Health Reform: Where Obama Went Wrong

Health industry profiteers are most threatened by the idea that everyone might have an equal right to good healthcare. Here the “Healthcare Is A Human Right” campaign, coordinated by the Vermont Workers’ Center, which is organizing a series of health care forums with local state legislators around Vermont, holds a rally at the State House in Montpelier. PHOTO CREDIT: CREATIVE COMMONS/NESRI

Health Reform: Where Obama Went Wrong

by Leonard Rodberg

President Obama's health reform plan is in trouble. Public support for it is only lukewarm; both Left and Right oppose it. Pundits and editorial writers complain that Obama has turned the issue over to Congress, or that he hasn't explained the plan well enough. He and his staff have been working closely with many members of Congress from the very beginning, and he has described his plan repeatedly and in many forums -- and no one questions that he is a superb communicator. And yet disquiet and confusion persist. What has gone wrong?

The President's Fateful Choice

Sixty percent of all Americans get their health insurance from private insurers, mostly through their employers, with some buying it directly from insurance companies. About half as many -- 87 million according to the latest report from the Census Bureau -- are covered by Medicare (the federal program for the elderly and the disabled), Medicaid (the joint federal-state program for the poor), the VA, and other public programs.

However, when you look at who pays the bills, you find a very different picture: nearly half of all medical bills are paid by government, largely through Medicare and Medicaid, but also through support for community health centers, the VA, and so on. Private insurance accounts for barely a third of all health care spending. The reason is clear: government covers those who are most in need of medical care, the elderly and the poor, while private insurance covers the healthy part of the population, those who are working.

When Obama decided to tackle health care reform, he could have chosen to build it upon either the public or the private systems. He said he wanted to build on what works, and he could have proposed expanding the public programs we now have to cover everyone (or everyone who wanted that kind of coverage). These programs work, and they work well. Instead, he chose to base his program on for-profit private insurance, the part of our health financing system that is most expensive and deficient. He chose the private path, and, as Robert Frost said, that has made all the difference. No plan that rests on multiple weakly regulated for-profit insurance companies can possibly achieve the goals he has set out and still claims his plan will achieve.

The Obama Mandate Model

Obama has declared many times that his chief goal is to contain the escalating cost of health care. However, the president and the congressional committees that have followed his lead have chosen principally to focus on getting insurance for the uninsured. That seemed simpler to address so, as a result, they have adopted the "mandate model" as exemplified most recently by the plan passed in Massachusetts in 2006. Everyone will be required to have insurance, and at least the larger employers may be required to offer insurance or contribute to a public fund that will subsidize the purchase of insurance by their low-income employees and others. (An important exception: low-income individuals with incomes below 133 percent of the federal poverty level will be able to sign up for Medicaid.)

In an op-ed published in the New York Times on August 16, the president claimed that "if you don't have health insurance, you will have a choice of high-quality, affordable coverage for yourself and your family." However, as put forward in slightly differing versions by five congressional committees, nothing in his plan guarantees that the insurance offered by these private companies will be either "high-quality" or "affordable."

Currently, the average premium paid by employers for a family policy is $13,375; by 2013, when this plan would go into effect, insurance is sure to be even more costly. Insurance plans will have to meet new requirements, including no exclusions for pre-existing medical conditions, no co-pays for preventive care, annual limits on cost-sharing (co-pays and deductibles) of $5,000 for individuals and $10,000 for families, and no limits on lifetime coverage. All of these requirements, while desirable, will make insurance policies even more expensive. What many are beginning to realize, and to find objectionable, is that the plan does not regulate premiums, deductibles, or co-pays, so we will be required to buy insurance from companies that can charge us whatever they choose.

Employment-based insurance will be otherwise unchanged. Employers will still be able to change the coverage and the plan they offer their employees. Insurers can still change their provider networks, dropping or adding physicians and hospitals. Employees are still locked into their jobs if they want to keep their current plan. But now, employees must accept their employer's plan; the individual mandate requires it.

But won't the vaunted "public option" address some of these problems? The original "robust" plan would have provided real competition to the private insurers. It would have had open enrollment -- anyone could have joined. Like Medicare, it would have been backed by the federal government, and, according to the best estimates, nearly 120 million people would have joined it. Such a large public program could have had an enormous impact in reducing costs and leading to an efficient restructuring of health care delivery.

