Who Is Douglas L. Elmendorf, and Why Is He Throwing Cold Water On Reform? ( And Why Does the Media Report CBO Guesstimates As Gospel?) Part 1

Last week, centrist Blue Dog Democrats and House Energy and Commerce Chairman Henry Waxman emerged from the White House with an agreement on giving an independent panel of physicians, rather than Congress, the ability to rein in Medicare spending. The agreement was heralded as a breakthrough for reform. It would set a model for reducing profiteering in our health care system, while insisting on care that provides the greatest benefit for patients. 

But then, on Saturday, Congressional Budget Office Director Douglas L. Elmendorf rolled a small hand grenade down the corridors of power, writing a letter to House Majority Leader Steny Hoyer that said, in part: “In CBO’s judgment, the probability is high that no savings would be realized. There is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis."

If you are confused, you should be. Notice how the statement see-saws back and forth; “probability is high that no savings. . . also a chance that substantial savings . . . . but still modest savings.”  His analysis is muddled, in part because he is trying to talk simultaneously about short-term and long-term savings, in part because he is only guessing.

Befuddled, the media seized upon what appeared to be a solid number: the panel would save “2 billion” over 10 years, a “drop in the bucket compared to the bill’s $1 trillion price tag,” with all of the savings coming between 2016 and 2019.

But as health care expert Timothy Stoltzfus Jost, a law professor at Washington and Lee University pointed  out on Politico.com’s Arena:  “a moment's reflection would lead one to realize that the CBO's guess that the proposal would save $2 billion is about as worthless as an estimate that a loaf of bread will cost $5.65 in 2019, or a gallon of gasoline $4.73. Indeed, the CBO admits as much, stating that it actually believed the proposal would save nothing, but 'there is also a chance that substantial savings might be realized.'"

Moreover, Jost notes, the proposal would not fully go into effect until 2016, “thus only savings between then and 2019 can now be scored— and the real savings from the proposal would come beyond the 10 year time frame. . . . The CBO report reveals once again the problems that attend letting the decision of whether or not to adopt health care reform legislation turn on CBO’s ten year cost estimates.

Just Who is Douglas L. Elmendorf?

This is not the first time that Elmendorf has torpedoed the Democrats’ plan to restructure the health care system. This makes me wonder: Just who is Douglas L. Elmendorf, and why is he throwing cold water on reform?

Elmendorf’s resume paints a bright picture: an ambitious young man with a knack for being in the right place at the right time climbs the ladder. After growing up in Poughkeepsie, New York, he made his way to Princeton, and then to Harvard, where he earned a Ph.D. in economics.  There, his mentor was economics professor Martin Feldstein, the director of the Council of Economic Advisers (CEA) under President Ronald Reagan.  

The LA Times recently referred to Feldstein as the “dean of the country’s conservative economists.” Feldstein, a Republican, surprised many by supporting President Obama’s fiscal stimulus plan; Obama has appointed him to his Economic Advisory Panel. But since then,  Feldstein has spoken out sharply against the president’s plans to increase taxes for the wealthy (in part to fund health care reform) and has slammed Obama’s cap and trade plan to limit global warming, calling it “all cost, no benefit.”

After training with Feldstein, Elmendorf made his way to Washington and, in 1993, landed at CBO. There, he worked on a team that examined President Bill Clinton's health reform package –and concluded that it would cost much more than originally thought. The analysis helped doom Clinton's attempt to reform health care. This, no doubt, was Elmendorf’s first taste of real power.

Elmendorf spent only a year at CBO before moving to the Federal Reserve where he worked under Fed Chairman Alan Greenspan. He then found a job in the Clinton Treasury Department, where Larry Summers ran the shop.

When George W. Bush took office, Elmendorf, always flexible, moved back to the Fed as a senior economist.  In 2002, he earned a promotion to chief of the macro-economic analysis team, leading a group of 30 economists and researchers as they forecasted inflation rates and labor markets. Unfortunately, the Fed failed to forecast the massive job losses that were just around the corner. They didn’t quite recognize where the economic policies of the Greenspan era (See No Evil, Hear No Evil) and the free-spending Bush administration were heading.

