OP-ED

The Leaning Tower of Jello: Why No-one Believes Health Reform will be Deficit Neutral

President Obama has promised not to sign any health reform legislation that increases the federal deficit. This promise recognized rising public concern about an Argentinean fiscal trend that, unchecked, could leave us with $19 trillion in federal debt in a decade.

Without that pledge, given the current economic climate, health reform would be one dead mackerel.

Some clarifications are essential here. I’m a Democrat and fervent Obama supporter. I voted for him twice (and that was just in the Virginia primary). I’m proud of our President. He has first class economic and healthcare teams. He deserves credit for not postponing health reform. He’s right: it’s simply not tolerable, morally or economically, for a wealthy nation to continue having close to 50 million uninsured people.

The problem is, despite his great personal popularity, the vast majority of Americans do not believe his deficit pledge. A mid November Quinnipiac poll found that only 19% of Americans and 35% of his own political party believe health reform will not add to the deficit. The problem isn’t the President; it’s our sorry fiscal history, and his partnership with an increasingly discredited Congress.

Americans are having trouble understanding how, if it’s unhealthy for their households to have too much debt- the reason why we’re in so much economic trouble- it is prudent to cure our economic and social problems by plunging even more deeply into public debt. It’s kind of hard to swallow that the solution to a terrible economic hangover is drinking another case of Jack Daniels. America is on an epic fiscal bender, and the world’s collective tolerance for our drunkard’s excuses is wearing thin.

The reason almost no one believes health reform will be deficit neutral is our political system’s lavishly demonstrated inability to say no to anyone. American health care is a vast enterprise: we’ll spend more in 2014 on healthcare in the US than the entire GDP of Germany! Powerful political interests intersect in the health benefit: organized labor, capital markets, major manufacturers, doctors, lawyers, hospitals, pharmaceutical companies, health insurers, state governments, employers large and small. Have I left anybody out?

It is, in other words, a not-so-micro-cosm of the whole economy. Logically, if each one of the above named constituencies pitched in a little bit, we could cobble together $900 billion over a decade to accomplish an important social goal. Some have thrown in- pharmaceutical companies and hospitals willingly, insurers reluctantly but still significantly. A lot of other wealthy interests- technology manufacturers, physicians, the plaintiff’s bar and the unions most notably- don’t want to contribute anything and may skate away clean.

Exhibit A for the prosecution’s case about the inability of our political system to demand sacrifice is the so-called Doctor Fix problem. This is a legacy of an otherwise successful effort to balance the federal budget twelve years ago. In the Balanced Budget Act of 1997, Congress imposed what was, in effect, a global budget on the fastest growing part of Medicare- Part B, which covers physician care, home care, hospital outpatient care and a lot of new technology like medical imaging. If Part B spending grew faster than the nation’s economic output, the BBA required both beneficiary premium increases and across the board cuts on doctor fees.

This spending cap was a well meaning but comprehensive failure. After a couple of remarkably docile years, medical costs simply resumed rising as they had for the past thirty plus years. Every year except once (2002), Congress has declined to cut physician fees. The result is a fiscal crater more than $300 billion deep- the equivalent of a huge bad mortgage on the federal balance sheet. To substitute a ten-year fee freeze (an equally absurd solution) for the mandated cuts would “cost” about $318 billion in fictitious savings.

To let fees grow at the rate of medical inflation, a more realistic constraint give past history, would “cost” $439 billion, and to do that, and exempt beneficiaries from increases in their premiums would “cost” a magnificent $556 billion. What we’re doing now with Medicare spending is practicing a public sector form of Enron accounting, booking “savings” that do not exist. There’s an unfortunate amount of Enron accounting in the CBO “deficit neutrality” analyses, because CBO is required blindly to assume in its analyses that laws are, in fact, enforced, politics be damned.

Health reform adds a heap of new cost saving political obligations on Congress. A partial list:

1)that Congress not extend the five-year shelter for states from their share of the cost of a 15 million person Medicaid expansion (e.g. more than a 30% increase). Presently, states are sheltered from Medicaid cost sharing for this expansion until 2014, but then have to find $34 billion in new money to pay their share. States, who are drowning in Medicaid costs already, will press hard to have their existing matching requirements reduced, as they have been for S/CHIP in the two bills.

2)that any “public option” health plan be self-supporting after an initial start up investment, which must be repaid. Recent CBO analysis suggested that because it will attract a ton of sick people, public plan premiums may end up costing more than private insurance unless they are either heavily subsidized or else impose Medicare rates unilaterally. Who will sign up if it’s so expensive?

3)that premium subsidies to help support a 21 million-person expansion in private insurance coverage not rise if health insurance premium growth exceeds present estimates. The premium subsidies are a huge new entitlement- $574 billion over a decade in the more generous House bill. Neither Congress nor the CBO have the faintest idea how health insurers’ costs will be affected by all the proposed restrictions on their underwriting practices. The subsidy cost estimates are, therefore, a Jules Verne moon shot. What happens if, as seems likely, they are way too low?

