The Bond Markets and Health Care Financing

When will the Congress and the White House finally make the hard decisions in order come to grips with the federal deficit problem?

When will we finally deal with real health care reform and get the entitlements, and with them the private health care cost issue, under control?

My focus on trying to answer those questions has always centered on what’s going on in the health insurance market: When will costs simply become untenable and therefore force real change?

Watching “Meet the Press” a few weeks ago, it occurred to me I may have been missing the catalyst for real health care change.

Here is an exchange between moderator David Gregory and former Fed Chair Alan Greenspan:

MR. GREGORY: But don’t we have to have an adult conversation with people about what the real [deficit] problem is?

DR. GREENSPAN: Look, I think something equivalent to what Erskine Bowles and Alan Simpson put out [Deficit Commission Chairs’ report] is going to be passed by the Congress. The only question is, is it before or after a bond market crisis?


DR. GREENSPAN: Because there’s no alternative. Look, I…

MR. GREGORY: But you got to explain a little bit more what that means. You’re talking about debt.

DR. GREENSPAN: Well, here, here’s the issue. Right now we have very low bond prices, the markets are functioning in a reasonably good way. The big, serious problem is whether or not the outlook for the longer term deficit spooks the bond market to a point where long-term interest rates and mortgage rates move up very sharply. If that happens, that will cause the double dip. And I’m just basically hoping that we have enough sense to realize that we’ve got to resolve this issue before it gets forced upon us

“The only question is, is it [our finally dealing with the debt and entitlement problems] before or after a bond market crisis?”

The single biggest driver in our national debt problem is the cost of our health care entitlements.

It may in fact not be the health care system itself and its unaffordable costs that finally force real action for health care cost containment––it may be the global bond market and its lack of confidence in America’s ability to finally deal with our debt, and its health care driver, that will cause a crisis that forces health care action.

But would such a crisis force meaningful and rational health care reform or just draconian fee schedule cuts across the board that puts the health care sector––particularly the providers––in a crisis of their own?

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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