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Open Wide: Here comes the change you thought would never happen

The morning after the election, I posted a speculative blog in Health Affairs on three possible scenarios for President-elect Obama’s implementing health reform: folding it into a bold, ambitious emergency legislative package (Complete the New Deal), carving funding out of the current $2.5 trillion national health spend (Braveheart), and postponing implementation until the economy recovers but taking steps now to prepare for it (Wait/Lay the Groundwork).

At the time, the Wait/Lay the Groundwork option seemed 70 percent likely. But with economic conditions worsening, I’m now convinced Obama will probably opt instead for the Complete the New Deal option, and try to implement health reform in the first 120 days of his Presidency, before the health care industry “dragon” can even stir from its cave.

Let’s call Obama’s program The Real Deal. We can already see its contours: an economic stimulus program including highway construction and other state-directed public works, a green energy spending initiative, emergency housing assistance including a foreclosure prevention measure, an auto industry bailout, labor law reform and income supports through tax credits for low income people.

The State Children’s Health Insurance Plan tie-over expires at the end of March 2009. Rather than merely extending SCHIP, I believe the new President will opt to include in the Real Deal legislative package his entire health reform program: a “play or pay” employer mandate, a federal health insurance exchange modeled on Massachusetts’ Connector, a new federal Medicare-like plan for the under 65 population, SCHIP re-authorization and expansion, a Comparative Effectiveness Institute, and Medicare Part B payment reforms.

Most of the President’s health reform ideas have been around for at least a decade, and have the advantage of having been tried once (in Massachusetts). There is no focused opposition to the President’s plan, other than from a Republican party now in full rout and the crews at the Cato Institute and the Wall Street Journal. Obama is under no obligation whatever to govern from the center. He ran to the left of most of his Democratic primary care opponents, and was elected on an overtly redistributionist, New Deal-esque campaign platform.

The fact that the new President takes office in the midst of an authentic national economic emergency gives him an opportunity to submerge the expected loud chorus of industry objections to the specifics of any health reform plan in a much larger societal cry for decisive government action to end the economic crisis.

The President-Elect has been preparing the public for a Big Bang legislative package by reminding people that this is the most serious economic crisis in our lifetimes. He has been materially aided by an epic stock market crash and continuing confusion from the outgoing administration about how to rescue the economy.

Obama’s new Chief of Staff designate, Rahm Emanuel, told a CEO Forum in Washington last week that it would be a shame to let a crisis go to waste, and that the administration intends to “go long” in January. Emanuel is, of course, a veteran of the Clinton White House, and watched helplessly in its Political Affairs office while Hillary, Ira Magaziner and the legendary Health Care Task Force “reinvented the marshmallow” (to use Pete Stark’s priceless phrase) and talked health reform to death in 1994-95. That won’t be permitted to happen again.

As the Wall Street Journal approvingly noted, Emanuel was the architect of the compromise with Newt Gingrich in 1997 that created the Balanced Budget Act. The health care industry should recall that BBA brought the most serious cut in Medicare spending we’ve seen since the program was enacted, courtesy of a Democratic President. Emanuel understands very well the logic of “Do It Now/Fix it Later.”

The new President is also under no obligation to be bipartisan. Although he will make the obligatory gestures; he is likely to be only one or two AEGIS Destroyers away (The USS Susan Collins or USS Olympia Snow, to be built at Maine’s Bath Iron Works) from the 60 votes he needs to enact his program without filibuster. Most ingredients of his plan were included in Senate Finance Chair Max Baucus’ health reform framework, signaling that the Senate Finance Committee is likely to support his proposals. And the powerful desire to enact something Ted Kennedy could see signed into law only adds to the urgency of the moment.

Divisions between the Clinton White House and Congressional Democratic leadership paralyzed the first two years of the Clinton Presidency. Under Emanuel’s guidance, Obama has moved skillfully and aggressively to co-opt or neutralize Congressional opposition within his own party with clever appointments and consultation. The result is a degree of party unity and excitement unseen by Democrats since Lyndon Johnson’s time.

