Obama’s Warp Speed Health Care Reform Rightly Focused

President Barack Obama’s address to the nation was both a rallying cry and a call to arms. And, if there remained any doubt, President Obama made clear he wants health care reform and he wants it now.

In his speech, President Obama promised the budget he will propose soon “includes an historic commitment to comprehensive health care reform — a down-payment on the principle that we must have quality, affordable health care for every American.” He then pledged to begin meetings among stakeholders to begin working through the contentious issues surrounding the topic next week. Pledging reform at warp speed he proclaimed, “So let there be no doubt: health care reform cannot wait; it must not wait and it will not wait another year.”

Can meaningful and comprehensive reform really be developed, debated and enacted in less than 12 months? Some would argue that it has to, that the political will to pass meaningful change must be seized and seized quickly. There will be great pain for some in the reform, and like pulling off a band aid it’s helpful to pull it quickly. Others will say making massive changes to a system as complex as America’s health care system needs to be done thoughtfully and carefully or else the damage from unintended consequences will swamp the benefits of change.

My take on it is that various aspects of a reform package can be developed in a year, but some elements will take longer. The question will be whether the Administration determines it’s better to pass what it can quickly and continue the legislative process into 2010 or wait for an omnibus package.

In any event, the President has little choice but to call for fast reform. His political capital is high right now. It has a lot more room to fall than to grow. Further, there’s broad consensus that health care reform could greatly aid the nation’s economic recovery — and that is his top priority. The sooner the details of reform are clear, the sooner business can rely on help in managing this cost. Further, there’s no shortage of proposals being discussed in and around Congress. If he doesn’t act on health care reform, someone else will. And he has no intention of ceding leadership on the issue to anyone else. Besides, if he misses his target and only brings about reform in 2010, is anyone going to complain? The only real deadline he has is to pass something before the mid-term election in November of next year. In the meantime, why not call for fast action?

More important than his timetable for reform is his focus for reform. And President Obama has made clear the kind of reform he’s looking for. Although former Senator Tom Daschle will no longer be leading the effort, his book, Critical: What We Can Do About the Health-Care Crisis (co-written with Scott S. Greenberger and Jeanne M. Lambrew, now the Deputy Director of the White House Office of Health Reform) clearly sets forth the Administration’s goals.

As I’ve written before, what’s significant, and encouraging, about this approach to health care reform is its focus on controlling the underlying cost of medical care. And that’s where the focus needs to be. A report by the Department of Health and Human Services projects health care costs in 2009 will exceed $8,000 per person. And this doesn’t include additional costs likely to result from the recent expansion by Congress of coverage for children and the economic stimulus money targeting medical technology. In a story on the report, the Associated Press quotes White House spokesman Reid Cherlin as saying “Health care costs are crushing middle class families and the small business that fuel job growth in this country.”

This doesn’t mean the administration will ignore market reforms or back off from seeking to establish a national purchasing pool (they’ll call it an Exchange) for coverage. But the fixation on costs is both appropriate and needed. Especially if we’re going to take health care reform where no American system has gone before — and at warp speed at that.

President Obama and Health Care Reform Expectations

Senator Barack Obama remains a Senator for another 77 days. Then he becomes President of the United States. His is a remarkable story heightened by his ability to both symoblize and articulate hope. The challenges he will face upon assuming office are daunting, to say the least. Then there’s the expectations.

Every political campaign is about expectations. Candidates make promises because voters want to know what to expect. Democrats and Republicans, Mavericks and Insiders, they all make promises, which means they all create expectations. In this election, both candidates raised expectations that the nation’s “broken health care system” would, at least, be fixed.

I believe there will be comprehensive national health care reform in the next four years. There’s clearly pent-up demand in Congress for change. A bi-partisan group of Senators led by Democratic Senator Ron Wyden and Republican Senator Bob Bennett already have introduced a comprehensive health care reform package, the “Healthy Americans Act.” Senator Edward Kennedy is looking to cap his historic tenure in Congress with health care reform. While battling brain cancer he and his aides have been meeting (both personally and by video conference) lawmakers and advocacy groups to create a framework for health care reform. Many in Washington believe that the Clinton Administration squandered a unique opportunity for reforms that would have greatly benefited the nation over the past 14 years. They do not intend to let another chance go by.

