President Obama talks at once about slowing the growth in the federal government's health care spending and increasing federal spending on health care. "Let me be clear," he says, "if we do not control these costs, we will not be able to control our deficit." If the President is not claiming that more spending is really less, what is he saying?
........
Doctors services have been rising at 3.1% a year, just as nonmedical services are. Health insurance premiums have been rising 2.8% a year. Greedy doctors or health insurance companies aren't pushing up costs like the Democrats are saying. No one is agonizing over rising costs of health care that government doesn't provide either - lasik, eyeglasses, hearing aids, over-the-counter medicines. Where is health care inflation? In hospital care where costs are rising twice as fast as other medical care and where government programs pay 60%. Also where we're paying for illegals getting free care and the hospitals push up other rates to cover free care to some.
Controlling costs by spending more?
People laughed when Biden said that, but its essentially the argument Obama's making for health care reform.
Alan Reynolds, 08.19.09, 06:00 PM EDT
Forbes Magazine dated September 07, 2009
A recent New York Times editorial sermonized on the need to fight health care inflation. It declared that the Obama Administration "seems headed in the right direction to finally slow the rate of growth in health care spending." That is nonsense.
Health care spending equals the sum of public and private spending on health care. The Obama Administration hopes to spend an additional trillion dollars on subsidized health insurance over the next decade. The only way such added federal spending could possibly "slow the rate of growth in health care spending" would be for private spending to fall by $1 trillion. (See "Heads Up")
Total health care spending did stop rising faster than the economy during the Clinton Administration, when the government stopped paying for a rising share of the costs: Spending on health care was 13.6% of GDP in both 1993 and 2000. By no coincidence, government spending stabilized during those years, accounting for 43% of health care outlays in 1993 and 43.2% in 2000. Once government resumed paying a growing share of the bills, combined public and private spending began rising again, to 16% of GDP.
Congressional Democrats seem eager to tax the stuffing out of both sellers and buyers of private health insurance. Maybe their "reform" plans really do aim to shrink private health insurance benefits by enough to compensate for their extra spending on public insurance, subsidies and Medicaid. Unless the new federal spending reduces private health care spending by more than a trillion dollars, however, their plans must push overall health care spending up, not down.
Adding to the confusion, President Obama talks at once about slowing the growth in the federal government's health care spending and increasing federal spending on health care. "Let me be clear," he says, "if we do not control these costs, we will not be able to control our deficit." If the President is not claiming that more spending is really less, what is he saying?
The explanation of such mysteries may rest in the Times editorialist's inability to grasp the distinction between prices and quantities. It turns out that health care spending has not been driven up by runaway inflation but by runaway federal spending. Government is paying for a larger quantity of medical bills, not merely a rising price per procedure or product.
The Consumer Price Index for medical care slowed its growth dramatically in the 1990s, when federal health care spending was relatively contained. Medical care inflation slowed from nearly 10% at the end of 1990 to less than 3% in 1997, and it was only 2.8% over the past three months. Prices of medical services tend to rise faster than the CPI for the entire economy, but that is typical among all labor-intensive service industries. From 1996 to 2008 the CPI for physicians' services rose by 3.1% a year, for example, but prices of nonmedical services also rose by 3.1% a year.
You can see the bloating influence of government by looking at medical goods and services that are almost never financed by "free" government money: dental care, over-the-counter drugs, hearing aids and eyeglasses. In such cases nobody frets about inadequate competition, poor service or "runaway inflation."
Lasik surgery is another example.
Hospital fees are another matter, having risen nearly twice as fast as overall medical care. That is no surprise: Government agencies pay nearly 60% of hospital bills, while private insurance (with more incentive to be careful) pays 36% and consumers pay 3% out of pocket. President Obama has a strangely inverted concept of who is throwing too much money at hospitals. He thinks it is private insurers and consumers, rather than taxpayers. In a July press conference he warned that if the government does not spend yet another trillion dollars on health care, "your premiums and out-of-pocket costs will continue to skyrocket."
Premiums? The CPI has kept track of health insurance only since December 2005, but the index has risen by an average 2.8% a year since then. Out-of-pocket costs? Less than 15% of all personal spending on health care is paid for out of pocket, according to OMB director Peter Orszag, down from 26% in 1985.
