Yesterday, I suggested that the Commonwealth Fund’s recent proposal for healthcare reform underlines just how difficult it will be to build a sustainable, effective, safe healthcare program for all Americans.
Today, President Obama’s budget reinforces the message. His ten-year $634-billion plan for funding healthcare reform depends on “asking the wealthy to pitch in a bit more” (budget director Peter Orszag’s happy phrase), wringing some of the waste out of Medicare and Medicaid (cuts that are needed, but that will not be popular ); and strong-arming drug makers to raise discounts on Medicare drugs from 15 percent to 21 percent. About half of the money will come from changes in government programs, half from tax increases.
. As the Congressional Quarterly reports , “the new proposals for tax hikes on couples earning over $250,000 “will immediately test the limits of the new political dynamic on Capitol Hill in the midst of a recession.” And even then, the budget provides only a “downpayment” on healthcare reform— roughly half to two-thirds of what is likely to be needed to cover everyone.
With this sobering news, the discussion of healthcare reform both in the blogosphere and in the mainstream press is becoming more realistic. This is both refreshing and encouraging. No more rose-colored glasses. No more “we’ll worry about how to fund it later.” Or “it will pay for itself.”
This is an administration that is based in reality (in contrast to the faith-based governance that we enjoyed for the past eight years.) The Washington Monthly's, Steve Benen notes “The administration seems well aware of the fact that a $634 billion over 10 years would not cover literally everyone. Neera Tanden, a top Obama health adviser, acknowledged , ‘We know that this is not enough to achieve our overall goal of getting health care for every American, but it is a significant down payment.’”
A hard-headed administration is dragging, us, however reluctantly, into a world where numbers matter. At the New Republic, the usually optimistic Jonathan Cohn acknowledges that “the amount [set aside in the budget] will not be enough to finance full universal coverage . . .The budget will call for finding that money, although that obviously raises another question: Just how much more would it cost to get everybody (or nearly everybody) covered ?”
“The answer,” Cohn writes, “depends in part upon how you define ‘decent’ and how quickly you want to get there. Passing a universal coverage plan in 2009 wouldn't necessarily mean covering everybody in 2010. Or 2011. Or, well, you get the idea . . .”
Cohn and other reformers are beginning to admit the enormous difference between passing a very broad piece of legislation that sets goals– and implementing that legislation, which means hammering out the details, admitting to mistakes, recognizing failures, and making changes.
Health care reform will be a work in progress for a long, long time.
As I have said repeatedly, it’s unlikely that we can achieve universal coverage before 2013. The politics are just too tough. And finding the money—this will require sacrifices and hard trade-offs
In the past, Cohn, and reformers such as Jacob Hacker have suggested that we could fund healthcare reform with more deficit spending. You know, just keep our fingers crossed that China will pay for MRIs all around, by continuing to buy our Treasuries at, say, 1 percent. As I noted yesterday in my analysis of the President’s speech, this is not what Obams plans to do.
Today, the AP’s Ricardo Alonso-Zaldivar confirmed what I heard yesterday : “The president’s 10-year, $634-billion [healthcare plan makes some key political and policy statements. For starters, any expansion of health care coverage has to be paid for — it can't just be tacked onto the deficit.”
Worrying About the Money First
Alonso-Zaldivar notes that President Obama is focusing first on controlling healthcare inflation: “Clinton started out with the goal of covering everyone. Obama has framed the problem in a different way: slowing the increase in costs, so that eventually everybody can be covered.
“Obama is asking Congress: If you're going to cover 48 million uninsured people in the world's costliest health care system, how do you pay for it?” As I wrote in a comment on the president’s speech published on the New York Times’ “Room for Debate” yesterday, Obama is bouncing the funding problem back to Congress. He has come up with suggestions that will not be popular with everyone. Now it’s their turn. Fair enough.
"’The approach he's taking is to put some tough decisions on the table, and then bring people together to have a conversation,’ " Christine Ferguson, former senior Republican health policy aide at the federal and state levels told AP. "’You put those on the table, and if people want to have this discussion, they have to propose alternatives .’"