Health Access outlined several reasons for progressives to be optimistic that meaningful reform is coming from Washington, D.C. They note the starring role health care reform played in Senator Obama’s campaign and the Obama/Biden ticket’s endorsement of Health Care for America Now!’s principles. They point out Senator Obama’s resounding victory will give him the political muscle, and his campaign theme and image gives him the credibility, to push through meaningful reforms.

I believe Health Access’ analysis is correct. There’s another reason health care reform is likely: the Obama Administration will take a far different approach than that taken by the Clinton Administration in 1993. They’ll learn from President Clinton’s mistakes. They’ll be far more inclusive and more accepting of input from Congress. They’ll be more willing to compromise on specifics to achieve their principles.  President Obama will bring to health care reform the same superb organization and discipline he brought to his campaign. All of this bodes well for some kind of significant reform coming out of Washington in the next four years.

The Obama Administration will face two challenges in fulfilling the health care reform expectations. First is the complex nature of the problem. A great deal of the upcoming debate will be spent on market reforms (should insurers be required to sell coverage to all applicants?) and access (should all Americans be required to have health care coverage?). These questions alone have brought down many a reform proposal. Yet they’re the relatively easy challenges. Too little attention will be spent on the most vexing problem facing every health care system in the world: the skyrocketing cost of medical care.

Someone has to pay for health care and there are only three sources: taxes, premiums or charity (some people pick up the tab for other people). Medical care inflation historically outpaces general inflation and there’s no reason to believe that will change. Which means it’s only a matter of time before the burden of paying for care crushes every and all of those sources.

This isn’t news. Last year the Henrey J. Kaiser Family Foundation released a study, Health Care Costs: A Primer, that put the discrepancy between inflation rates in perspective. There have been sporadic attempts in Washington to draw attention to the cost issue. In November 2007 the Congressional Budget Office identified the need for policy makers to focus on restraining health care costs. There are a lot of suggestions for controlling medical cost problem floating around. Few of them are easy to implement, especially since numerous interest groups will work hard to defend their current share of the health care dollar. And in the end, for better or worse, health care reform comes down to dollars.

Which leads to the second problem facing President Obama’s health care reform efforts. The nation’s economic house is in disorder. Can the nation afford expensive health care reform during a time of financial crisis?

Well, it depends. If health care reform is viewed as a line item expense on the government’s ledger, the answer is no. Even a liberal Congress is going to be hesitant to run up ever greater deficits by increasing government spending. And it’s not yet clear this Congress will be more liberal than the last. After all, a lot of its newer members came from relatively conservative districts or states. Especially when it comes to budget matters like deficits and taxes, the new Congress may have swing toward the middle.

But spending money on the health care system need not be viewed as a simple expense. By repositioning health care reform as part of a public works-like stimulus package the huge costs involved may be more palatable to the public and fiscal hawks in Washington. President-elect Obama has already declared his desire to increase spending on the nation’s infrastructure in order to create jobs and bolster the economy. Infrastructure is usually defined as roads, bridges and buildings. That doesn’t mean the definition can’t be expanded to encompass the health of its work force. In this context, health care reform is not a cost, it’s an investment.

President-elect Obama has promised voters health care reform during his first term. Upon taking office, however, he’ll face wars abroad and economic crisis at home. Dealing with the latter does not require him to ignore the former issue. By positioning health care reform as part of his plan to rebuild America, he might actually be able to fulfill the great expectations he’s created.

Debating Medical Cost Controls in Massachusetts

The folks in Massachusetts are engaged in a lively debate over health care reform. Seems their widely touted reform plan, complete with Connector and individual mandate, is running into some unintended consequences. Among them, higher costs than anticipated and a lack of primary care physicians. The good news is the wide-ranging debate has moved beyond the politics and mechanics of the Massachusetts health plan to encompass controlling health care costs.