Meanwhile, in 2007, Elmendorf began working for the liberal Brookings Institution, co-editing the yearly publication “Brookings Papers on Economic Activity.” His move was pragmatic and well-timed. By then, it was clear to Republicans as well as Democrats that the Bush administration had put the Republican Party on a fast-track to defeat. Within two years, a progressive Democrat would move into the White House. Elmendorf’s job at Brookings served him in good stead, putting him in the right place to be appointed CBO director. (One does wonder, who made the decision to make him head of CBO? Did anyone think about the role Elmendorf played in “marking up” the Clinton plan? My guess is that Elmendorf was seen as a bipartisan choice who would please both sides of the aisle. )

As an economist, Elmendorf leans to the right: debt reduction is a major theme in the academic papers that he has written. (For the record: I, too, believe that reducing debt is important. But it is not always the top priority.)

Nevertheless, Elmendorf’s initial training with a conservative economist may help explain why he takes such a gloomy view of health care reform, consistently insisting that the bills drafted by Democrats in both the House and the Senate do not offer "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

I disagree. I have detailed some of the money-saving structural changes that the House bill proposes in an earlier post. As I explained there, the House bill would achieve significant savings by changing how health care is delivered, how Medicare pays for care, and what Medicare pays for.  The public insurance option that becomes available in 2013 would incorporate what Medicare has learned about reducing costs while lifting the quality of care—and in the years ahead the public plan would continue to  absorb the lessons that flow from Medicare reform. Very likely, private insurers would follow suit—especially if they are competing with a public plan.

When I read Elmendorf’s testimony suggesting that the bill wouldn’t bend the trajectory of federal health spending, I couldn’t help but wonder: Did he understand how the proposals in the 1,018 page bill dove-tailed with the excellent recommendations that the Medicare Payment Advisory Commission (MedPac) has made in recent years? Has Elmendorf read the lengthy MedPac reports?

White House budget director Orszag replied to criticisms of the House and Senate bills on his blog,  explaining that the House bill is a work-in-progress and that White House reformers plan to “bend the health care cost growth curve down in years to come” by “empowering an independent, non-partisan body of doctors and other health experts to make  recommendation about Medicare payment rates and other reforms.” That panel might be the Medicare Payment Advisory Commission (MedPac) (as proposed in Senator Jay Rockefeller’s legislation) or a new Independent Medicare Advisory Commission  (IMAC) .

Orszag explained that the “Independent Medicare Advisory Council (IMAC) would be an independent, non-partisan body of doctors and other health experts." Last week, I described how such a panel would be shielded from meddling by lobbyists and politicians.

The panel’s goal: to adjust Medicar
e fees to reflect how much a treatment benefits a patient. Fees for primary care would be lifted while fees for some very lucrative procedures that provide little or no benefit for many patients would be sliced, discouraging over-treatment. I have written about what it would mean if MedPac (or IMAC)  had the power to implement its recommendations here. Following MedPac’s advice would be, as Orszag has said, a “game-changer.”

In most quarters, the response to Orszag’s proposal was enthusiastic. The Mayo Clinic issued a statement: “We applaud the direction of this proposal. We view favorably the concept of an independent body that can move Medicare to a ‘value- based payment’ model.  An independent Medicare advisory commission focused on defining value, measuring it, and finding ways to pay for value could have significant, positive impact on health care for the long term.  This, and other, bold concepts have the potential to 'bend the cost curve' in U.S. health spending without compromising health.”

“We didn’t see this proposal until Monday,” a spokesperson for Mayo told me last week. “Together with the House bill, this initiative makes the difference.”

Then, on Saturday, Elmendorf weighed in with his dismal $2 billion estimate, complaining that the draft legislation “does not explicitly direct the Council to reduce” Medicare spending, “nor does it establish any target for such reductions.”

Of course the legislation does not simply charge the panel with reducing spending: we don’t want to take an ax to Medicare. The goal is to eliminate waste, while providing financial incentives for care that over the long run, will lead to higher quality care at a lower cost. Some fees should be raised, others should be cut. MedPac has written about this, in detail, explaining how to target expensive and unnecessary treatment while rewarding care that keeps a patient out of the hospital.