Where the Money Comes From
How will the wealthy “pitch in”? Obama’s budget lets the Bush administration's tax cuts for more affluent households expire, allowing the marginal rate on household incomes above $250,000 to rise from 35% to 39.6%. His blueprint also asks wealthier Medicare beneficiaries to shell out higher premiums to participate in the prescription drug plan, much as they now pay higher premiums to be in the Medicare plan that covers doctors’ visits.. (This worries me; anything that might undermine solid support for Medicare by dividing beneficiaries by class could prove a problem.)
In addition, the president proposes reducing the value of itemized tax deductions for everyone in the top income tax bracket, ( 35 percent,) and many of those in the 33 percent bracket — roughly speaking, starting at $250,000 in annual income for a married couple. The administration’s budget slices the value of deductions for these families by about 20 percent .
“Under existing law,” the New York Times explains, “the tax benefit of itemizing deductions rises with a taxpayer’s marginal tax bracket (the bracket that applies to the last dollar of income). For example, $10,000 in itemized deductions reduces tax liability by $3,500 for someone in the 35 percent bracket. Mr. Obama would allow a saving of only $2,800 — as if the person were in the 28 percent bracket.
“The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions.” The changes also would trim the value of mortgage deductions.
As expected, the president plans to slash the windfall bonus for insurers that offer Medicare under Medicare Advantage. Under current law, payments for Medicare Advantage plans are set by a formula, and the result is that private companies are paid, on average, 14% more to care for a Medicare patient than the government would normally spend through the traditional Medicare plan.
The Obama plan would have private insuers bid to offer coverage to people in a given geographic areas: they would be paid on an average of the bids in the area. He hopes to save $175 billion over 10 years with the new bidding system. (I hope this also means much stricer regulations about what Medicare Advantage plans can cover- restricting cost-shifting to very sick patients.).
. Requiring drug-makers to boost discounts for Medicare patients to 21 percent should cent save another $19.5 billion. Finally, Bob Laszewski reports that the “the president’s budget would reduce Medicare hospital payments by $17 billion over ten years by bundling inpatient and outpatient reimbursements to include the 30 days after discharge, and save another $8.4 billion in hospital reimbursements by refusing to pay for readmissions that result from substandard care.” By bundling payments, the administration hopes to encourage hospitals and physicians to work together to make sure that patients receive follow-up care and do not need to be readmitted.
Redistributing Income
As I have noted in recent posts, today wealth and income is concentrated among American families at the top of the income ladder. This has led, not only to growing inequities, but financial speculation that has had disastrous results for the economy. When too much money chases too few things, the very wealthy begin blowing bubbles . . . .
This budget begins to redistribute income, not only by raising taxes on the wealthy, but by lowering taxes for low-income and middle-income workers while extending the new “Making Work Pay” tax credit beyond two years .
According to the Times, “the administration will argue that this tax relief, will offset households’ higher costs for utilities and other products and services." The current tax credit provides $400 to individuals earning less than $75,000 workers and $800 to couples earning less than $150,000. (Individuals earning up to $100,000 and couples earning up to $200,000 also receive a break, but not the whole credit.”
Going forward, the president would like to lift the credit to $500 for individuals and $1,000 for couples.
Resistance
The administration knows that its budget will face fierce resistance, from drug-makers, from some Medicare providers, and from Republicans who will object to the fact that, after 29 years of redistributing income upstream, this administration plans to reverse course. Already, Republicans have begun to sputter about the idea of afflicting the affluent, particularly during a recession.
Many voters will agree, arguing that for a family living in many cities and suburbs, a joint income of $250,000 just doesn’t make you "rich." (It does however, mean that the household is hauling home more than 98 percent of all American families; it’s hard to call the top 1.9 percent “middle-class.”)
Today, even Democratic Finance Chairman Max Baucus waffled on the tax increases: “Mr. Baucus acknowledged that ‘there has to be revenue’ to offset the costs of expanded coverage initially,” the New York Times reported, “but he did not endorse the proposal for limiting wealthy taxpayers’ deductions.”
“’There will be lots of options to pay it, not necessarily that one,’” Mr. Baucus said. “He would not say what revenue options he would support.” In the past, sources in Washington have told me that Baucus would like to find a “pain-free” way to pass healthcare reform. I wish him the best, but— he need to spend more time with the reality-based folks.
With this budget, President Obama has tried to spread the pain, but even so , he will have to use his considerable powers of persuasion to convince some Democrats, as well as Republicans, that if we want universal coverage, we must pay for it—and the only people who are in a position to pay for it are those that have the money. I suspect that the public will understand this. And if the president appels to voters, they will persaude their Congresmen. Or vote them out of office.