There are legitimate macro-economic objections to the President’s health reform plan. The engine of the President’s health reform proposal is likely going to be a 6-8% payroll tax, which is in effect what “play or pay” employer mandate represents for businesses that presently do not cover their workers. By locking in a rich benefit package modeled on that offered federal workers, Obama could doom efforts to make the benefit itself more affordable, a serious problem for which the bill is now coming due in Massachusetts.

In addition, he promised other employer mandates: a $2 an hour increase in the minimum wage indexed to inflation, a week of paid sick leave, paid family leave, comparable worth pay standards for women, a 10% increase in the tax rate for businesses filing as Chapter S and a much easier path to unionization. To dramatically raise the cost of employment in the trough of a serious recession, and likely 10% unemployment, is a huge economic and political risk.

Obama can blame the outgoing Bush regime for the deepening recession for about nine months. Enacting the full spate of employment promises could defeat private-sector job creation not only next year but for many years. If the economy fails to rise from the trough by 2010, he could lose a lot of his new Congressional majority and will be blamed for the country’s continuing economic struggles.

There is also the fiscal risk. A trillion dollar FY2009 federal budget deficit looks like an opening bid, since it does not factor in a new stimulus plan, further financial system rescue costs or an economy that could continue to worsen through 2009.

The federal government will already issue $1.5 trillion in new debt in fiscal 2009, a 25% increase in total federal debt in a single year. The prospect of a federal deficit exceeding 7% of GDP looms larger with each passing week.

Obama’s health reform plan requires new federal revenues, principally to fund subsidies to small employers and the vouchers for individuals who are not covered by the employer mandate. Obama proposed to cover these with the repeal of the Bush tax cuts, something he has now apparently resolved to put off until recovery happens, and a “peace dividend” from quickly ending the Iraq War, which also isn’t going to happen in time to help health reform. If the 52 Blue Dog Democrats in the House insist on “pay as you go” financial rules, and Obama cannot find more realistic revenues to fund his plan, health reform could stall in the House.

Advocates of doing health reform now will point to the rapidly declining cost of federal borrowing, as frightened investors have piled into Treasury securities, pushing interest rates on federal securities down to record lows. They will also point to the strengthening dollar as evidence that global investors have thus far not been scared off by our deteriorating fiscal position.

However, finding new revenues to fund health reform could be challenging if economic conditions do not improve. Perhaps lowering the mortgage interest deduction to $750 thousand principal and/or the capping the employee tax exemption for health insurance for high-income individuals (e.g., people making more than a General Motors fork lift operator) could substitute for a general tax increase.   

A more cautious individual would choose the Wait/Lay the Groundwork Scenario. Were I President, that’s probably what I would do. And finding an alternative to the employer-based approach such as Zeke Emanuel’s idea of an individual voucher funded by a Value Added Tax would make a great deal more sense than the proposal Obama campaigned on. Explaining how Zeke’s plan works to voters and the industry, however, would take both time and skill. It might produce a better solution, but one that may not get implemented.

However, cautious people don’t run for President in the first place. The Clinton health reform debacle proved conclusively that, given time, the health care “dragon” will eventually awaken, and gum Obama’s proposal, or that of anyone else, to death. Time is the enemy of health reform. The Presidential stack of chips will certainly shrink as time passes; it will never be greater than it is at Inauguration in the midst of a scary economic crisis. 

Though I could be embarrassingly wrong and soon, I think the new Administration is going to try to get health reform done very quickly, and fix it later: The Real Deal Right Now. And rather than fighting health reform, the health care industry might better focus its energy on forestalling or watering down the Employee Free Choice Act, that would have a ruinous impact on health costs and on the re-engineering of healthcare.   It is going to be a very interesting next six months!

P.S. Other than voting for Obama twice (spring and fall), I had no ties to the Obama campaign and have none to the transition.