Consider the dialogue occurring on the Commonhealth blog (published by 90.9 WBUR, Boston’s NPR station), between Dr. David Himmelstein, Co-Founder of Physicians for a National Health Program, and Eric Shultz, President of Fallon Community Health Plan. Dr. Himmelstein kicked things off with a post claiming “With spiraling costs threatening to derail Massachusetts’ health reform, politicians and health policy wonks are rounding up the usual cost-control suspects. Unfortunately, the tired ideas they’re trotting out have virtually no chance of success.”

Dr. Himmelstein then runs through why computerization, prevention, disease management, and cost sharing won’t restrain medical costs. He believes the only way to reduce costs is to eliminate the “middle men” in the system — what you and I call the insurance industry — and to limit the profusion of expensive high technology facilities. Leaving aside a moment the public policy of a government-run system, Dr. Himmelstein fails to explain how eliminating insurance companies, insurance agents and purchasing pools curtails the rate of medical cost increase. Once they’re gone, they’re gone. Eliminating private bureaucracies and delivery systems simply shifts is a one-shot savings, not a long term solution — and that doesn’t include the offset created by the need to create a government bureaucracy and delivery system in its place.

Dr. Himmelstein’s call for fewer CAT scanners and other technologies might be more substantive, although his approach to controlling them is chilling. “So long as we leave health planning to the market, the expensive medical arms race will continue.” The implication being that only the government can control costs. Dr. Himmelstein fails to provide any examples where that has worked. I wonder why?

In any event, Mr. Shultz responded in a post with a warning that “Discussions about who pays — whether it’s a single-payer or otherwise — are, fundamentally, discussions about cost-shifting. But cost-shifting does little to get at the relentless underlying drivers of health care costs. And what’s driving up health insurance costs are skyrocketing medical costs, which consume roughly 87 cents of every health insurance dollar.” While allowing that Dr. Himmelstein’s identifying the need for limits on expensive high tech facilities is “well taken,” Mr. Shultz rejects the single payer approach. Citing a Rand study, he notes that “only half of all health care dollars are spent on appropriate medical care.” 

This reality can only be addressed, according to Mr. Shultz, by first requiring that “all players within the health care system have quality and cost information, combined with innovative health insurance plans.” Mr. Shultz goes on to refute Dr. Himmelstein’s dismissal of disease management and smoking cessation programs as ineffective, instead calling for continued focus on prevention and disease management efforts “to ensure the most optimal results are achieved.”

There’s more to the Fallon post. The reality is that controlling medical care costs is a far from easy task. It requires saying “no” to patients demanding inappropriate or ineffective care, “no” to facilities and other providers seeking a market advantage by deploying the latest technologies, “no” to health plans who are less than clear on what’s covered — and what’s not — in their plan designs, and a whole lot more.

What’s significant is that the struggles facing Massachusetts’ health care reform plan is sparking a fulsome debate on what’s needed to restrain health care costs. That may be an unanticipated outcome of the reform effort, but it’s useful and welcome nonetheless.

Health Care Reform’s Chicken and Egg

In the context of health care reform, the chicken and egg conondrum is accessibility and affordability. Which comes first?

Access advocates note that decreasing the number of uninsured will reduce the “hidden tax” imposed when the cost of uncompensated care is shifted to those with coverage. Affordability proponents point out that until coverage is affordable, too few will be able to obtain and use it.

The tension between access and affordability is one of the reasons Governor Arnold Schwarzenegger and the Legislative Leadership are having such a hard time producing a health care reform package for California. Governor Schwarzenegger is seeking to increase access by requiring all residents to obtain coverage. Speaker Fabian Nunez is attempting to assure coverage is affordable by creating an exemption to the Governor’s coverage mandate if the cost of premiums and out-of-pocket expenses exceeds 6.5 percent of a family’s income.

The chicken and egg debate is also a feature of Democratic presidential campaigns, too.  Senator Hillary Clinton attacks Senator Barack Obama for presenting a health care reform plan that fails to achieve universal coverage while Senator Obama questions how Senator Clinton plans to force Americans to buy coverage they can’t afford.