We know, for example, that healthcare in Europe is less expensive because patients receive much more of their care from primary care doctors. We also know that in the U.S., in a community like LaCrosse , Wisconsin, where there are more than twice as many primary care physicians as there are specialists, healthcare spending is far lower than in most of the nation. (Last week I learned about LaCrosse at a conference sponsored by the Institute for Health Care Improvement that analyzed ten U.S. communities that have managed to achieve high quality healthcare at a very low price.  The symposium was titled “How Do They Do That?” I’ll be posting about the conference later this week. )

My  point is that we have solid evidence, here in the U.S., that efficient, high quality, medical centers and communities that realign financial incentives to reward the most effective care can greatly reduce spending. Elmendorf’s  estimates  fly in the face of what White House Budget director Peter Orszag and other experienced health care reformers know. 

Let’s be clear: Elmendorf is not a health care economist. Nor is he a health care expert. By contrast, Oszag has steeped himself in the medical research which explores what drives wasteful spending, and how collaborative, patient-centered care can address the problem. The cognoscenti of healthcare reform agree that MedPac’s reports offer a blueprint for excising the fat in our system..

Can one “mark up” precisely how much each change in how we pay for health care—and how that care is delivered—will save?  No. On Pollitico.com Joust explains: “it is much easier to score costs than cost-savings. Legislation pending in both the House and Senate in fact includes state-of-the art proposals that many health policy experts do believe will result in real savings.

"It is easier  to figure out how many people are under a particular multiple of the poverty level and how much it will cost to cover them through Medicaid or to provide them with insurance subsidies”  and to tally “the cost of reform. It is much harder to figure out how much a public plan or accountable care organizations will save the federal government. The CBO guesses conservatively with respect to savings, and the media reports this as a ‘blow to reform.’”

As I have said in the past, Medicare reform will be a process—not an event. And it will be a learning process.

In part 2 of this post, I will analyze Orszag’s response to  Elmendorf’s most recent criticism. I’ll also consider the media’s response to CBO, and ask why the press has treated CBO’s guesstimates as hard facts.

27 thoughts on “Who Is Douglas L. Elmendorf, and Why Is He Throwing Cold Water On Reform? ( And Why Does the Media Report CBO Guesstimates As Gospel?) Part 1

  1. Dear Maggie,
    I’m a supporter of your way of seeing the healthcare world. I have lived it and seen what you see.
    In the recent past it seems more and more that you are like a cheerleader rather than a thoughtful author. I’d like to hear what things in the current crop of proposals that you don’t like.
    Certainly reform in the money driven medicine culture is needed. Given the time now inserted into the process – what things can we encourage or discourage?

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  3. Excellent post. One of the problems with CBO is that its logic is circular. CBO will only score savings when the particular proposal being analyzed has proven, in the real world, to save costs. That’s reasonable. In health care, however, virtally nothing has proven to cut costs. So, there’s really no chance that any proposal will be scored as saving money. Maybe the process is doomed from the outset?
    I’ve asked several times on another prominent health policy blog whether anyone is aware of any analyses of the accuracy of CBO forecasts. That I’ve gotten no response probably answers my question.

  4. Ed:
    I respectfully disagree. It seems to me that the predominant mainstream media coverage of health care overhaul has been negative, slanted toward the status quo, and mostly interested in who’s up or down in the polls.
    It’s frustrating.

  5. I was wondering these exact questions as I was reading reports of the CBO estimates. Who are these guys, and why is their word Gospel?
    Thanks for the post Maggie.

  6. Maggie,
    Great job! I do worry, though, about the Congress producing a toothless bill that will not do enough for cost-containment (my impression was that Elmendorf’s reflected just that. I am also very supportive of the independent MedPAC or IMAC — seems like a great idea.
    Love your blog and am putting a link to it on mine. Hope you have a moment to visit mine and comment.

  7. Very interesting post. Facts it seems can’t be easily separated from politics, as we will no doubt learn again when the Central Committee gathers evidence against a politically protected treatment.

  8. I have a question for Maggie and others:
    Do you see the Blue Dog Dems as acting more like the conservative, status quo loving Repubs who want to just keep things the same, or are these blue Dog Dems the ones that are really demanding true system changes that will hold down costs and increase meaningful effective care?

  9. So let me understand.
    – There is proposed legislation in Congress (which will undoubtedly be substantially changed before it is adopted) containing an unproven mechanism to control costs while at the same time expanding coverage (which will cost more money for sure).
    – We are asking an economist (a purveyor of the “dismal science” who didn’t see the real estate bubble about to burst) to tell us how much money this proposed, unproven legislation will save.
    – Some of us are mad that he hasn’t given the answer that fits with what we want to see happen.
    Is that a fair summary of what is going on? May I suggest a more scientific and reliable process – sacrifice a goat, look carefully at its entrails ….