Persdient Obama might begin by pointing out that, when compared to the citizens of other developed countries, our tax burden is not heavy. As the chart below reveals, the U.S. government’s total revenues—from taxes and other sources—represent a much smaller share of GDP than in most European countires. And note that in countries with some of the best healthcare systems (Germany, France, Denmark government revenues, measured as a share of the economy, are 30 percent to 50 percent higher. Of course those taxes fund an entirely social safety net which includes education and pensions, not just healthcare.
But 21st century healthcare accounts for a large chunk of social spending in any country. If we want to high quality universal coverage—just like those other countries—it seems only logical that taxes will have to rise, particularly in the early years of healthcare reform.
Make no mistake, covering everyone will cost more. In an earlier post , I quoted Paul Ginsburg, of the Center for Healthcare Systems Change, pointing out that “over the past decade, the decline in the percentage of Americans who have insurance has slowed the rate of health spending growth. “ If everyone had been insured, our national health care bill would be even higher..
Why? The uninsured die sooner –and so we save the money we would have spent if they had lived to develop expensive chronic diseases like Alzheimer’s or cancer.
Over the long term, we can learn to redistribute our health care dollars and get better value for those dollars, paying some doctors more, others less; depending on how much their treatments benefit patients, paying hospitals and doctors for better outcomes, not volume; and agreeing to accept evidence-based guidelines for care. But this means experimenting —finidng out what works and what doesn’t. It also means changing our expectations—and turning our backs on the excesses and self-indulgence that have created a bloated, profit-driven health care system.
I believe we can do that. But the solutions are not simple.President Obama understands this.
Fantastic Post!
Would love to hear Obama promote the need for PCs in rural and urban bottom 20% fiscally neck of the woods! How would you advise as a palatable way to draw physicians to these highly needed posts?
Thank you once again for the post!
Cuts to physician Medicare and Medicaid fees could render many primary care practices as financially non-viable.
I hope the administration is careful, really, really careful.
Ben
I believe we have to incentivize physicians to move to underserved areas in part by closing more of the overbuilt hospitals in major “high rent” cities of America where hospitals are literally bumping into each other.
The Texas Medical Center in Houston with ____? buildings now is the most obvious example of this disastrous bloated model and extremely poor planning
But it has happenned in my “home town” too- Phildadelphia and most other major US cities.
Dr. Rick Lippin
Southampton,Pa
I agree that cuts to Medicare and Medicaid need to be made carefully. The position and viability of primary care providers and of rural hospitals that are the only providers for hundreds of miles must be protected. Cuts must come from higher paid specialists and overpaid health institutions on the coasts and in the sunbelt, not from critical medical care providers already teetering on the brink of financial failure.
One additional point. The recession has made fixing this problem much more of an emergency. If the GDP continues to shrink while health care expenses continue to rise, the day when health care costs 20% of GDP and when health care costs become unsupportable by businesses and the rest of the economic system will be upon us much sooner than even pessimists thought. The increase in government share of health costs will also rise rapidly because of universal coverage and loss of insurance by unemployed and even many employed people. I would not be surprised to see 2011 end with the government paying over 65% of health costs and health costs at 20% of GDP.
This makes it even more important that meaningful reform of the payment system, including creation of appropriate practice standards, re-adjustment of fees, aggressive bargaining for drug and equipment prices, and creation of much more efficient overhead systems be done now, not later.
People argue that Americans are not ready to face the reforms needed to make the medical system work. If the choice is between reform of the system and bankruptcy of either the health care system or the entire economy, Americans are going to have to wake up to reality.
The uninsured die younger. So is that going to be one of our controls on the cost of health care??
I realize that it’s a fact, but somehow it just doesn’t fit with what is supposed to be the American ideal.
How many of us who are covered will sacrifice for those who are not?
Cliff–thanks for your comment-
Everyone else–thanks for respnding . I’ll be back to everyone else tomorrow.
Cliff–
Of course I didn’t mean to suggest that this is a reason not to cover the uninsured.
Smokers and the truly obese people also die earlier saving us money.
But clearly we want to help people stop smoking. And we want to learn how to help obese people lose weight and keep it off.
I am only trying to suggst that those who tell us that universal coverage will pay for itself are not telling the truth.