"All the key groups have been bought off"
Brian Wingfield, 08.19.09, 06:00 PM EDT
Forbes Magazine dated September 07, 2009
ObamaCare promises to pay for itself. It can't possibly--if Democrats come through with all the side deals they've made in order to get a reform bill.
The embarrassing quid pro quo the Democrats cut with drugmakers was part of the dealmaking necessary to keep health care reform alive--and only one of many potential side deals if overhaul is going to happen.
Most Republicans don't want any part of Democrats' existing health care proposals. A bipartisan Senate plan, still in the works, may not include a public option for insurance (especially since the White House has backed off from one), but senators are deadlocked over how to pay for customers who can't afford health insurance. For now "reform" is synonymous with an unpopular House of Representatives bill that makes the rich fret about possible tax hikes and leaves people who already have insurance wondering if their benefits will be cut.
While the President hit the road to drum up public support for his plans, the White House and Capitol Hill Dems have been serving up closed-door promises to keep various interests happy.
"All the key groups have been bought off," says Robert Laszewski, president of Health Policy & Strategy Associates, an Alexandria, Va. consultancy. Worse, he says, it's undermining potential cost savings--perhaps preventing a new system that would pay for itself.
Doctors. The White House has no chance of changing the system without physicians on board--and some are very unhappy there are no provisions to cap malpractice suits. Among other things, the American Medical Association is eager to prevent a 21% reduction in Medicare reimbursement rates, currently scheduled to take effect in January. According to the Congressional Budget Office, the cost of changing the Medicare payment system is $245 billion over ten years.
Old people. Although AARP hasn't endorsed any health care reform proposal, Democrats know they'll lose this interest group if Medicare benefits are cut. The White House has already pledged to close the "doughnut hole" gap in coverage for prescription drugs. Right now Medicare recipients pay 100% for prescription drugs when their total cost is between $2,700 and $6,154 annually. The President proposes to slash that payment obligation by at least 50% for brand-name drugs to help the middle class, ostensibly using concessions offered by drugmakers. Cost of keeping AARP happy: $30 billion or so over ten years.
In June the American Hospital Association grumbled after President Obama proposed lopping off $220 billion in government payments to hospitals. Less than a month later large hospital groups agreed to accept $155 billion less in Medicare and Medicaid payments over the next decade, but they also don't have to worry about a reduction in government subsidies for treating the uninsured until 2015. If all Americans get insurance, as the President has proposed, that's even better news for hospitals. (Conservative Democrats in the House have also won protections for rural hospitals.) The amount the Administration conceded in order to keep hospitals at the table: $65 billion.
Private insurers. They helped kill health care reform in 1994 and now say Democrats are trying to demonize them. But don't expect the carriers to sever ties with the White House just yet. Lawmakers know that insurers still have the firepower to derail reform. (Industry group America's Health Insurance Plans and Blue Cross/Blue Shield and its subsidiaries have spent a combined $13.4 million on lobbying this year, according to the Center for Responsive Politics.) Insurers want the government to mandate universal coverage; they just don't want Uncle Sam to provide it--and they're betting that the Senate won't want it, either.
Conservative Democrats. Without the support of conservative "Blue Dog" Democrats, health care reform can't pass the House of Representatives. In July this group was successful in forcing the White House and Democratic leaders to accept a compromise that, among other things, allows doctors and hospitals to negotiate their own payment rates under a government-run insurance plan. It also exempts businesses with annual payrolls of under $500,000 from paying a tax if they don't offer employees health insurance. To keep Blue Dogs licking their hands instead of biting them, House Democratic leaders agreed to slash the price tag of reform by roughly $100 billion. The potential cost: fewer people covered.
The middle class. President Obama has repeatedly promised no tax hikes on middle-income earners. As such, the idea of eliminating the tax exclusion for employer-provided coverage, which could raise $225 billion annually, is off the table. House Democrats have proposed raising taxes on the more affluent (individuals making $280,000 a year; couples filing jointly, more than $350,000). That would amount to a tax bill of $544 billion over ten years. But if private insurers increase premiums, or if health care reform greatly adds to the deficit, the middle class won't escape.
Contentious as reform has become, the Administration is pushing hard for passage of a bill. With all the requisite giveaways, what will it look like--and how will we be able to afford it? |