  10. Does “Money Driven” also mean “for profit?” Perhaps health care should not be left to the vagaries of capitalism but then it becomes like Medicare – costing a lot and going broke. Is there an answer?

  11. The WSJ 7/24/09 gives insight into Peter Orszag, and I don’t have any more comfort level with his experience as I do with Elmandorf. Orszag is an economist who started working for the gov’t at age 24 and developed an expertise in Social Security policy. In his 30s, in 2003, he discovered high cholestrol was bad so a friend encouraged him to take his health serious. He changed his diet, started running, and “started studying up on health care policy”. With no healthcare delivery system experience, no clinical experience, no real world healthcare job experience, “Mr. Orszag is the Administration’s point man for controlling healthcare spending”. “Mr. Orszag’s ambitions extend beyond ‘scorable’ spending cuts….To that end, Mr. Orszag wants to change the way medicine is delivered”.
    Are you kidding me….a very bright economist who specializes in Social Security policy starts reading healthcare policy and in 5+ years is the President’s point person to bend the cost curve for 17% of our economy? Oh please. Maggie, a hand full of your regular, thoughtful readers, would run circles around this guy in listing real world ideas to bend the cost curve.

  12. You know there are 1001 ways to skin a cat and there are many health care systems worldwide. All have good and bad points.
    In those countries where health care is a ‘right’and not a ‘privilege’ as in the US the ‘fees/charges’ are less by folds of 10x or greater. Compounding this ‘charge what the market can bear’ mentality is the impact of the US model of health litigation which has not been addressed.
    One of the basic questions not asked or answered is why is ‘insurance’ even involved with health delivery? That’s a true inconsequential middle-man.

  13. Ed:
    I’ve been writing this blog for two years, analyzig healthcare. Before that, I spent 3 years writing a book analysing the problems in our profit-dirven system.
    But now is the time for action–to counter the misinformation and distortions about reform that conservatives are spreading,, while following the politics that have taken over the debate.
    It’s terribly important that reform pass–if it doesn’t, the economy will be in great trouble–not to mention that more and more people will be uninsured.
    The people who understand what is wrong with our health care system (the waste, the overtreatment) all pretty much agreed on what needs to be done.
    Here I’m thinking of people like Dr. Atuul Gawande, Dr. Jack Wennberg and Elliott Fisher (at Dartmouth) Dr. Don Berwick (Institute for Health Care Improvement), Peter Oszag,
    Dr. Zeke Emanuel (who wrote HealthCare Guaranteed, along with Victor Fuchs) intellligent bloggers like Merrill Goozner, Ezra Klein, Matthew Holt,
    Congressmen who truly understand the issues–like Ted Kennedy and Chris Dodd, the folks who run the Mayo Clinic, the folks who run the Cleveland Clinic, Bob Wacther and others at the Unversity of California, San Francisco . . .
    I could go on.
    If you spend a few years studying healthcare, it becomes pretty clear what needs to be done. Many articles in Health Affairs have been saying the same thing for quite a few years. Ditto NEJM and JAMA. So, among progressive reformers, there is, at this point a consensus.
    The question is how to get there when so many powerful and monied interests don’t want to see healthcare reform contain spending.
    They profit from the money wasted on unncessary, ineffective treatments. One man’s overtreatment is another man’s revenue stream.
    The opponents of heatlhcare reform hate places like the Mayo Clinic where doctors work on salary, and it costs Medicare 50% less to provide care.
    Sometimes, there really aren’t two sides to an issue.
    Healthcare reform, as outlined in the House bill or the Senate HELP bill is a good thing–just U.S. government sponsored torture is a bad thing, (and puts our soldiers at risk when captured)
    These bills represent the broad outlines of reform.. There are many details to be worked out between now and 2013 when universal coverage woudl be rolled out.
    After this legilslation has passed, we can debate and analyze the details.
    But the broad outlines are very good. My only disagreement is one this point: insurers would be allowed to charge older people twice as much as they charge younger customers.
    I think everyone, young and old, should pay the same amount into the pool, with subsidies for those who cannot afford it.
    But in this country many young people object to the idea of having to contribute to help older people. This is a lack of social solidarity that I regret. (There is much more respect for older people, and much more sense of community in much of Europe).
    But I can see that it might be hard to pass legislation unless younger people got a 50% discount .