So which comes first? Access or affordability? As I’ve posted several times, I believe affordability has to come first. Newsweek’s Robert J. Samuelson makes a strong case for why. Writing in the magazine’s December 10th issue, Mr. Samuelson takes to task politicians who focus exclusively on expanding coverage. “Everyone believes in adequate health care; people should have it when they need it. Politicians cater to these beliefs. But the intellectual and even moral laziness of this approach results in an invisible abdication of political responsibility. We are letting the unchecked rise in health spending automatically determine national priorities.”

The need for controlling health care costs is clear (and has been the topic of many a post on this blog). Mr. Samuelson cites three key facts:

  • At $2 trillion dollars, health spending already accounts for about 16 percent of the gross domestic  product. By 2030 it could exceed 25 percent. This saps resources away from other priority items.
  • We currently tax young people to pay the costs of seniors. Older Americans (65 years and over) account for an eighth of the population and a third of all health spending. By 2030 they could account for 20 percent of the population and close to half of medical spending. Americans under age 64 by-and-large pay those costs.
  • No one has demonstrated the ability to control costs The average cost of providing benefits to Medicare beneficiaries rose 8.9 percent a year from 1970 to 2005. During the same period, spending on Americans with private health insurance rose 9.8 percent. The slight difference, Mr. Samuelson notes “may reflect cost shifting. When Medicare imposes price controls, doctors and hospitals increase prices for privately insured patients).

 These trends are unsustainable. Unless medical costs are constrained, spending on health care is crowding out what’s available for other critical tasks. “We are letting the unchecked rise in health spending automatically determine national priorities,” is how Mr. Samuelson puts it.

The problem, he notes, is that “[t]he politics of health care rests on a mass illusion: most Americans think that someone else pays for their care.  Workers with employer-provided insurance believe that their companies pay. Retirees and the poor think that the government … pays. No one has an interest in controlling spending, because everyone believes it burdens someone else.”

Mr. Samuelson’s solution: “People need to see and feel health costs.” But he recognizes “most Americans do not want to face the difficult political, economic and moral issues posed by unchecked health spending …. The impulse is to blame some unpopular villain (drug companies, insurance companies) and to focus on a simpler problem — say, the uninsured.”

He warns that failing to address the issue of costs makes meaningful health care reform impossible. “The present politics of health care aims to camouflage [health] costs and skew the choices.”

What’s interesting is that there’s actually a broad consensus among policy makers that affordability is central to comprehensive reform. The health care reform packages put forward by the Governor, the Democratic Leadership and the Republican caucus all include cost containment features. It’s a primary focus of California Insurance Commissioner Steve Poizner. It’s a central focus of the California Association of Health Underwriters’ Healthy Solutions plan.

Yet for the past 11 months in California medical cost containment has been an afterthought in the negotiations. Politically, access comes first. Without tackling affordability, however, paying for that access will break the bank.

Some Affordability Data

A few days ago I wrote about Congressional Budget Office Director Peter Orszag’s warning to policy makers concerning the need to focus on health care costs. As California lawmakers struggle to fashion a reform plan that the Legislature can pass, the Governor will sign, and voters will finance, there’s not a lot of talk about cost controls. Yet focusing on this issue is a public policy imperative and a, potentially, a political lifeboat.

Because without somehow constraining skyrocketing medical costs it’s hard to see how universal coverage becomes an affordable reality for the state — or the nation. At the end of the day, access is about affordability. If families can’t afford coverage it doesn’t matter what’s available to them. If the state can’t afford it’s health care programs, all the public proclamations mean nothing. It’s about cost.

Granted, increased access helps lower costs, but only temporarily. Once the benefits of broader coverage is achieved, it’s built into the system. Even the stated goal of single-payer advocates, eliminating the cost of the insurance industry, achieves a one-time benefit. Once carriers, agents and the rest disappear, that’s it. If there’s any savings (a far from certain assumption) once they’re captured that’s it. And medical cost inflation will continue to increase costs to consumers, taxpayers and governments.

