Bloom’s Political Digest: Obama’s Health Care Plan

Tired of the health care debate? Confused about where the truth lies? Count yourself among millions of Americans who feel the same way. Take a deep breath. Let’s take a look at what President Obama has proposed and see what we can figure out.

Question #1: How would this new plan affect me?

If you already have good insurance through your employer or otherwise, it probably won’t. The truth is, this new initiative has nothing to do with you. You won’t notice a change in the amount of taxes or premiums that are taken out of each paycheck unless it’s a decrease over the long term. Most of us are not going to lose our jobs, so our benefits will remain the same.

We are in an economic downturn which many are calling the Great Recession. So even though most of us in this country have job security (employment is at 90.3% as of September 4 according to www.bls.gov), thousands are going to lose their jobs if they have not already. According to www.whitehouse.gov, “The President’s American Recovery and Reinvestment Act protects health coverage for 7 million Americans who lose their jobs.” This is an expansion of the existing COBRA program which currently guarantees health insurance post-employment. In addition, the president’s new plan would make it illegal for insurers to drop your coverage when you get sick, and ban caps on benefits.

If you are currently uninsured and do not have an employer-provided option, and you either cannot afford an individual insurance policy or have been denied coverage because of a preexisting condition, the president’s plan will provide an affordable option. In his speech to a joint session of Congress on September 9*, President Obama said, “We will do this by creating a new insurance exchange – a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices.” This new marketplace would include an option that fills in the current gap in coverage. If you aren’t poor enough for Medicaid, if you’re too young for Medicare, and if you can’t afford the private insurance option(s) in your area, you will be part of a select group that will be eligible for this new option.

Question #2: How does this not affect me? This new plan sounds like it will put my insurance company out of business.

If the president’s new plan were to be enacted foolishly, without regard to its impact on the existing economy, it could. That is the major point of contention between Democrats and Republicans in Congress and across the country.

The president’s plan must adhere to two main principles to be effective: it must improve health care coverage or at least provide health care coverage for Americans who currently can’t get it, and must do it in a way that keeps our existing economy and its major players (the insurance industry, for example) intact. Though many argue that abolishing insurance companies may be the answer, this is far from a political reality. If insurance companies fail, people will most likely die because they cannot afford health care without an intermediary, and they probably earn too much to be eligible for current government programs. The problem is that millions of Americans are already dying or are more likely to die because they cannot access the existing system. We need a viable solution.

Health care is currently paid for by two major pools of funds: premiums collected by private insurance companies and taxes collected by the government for Medicare (to benefit seniors) and Medicaid (to benefit the poor). Where does the money come from for a new initiative, when the government has a huge deficit and premiums are already as high as a recessed economy can afford? Do insurance companies have to shell out so much in new benefits that they will inevitably go under?

President Obama’s answer is twofold: take money out of what insurers and the government are currently spending and factor in future savings to make the plan affordable. The first part involves spending less through making the current system more efficient. In his address to the American Medical Association on June 15th he proposed a switch to electronic record keeping from the current expensive paper-and-storage method and investing in preventative care to avoid expensive sick-care. Admitting these are only preliminary steps, he added, “But what accounts for the bulk of our costs is the nature of our health care system itself . . . a system that automatically equates more expensive care with better care.” Doctors and hospitals are currently compensated by insurance companies according to the number and types of tests and procedures they run, incentivizing superfluous treatments that drive up cost to the patient, the insurer and ultimately the insurance consumer, you. The government can provide tax incentives and other financial rewards to hospitals who strive for efficiency and thereby reduce the amounts of insurance company payouts. As he has been encouraged by Republicans, Obama is also spearheading a commission to explore medical malpractice reform to reduce the demand for expensive liability insurance claims. That means more money in the insurer’s arsenal so they can afford to cover more people.

But this alone more likely means more money in the insurance companies’ pockets rather than wider or better coverage, which means the Obama plan would then enact laws requiring insurers to accept all applicants.  In addition, once all individuals (with few exceptions) are mandated by law to carry health insurance, private insurers that currently dominate certain areas will be able to charge exorbitant premiums to their new, risky customer base unless a competitor exists to drive down prices. This is where the “public option” – or “cooperative (co-op)” or whatever entity that will provide insurance to those who can’t get it – comes in.

The president’s plan is to have a new insurance option up and running in four years, which means the Obama Administration (and perhaps its successor) must spend the next four years coming up with the $900 billion needed to enact all the proposed components of the plan including this entity. This means cuts to existing programs, a tax increase or increasing the deficit. The president said on September 9, “Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan. Much of the rest will be paid for with revenues from the very same drug and insurance companies that stand to benefit from tens of millions of new customers.” So rather than threaten your insurance company, this plan actually intends to help insurance companies make more money which will in turn generate more tax revenues.

Question #3: So what are the chances that I’ll have to pay more taxes?

