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Health Reform Prospects Fade as Presidential Campaign Enters Homestretch


Jeff Goldsmith is President of Health Futures, Inc, and a professor of public  health sciences at the University of Virginia.

As presidential aspirants geared up their issue analyses last fall, health reform ranked as the number one domestic policy item the next President should address in many national public opinion polls. As the campaign season draws to a close, however, health reform has virtually disappeared from the headlines, supplanted by concern about gas prices, home mortgage foreclosures, soaring food costs and, most recently, the "Soviet" invasion of Georgia. Though you will hear campaign rhetoric  from both parties at their upcoming conventions, health reform has been demoted to the second tier of campaign issues. Their platforms and campaign pledges on health reform seem increasingly unlikely to decide who is the next president of the United States.

As previously argued in this space, "health reform" really meant doing something about "health costs for my family" to most voters, not reducing inequity in access to coverage. Ninety-three percent of the voting public has health insurance of some kind. It is clear now that  voter concern last fall about health reform was really a leading indicator of anxiety about the deteriorating economy and their own household economic insecurity. As Brian Klepper pointed out a few months ago in THCB, the purchasing power in real dollars of the American paycheck moved into negative territory last September, thanks to the rising price of energy, food and the resetting of home mortgages to higher rates. All these problems have worsened materially in the ensuing year

This does not meant health care has magically become more affordable,
safer or better organized,  or that 47 million uninsured people have
somehow found coverage in the ensuing year — far from it. It is merely
that other parts of the nation’s domestic house are now on fire.

While people feel the cost of health care most acutely when there is illness somewhere in the family, the number of households experiencing a serious illness in a year may range from 5 to 10 percent of the population. Older Americans grappling with chronic illnesses are covered by a Medicare program which, though seriously in need of modernization, covers all but a tiny fraction of the people 65 and older.

In contrast, everyone must shop for food more or less constantly, as well as fill their gas tanks to journey to the store and to work. Two-thirds of the population own their own homes and are exposed to changes in the cost of their mortgages. So when a new President and new Congress return to Washington next winter, they will confront intense public pressures to address these economic issues, particularly high energy prices. Congressional leaders will thus wrangle over offshore drilling, alternative energy subsidies, fostering technological breakthroughs for the traditional energy sources- coal, oil and nuclear energy and how to moderate our dependence on oil imported from enemy states like Venezuela, Iran and Russia.

Unfortunately, the cupboard for ambitious new federal policy initiatives will also be bare. Congressional leaders and the new Administration will inherit a FY 2009 budget deficit approaching $500 billion, not counting the cost of the Iraq War. Both candidates have also pledged to "reform" the tax code. Obama has promised broad based federal tax relief for "working families" (financed by sharply increased taxes on the"idle rich"), while McCain has pledged to make the Bush tax cuts targeted largely at investment income and inheritances permanent (promises almost certainly doomed by a resurgent and more liberal Democratic Congress).

Both candidates have also pledged to do something about the alternative minimum tax, a PacMan tax which gobbles up larger amounts of money from a broader swath of middle class voters every year. Finally, they will have to confront the possibility of committing real cash to bailing out the smoldering "twin towers" of mortgage financing – Fannie Mae and Freddie Mac- which are buffeted by market anxiety and are cruising perilously close to insolvency.  The cost of bailing out these two mortgage giants might eventually exceed the $300 billion cost of the early 1990’s Savings and Loan bailout.

Where does this leave health reform? Unlikely to be accomplished next year is the answer. Barack Obama’s health reform plan was to be financed Robin Hood style, by rolling back the Bush tax cuts, as well as by mandating that employers provide health insurance to their workers or pay what is in effect a payroll tax. These funding sources are compromised by the federal fiscal situation and the economic slowdown.