Jeff Goldsmith is president of Health Futures Inc. He
is also the author of a book released this year titled "The Long Baby
Boom: An Optimistic Vision for a Graying Generation." Health Futures specializes in corporate strategic planning and
forecasting future health care trends.

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Marc GardnerXRayDan BRichard Ferreirae-Patient Dave Recent comment authors
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Marc Gardner
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Marc Gardner

Your article is timely and very appropriate. Now, more than ever, is the perfect time to forge ahead with efforts to reform the healthcare industry. While we continue to invest in cutting-edge medical technologies and drug treatments, we must also lend greater attention to effective demand management strategies and increasing access and affordability. Comprehensive reform should include greater utilization of primary care and community health centers, particularly in rural and other underserved areas. We know that community health centers save billions of dollars in healthcare expenses each year, and they employ patient-centered medical home models that include health promotion education… Read more »

XRay
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XRay

The only reason Communism failed is that it was attempted by ignorant, backwards people. American ingenuity can successfully implement Communism where the Soviets and Chinese have failed. This has been largely accomplished in our public schools. Generations of Americans now believe that Equality of Opportunity means Equality of Outcome. Our brightest high school graduates cannot function as entry level employees, and lag far behind their peers in the developed world. But it is too soon to celebrate. We cannot declare success until the best and brightest perform at the level of the dullest and slowest. I agree with Mr. Goldsmith… Read more »

Richard Ferreira
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Richard Ferreira

A better discussion would be to address the issues of the macro-economy as it is impacted by healthcare and ecology? I am not a financial wizard nor do I have a crystal ball, or for that matter neither does Greenspan as he has readily pointed out many times. I also recall the words of an old mentor of mine and they were, “with age comes experience, unfortunately, that experience for many is the continued repetition of the first year’s errors”. I, as a result, do not propose to offer a panacea that addresses the issues of ecology, finance and healthcare… Read more »

Dan B
Guest

A good discussion here would be better if it took macro economic and ecological pressures into account that this is not a normal recession and there will not be a normal recovery. Things to consider: 1. Oil rose to $147 and then the poor economy further worsened; 2. last year Greenspan said the economy was worsening because oil production was peaking sooner and at a lower rate than he’d expected; 3. our nation is trillions on debt and now dependent on other nations’ $; 4. the financial and economic crisis is not being solved, but worsening because we are not… Read more »

Richard Ferreira
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Richard Ferreira

New Deal, Real Deal, Reform, are just words so I say Big Deal and BS. Reform is the continually application of bandaids, patches and fixes that has led to the issues currently faced. Healthcare costs are out of control. That is a factual staement but many causes go into making that statement correct. Begin with who pays for health care and how it is paid. For the majority of insured, it is paid for in large part by their employer as a result of almost 70 year Congressional legislation to place a bandaid on frozen wages during a war effort.… Read more »

e-Patient Dave
Guest

My short series about Best Care Anywhere: why VA healthcare is better than yours starts here. The whole thing takes 5-10 minutes to read. Best is a short and very readable book, packed with good information. VA healthcare is not a one-snapshot situation. Recent publicity makes it sound horrid but don’t be shallow: the VA ranks higher than any non-government system at every measure of quality and safety. Check it out. N.B.: the author, Philip Longman, is a pro-markets guy, suspicious of government. Fortune hired him to write a piece finding the “Jack Welch of healthcare,” the private enterprise wizard… Read more »

Christine Gray
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Christine Gray

For all the Chicken Littles who are clucking about the ineptitude of the VA, the horrors of universal healthcare, etc., two points:
1. There is a difference between the VA un-Bushized and not (i.e. responsive to patients and voters; see e-patient Dave’s pieces on e-patients.net);
and
2. I’ve had experience with private healthcare and public. Neither is a picnic, but the former is nearly intractable when adjustment is required. For the latter to work, call a politician.