  14. Ed (a second response to your comment), Sheldon and John . . .
    Reflecting on your comment–which I think was a very important comment– I wanted to add a second thought.
    I’m a “cheerleader” for health care bills that Democrats in the House and Senate have drafted the same way that I was a cheerleader for civil rights legislation under Johnson.
    I was very young then, but I understood that racial discrimination was wrong.
    And I saw it every day, in the city where I lived (Syrancuse, N.Y.) and the schools I went to (where blacks and whites went to school together, but sat at sparate lunch tables.)
    Later, at 16, I could get a job waitressing in a restaurant. A perfectly attractive, intelligent well-groomed black girl could not. There were no black people working in restaurants in Syrance, except dishwashers who were out back, where you couldn’t see them.
    Health Care Reform is like Civil Rights Legislation–
    It’s the right thing to do– and it’s necessary.
    The alterantive is unacceptable.
    (In the case of healthcare legislation ,more and more people will find healthcare unaffordable. And the sprialling cost of healthcare is the greatest threat to our economy. )
    Moreover, at this point the House and Senate bills contain the provisions I see as necessary, both economically (so that we can cover everyone) and morally (assuming that, as a society, we believe that we should make high quality care available for all Americans)
    #1) For-profit insurers should not be able to turn anyone down because they are sick, and they should not be able to charge people higher premiums because of pre-existing conditions.
    #2) all Americans must purchase insurance. Those who cannot afford it should receive government subsidies, based on income.
    (If we don’tt require that everyone buy insurance, many people would wait utnil they were sick to buy it, secure in the knowlege that insurers would have to sell it to them, and couldn’t charge them more (see #1.) This would create “free riders”
    Those of us who buy insurance even though we are not sick cannot afford to support free riders.
    #3 For-profit insurers should not be able to gouge us. The House bill says that they must pay out a certain percentage of the premiums they receive in reimbursements to healthcare providers and providerse. (Percentage not yet specificed–this is the type of detail we don’t want in the legislation. Conservativds would use it to block reform.)
    IF insurers do not pay out that percentage of premiums in reimbursments, they have to give rebategs to customers.
    This effectively puts a cap on for-proift insurers’ profits. We,as a society, cannot afford a health care system where insurers make unlimited profits.
    #4 since we have more than 2 decades of medical research from Dartmouth showing that 1/3 of our health care dollars are wasted on unncessary and ineffective treatments (that put patients at risk,with little or no benefit)
    the legilsation must include provisiions that would squeeze out some of that waste.
    The proposals for reforming Medicare in the House bill would do thag–, and Medicare would lead the way for a public sector insurance plan.
    #t We need a public sector insurance option competing with private insurers to “keep them honest” as President Obama says.
    A public sector plan would be modeled on a Reformed Medicare (see House bill) and would set a high bar for higher quality and lower costs.
    For-profit insurers have had many years to figure out how to offer high-quality care for less–by providing appropriate financial incentives to doctors and hospitals while neogiating better prices with drug-maker sand device-makers that are gouging us. For-profit insurers haven’t done that.
    We cannot afford to bail out yet another industry that cannot figure out how to provide a good product at a resonable price.
    #6 Medicare and the public sector insurance plan should pay primary care docs, pediatricians and others who provide preventive care and manage chronic diseases more –while paying less for certain very lucrative surgeries, tests, and other treatments that are only marginally effective.
    These decisions should be made by a panel of phsyicans and other healthcare experts based on medical evidence and unbiasedd “comparative effectiveness resereach.”
    (The House bill lays out provisions that would make this possible and a recnet administration proposal calls for an indepedent panel of physicians and health care experts to set Medicare fees (giving Congress and lobbyists very little opporunity to meddle)
    #7 We need to reward doctors and hospitals who get together and agree to collaborate (rather than competing) in accountable care organizations. We know that these ACOs provide higher quality care at a lower cost.
    The House bill rewards them for doing this.
    #8 Employers over a certain size should either contribute to the pool that will provide subsidies for people who cannot afford insurance, or offer insurance to their own employees.
    Taxpayers cannot shoulder the entire burden right now.
    Here I would add that we need to make provisions for employers in labor-intensive businesses where it might be too expensive to provide healthcare for employees– these are details to be worked out between now and 2013.
    But on the whole, employers who can afford to contribute should contribute.
    The vast majority of American workers have watched their wages stagnate over the past 20 years– and in the past 10 years, their benefits also have shrunk.
    Meahwile, for much of the past 20 years (until 2008 ) employers and shareholders were reaping huge profits—and not sharing those profits with most workers,
    That wealth should be shared with America’s workers-and right now, what many of them most need is health care.
    Finally, today many of those who oppose healthcare reform are arguing against reform because they have a larger goal: “breaking”
    Break Obama.
    In other words, their agenda is purely political and has nothing to do with the issue.
    Thank you, and welcome to the blog.
    Yes, CBO thinking is circular–and quite literal-minded (at least under Elmendorf.)
    When Orszag was CBO director, he looked at the quality of care, and recognized that higher quality and lower costs go hand in hand–but that when you are talkng about qualitative changes, it is very hard to put a number on the savings.
    I am afraid this is true.
    Much media coverage is treating this hugely important issue as some sort of “game” –writing about who is up and who is down.
    And the mainstream media has become very negative on reform over the past month or so. I will be writing more about this .