Even if they can be realized, the money from rolling back the Bush tax cuts appears to have been promised several times over to competing uses. Obama  backpedaled furiously from some of the most controversial tax increases this summer. Obama has also promised to increase federal spending across a broad range of popular Democratic party domestic spending priorities, from student loans to increased housing subsidies to alternative energy. Further economic stimulus in the form of middle class tax cuts will be an urgent political priority for a new Congress given the weakened economy, though of genuinely debatable economic impact. (Most people used the last rebate check to pay down their installment debt, not buy not buy Chevy Tahoes or flat panel TV’s).

Tax cuts will, however, shrink the resources required to funded expanded health coverage. Increasing the cost of employment, as a "pay or play" approach to employers’ health benefits would do, will not be a sensible way of jump-starting new job creation (an economic reality which also handicaps Ron Wyden’s innovative Healthy Americans Act).  Obama’s proposed increases in the top income tax rate would already dramatically increase the cost of doing business for the millions of American businesses that file as Subchapter S. 

After initially threatening to end the employer’s tax deduction for health insurance premiums, McCain now promises to finance health reforms by reducing the tax deductibility of employee benefits to workers, and committing tens of billions in new dollars to subsidizing individual purchase of health insurance through refundable tax credits as well as state purchasing pools for high risk "uninsurables". McCain’s proposals may claim fewer new tax dollars, because they focus principally on making wages vs. benefits tax neutral for workers, and encouraging growth in individual health insurance. McCain’s proposed tax credits for individual health insurance ($2500 for individuals and $5000 for families) fall well short of adequate to enable people to purchase health coverage in the real world, and rely upon  deregulation and "national markets" for individual insurance to lower the cost.   

McCain’s health reform proposals seem both half-hearted and incomplete, a frame house on a bare lot hastily abandoned in a new subdivision. As proposed, it strains credulity to believe they would reduce the number of uninsured people by even half the present number. Should he be elected, President McCain will almost certainly be gifted with large Democratic majorities in both houses of Congress anxious to reassert government control over the health system. "Market based solutions" to health problems are almost certainly doomed by hostile Democratic Congressional policymakers who have a very different agenda.   

To avoid destroying the value of our currency and encouraging foreign investors like the Chinese and GCC countries to dump our debt securities, the new President and Congress will have to balance their expensive promises of federal tax relief by reducing the growth in federal spending. Medicare and Medicaid are the balancing items in the federal budget. The last time there was a federal budget surplus, it was due in major part to the Balanced Budget Act of 1997, which leveled Medicare spending for four remarkable years in a row. Thus, expect deficit reduction to play a larger role in Congressional deliberations in 2009 than expansion of health insurance coverage.

Publicly, Democrats have argued for reducing Medicare funding for private health plans under Part C (a piece of which was accomplished this summer), as well as permitting the federal government to bargain directly with drug firms for Part D coverage, a process unlikely to achieve any real savings. However, other health sectors are vulnerable to deficit reduction legislation. Teaching hospitals, specialty pharmaceutical manufacturers and biotechnology firms, surgeons and other high paid procedure-based specialists,  physician-owned specialty hospitals and durable medical equipment vendors can all expect funding pressure or tightened regulation. 

Reforming primary care physician payment, an urgent priority given the impending flood of baby boomers entering Medicare in 2011 and after, will require rethinking Part B payment strategies, exposing imaging, ambulatory surgery, diagnostic testing and hospital outpatient payment to increased scrutiny. Possible re-examination of federal tax laws governing tax-exempt hospitals will take on a fiscal cast. Finally, a fresh look at inappropriate, volume-inducing payments to physicians under Stark Laws and an assault on fraud and abuse generally, will also be likely, largely for fiscal reasons. 

Perhaps as the economy recovers, coverage expansion and a broader based assault on health costs will regain traction as a political issue in 2010 or after. This will be accelerated an entirely predictable sharp upward move in the percentage of GDP devoted to health spending for 2008  (16.5% or greater) when CMS releases its health spending summary in January 2010. We can also expect job losses and Medicaid funding pressures to push the number of uninsured above 50 million in 2009. Most of the indicators of a health system out of balance will deteriorate  during the first two years of the new Administration.