4)that Congress let stand recommendations of the proposed (by the Senate anyway) “independent” Medicare Commission that would reduce spending below a target (and not fiddle with the deficit neutrality rule which requires them to find offsetting revenues if the cuts are not implemented). This Commission was forbidden by Senate charter from affecting hospital payments (45.5% of the program’s cost in 2007!), not an auspicious beginning. The House has thus far predictably refused to let go of Medicare’s reins.

5)that Congress not tamper with the health benefit package employers are mandated to provide or individuals are mandated to carry. In both bills, the relatively restrained “opening” benefit package is left under the (political) control of the Secretary of Health and Human Services. If there is benefit creep (chiropractic, podiatry, in vitro fertilization, massage therapy, reiki, you name it), the required premium subsidies will have to increase apace.

How confident are you that Congress will bite all these bullets and exercise fiscal restraint when confronted with organized advocacy? The CBO kabuki dance on health reform’s deficit neutrality has pivoted around the risible assumption that Congress will actually enforce laws, like the Part B cap, that require, at some future point, fiscal discipline.

So thank you, Thomas Jefferson (the patron saint of the town I live in- Charlottesville)! You wanted to forestall tyranny by designing a weak and divided central government. Little did Jefferson realize that 220 years later, we’d be trying to manage a $14 trillion economy or a $2.5 trillion health system with our founding fathers’ deliberately crippled political system.

Add to the mix a bitterly polarized and poorly informed electorate and weak Congressional leadership and you have a recipe for fiscal incontinence on a grand scale.

Appointing a Deficit Commission, as some have recently advocated, seems like an entirely predictable substitute for actually demanding sacrifice. This is how great civilizations end- not with foreign invasion, but rather creeping internal rot, not with a bang, but with pandering to factions and to the mob.

The capacity to execute a fiscally responsible health reform rests in sweaty, shaky hands. Lyndon Johnson once famously said of the special interests: “If you can’t take their money, drink their liquor, sleep with their women and then vote against them when you need to, you don’t belong in Congress.” No Johnsons or Rayburns, or for that matter, Mitchells or Tip O’Neills presently wield the gavel. The Republicans, of course did no better when they ran things, and have made a truly pathetic contribution to the present health reform debate. It is a bipartisan failure we have here. Against powerful focused economic interests, the American political system is a leaning tower of jello. Let’s hope it’s not strawberry, because the odds are we’re going to be swimming in it!

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Mike ClarkPumpyGary LampmanJohn WinkelmanMedbob Recent comment authors
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Mike Clark
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Hey Jeff, I am a week late on the draw here, but I would like to add some logs to the fire. 1. While it is admirable to be so concerned about the fiscal issues, really, what does the government do when it needs money? It prints more. Federal money is not the same as cash in your pocket, which runs out. Yes the world is flatter than it used to be, but a large portion of the known world still depends on U.S. consumerism. Neither China nor Europe is anywhere close to replacing us as the world’s economic engine.… Read more »

Gary Lampman
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Gary Lampman

Oh, Nate, are we ranting about what. The fact I Don’t Consider writing off Debt because the debt is no longer collectible; is any where near a agreement struck between the Doctor and Patient. Rather it is a business choice to be decided by the business Manager and /or Doctor. In this case it is not a negotiable Instrument but rather a business practice for debts that are Non Collectible. Well Nate you got me on a portion of this argument, but these doctors who give services for the uninsured , I would think are subsidized in some manner.However,You are… Read more »

Nate
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Nate

Hey Moron, came across this on another blog, really just wanted to point out again how wring you are… Two, investigate a company called Simplecare. The SimpleCare story has appeared in U.S. News & World Report, in Forbes, and on NBC News. SimpleCare , a fee-for-service organization, accepts money for medical treatment without the bother and hassle of insurance forms, co-payments, and other third-party payment related procedures. SimpleCare has an alliance of doctors offering cash discounts. Itsmembership includes 38,000 patient members working with 1,500 doctors nationwide. Discounts range from 15 percent to 50 percent for patients paying in cash. well… Read more »

Nate
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Nate

Gary you just don’t know when to shut up and admit your wrong, “It is not a Standard Practices to give 50 to 80 percent discounts for Hospitals or Doctors Services.” Actually it is, everyone that treats Medicaid patients gives that discount and most major metro facilities give 50-70 discounts. I see the bills every day, you just make things up in your head. “Doctors are not going to get caught in Bidding wars when Health Care is competition Free.” Again your an idiot. Cosmetic, dental, and other services primarily paid by the patient are full of competition and doctors… Read more »