However, what even the most progressive committees in Congress are proposing is something very different. Enrollment in this public plan will be restricted to the uninsured and the smallest employers. The plan must be self-sustaining, following the same rules as private insurers and receiving no federal subsidy. And, as the president himself has said, the best estimate is that barely 5 percent of the American people will join it. The 800-pound gorilla has been turned into a mouse!

Costs Will Keep Climbing

In his New York Times op-ed, Obama went on to claim that "reform will finally bring skyrocketing health care costs under control." But nothing in the plan directly cuts costs. In fact, this plan will increase the overall cost of the health care system by hundreds of billions of dollars as millions of Americans who now have no insurance purchase policies from the insurance companies. The director of the Congressional Budget Office has said, "We do not see the sort of fundamental changes that would be necessary to reduce federal health spending by a significant amount." Instead, the plan relies on reducing waste and inefficiency in Medicare and Medicaid, on competition among insurance companies, and on a series of innovations -- computerization, chronic disease management, and new ways of providing and paying for medical services such as the "medical home" -- that are certain to cost added billions for the next few years and may, or may not, eventually produce some savings.

Then how will the plan be paid for? In his September 9 speech to Congress, Obama said "most of this plan can be paid for by finding savings within the existing health care system." Taxes on "Cadillac" health insurance, reductions in planned Medicare and Medicaid reimbursements to hospitals and other providers; cuts in subsidies to Medicare Advantage plans (the private plans that provide insurance to Medicare recipients); and reduced waste and fraud in Medicare and Medicaid are counted on to yield the necessary funds.

Congress is envisioning devoting nearly $1 trillion to this program over ten years. Unfortunately, even this substantial sum is not nearly enough to enable everyone to buy insurance under this plan. According to the Congressional Budget Office, between 17 million and 25 million people will need "hardship waivers" and will remain uninsured. So the designers of this plan have failed to achieve even their most basic goal.

The Public Alternative

The alternative that Obama might have chosen is the public route to real health care reform, using Rep. John Conyers' Expanded and Improved Medicare for All Act, HR 676. This plan is straightforward. It would expand the existing Medicare program so that everyone would be covered via automatic enrollment, just as seniors are automatically covered now when they turn 65. It would provide comprehensive benefits, much improved over the existing Medicare program, which has deductibles and co-pays that keep many seniors from getting the care they need. It would allow free choice of doctor and hospital, which would remain independent, as they are now. A public agency would process and pay the bills, and the system would be financed through a progressive tax.

Numerous studies conducted over the past several decades have shown that -- in sharp contrast to a plan that relies on private, for-profit insurance companies -- such a simplified, publicly funded system would cost no more than we are now spending. Estimates based on a number of studies performed over the last decade suggest that covering the uninsured and improving the coverage of the underinsured, including eliminating co-pays and deductibles, would cost about $250 billion each year. On the other hand, the reduction in the cost of insurance administration (Medicare averages 3 percent overhead, while insurance companies average 20 percent) -- along with savings in hospital and doctor billing costs, savings from bulk purchasing, and savings from the better coordination of care that a single funding source could achieve -- will yield even more than that in savings. The excess could be used to retrain those who are now processing insurance bills, so they could begin doing useful work.

A Medicare for All program could be paid for in many ways. The simplest would be through a payroll tax in which, for instance, employees would pay between 4 percent and 5 percent of their paycheck while employers would pay between 8 percent and 10 percent. For both employers and employees, this would be a significant saving compared to what they're paying now.

Further, a Medicare for All program, unlike the congressional plans now on the table, offers real tools for containing costs in the future. These include the use of annual budgets, especially for hospitals; the planning of capital investment; and an emphasis on primary care, coordination of care, and more cost-efficient ways of paying for physician services.

Conclusion

Private health insurance is a defective product that needs an expensive fix. By building his program on private insurance, President Obama has tied himself to a system that is too expensive and is unlikely to achieve the goals he has set. It will not lead to universal coverage and cannot contain costs going into the future.

On the other hand, an expanded Medicare for All system can provide comprehensive services while costing no more than we now spend, and it provides real mechanisms for containing costs. Should a private mandate plan be passed, the problems of the health care system will not go away. Real health care reform will continue to be essential. As costs continue to climb faster than incomes, health care will absorb a larger and larger fraction of our national livelihood. At some point, we will have to move to a unified public mechanism for funding health care that will be truly sustainable.