The Henry J. Kaiser Family Foundation provides some interesting statistics to show the central role health care costs in the reform debate. The Foundation published Health Care Costs: A Primer back in August which breaks down the impact and the elements of health care costs. For example, that the aging of America increases costs is a part of conventional wisdom. The Kaiser Family primer shows why. Consumers age 25-44 spend on average $2,277 per year on health care, while those 45-64 spend twice as much, $4,647. Americans over 65 spend nearly twice that amount again, $8,647 again (380 percent more than the younger cohort, to be precise). 

Most significant for those who would reinvent the health care system is the reality that the rate of health care cost increases has outpaced the growth rate of the economy as a whole since at least the 1970s. Without exception (not necessarily every year, but every decade). The cumulative effect is substantial: from 1970 through 2005, the nation’s Gross Domestic Product grew by 7.4 percent; nominal national health expenditures grew by 9.8 percent. Perhaps 2.4 percent doesn’t look like much, but over 30 years it means health care costs doubled compared to the economy’s growth. That this trend is unsustainable is indisputable. That there’s no clarion call for change is disappointing.

Then there’s the element in the leading Democratic health care proposal moving through the legislature, Assembly Bill X1-1 (Nunez), concerning requiring all Californians to obtain at least minimum health care coverage. This mandate to buy is critical to making the mandate on carriers to sell coverage work (something I’ve written about several times, including yesterday). ABX1-1, however, exempts from the mandate to buy those for whom health care expenses (premiums and out-of-pocket expenses) exceeds 6.5 percent of their family’s income.

The Kaiser Foundation study seems to indicate that this exemption, as designed, would undermine the mandate. The primer found that 10 percent of Americans households earning 400 percent of the Federal Poverty Level in 2003 spent in excess of 10 percent of their gross income on health care costs. The report doesn’t provide a means of determining what the impact of lowering the threshold to 6.5 percent would be, nor what four years of inflation have done to this data, but it should be setting off alarm bills loud enough to penetrate even the state capitol. At the very least it’s a call for further study.

The primer offers some suggestions as to why health expenses are increasing faster than wages and general inflation. An aging population is the “gimme” in these discussions. The Kaiser Foundation suggests three drivers which are less frequently discussed:

  • Wealthier countries spend more on health care because they can– and the United States is a very wealthy country.
  • Insurance coverage has increased, encouraging more people to incur more health care.
  • Americans pay a lower percent of medical care than they used to, encouraging consumers to use more health care.

This last item is especially interesting. Between 1970 and 2005, the percent of “personal health expenditures paid directly out-of-pocket by consumers fell from about 40 percent to 15 percent.” This is a statistic those who claim the current system is broken — which is virtually everyone in Sacramento — somehow neglects to mention.

Health care reform is a complicated matter. It’s driven by politics as much as public policy, which is why the focus has been on market reforms rather than tackling the much harder task of constraining health care costs. Yet as the CBO and Kaiser Family reports indicate, that’s where the real challenges lies. Unfortunately, neither offers a magic formula to address the issue. But that is just testimony to how tough an problem it will be to resolve. Yet if we fail to find a solution to this core problem, the reforms causing so much pain today, won’t solve much of anything.

The Key to Long Term Health Care Reform: Control Costs

In March I wrote a post about how controlling health care costs is the key to meaningful health care reform. Seems to me it’s a topic worth revisiting as no one seems to be addressing it.

The facts are simple. When someone needs medical care there’s only four sources to pay for it:

  1. Taxes;
  2. Premiums;
  3. Out-of-Pocket (the patient’s pocket, to be precise); or
  4. Charity (someone else’s pocket, usually the hospital’s or doctor’s).

That’s it — if someone can think of other sources, please let me know. So you can twist the health care coverage system into any shape you like and it doesn’t change the reality that medical costs are increasing faster than general inflation or wage growth. And it’s going to continue to do so as the population gets older, technology changes more quickly, and consumers demands and values evolve. This last point is often overlooked.