Jeff Goldsmith
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Jeff Goldsmith

Agree w/ Peter. The 10 million illegals are here because we pay ’em, just not enough for them to buy health insurance. Since hospitals are compelled legally to take care of them, you pay through the mark-up on your hospital bill when they get sick. One-third of young people are uninsured. How many of them can afford to pay $300-400 a month for health insurance? There are 10 million baby boomers without health insurance- how many of those do you think are free riders? For them, it’s $1000-1500 a month! Though 25% of the uninsured are eligible for public programs,… Read more »

Peter
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Peter

“Of the 47 million uninsured,” “10 million are not US citizens,” – Sure, they harvest our food, work in out slaughter houses and clean our toilets, but they don’t deserve healthcare? “millions more are already insurable under Medicaid but are healthy and haven’t signed up.” You’d better thank your lucky stars because states are running out of money to fund medicaid now. “According to the Census Bureau 18 million earn more than the median income of $50,000 but have elected not to buy insurance” That’s a broad brush. Just who are those 18 million and why don’t/can’t they buy insurance?… Read more »

fred
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fred

jd states that universal health care will then be locked in, just like Medicare and Social Security. Oh good. Wonderful. Two programs that are doing SO well. I suppose that any solutions based on autonomy, liberty and personal responsibility are anathema to many in the incoming administration. Well, I doubt that insurance companies, hospitals and physicians are going to just roll over. And I can assure you, we are paying very close attention indeed.

Deron S.
Guest

Dave’s question is a good one. Where do we draw the line when deciding to choose the “government option”? How many more sectors do we have to screw up before we wise up? The inputs going into government have one very important similarity to the inputs going into the private sector: they are warm-blooded mammals called humans. What is it about the power of law and taxation that makes the government option so enticing? Dave, I thank you for putting the issue of liberty on the table too. However, liberty’s death will be a slow one, so no one generation… Read more »

David MD
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David MD

First of all, as Harvard Economist Gary Mankiw has pointed out, http://www.nytimes.com/2007/11/04/business/04view.html?partner=rssnyt&emc=rss Of the 47 million uninsured, 10 million are not US citizens, millions more are already insurable under Medicaid but are healthy and haven’t signed up. According to the Census Bureau 18 million earn more than the median income of $50,000 but have elected not to buy insurance and 1/4 of the 47 million already have employer offered plans but have elected not to buy. This leaves just a few million really uninsured. The way to pay for additional health care costs is to have smokers pay a “health… Read more »

tom d
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tom d

Everything is not free. The health plan that Obama talks about with high end benefits for everyone will take unemployment to 12% within 5 years. The cost will not be $100 billion but more like $600 billion. Then when the plan puts the country on the brink the administrators will pull back on coverage. Eventually to make it work no one will be allowed to have a private doctor. Then people over a certain age will be denied treatment for certain things. No heart transplats for those over 60 just not cost effective. No hip replacements for those over 60… Read more »

Matthew Beals
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Matthew Beals

If I understand your funding logic correctly, those of us in the private sector need to send more money to Washington in order to fund a health care system to cover people who don’t already have health care? I need to spend more on taxes so that I can get what?? I already have health care. My premium for me and my family went from $500 to $640/mo in less than a year. I thought Obama was going to give me a “tax cut?” Don’t I just send him the bill? Will he pay my deductable too? Oh I get… Read more »

Jeff Goldsmith
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Jeff Goldsmith

Agree with comments about coverage obsession. Coverage does not mean access (look at Massachusetts) and access does not mean health. The reason I think Wait/Lay the Groundwork is a more reasonable approach is that you address access and appropriateness first, then expand coverage. How long will it take to create enough primary care access, thru more primary docs, geriatricians and community health centers, to accommodate 45 million newly insured people? What happens to public health approaches to obesity and the onrushing epidemic of diabetes in all the coverage expansion? As we’re presently arrayed, we’ve got lots of resources at the… Read more »