Covering everyone will cost more–and will be worth it. We must have universal coverage; it is the only moral thing to do. As a society we have a responsbilty to recognize others as human beings, equally deserving of care.
Thanks Maggie,
This is the most balanced reporting that I have seen on the subject to date
I echo the calls of others to look at access to care as well as coverage. As a general surgeon who provides care to rural New England communities, we are in increasingly short supply, and emergency rooms, ICU’s, and medical wards rely on general surgeons to treat a wide range of conditions; often, we are the difference between a hospital acting as an acute-care facility and as a skilled nursing facility; solving the debt burden may be one solution; specialized training programs, including continuing ed, may be another
Please keep up your great work and incisive analysis
Benjamin, Rusty, Dr. Rick ,
Cliff, Ken–
Ken– Thanks for the kind words. I know that general surgeons have been lumped with other “generalists” (family docs, pediatricians, primary care docs) and are paid less than other “more specialized surgeon.”
You’re right, we need more general surgeons. Often, in emergencies, the make the difference between life and death.
Yes, I think debt forgiveness, and continuing education (which would should more respect for the specialty) are good idedas.
Pat S.–
You’re right, these cuts need to be made with a scalpel, not an axe.
If you read what White House budget director Peter Orszag wrote about healthcare when he was CBO director, you’ll see that he understands this.
This is why containing costs will be complicated, and will take more than one piece of legislatoin. And it’s also why it can’t all be done in one fell swoop. We have to take our time and do it right.
Obama is clearly a pretty patient man. Lots of impulse control! (Something we haven’t seen in the White House for a while) So I don’t think he will let anyone push him into something foolish. (Except Afghanistan, but that’s a post for another blog.)
And I totally: health care inflation and the recession/depression have the makings of the perfect storm.
But, the other side of the coin is that “the worse things get .. . the easier it will be to persuade Americans to wake up to reality.”
As they realize that they are having a very hard time finding primary care doctors who take Medicare, that their employers are backing out of the health care business, that their neighbor was bankrupted by an illness–and he had insurance . .
They will realize that all of this talk about our healthcare system being wasteful and too expensive is not just talk.
We are no longer the richest country in the world. At the top of the income laddder we are, but if you step back and look at the nation as a whole, we are simply the world’s biggest debtor.
The sky is no longer the limit on what we can afford to spend on health care.
We cannot afford $100,000 drugs, or hospitals that try to look like luxury spas, or doctors who are paid $1 million a year to perform operations that may or may not be necessary.
Everyone–doctors, patients, and hospitals–has to begin paying attention to the waste. Patients need to ask doctors: are you sure I need this medication–I’m already taking 5 pills every day. How about this test? I’m not sure I want to be exposed to more radiation. What are the odds that it will find anything?
Doctors need to tell patients: I know your brother-in-law had an MRI and surgery when he had back trouble. But in your case, that doesn’t make sense. We’re going to take an x-ray and put you into physical therapy.
We need hospitals that focus on patient safety FIRST– ahead of room service, gourmet food and
other amenities. It really doesn’t matter hwo good the food was if you develop a gruesome infection –or fall victim to a fatal medication mix-up.
I agree, it’s a matter of waking up to reality. This is what Obama has been trying to tell us: “The time has come to put childish things away.”
Dr. Rick–
I agree, hospitals need to be closed. In NYC we have closed some, and from everything I know, the hospitals we closed just were not providing effective, efficient care.
And we have too many of them.
But I’m not sure it makes sense to close good big-city hospitals. They enjoy economies of scale that small subruban hospitals don’t. These larger hospitals can be very wasteful, but if they are forced to contain costs they also enjoy the advantege of doing certain procedures in large volume.
And we know that practice makes perfect.
So I’d keep experimenting with check-lists in these hospitals–Insst that doctors use them (or lose privileges), and focus on systems that prevent infections , etc.
I would close some of the smaller suburban hosptials that expose patients to risk because they don’t do enough procedures, and that don’t enjoy economies of scale.
I hate to say this, but I have friends who live in the suburbs. And they say that some of their neighbors prefer going to New York’s suburban hospitals because they’re mainly white.
The other patients are more likely to be white; staff is less likely to be coming from the Phillippines, fewer Latino nurses, fewer African Americans
We cannot afford to –and as a matter of principle should not– cater to bigotry. That includes people who say “I don’t want to go to that NYC hosptial because I don’t want to park my car int that neighborhood.”
