standards, encourage speedy resolution of claims, and deter junk lawsuits that drive up the cost of care. [As I mentioned in my previous post, the claims won in malpractice suits are not the cause of high health care costs; many patients are seriously injured by medical errors and deserve compensation. However, the defensive medicine many doctors practice to avoid lawsuits, does lead to unnecessary tests and drives up costs]

Let’s also talk about letting families and businesses buy insurance across state lines. [This sounds like a good idea. Individuals should be able to purchase whatever type of health insurance they please. However, this basically would mean that the federal government, and not states, would be the regulator of health insurance. This may increase industry-wide consolidation, but may increase competition in areas with a single dominant insurer. Still, if distant insurance companies do not have contracts with local doctors, this legislation will have little impact on the quality of care.]

Tags: , ,

Obama’s Health Care Speech Critique

September 9, 2009 in Current Events, Public Policy | 15 comments

Today, President Obama made a speech calling for healthcare reform. To sum up, Obama is proposing:

  • creating a health insurance exchange,
  • an individual mandate,
  • guaranteed renewability of health insurance,
  • subsidies for individuals and small businesses to purchase insurance, and
  • public option/co-op.

Below are some highlights from the speech [with my comments in brackets].

So tonight, I return to speak to all of you about an issue that is central to that future – and that is the issue of health care. [It's about time.]

Everyone understands the extraordinary hardships that are placed on the uninsured, who live every day just one accident or illness away from bankruptcy… These are middle-class Americans. [This is true. The poorest Americans--excluding illegal immigrants--receive health care coverage from Medicaid and thus are need not worry about health care coverage. The quality of Medicaid coverage is always up for debate, however. The middle-class, the self-employed, those who work for small firms are the ones least likely to have insurance.]

Many other Americans who are willing and able to pay are still denied insurance due to previous illnesses or conditions that insurance companies decide are too risky or expensive to cover. [This is one of the major problems with the current health insurance system. There is insurance for acute illnesses (e.g., a broken arm, a car accident), but those with chronic conditions face higher insurance premiums or may be dropped completely. What is needed may be health status insurance.]

We are the only advanced democracy on Earth – the only wealthy nation – that allows such hardships for millions of its people. [One must keep in mind that although health insurance is important, it is only a means to an end. That end is better health. Reducing illness rates through public health initiatives, clean water, better sewage disposal, better eating habits, and exercise may be more beneficial to improving health than simply expanding health insurance. Further, would giving all Americans low quality health insurance be better or worse than having some individuals with high quality insurance and others with none? Nevertheless, it is true that the U.S. has the highest rate of uninsurance in the developed world.]

More and more Americans worry that if you move, lose your job, or change your job, you’ll lose your health insurance too. [This is the problem of job lock and job stretch]

We spend one-and-a-half times more per person on health care than any other country, but we aren’t any healthier for it. [The U.S. spends 15.3% of GDP on health care. Here are medical spending rates for other nations.]

…those of us with health insurance are also paying a hidden and growing tax for those without it – about $1000 per year that pays for somebody else’s emergency room and charitable care. [This is true, but insured individuals overuse the emergency room more than the uninsured.]

Finally, our health care system is placing an unsustainable burden on taxpayers. When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid. [Medicare's trust fund will run out of money in 2017. ] …Put simply, our health care problem is our deficit problem. Nothing else even comes close. [True.]

I believe it makes more sense to build on what works and fix what doesn’t, rather than try to build an entirely new system from scratch. [That's what the U.K. did when they developed their single-payer NHS.]

First, if you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. [Although one should build on the existing health insurance infrastructure, the Obama plan does little to improve the existing government health insurance options. Since 16% of Americans already rely on the government for health insurance, reforming these programs is imperative.]

…it will be against the law for insurance companies to deny you coverage because of a pre-existing condition. As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it most. [Disallowing insurance companies to drop individuals with pre-existing conditions will do either one of two things. If insurance companies can raise prices, individuals with pre-existing conditions will simply face extremely high premiums. If insurance companies are not allowed to raise premiums, the premiums for healthier enrollees will have to cover this additional cost. Further, insurance companies may still have an incentive to provide poor treatment. For instance, the insurance company with the best AIDS clinic may get expensive AIDS patients. Thus, insurance companies may have a disincentive to provide high quality treatment to the sick. Additional commentary is available here. Risk-adjustment subsidies as practiced in Switzerland is one option to solve this problem. ]

And insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies [Most already do.]

