The Significance of Today’s Health Care Announcement
Paul Krugman and Jonathan Cohn wax enthusiastic about the news that representatives for the nation’s major health care provider organizations—doctors, hospitals, drugmakers, device makers, and insurers—will come to the White House and announce that they believe it’s possible to achieve $2 trillion in cost savings over ten years without compromising patient care. Ezra Klein is more skeptical, worrying that these groups haven’t really made any firm commitments to anything in particular.
But the real import of today’s event isn’t in its signal for what industry insiders may do in the future, it’s for the Congressional Budget Office. The main impediment to a health care deal, at this point, is cost. The up-front costs are large. To cover these costs, the Obama administration proposed several exceedingly reasonable tax changes, focused on curbing deductions for high-income taxpayer. This is the most economically efficient possible way of raising revenue, so naturally congressional Democrats rejected it out of hand.
That means that to make the costs work, it’s going to be necessary to rely on reform’s inherent potential to wring some of the massive waste out of the system. The problem here is that the CBO has been reluctant to “score” such savings in its official account of the bill. As Igor Volsky emphasizes, this industry statement is an important challenge to that CBO reluctance:
Early reports indicate that the signers — the Advanced Medical Technology Association (AdvaMed), America’s Health Insurance Plans (AHIP), the American Hospital Association (AHA), the American Medical Association (AMA) and Pharmaceutical Manufacturers of America (PhRMA), among others — hope to contain costs by implementing “aggressive efforts to prevent obesity, coordinate care, manage chronic illnesses and curtail unnecessary tests and procedures; by standardizing insurance claim forms; and by increasing the use of information technology, like electronic medical records.”
The industry is suggesting that these cost containment measures — which don’t score too well with the Congressional Budget Office — would in fact yield cost savings and help finance health reform. The letter blunts conservative critics who argue that health reform is unsustainable or too expensive, and it also takes on the CBO, whose models are likely under-scoring the savings from reforms.
Whatever kind of backstabbing these industry groups may or may not do in the future, they won’t be able to take back the fact that once upon a time they stood beside the White House in agreeing that it’s possible to achieve massive cost-savings without compromising patient care. That argument may well prove hugely important, politically, to getting a package through congress.
18 Responses to “The Significance of Today’s Health Care Announcement”
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May 11th, 2009 at 12:40 pm
$2 trillion in cost savings becomes the sine qua non of health care reform, so when the industry “discovers” an “error” in their math along the way, where does that leave reform?
May 11th, 2009 at 12:44 pm
matt,
excellent point. it’s something i’d forgotten about initially.
however, i will bet that the industry is going to try to use this “sacrifice” as an means to stop a public plan from becoming part of the administration’s legislation.
that is very obvious.
the only question is whether obama is going to use his strong bargaining position – obviously the industry is running scared now, as they see a tidal wave of support for real reform – to get a plan through that includes a public option.
based on past performance, and the pavlovian response to the industry’s small “concession” i am not optimistic.
krugman is funny.
i think he’s responding to recent criticism that he’s been too pessimistic. so now, he’s mary sunshine. let’s see how long that lasts.
May 11th, 2009 at 12:56 pm
frankie d, I agree that the public option is the target. But does it have to be? With community rating and minimum federal standards for health insurance, don’t we get the benefits of the public option without the stigma (socialized medicine)? And don’t we also get universal coverage (which, with community rating and standards, would become the insurers’ target).
May 11th, 2009 at 12:59 pm
What the public calls health care costs these groups call income.
Will they really voluntarily reduce their income?
May 11th, 2009 at 1:07 pm
Dude, as I read it they promised bupkiss as far as cost savings. They just promised to only jack up the cost slightly less outrageously.
May 11th, 2009 at 1:24 pm
Dude, as I read it they promised bupkiss as far as cost savings. They just promised to only jack up the cost slightly less outrageously.
As Krugman points out, the important thing is that they’re going to play along. Before they’d just block reform as the Republicans are doing on every single issue nowadays.
If things don’t pan out it won’t be a huge surprise but as Krugman says there’s a chance the US will soon be like every other major industrial nation in regards to health care.