In health reform, timing is everything. Unfortunately, the time to expand coverage is at the top of an economic cycle, when both the government and private economy are throwing off cash. Completely rebuilding the health system from the ground up at the bottom of the economic cycle is a costly investment of scarce political capital. And public trust in government institutions to effect needed changes, presently at  rock bottom, must be higher for the public to tolerate the process.

Perhaps there will be a better policy outcome if  health reform is not shaped in the crucible of a Presidential election campaign, but in the more pragmatic framework of legislative development during the middle of a Presidential term. The problems outlined above look far more soluble taken in bite-sized legislative chunks, one Title at a time. Where is Dan Rostenkowski when we need him?

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13 replies »

  1. Excellent and perceptive writing and analysis. The only subject missing worth mentioning was the importance of integrating alternative / natural health care treatment options in the mix. Many of these healing modalities are as effective and cost much less than most western treatment modalities of equal effectiveness.

  2. This is a great break-down of the gritty details of health care reform. While it’s true that the major media outlets have let the subject slide into the background in lieu of apparently more pressing issues, there are other arenas in which the candidates have laid out their views on health care. For example, the voter education initiative Your Candidates- Your Health (www.yourcandidatesyourhealth.org), makes publicly available candidates’ responses to a questionnaire on health care and health research. Both McCain and Obama have responded; the challenge will be to extract the hard details of their plans during the upcoming weeks. The candidates address not only how we can control spiraling health care costs, but also how we can most effectively use the money allocated to medical research in order to minimize the economic burden of patient care in the long run.

  3. Very insightful piece about reform – frankly speaking there are two issues 1) reform who pays for healthcare public vs employer who gets coverage and how 2) transformation of what we buy. You see even if we reform the number of lives covers we still would be dead last 19 out of 19 developed economies in what value healthcare brings. So as a large employer (someone who now covers about ½ millions lives and spend about 2 billion to do that) I would like to look at transforming what I buy. AND I might add until we can do that the likelihood of reforming the system to cover all lives is very small indeed.
    our nation needs at the very foundation of its healthcare Physicians who are committed/dedicated to deliver comprehensive integrated care built on powerful doctor patient relationship. When one looks at the field of medicine it is split into two major part those who can provided comprehensive care (primary care) and those who sub specialize in a part of the body Part -cialists. for sure both are needed but what happens today is so out of balance.
    Unfortunately we lost or way as buyers of care — but we are here today to tell you that we now have a powerful partnership those on the healthcare team dedicated to the delivery of comprehensive care to change that. No longer should I as a buyer of healthcare face the situation where it is easy for me to buy an amputation for my diabetic but darn near impossible to have the kind of doctor patient relationship that prevents the amputation. And, the situation today in healthcare sure does not allow me the kind of relationship that prevents my patient from getting diabetes in the first place. No longer with the strength of the partnership we have together will we places all the value on the Part-cialists trained to provide the amputation not on the comprehensive primary care physician that prevents the disease from ever happening. No longer will we values the hospital bed being occupied and not the kind of work that should be provided by comprehensiv-ests to center on the patients need to be whole and in good health.
    We IBM as a large buyer along with hundreds of other employers are standing up today with the primary care providers as our partners to encourages all the members of the healthcare team to be centered on the needs of the patients to be the healers they are and provide healing care not toxic care. What we do now to our patients is a form of violence – it is unacceptable, it is immoral, it is unethical we loss a 747 load of patients every day, we are dead last 19 out of 19 developed economies in the value healthcare brings.
    Frankly speaking until we focus on that like a laser and address the fact that we have to transform from the garbage we now call healthcare to comprehensive integrated care our chance of reforming the system to cover all lives is darn near ZERO.
    Paul Grundy MD, MPH
    Director Healthcare Transformation IBM and
    Chairman Patient Centered Primary Care Collaborative

  4. This is an incisive, eloquent summary of the current situation and the prospects for reform.
    Regarding the attitude of the population toward the need for reform, I agree that other matters like the economy and gas prices have temporarily taken over the debate. But the vast majority of people still believe that the system is in urgent need of change.
    As for the inability of the government to undertake major reform at the bottom of the economic cycle (and we probably haven’t reached that yet), I’d point to the truism that we have plenty of money in the health care system, we’re just not spending it the right way. Only by restructuring the delivery system will we be able to get a handle on costs and achieve universal coverage.