  15. Maggie,
    Your blog certainly has many details and info that supports those details unlike numerous blogs out there. I strongly believe we need reform but is really shocking that we have to look this hard to pay for reform. We have 30 % wastage and if we spend 2-3 trillion per year, will be 30 trillion/ 10 yr and 30 % wastage is 10 trillion and we can not find 500 billion in a scorable way? Even if CBO is acting rigid and unhelpful, we should be able to come up with 500 billion in 10 year, if not we are in grave danger and will have a tough time selling reform to independents( like me) let alone republicans.

  16. Cool blog. I dig your site outline and I plan on
    returning again! I just love finding blogs like this
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  17. Great blog. On “Fresh Air” you said the insurance companies are having a tough time with rising payouts and sinking profits. I heard on Tom Hartman’s Air America program that last year United Health posted it’s biggest profits and paid it’s CEO 1.6 Billion. I think we need to get private insurance OUT of health care. I am a counselor. My insurance reimbursement rate was $60 in 1990 and it is right around $60 today from all the major insurance companies. Cost containment at my expense. Of course my costs of doing business continue to escalate. I am enthusiastic about overhauling the health care delivery system. I don’t have much to lose. I am willing to tackle new problems if we can resolve the main problems of access and affordability. I think eventually funding will come from a variety of sources that will produce howling across the board; the wealthy, the pharmaceutical companies, the insurance companies, the tax payers, all businesses, the sugar makers, the tobacco companies, the skateboard companies,the gun sellers, etc. The howling won’t die down until lots of people have had the experience of being patients as well as tax payers.

  18. I assume you have seen this from Orszag. It’s on the White House blog site.
    Saturday, July 25th, 2009 at 3:19 pm
    CBO and IMAC
    Peter R. Orszag, Director
    This morning, the Congressional Budget Office (CBO) analyzed proposals to shift more decision-making out of politics and toward a body like the Independent Medicare Advisory Council (IMAC) . . .

  19. Thank you, Maggie, for this eye-opening piece. I wondered yesterday how the CBO estimates costs and cost-savings and found your blog today! Thanks for the answer.

  20. I asked yesterday about the nature of the “public option” which appears to be serviced by the propietary insurance companies. Also, it is not an option for very many people, including those covered by an employer’s plan or an individual plan. Please clarify; thanks.