May 11th, 2009 at 1:41 pm
If the U.S. were to becme like every other major industrial nation in regards to health care, it would include significantly more rationing for non-poor retirees. Since one of the pillars of the Democratic coalition is that transfers of wealth to non-poor retirees only move in one direction, that being increasing, there is a pretty good chance that the U.S. won’t anytime soon become like every other major industrial nation in regards to health care.
May 11th, 2009 at 1:49 pm
raylward,
as long as the insurers stay in control, any “reform” that they may go along with will always be vulnerable to their whims. the only way to make certain that real reforms happen and stay in place permanently is to make certain that the government’s version is put into place as a competitor.
the public plan is exactly what the industry fears: a backdoor to universal care. everyone knows this, but everyone has an incentive to not publically state this fact.
May 11th, 2009 at 2:02 pm
I hope reducing obesity isn’t one of the more important sources of controlling future health care costs. If anyone thinks Americans are going to reduce caloric intake and increase frequency and intensity of exercise they’re delusional. Merely advising a U.S. citizen they need to lose weight results in that person jumping a dress size or two inches in the waist band on the spot. I think we’d give up the right to own guns before the right to practice wanton gluttony. “I’ll see your two chins and raise you some flabby underarms!!! Argh!!”
May 11th, 2009 at 2:11 pm
I hope reducing obesity isn’t one of the more important sources of controlling future health care costs.
I’ve always seen this as a class thing, like in the movie BabyMama how the Tina Fey character is always criticizing the Amy Poehler character.
If the skinny workaholic class does go on a jihad against obesity, I predict it will be like Prohibition, where eventually it will succumb to a war of attrition by the chubbies.
May 11th, 2009 at 3:14 pm
[...] achieve this goal. Reactions have run the gamut: supportive, enthused, cautious, and “at least they agree savings are possible without compromising patient care.” One other reaction has been that it’s aimed at forcing the CBO to score health reform [...]
May 11th, 2009 at 3:18 pm
“…it will succumb to a war of attrition by the chubbies.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
No doubt the chubbies will prevail. They’re as insidious and tenacious as cockroaches. And probably a bunch of other adjectives ending in “ious”. Ye shall know them from their Twinkie and Coke stained attire. If mailboxes had ears they would go deaf from the oncoming wheeze.
May 11th, 2009 at 5:01 pm
I know how to save MORE money and IMPROVE patient outcomes! Adopt the French system.
A public option isn’t the target. Single payer is the target. A public option is an incremental step to single payer.
A public option is the absolute least method of reform.
May 11th, 2009 at 7:00 pm
It has been correctly pointed out above that our system of financing healthcare perverse for a large portion of the market. The american public pays for health services through a middleman, the insurer, whose only purpose is to make money for stockholders. The insurer’s only concern about the cost of health services is how much it cuts into profits.
The public policy conundrum is how to direct profit to permit access to healthcare services for everyone, while improving productivity and decreasing cost. As this debate moves forward we must not confuse (insurance) coverage with access to needed healthcare services.
May 11th, 2009 at 7:55 pm
[...] Matt Y: But the real import of today’s event isn’t in its signal for what industry insiders may do in the future, it’s for the Congressional Budget Office. The main impediment to a health care deal, at this point, is cost. The up-front costs are large. To cover these costs, the Obama administration proposed several exceedingly reasonable tax changes, focused on curbing deductions for high-income taxpayer. This is the most economically efficient possible way of raising revenue, so naturally congressional Democrats rejected it out of hand. [...]
May 11th, 2009 at 8:52 pm
The significance of today’s media event is mainly political: the GOP was just served notice that its deep pockets sugar daddies on this issue have jumped ship to the other side. There will be no insurance industry media blitz against healthcare reform. The GOP has been left high and dry. One more reason next year will not remotely resemble 1994.
May 11th, 2009 at 11:00 pm
Trade groups making promises to steer health care reform in favor of their constituencies? What a surprise!
There is nothing these groups can do to enforce such promises through their members. Recall the problem of the commons?
Not all doctors belong to the AMA, not all hospitals to the AHA.
May 12th, 2009 at 12:08 am
[...] Matthew Yglesias, is a little more hopeful… Whatever kind of backstabbing these industry groups may or may not do in the future, they won’t be able to take back the fact that once upon a time they stood beside the White House in agreeing that it’s possible to achieve massive cost-savings without compromising patient care. [...]