  5. On target, as usual. The baby that may get dumped with this bathwater is the many liaisons-of-convenience that have sprung up among business groups, health sector lobbies, major consumer groups, etc. If they feel that the “moment” has passed, they will simply drift back into the silos. It’s important, therefore, that common scolds (us) play it as though Jeff were wrong.

  6. Gregg- the comments on Medicare negotiating w/ pharma. I may have missed something but neither candidate has suggested shutting down the Part D plans.
    Like them or hate them, those plans and the PBM’s they work with already represent a huge fraction of the 160 million privately insured people, and have done a far better job of controlling both unit price and volume of prescriptions for Medicare beneficiaries than anyone believed. The program’s actual cost is running far below the estimates of CMS’s legendary actuary and Congressional skeptics at the time the legislation was enacted. Replacing them would be politically troublesome with beneficiaries, who are largely satisfied with the benefit, and create an eighteen month long administrative nightmare for CMS.
    If the private plans and PBM’s remain involved in Medicare, then how many lives and how much pharma volume is subject to negotiation? And if Congressional ambivalence about a tough formulary continues, would it be “patriotism” that caused pharmaceutical companies to give up steeper discounts than they are already giving the plans and PBM’s? Medicare certainly will not do a more effective job of leveraging the opportunities for generic substitution than private plans, so its efficacy in containing costs will rest solely on its ability to attain price concessions on branded drugs.
    The only reason why the VA has been so effective in controlling drug costs is that they have a BRUTAL formulary, and tossed out a lot of popular drugs because they couldn’t achieve sufficient price concessions. The reason why private plans got involved in the first place was skepticism over whether Congress could actually keep its hands off the bargaining process- skepticism entirely justified by the recent Congressional suspension of competitive bidding for durable medical equipment and its continual meddling in Medicare’s coverage decisions.

  7. This should be required reading by all HC execs. A comprehensive, incisive analysis of the dynamics of public policy and their impacts on the prospects for health care reform.
    Jeff’s thoughtful, informed writings remind us why analysts of all stripes follow this site, and how we collectively and constantly inquire and learn. This is the pleasure of what we do.

  8. Bravo Jeff! An excellent read, and quite thorough too. It almost makes one want to study up on health policy issues.
    I do quibble with, and am puzzled by, one of your assertions:
    “Publicly, Democrats have argued for reducing Medicare funding for private health plans under Part C (a piece of which was accomplished this summer), as well as permitting the federal government to bargain directly with drug firms for Part D coverage, a process unlikely to achieve any real savings.”
    I don’t see how the leverage created by channeling the Medicare drug budget into a group purchasing bucket can NOT drive down the unit supply costs. To not scale down, can not, and does not make sense.
    So, what are you thinking here, and what precedent can you cite to lower the expectations of Medicare as group purchaser vs. beneficiary of beltway bandit contractors who know how to “write pretty RFPs?”

  9. Jeff’s point about the voter perception of what health care reform means is quite valid. It’s all about coverage/access to care and out of pocket cost.
    However, Congress will be lobbied extensively by those interest groups who stand to lose as reforms are proposed. In the absence of a compelling public mandate, I agree that it is likely to be deferred in favor of other more pressing matters after the election. Perhaps 2011 ?

  10. Great post and informative. But I think health care reform is a major player subject only to the news headlines as a temporary influencer on attitudes and opinions. As a long term goal that is on most voters minds, health care reform is tied to the economy and justice for all. What it will wind up being, will be tied to who wins the presidency, unfortunate as that is.

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