Forget about protecting your car. Focus on protecting your life (or your wife’s life.)
Some of the doctors working in those suburban hostpails are much-needed in rural communities.
Rusty, — I’m quite certain that the budget director understands that we need to raise fees for priamry care (and other lower-paid specialties) while lowering fees for some very lucrative not very effective services and tests.
They didn’t do the across the board cut last summer, adn they’re not going to.
Benjamin– Thank you.
One way to draw physicins to the poorest cities and rural areas is to establish more loan-forgiveness programs and scholarships for med students coming from these areas.
This may well mean going into high schools, recruitiing bright students who think they might want to be doctors, coaching them for SATs so that they get into good colleges, and having mentoring programs for them while in college and in med school (which doctors in the areas as mentors.)
(If they don’t turn out to be doctors, that’s fine. You will have taught some bright kids a lot of vocabulary and how to think analytically.)
My son is now running a free SAT tutoring pogram for high school students down in Wake Forest, N.C. where he teaches at the university. It’s basically like Kaplan– which really does helps so many upper-middle class kids –but Kaplan is way to expensive.
So Kaplan winds up helping those already born on 3rd base.
I’d add that these loan-forgiveness programs and scholarships wouldn’t have to be aimed solely at minorities (there are many poor white people in this country living in rural areas.)
But they should be aimed at people, of whatever color, who grew up in truly poor communities, in low-income families, who are willing to go back and practice in those communities.
Pat S.– and Cliff
Pat S. Sorry I left your name out of the headline; I respond to your comment in the post that begins Rusty, Benjamin
Cliff– I responded to you separately, higher up in the thread.
“The Texas Medical Center in Houston with ____? buildings now is the most obvious example of this disastrous bloated model and extremely poor planning” Dr. Lippin I don’t know how I missed this. I agree with you, but I would change “poor planning” to “GREED.”
President Obama is laying too much stresses on the health related issues of the nations just from the starting. We have seen his efforts when he allotted maximum possible budget for health care inspite of weak economic phase. But, is it the govt only that should take all the care, not we. People should come forward to purchase health care plans.
When you spend all the rich people money you eventually run out of money. We can have nationalized healthcare but we will give so much to get it we may regret it. I am a believer working hard and reaping the rewards. I am sad most Americans always feel like they are owed. In most cases they are also the ones who are not working. Time will tell on Obama’s big push .
I believe the Health care propossal of President Obama is a total mistake. Other nations like Canada, and otherr from Europe have tried the same system, and the genaral concensus is that it does not work. Canadian citizens come to the USA to have their medical problems taken care because in their own country they have to wait many months to be attended. If the general public do not want that type of health care that the president is trying to force over us, what he is looking is perhaps, a feather in his cap?
In response to Rosa, this plan is NOTHING like the socialist hmo-like health care plan in Canada. This health care plan gives you choices to many levels of coverage, and there are more than enough practitioners to handle the need.
You may want to consider that there are millions of citizens out there who support this plan who make up the general public.
There are also millioins of hard working americans who are either employed and uninsured, self employed or part time who have to give up income that is needed for their family to their health care premiums. It is discriminatory that you are not allotted the same access to affordable health care because you do not work for a large company or because you have a pre-existing condition.
I think we all should give one for the team and support health care for EVERYONE.
Lisa, Rosa and AW–
Lisa– yes, this is just one example of the waste.
We must have health care reform that contains spending–or watch our health care premiums double in the next 9 years.
Private insurers reimbursments to hostpials, doctors, etc. have been climbing by 8% a year. You can be sure that they will pass those spiarlling costs along in the form of much higher premiums, each and every year.
Rosa– See my comment above. I wonder how you plan to afford healthcare in the future? Even if your employer is providing insurance now, it’s not likely that he’ll be able to afford to continue doing that as premiums skyrocket.
Also, if you look at U.S. medical journals you will find many articles telling you that a) healthcare outcomes are generally better in Europe in many areas b) patients in Europe are much more satisfied with their healthcare systems and c) large numbers of patients from Canada are not coming here for their care. Google a Health Affairs article titled “Phantoms in the Snow”.
AW-
Welcome to the blog– and yes, you’re absolutely right.