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The President’s Budget

President Obama announcing the timetable for the phased withdrawal of U.S. forces from Iraq at Camp Lejeune, North Carolina on Feb. 27thEarlier this week, 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.

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 Obama plans to do.

 The AP’s Ricardo Alonso-Zaldivar confirmed what I've heard recently: “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.

President 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 countries. 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.

RevenueSpending2007

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. 

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Peter Maguiremelissahanumancare4allNate Recent comment authors
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Peter Maguire
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Peter Maguire

Read this plan and tell me you want it to go as is………….. NO NO NO Woooooaaaaaaahhhhhh no way! Too much sub-standard crapola and too many loose ends. What are we in a rush for the national debt just doubled and that is our first 8 months under The New Boss? We need something better and with personal accountability, but not at this happy go lucky world of free lunches and more Gov’t dependency. How about knocking down some co-pays and taxing the Insurance companies -asking for breakdowns of their P&L. How many Made-0ff’s have we missed in this insurance… Read more »

melissa
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melissa

no help, still only denial,,,,i am so ready to -oo00h- can’t say,,,, they have raised taxes on cigarettes to get ppl to quit smoking and are raising again next month one more dollar, all so they can better health care,,, well ,,, why not helping those that you and i both know qualify for health care and ssi ( I HAVE EPILEPSY,,have had since childhood) , AND START THERE!!!! if they use their brains , that alone will close alot of files and paperwork, hours, and overtime pay. stop throwing our case away only to make us keep re applying… Read more »

hanuman
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hanuman

This is a surprise. WASHINGTON, March 16 /PRNewswire-USNewswire/ — The leader of the nation’s largest veterans organization says he is “deeply disappointed and concerned” after a meeting with President Obama today to discuss a proposal to force private insurance companies to pay for the treatment of military veterans who have suffered service-connected disabilities and injuries. The Obama administration recently revealed a plan to require private insurance carriers to reimburse the Department of Veterans Affairs (VA) in such cases. “It became apparent during our discussion today that the President intends to move forward with this unreasonable plan,” said Commander David K.… Read more »

care4all
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care4all

A NEW STUDY SHOWS THAT SINGLE-PAYER REFORM WOULD BE MAJOR STIMULUS FOR THE US ECONOMY and would provide:
** 2.6 Million New Jobs,
** $317 Billion in Business Revenue,
** $100 Billion in Wages, and
** $44 Billion New Tax Revenues
You can find out more about this study here: http://www.CalNurses.org/
The press release is here: http://www.calnurses.org/media-center/press-releases/2009/january/nurses-to-congress-expanding-medicare-could-reverse-job-losses-and-repair-our-broken-healthcare-system-and-safety-net.html

HD
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HD

It is important to recognize the motivations of the individual while pursuing any great centralization scheme. Individual patients must be assured that there is a such thing as, “Not the best, but good enough for you.” Individual doctors must understand that they cannot hope to maintain a lifestyle warrented by their staggering workloads and crushing responsibilities; they must lower their expectations, or use their considerable gifts in other career paths. Individuals working to win federal contracts to manage health care data and the flow of massive tax dollars must recognize the biggest opportunity in 60 years to enrich themselves at… Read more »

maggiemahar
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wisewon, Deron S. Frank- Thanks for your comments. wisewon– Congress is not going to sit down and revise the payment system for thousands of treatments, or create financial incentives for doctors and hostpials to work together in large groups. Congress doesn’t have the knowledge or the patience to engage in this kind of very detailed wonkery–nor do we want them to. But the Obama administration completey understands how much waste there is,and they know what the folks at Darmouth have written about regional variations, ineffective treatments, and the need for dcotors and hostpials to collaborate in large groups if we… Read more »

Nate
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Nate

“This is an administration that is based in reality”
As he starts his healthcare speech citing a totally made up and not even slightly believeable quote that 50% of BKs are because of Medical Bills.
Even far left wing ABC debunked this claim. Obama is nothing but sound bites and propoganda, our healthcare crisis isn’t going to be solved by a teleprompter

HD
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HD

Also in respectful response to Frank,
A recent article in Speigel refutes your experience. German doctors are leaving in droves because they receive the worst pay and face the most burdensome bureaucracy in the EU. Hmmm. Perhaps Obama has already taken a look at Germany….

HD
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HD

I suppose if we are going to spend money that isn’t there, we may as well spend insane amounts of it….

Frank Barker
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Frank Barker

I would like to say something on the subject of National anything. This gives the government the power to control who gets health care and to know everything involving your illness or injury. So, if we should go that route and take a National Health Care Industry then we also must accept that our information will be common knowlege to our government. Furthermore they can deny health care to “Nonconformists under the National Terrorism Task Force” It won’t matter if you did what is accused or not just being investigated will give them the power to “Turn off” your health… Read more »

Frank Barker
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Frank Barker

I love to listen to the “Experts” quoting percentages of people who favor or don’t favor National Healthcare! I agree with the large percentage of Americans who don’t favor what we have been offerd so far! When our President stops looking at England, France, and Canada for solutions to our healthcare and gets on the right boat then maybe we will have a real choice! Obama should look carefully at Germany to see a system that works for the doctors AND patient’s. They don’t practice treating something AFTER you have it they work on preventing you even being there by… Read more »

Deron S.
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I think we need to stop focusing on individual stakeholder groups (physicians, insurance companies, etc.) and present this as something requiring everyone to give up something. When you attack a single group, of course you’re going to get backlash.
Painting physicians and insurance companies with a broad brush is not helpful, particularly when the role patients (i.e. all of us) play in this mess is ignored.

wisewon
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wisewon

PS Of course physicians want change to the system. They just don’t want the “change” that involves them becoming less autonomous because they are now employees of large medical groups, or compensation based on performance, and an expectation to practice according to standardized treatment guidelines. They want the other stuff– but physician practice reform is what will save the most money in the long-run. And that’s what physicians oppose. PPS Doctors from Kaiser and VA are hardly representative of the system. If those are your “regular” docs, that’s further to the point. You need the non-AMC affiliated community physicians that… Read more »

wisewon
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wisewon

Maggie, Great post, you get the issues, no question. But, here’s the thing… “But the Dartmouth reserach suggests that we can change the way physicians practice if put more of them into very large mutli-specialty accountable care centers where they are paid, not for volume, but for value, and where they collaborate, LEARNING FROM EACH OTHER.” Dead right. No one in the administration is saying anything close to this. That’s my point. And jd’s. Obama, Orszag ARE shying away from the issue of changing physician practice behavior. And moving towards significant compensation based on process and outcomes, not quantity. But… Read more »

maggiemahar
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Wisewon, Chris, Peter J.D. Thanks for your continuing, intelligent and provocative comments. (I invite you all to come to http://www.healthbeatblog.org to comment there as well.) First a general point. I don’t know where you guys got the idea that I only know “thought leaders.” When I wrote my book I interviewed dozens and dozens of doctors practicing full time– family docs, primary care docs, palliatve care specialists, orthopods, anesthesiologists, spine surgeons, cardiologists, intensivists, general surgeons, opthamologists . . . . all over the country, many in private practice, , working at places like Kaiser, at VA hospitals, etc. In the… Read more »