  21. Harriette–
    First, on UnitedHealth’s profits, while earnings are up from a year ago, the company is NOT doing well financially.
    This, I’m afraid, is the sort of misinformation that single payor advocates spread–completely ignoring the facts–as they strive to argue that insurers are hugely profitable and that they are the reason healthcare is so expensive.
    Just look at the share price: early in 2008, the company’s stock was trading at about $55 a share–now it is trading at $29 a share.
    This tells you the company is not doing well.
    As the Wall Street Journal reported on July 21 when talking about the rise in UnitedHealth’s earnings: “Despite the better-than-expected performance, health insurers’ profits remain under pressure from rising medical costs and falling enrollment, as well as from the prospects of diminishing payments from government plans.”
    The fact that revenues are up doesn’t matter– “revenues” represent total money taken in– profits represent what is left after paying out reimbussements to docgtors, hospitals and patients.
    In general, private insurers have been losing money as employers drop health care benefits and the number of customers declines. Meanwhile, the cost of health care– the amount of money they must pay out–has been climbing.
    For private insurers reimbursements have been spriraling by 8% a year for the past 10 years as Americans buy more drugs, undergo more diagnostic tests, surgeries and other procedures.
    About 1/3 of those dollars are wasted on unncessary, ineffective,often unproven tests and treatments.
    But private insurers pay for them anyway–and pass the cost along in the form of higher premiums.
    Medicare does the same. But since Medicare doesn’t pay doctors and hospitals as much as private insurers do, Medicare reimbursements have been going up “only” about 5 1/2 percent a year. This is still unaffodable–and explains why Medicare is going broke, even though premiums and co-pays have been raised.
    As I have explained in the past, the private insurers are not the main problem in our health care system.. Their administrative costs (including profits) equal only about 4.5 percent of the $2.6 trillion total that, as a nation, we spend on healthcare.
    And their adminsitrative costs (including profits)are not spiralling. As a percentage of premiums –and as a percentage of our total health care spending their administrative costs (including profits) remain relatively flat.
    What is driving health care inflation is all of the overtreatment.
    On Elmendorf: he knows very little about healthcare.
    Peter Orszag, by contrast has written hundreds of pages anlayzing the problems and solutions. Orszag also has read the thousands of pages of MedPac reports.
    You might want to read Orszag’s writings before concluding that Elmendorf is just as qualified.
    I’m not sure why you would compare either man to Greenspan–completely different background politically (Ayn Rand) and as an economist (micro not macro)
    As I have explained in the past, the private insurers are not the main problem. Their administrative costs (including profits) equal only about 4.5 percent of the $2.6 trillion total that, as a nation, we spend on healthcare.
    And their adminsitrative costs (including profits)are not spiralling. As a percentage of premiums –and as a percentage of our total health care spending their administrative costs (including profits) remaind relatively flat.
    Finally, Elmendorf has been meeting with the blue dogs and the REpublicans on the Senate Finance Committee. Progressive Democrats have been closed out of those meetings. This tells you where Elmendorf is politically. He does not want a public option. He doesn’t want to force the private insurers to compete with a government plan.