…creating a new insurance exchange – a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices. [I am not exactly sure how insurance exchange would work. Would insurance companies give on flat premium for all individuals? Would premiums be based on age? Gender? Smoking habits? Pre-existing conditions?]

For those individuals and small businesses who still cannot afford the lower-priced insurance available in the exchange, we will provide tax credits, the size of which will be based on your need. [This is what John McCain advocated. However, instead of vouchers for all, tax subsidies will be available to middle class Americans without employer provided health insurance. A voucher system, where all individuals would receive an amount to use towards insurance based on income has been popular among many economists.]

That’s why under my plan, individuals will be required to carry basic health insurance. [An individual mandate. See my previous comments here, here and here.]

My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. [Even in the private market for health insurance, there is little competition.]

…making a not-for-profit public option available in the insurance exchange [see my comments here.  In general, those who support a public option point to the European and Canadian systems and cite how much more efficient these systems are than the U.S. Those who oppose a public option point to the European and Canadian systems and cite how much more inefficient these systems are than the U.S.  A public option could improve health care quality if it is well-run and is fiscally sustainable over the long run (e.g., Veterans Affairs). However, if it provides poor quality of care (e.g., Medicaid) and is fiscally unsustainable (e.g., Medicare), than the public option will not improve the American health care system.

...private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. [This is likely true in the short run. The government could fairly price health insurance and compete with private insurance. However, if the public option become most attractive for the sickest, poorest individuals, the average cost to cover beneficiaries will rise relative to the costs of private insurance companies. Then the government will be faced with a choice: either price health insurance more in line with individual or group risk (i.e,. raise premiums) or use tax dollars to subsidize care. If they did the former, the public plan would be little different than a private insurer. If they do the latter, the public plan would receive a subsidy. ]

First, I will not sign a plan that adds one dime to our deficits – either now or in the future [read: I will increase taxes. That is the only way to pay for the small business/individual subsidies proposed]

Second, we’ve estimated that most of this plan can be paid for by finding savings within the existing health care system [Every politician mentions this, but few can achieve it. We'll see how well Obama does, but I am skeptical.]

…unwarranted subsidies in Medicare that go to insurance companies. [read: payments for Medicare Advantage will decrease.]

I don’t believe malpractice reform is a silver bullet, but I have talked to enough doctors to know that defensive medicine may be contributing to unnecessary costs. [I am not sure what the exact proposal is...damage caps? The claims won in malpractice suits are not the cause of high health care costs; many patients are seriously injured by medical errors and deserve compensation. However, the defensive medicine many doctors practice to avoid lawsuits, does lead to unnecessary tests and drives up costs]

Add it all up, and the plan I’m proposing will cost around $900 billion over ten years – less than we have spent on the Iraq and Afghanistan wars [read: this plan is really expensive but, hey, it costs less than than two wars put together.]

“What we face,” [Ted Kennedy] wrote, “is above all a moral issue; at stake are not just the details of policy, but fundamental principles of social justice and the character of our country.” [read: Ted Kennedy supported my plan if you don't like it you're trampling on his grave.]

I understand that the politically safe move would be to kick the can further down the road – to defer reform one more year, or one more election, or one more term. [This is 100% true. Obama the politician should just do nothing and let Medicare run out of money and let the next politician deal with the crisis. Obama the statesman has decided use his office to enact these reforms. Whether or not you agree with Obama's plan, it is admirable for him to go out on a limb to attempt to solve our some of our health care problems. He does, however, "defer reform" for Medicare, since no significant changes to benefit packages or funding was proposed.]

Tags: , ,

Obama will not insist on a public option

September 9, 2009 in Current Events | No comments

The N.Y. Times reports that President Obama will not insist that a public option be part of any health reform package. You can watch the full speech tonight at 8pm ET live online here. Or for those of you (like me) who prefer the written word, you can always read the speech transcripts available later tonight.  Here’s a list of what to look for in Obama’s speech.

The Economist reports on Obama and the online media. Market Sentinel report shows the 94 most influential online sites and whether or not they favor Obama’s proposal. [Note: The Healthcare Economist is one of these top 94 sites].

Tags: ,

Obama’s Economic Case for Health Reform

July 16, 2009 in Labor Economics, Medicaid/Medicare | 1 comment

Health Reform is at the top of President Obama’s list of reform efforts. Mr. Obama claims that not only will health reform improve the physical health of the nation, it will also improve its economic health. In a Council of Economic Advisers Report, President Obama lists three reasons why slowing health care costs and expanding health care coverage will increase economic growth. Let us look at each of these arguments in turn.