We can expect at least a short-term tax hike or deficit increase until the new marketplace is intact. Then, Obama argues, the program will pay for itself. “If we are able to slow the growth of health care costs by just one-tenth of one percent each year, it will actually reduce the deficit by $4 trillion over the long term,” the president said on September 9. It all depends on which way the political winds shift as to how the initiative is funded in the short term. Since we are in a recession, the chances of getting a tax hike passed in Congress is unlikely, and the president’s language implies he doesn’t like the idea anyway. More likely the national deficit will increase in the short term or cost-cutting measures will be the only resource Congress will allow and it will take significantly longer than four years for the money to add up.

If the short-term pain of budget cuts or increased deficits achieve the goal of bringing down health care costs, however, all consumers would be beneficiaries. We currently pay for the millions of uninsured sick and wounded to be treated in emergency rooms. The president said that the average family pays about $1000 per year in extra premiums to compensate for emergency room visits for the uninsured**, who may not have gotten sick at all had they been able to purchase coverage for check-ups and other prevention services. Prevention costs less than care for the sick. In theory, the government does not need as much revenue to fund an insurance initiative than insurance companies do to reimburse hospitals for services to the uninsured. So the trigger-effect would begin and end with the American taxpayer: tax revenues provide the seed money for new initiatives that help drive down costs health care providers pass on to their patients and that insurers charge their customers, which means health coverage and care becomes more affordable for all, which means taxpayers ultimately carry less burden on their own premiums.

Question #4: But still, with more government control over the health care system, couldn’t this ultimately lead to socialized medicine where more people are covered, but covered poorly?

Yes, it could. The fear of government-run, socialized medicine destroying what is good about our current system is the number one reason why attempts at health care reform have been unsuccessful for decades. The danger of unrestrained public medicine is that it makes the government the sole provider of insurance coverage. In this extreme scenario, the government is essentially a monopoly accountable to no one.

In stark contrast, a single private company acting as an insurance monopoly – the doomsday scenario in an unrestrained free market – it would have no ceiling on what it could charge for its services, which would mean doctors and hospitals could charge whatever they wanted, and drug companies and medical technology producers could in turn charge exorbitant amounts for the products they provide, and so on. That would be bad for you, the consumer of insurance and health care services, because you probably wouldn’t be able to afford any of it and any benefits would be for the most profitable “customers”. This what liberals argue is the direction our current system is taking, toward the rule of greedy companies, or even a single conglomerate, which would have little sense of civic responsibility.

In an extreme socialized medicine scenario, the government would behave very differently, and you would have an entirely different problem. If the U.S. Government charged exorbitant taxes to its citizens so it could be a single, high-rolling payer to the health care industry, the economy would quickly collapse from the strain. The only way it could sustain itself as the public’s sole middle-man to health care providers would be to keep health care taxes as low as possible. This, in turn, would force health care costs down so low that medicine would no longer be profitable. Men and women who would be very talented in the medical field would choose other professions and those practicing medicine would provide inferior service. Drug companies and producers of medical technologies would lack the profit margins to invest in innovative research and development, and the advancement of medical science would slow as a result. Everyone would be able to afford coverage, but with little to show for it.

If the goal were to circumvent and thereby eradicate the current insurance-backed health care system with a government-run sole-payer universal system, I personally believe we should all run for the hills. However, this scenario is not the aim of any but the most extreme on the political left, nor is it a justifiable fear for those on the right, so long as the American people and the U.S. Congress don’t fall asleep at the wheel.

“Let me be clear – [the public option] would only be an option for those who don’t have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance. In fact, based on Congressional Budget Office estimates, we believe that less than 5% of Americans would sign up,” Obama said on September 9. This represents a small impact to the American economy and a counterintuitive business model. If the goal were to provide more efficient, government-run health insurance, why trumpet the smallness of scale? Because success, in this case, does not mean profitability for the public option. It means self-sustainability though efficient practices, while the option exists, but ultimately planned obsolescence. Once health care costs have dropped enough, it will become sustainable for private insurers to provide coverage for Americans that are ineligible today. Spurned by natural economic incentives, insurance companies should be able to provide wider and more efficient coverage than the public option could, rendering it either economically inconsequential or eliminating its need altogether.

There are many steps to take toward reforming the current health care system. President Obama’s plan is impossible to enact in one stroke, and there are many details to iron out in the months and years ahead. The only true consensus is that our current system is not sustainable. Like the housing bubble burst, caused by unsustainable risk-taking in the mortgage loan market, so too will the health care industry reach a breaking point that will have devastating effects on the larger economy. When life-saving procedures are reserved only for the mega-rich, when the poor are finally turned away even from emergency rooms, when taxes for health care subsidies finally kill the majority of small businesses, we will know as a people that we have failed. Let us be diligent in watching how our government responds to this crisis and in raising our concerned voices every step of the way.

*Excerpts of President Barak Obama’s September 9, 2009 speech to Congress and from his speech to the American Medical Association taken from www.nytimes.com

**According to www.factcheck.org this information was taken from a recent report by Families USA, though another study for the Kaiser Family Foundation believes that figure is “far too high”; regardless, the correct figure inevitably decreases when more Americans are insured