Gary Lampman
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Gary Lampman

Well, God Almighty,I see you are a pompous Anal Pore.Who apparently works directly for Insurance or not? It is not a Standard Practices to give 50 to 80 percent discounts for Hospitals or Doctors Services.Doctors are not going to get caught in Bidding wars when Health Care is competition Free. The write off as you speak of it is the decision of the Doctor. The Patient does NOT CHOOSE TO RIGHT OFF THEIR BILL!!!! Who are you calling a Idiot Nate!!!! How many are in Collections because they missed a payment! I’m NOT Buying the write off is a form… Read more »

Pumpy
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nobama

Nate
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Nate

no idiot, er lampman the answer is every day. I see sales on lazik surgey EVERY day, cosometic surgery every day. Eye exams and dental cleanings on sale every day. How do I and millions of people get a lower price for a procedure. Doctor #2 I called Dr #1 and he said he can do it for $x can you match that as I really don’t want to change doctors. Example number 2, Hey doc I don’t have insuance, if I paid cash could you give me a discount. It happens hundreds of thousands of times a week. LOL… Read more »

Gary Lampman
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Gary Lampman

Well Nate, your arrogance proceeds you and so does your ignorance. Explain to me how you can claim that you can negotiate lower cost for a procedure? Explain to me Why the cost of any given procedure is not provided by any given provider? Tell me why,we are unable to shop for lower costs by comparison shopping by phone. When in your lifetime have you seen a sale on medical procedures? The answer to all above is Never! Health Insurance Contracts set your premiums and out of pocket expenses.Its true they will allow you to make payments on out of… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

I’m a very slow typist, Nate. I don’t know, being a liberal and such, but our previous excellent President of these United States told us to go shopping after 9-11. It was supposed to be the patriotic thing to do then, and I assume it still must be. I don’t think he meant that we should go shopping at the hospital. Shortage of shoppers may very well hurt China, and we shouldn’t be doing that right now either, but it will also hurt Walmart and Amazon and GM and all other true blue purveyors of cheap imported goods. This of… Read more »

Nate
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Nate

it’s like the left never learned to use the internet for basic research, if Maggie or Ezra or some other agenda driven liberal doesn;t hand it to them they have no idea how to find it themselves let alone if it is correct. By your theory Lampman all these doctors would be in jail; Write-offs for uncollectible accounts (including contractual write-offs) on private-pay patients can be 5 percent to 15 percent in some affluent communities and 75 percent or more in some poorer communities. The changes cut the write-offs from 5.5 percent to 0.65 If “by law” they can’t negotate… Read more »

Nate
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Nate

Marglit easy place is go to yahoo finance enter any insurance company and see what their annual profit margin is. Health Insurance doesn’t need to cost $1200 a month, not every family needs to have a Cadalic plan. Their are plenty of options for far less cost. Further if they spent half as much time learing their insurance policy as they did their new cell phone they could substantially drive down cost. I think China would be in a world of trouble and the US would be much better off. Domestic consumption of services, like healthcare, are far mroe beneficial… Read more »

Gary Lampman
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Gary Lampman

I have never heard of such BS Barry.Profit driven Medicine certainly drains resources,takes risks and subjects patients to excessive testing to produce Profits and the dividend returns to investors. Its easy to make the math fit your ideals .Just cook the Books and that is just what providers are doing. All this information is proprietary and it would take a team of accountants to unravel. Bill Frist,the same one who said what is wrong with Health Care is Individuals do not Negotiate for Lower Prices? It is illegal for providers negotate with patients! Did I not tell you he is… Read more »

Barry Carol
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Barry Carol

Margalit, The 1%-2% figure refers to the non-profit sector including companies like Kaiser, Harvard-Pilgrim and the Blues other than the 14 Blues plans owned by Wellpoint. You might be able to access the annual reports for Kaiser and Harvard Pilgrim from their websites. The Blue Cross and Blue Shield Association may have data on the non-profit Blues. There are 39 Blues plans altogether of which 25 are non-profit or member owned. The largest of those is Healthcare Services Corporation (HCSC) which insurers people in IL, TX, NM, and OK. There is also an analyst who used to be at Bear… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Nate, families that make $75K to $100K cannot afford $1200 per month for health insurance, unless as you say, the stop consuming products like TVs, cars, phones, etc. Please tell me what you think will happen to the economy if the entire middle class, and all others below, were to drastically reduce purchases of goods and services? Barry, I am aware of single digit NET profits for most insurers, but I haven’t seen 1% – 2% anywhere. Is there a good source I could look at? I know Senator Rockefeller and his committee are trying very hard to get some… Read more »

Nate
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Nate

see key fact at the end, even back in 1965 you liberals where dishonest snake oil salesman. Another important underpinning of the “avoiding dependency” rationale was the widely trumpeted portrait of elderly Americans as an impoverished group whose plight made them a sympathetic object of tax-supported medical insurance. Misrepresentation of the financial condition of the elderly helped to paint this portrait, as government officials advocating Medicare repeatedly cited statistics showing lower incomes received by the elderly in comparison with other age groups. Yet the income statistics by themselves were misleading because they did not include asset ownership, and the elderly… Read more »