THE ECONOMIC IMPACT OF SLOWING HEALTH CARE COST GROWTH

  1. It would raise standards of living by improving efficiency. Decreasing health care costs while maintaining the same quality of health care would certainly improve efficiency. However, simply decreasing costs will not necessarily improve efficiency since the quality of medical care could deteriorate. Many researchers believe that Americans receive too much specialist care and not enough primary care. Cutting costs in the primary care sector may actually decrease efficiency. Further, decreasing reimbursement for groundbreaking technologies may slow the growth of longevity rates. Thus, cutting cost by reducing reimbursement for inefficient medical care would improve efficiency, but cutting cost by reducing payment for cost-effective method would actually decrease efficiency.
  2. It would prevent disastrous budgetary consequences and raise national saving. The first part is certainly true while the second is not. The Medicare Trust Fund is will run out of funds in less than ten years. As the baby boomers continue to progress into retirement, the promised health care benefits will need to be financed by a higher tax rate on workers. Thus, the government must take some action to bolster its fiscal solvency. Cutting health care costs, however, may not increase national savings. Let us assume overall spending on medical care health care spending is too high right now. This may be the case because employers–not employees–choose the set of health plans offered and the moral hazard problem has lead to overconsumption. In this case, decreasing spending would increase savings, because individuals are spending too much on health insurance. But why are people spending “too much”? It could be the case that they are spending (on average) exactly what they want to given the expensive nature of medical care. If this were the case, reducing government health care expenses would be offset by an increase in private health expenditures. For instance, a government cut in reimbursement rates to doctors would decrease spending and increase savings. Patients faced with the possibility of lower quality care may opt to spend more money on more personalize health care (e.g., flat-rate no limit primary care doctors) which would decrease savings. The net effect on savings is ambiguous.
  3. It would lower unemployment and raise employment in the short and medium runs. The most important point to mention here is “Who cares about the short/medium runs?” If you are going to implement new huge government program to reduce unemployment in the next 3 year, this is a huge mistake. Any large health reform effort should be made not for it’s short run impact, but for its long run impact. Nevertheless, cutting costs may create a small short-run increase in employment. The reason is that firms can will pay less for health insurance (or pay lower taxes for Medicare) and can hire more employees. However in the medium to long run, total worker compensation is set in a competitive market. Thus, a drop in health insurance premiums will likely be offset by higher wages and employment will remain at the same level as if no cost-cutting occurred. As evidence of this, the cost of health care has increased monotonically for the last 30 years. On the other hand, unemployment looks like a sine wave, displaying no strong long-term trend.  If medical costs caused unemployment, one would expect unemployment to be increasing over the long run just as medical costs have done.

THE ECONOMIC IMPACT OF EXPANDING COVERAGE

  1. It would increase the economic well-being of the uninsured by substantially more than the costs of insuring them. It is likely that the economic of the uninsured would increase. It is likely that the economic well-being of the currently insured would decrease (through higher taxes). The net effect in the short run is likely to positive. To restate, in the short run, expanding coverage is almost certainly worthwhile. The question is whether or not expanding coverage be detrimental in the long run. Would an increase in the proportion of individuals with government-run health care lead to a stifling of innovation? Would lobbying by interest groups (e.g., PhARMA, AMA) lead to distorted reimbursement patterns? Would costs cutting measures lead to longer wait times to see doctors? While the short run benefits of expanding health insurance coverage are clear, the long run effects on both economic and health sector efficiency is ambiguous.
  2. It would likely increase labor supply. The CEA claims that “reducing disability and absenteeism in the work place” will increase the labor supply. This is true, but may be offset by a reduced number of people who are employed in the first place. Many people take second jobs just for the health insurance. If individuals can get health insurance without working, this could decrease the labor supply. Overall, I believe the net effect will be small. The more important economic impact is (3) below.
  3. It would improve the functioning of the labor market. This is definitely true. Individuals often keep job below their skill level simply because they fear losing health insurance. Other high-skilled individuals will take low-paying second jobs (e.g., Starbucks) just to have some insurance coverage. These two problems are named Job Lock and Job Stretch. If workers can choose employers based on wages, their own skills, and the overall work environment, this will lead to more efficiency labor market than if individuals would need to choose jobs based on the health plans offered. Further, it would increase small business innovation. Workers would be more attracted to small business if they knew they could receive insurance from the government.

Tags: ,

« Older entries