  22. Raymond Graap,NG,Susanna, Lynn, Phillip, Ray, Legacy Flyer,Jade and Elaine
    Raymond Graap
    — In the House bill, the public option is not provided through for-profit insurers.
    It is like Medicare–though it would be modeled on a new improved Medicare.
    The house bill calls for many Medicare reforms (including raising payments for primary care by 5% to 10%—plus bonuses,while also paying doctors and hospitals more for the quality of the care they provide, while moving away from fee-for-service, which rewards for the quantity of care–and encourages over-treatment.
    The public sector option would be availabe to a great many people: the self-employed, and those who work for smaller companies, as well as the uninsured.
    During the first three years the public sector option would not be available to people who work for large companies. Usually that insurance is fairly good–and the employer pays an average of 75% of the cost of the premiums.
    This is why most people who work for large companies probably wouldn’t want to switch–they’d rather wait and see how the public sector option does.
    But if millions of them did decide to switch to the public sector option, they could cause a huge problem. Many would need a subsidy. (In the House bill, subsidies would be available not only for low-income families, but for vritually everyone in the statistical middle-class (households earning roughly 60,000, joint income).
    We just couldn’t afford subsidies for that many people all at once. In the House bill, they can move to the public sector plan three years later, if they want to.
    We need some time to figure out how high the subisides need to be, and we need time to get healthcare costs under control –before opening the public sector plan to everyone.
    NG– On the Blue Dogs, see my most recent post.
    The Blue Dogs are not interested in containing health care costs in rational ways–by eliminating waste.
    They have taken enormous contributions from the for-profit insurance industry.
    Of course, most of Congress has received contributions from the industry, but recent reports indicate that the Blue Dogs have been favorites of the lobbyists (probably because the lobbyists know that the Blue Dogs will vote with the lobbyists.)
    Medicare can be–and will be –reformed. The Medicare Payment ADvisroy Commission has written hundreds of pages of reports in recent years, making excellent recommendations to reform healthcare. (I have read all of the reports.)
    The Bush administration ignored those recommendations, but the Obama administration is poised to act on them.
    This will raise the quality of care under Medicare–while lowering costs. Medicare does not have to go broke. I am qutie sure that the Obama administration will make sure that it doesn’t.
    Lynne– I agree with much of what you say.
    But the truth is that private insurers are not hugely provitable. To the contrary.
    Regarding UnitedHealth’s profits: while earnings are up rom a year ago, the company is NOT doing well financially.
    Just look at the share price: early in 2008, the company’s stock was trading at about $55 a share–now it is trading at $29 a share.
    This tells you the company is in financial trouble.
    As the Wall Street Journal reported on July 21 when talking about the rise in UnitedHealth’s earnings: “Despite the better-than-expected performance, health insurers’ profits remain under pressure from rising medical costs and falling enrollment, as well as from the prospects of diminishing payments from government plans.”
    In general, private insurers have been losing money as employers drop health care benefits and the number of customers declines. Meanwhile, the cost of health care– the amount of money they must pay out–has been climbing.
    Private insurers reimbursements to doctors, hospitals and patients have been spriraling by 8% a year for the past 10 years as Americans buy more drugs, undergo more diagnostic tests, surgeries and other procedures.
    About 1/3 of those dollars are wasted on unncessary, ineffective,often unproven tests and treatments.
    But private insurers pay for them anyway (as does Medicare) and then private insurers pass the cost along in the form of higher premiums.
    This is why your premiums have levitated. The insurers profits are not rising; their costs are rising.
    Medicare needs to begin steering patinets and physicians toward the most effective treatmetns– while paying less for treatments that provide little or no benefit for patients.
    This is all in the House bill.
    Please read the hundreds of pages of that Orszag has written about healthcare- much brilliant analysis–before judging his credentials.
    Also, I began focusing on healthcare only six years ago, when I began writing my book. Orszag began writing about healthcare 5 1/2 years ago.
    We’re both good at reading , analyzing and synthesizing. We both learned an enorous amount in those 5 1/2 to 6 years.
    Ray– You are right that probably 1/3 of our healthcare dollars are squandered on ineffective treatments–we have over two decades of reaserch from Dartmouth showing this.
    But as I’ve said before, this is not fat hanging out on the edges of the steak–it’s marbled throughout the meat.
    So eliminating it is not easy.
    Moreover, many Americans are very reluctant to acknowledge that htey are being overtreated–or that htis overtratment places them at risk.
    This makes eliminating the waste politically difficult.
    Finally these savings are not “scoreable” because it is impossible to pinpoint how much “qualitiative” changes in how Medicare pays for care, and how healthcare is delivered will save.
    Also we are talking about savings ten years from now– so trying to guesstimate savings is like trying to guess what a loaf of bread or a cup of coffee will cost in 2019.
    Elmendorf appears to be pretty literal-minded-he doesn’t seem able to wrap his mind around the difference between “quantitative” changes and “quallitative” reforms.
    Legacy Flyer–
    These are “proven mechanisms” for reducing costs.
    The Mayo Clinic, Geisinger,
    Intermountina in Utah, etc. have shown how collaborative care that moves away from fee-for-service–and makes improving patient outcomes their raison d’etre–can contain costs while lifting quality.
    I’d suggest reading Dr. Atul Gawande’s article in the June 1 New Yorker.
    Jade and Elaine,
    Welcome to the blog, and thanks for the kind words

  23. They profit from the money wasted on unncessary, ineffective treatments. One man’s overtreatment is another man’s revenue stream.
    The opponents of heatlhcare reform hate places like the Mayo Clinic where doctors work on salary, and it costs Medicare 50% less to provide care.

  24. however much I would love to see everyone have affordable health care I don’t have any confidence in our government’s ability to provide it efficiently or cost effectively. There isn’t one single bureaucracy that I can think of that isn’t hugely overspending and underperforming (IRS,DMV, etc.) or rife with fraud (Medicaid, Medicare). Having the government involved in implementing an institution that will affect 1/6th of our economy frightens me beyond description. I don’t understand people’s willingness to believe that “this time it will be different”.

  25. those people in Congress needs some reality check. they were voted by the people, thus, they should ensure that the people’s interests are served all the time. but that is not the reality. i hope voters remember well their deeds come election time