It used to be when you a family member drank too much, they were shunted off to the bedroom when company came. The lucky ones got introduced to AA. Now it’s recognized, accurately, as a medical problem and people expect the medical establishment to step in. Similarly, drug problems used to be handled by the criminal justice system. Now it’s a medical problem. These shifts, and others like them, aren’t wrong. They’re a smarter way to deal with serious problems. And they add to the cost of health care.

What all this means is that, unless the current health care reform debate changes soon, when California passes a health care reform package it will fail to address the underlying problem. It won’t quite be “sound and fury, signifying nothing,” but we will be back debating the issue again — sooner than later. That’s because no one is tacking the root cause of the challenge facing our society: how to prevent ever increasing health care consumption — and the cost of that care — from taking over the economy.

Ironically, Senator Sheila Kuehl’s SB 840 has the best chance of raising the issue. By establishing a single payer for care it could lead to a discussion of what happens when the state doesn’t have the money for all the care that’s required. Of course, the bill’s supporters don’t dwell on that question because they know if the debate focuses on rationing they lose.

But Oregon managed to have an honest debate about rationing. Dozens of town hall meetings were held to establish what services would be covered and what wouldn’t. From what I understand, it was a healthy discussion (you’ll pardon the pun) and the resulting public policy has been widely accepted.

I don’t mean to suggest rationing is the only way to control health care costs. I am suggesting that Oregon had political leaders willing to raise tough questions about health care costs. Until California’s leaders show similar courage, we’re going to be spending a lot of time, effort and resources on secondary issues. Those secondary issues (for example, how health care coverage is sold, who pays for it and whether people have to buy it) are important. But by themselves they can’t overcome the challenge we face. And that means we’ll be mired in a health care reform debate again all too soon.

Health Care Costs is the Key, But Few Pay Attention

Daniel Weintraub gets it. He’s a long time political writer for the Sacramento Bee. And when it comes to health care reform, he gets it.

In the February 27, 2007 edition (Editorial Section, page B7 — click here to see the article), Weintraub writes, “Any plan that does not seriously address the underlying costs of health care will only move responsibility for those costs from one place to another.”

He goes on to quote the CEO of the California Health Foundation, Mark Smith, who notes, “Much of the discussion about making health care more affordable … assumes that what we are trying to make more affordable is the insurance policy…. But the insurance policy at some point really just pays for the underlying care, and it’s the underlying care which is too expensive.”

In short, it’s the cost of health care which is behind the cost of health insurance.  The logical conclusion is that our goal should be health care cost reform. Yet the debate seems mired in reforming health care coverage. And I have to confess to being as guilty as the next guy. The CAHU Healthy Solutions plan I helped author is long on reforms to provide access to health care coverage, but short on details for reducing the cost of health care itself.

Why? First, because controlling health care costs is tough. Second, because health care access is where the political action is.

Controlling health care costs is tough, very tough. As an earlier post in this blog points out, medical cost inflation, driven by an aging population, new technologies and increasing customer expectations, greatly outpaces overall inflation. (For a tool that shows just how much of an impact this can have, check out Tom’s Inflation Calculator ).  Several of the health care proposals address the edges of the cost issue. For example, both Governor Arnold Schwarzenegger’s and CAHU’s Healthy Solutions plans advocate wellness and healthy living programs among other ideas. But most of the plans being debated in Sacramento, fail to attack health care costs head on. Even the one that arguably does, Senator Sheila Keuhl’s single payer plan, SB 840, proposes cost control tools which will be costly and complicated to implement and may not work at all, especially on a single-state basis.

With legislative leaders and the Governor focusing on health care access, so do stakeholders like CAHU. All parties know Weintraub is right: controlling health care costs are the key But no one wants to be out doing the hard work of addressing that issue when the governmental process may pass a law that raises your taxes, harms your clients, or destroys your profession.

As a result, the key issue gets neglected. Fortunately, not by everyone. As Weintraub notes in his article, several folks are trying to tackle this issue. Let’s hope they succeed — and they get the attention they deserve.