So How Will We Save?

After reading my column from last week, my sister asked, “Will someone please explain to me how we are supposed to save money when Medicaid, Medicare, and Social Security are going broke, and we are going to cover 32 million more people? Why don’t I understand this?” She is certainly not alone in finding it difficult to understand how health care reform can reduce the deficit. In fact, a recent Rasmussen poll reveals that a whopping 81% of Americans believe the reform will cost more than the CBO projections. Since every other large entitlement program has mushroomed in size and cost, it’s no wonder Americans are skeptical about this one.

It’s easy to see how reform is going to cost us – the government will subsidize the premiums of many of those buying insurance and will add many more to the Medicaid rolls. It’s not so easy to understand the saving part. Frankly, I don’t think the Democrats have done a very good job of explaining it in terms that ordinary folks like me can understand. I’ve been doing my own research online and found a recent Newsweek article that attempted to explain it in five easy steps.

First, the formation of health insurance exchanges should create more competition among insurance companies. Now any good capitalist knows that competition results in better quality and lower prices. I get that. But I really didn’t know what the exchanges would be and how they would work, so I’ve been looking that up as well. My understanding is that the exchanges will be created by individual states, and states can decide to join together to create regional exchanges if they choose. The exchange will simply be marketplaces managed and regulated by the government. They will consist of private insurance companies that desire to be a part of the exchange. It stands to reason that companies would want to participate because that is where most customers would go to buy insurance. It will have a web site where various policies and prices can be compared Theoretically, the companies will seek to offer better coverage at lower prices to get your business. Companies within the exchange will have to meet certain standards of coverage.

Obama admits that not everyone will have lower-cost premiums as a result of the exchanges. Some people now have low-cost plans that have high deductibles and not-so-great coverage, because that is all they can afford or want to pay for. They will be required to buy better insurance under the new legislation and can expect to pay more as a result. If they earn less than 400% of the poverty level, that higher cost will be offset by government subsidies to help pay for their premiums. People who make more than that will pay more for their insurance; the CBO projects premiums will increase 10 – 13%.

There is considerable question as to whether the exchanges will actually work as they are intended. Massachusetts already has an exchange like the ones that will be created nationwide beginning in 2014. The state also has some of the highest insurance costs in the country.

A second means of saving money will be the Independent Medicare Advisory Board. One reason Medicare continues to cost so much is that Congress does not have the political will to cut benefits. The advisory board will do it for them. It will be made of 15 members appointed by the President and approved by the Senate. IMAC will write proposals for limiting Medicare’s costs. These measures will go into effect automatically unless Congress votes to reject them, and if they do, they must find another way to cut costs by the same amount. The idea is to make it easier for tough decisions to be made. Obviously, older adults may find this worrisome. Young people, on the other hand, may be tired of paying so much for the elderly and welcome the change.

A third method of controlling costs is called “bundling.” Right now, doctors get paid for each service they provide – every office visit, procedure or test. The more they do for a patient, the more money they stand to earn. It’s easy to see how greed might enter the picture here. With bundling, doctors would get paid one price to treat a condition for a certain period of time. If you have diabetes, you pay a set price for treating it for a year. It would no longer be in the doctor’s interest to prescribe more procedures. Fewer procedures means fewer insurance claims, thereby lowering costs for everyone – theoretically. Of course, it would now be in the doctor’s interest NOT to order procedures, and it remains to be seen if this will result in poorer care.

Fourth, the so-called “Cadillac” plans offered by some employers will be taxed a hefty 40%. The idea is to discourage employers from offering such plans. That would mean fewer people seeking medical services that are no longer covered. That would lower demand, and lower demand leads to lower prices.

Finally, the government will now have a huge stake in keeping costs down, since it will be subsidizing so much of health care. If they fail to do so, they will have to face angry voters who are upset about rising deficits and/or higher premiums. Of course, the fact that they have already been on the hook for Medicaid and Medicare has not resulted in keeping costs under control so far.

These measures should produce savings – we just don’t know how much. What we do know is that the CBO projects the cost of reform to be $940 billion dollars over the next ten years. Whether or not we can really offset those costs and actually cut the deficit remains to be seen.
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Pay or Save - Which will it be?

Well, for better or worse, the deed is done. On March 23, 2010, President Obama signed the Senate version of health care reform into law. Of course, the fight will continue as Congress debates whether or not to approve the House fixes to the bill. Meanwhile, the attorney generals of several states are filing law suits based on their belief that the bill’s requirement that everyone buy insurance is unconstitutional. Republicans talk of taking back the House and Senate come November, and then repealing the bill – highly unlikely as they would have to have a 3/5 majority to override a presidential veto. We are going to be hearing arguments about this for a very long time.

One of the most heated arguments revolves around whether or not this reform will save us money or send our deficits spiraling out of control. We’ve all heard the analysis from the CBO (Congressional Budget Office). It predicts the bill - with the House fixes – will save the federal government $138 billion from the years 2010 – 2019 and as much as $1.3 trillion over the next twenty years. If this is true, we should all be dancing in the streets! We just managed to insure 31 million more people AND save money. Trouble is, many people, and I’m one of them, find that a little too good to be true.

It’s not that anyone doubts the integrity or reliability of the CBO. The problem lies in the fact that the CBO can only predict the cost of a bill based on the numbers and information given them by Congress. Does anyone doubt the integrity and reliability of Congress? (That was a rhetorical question!)

For example, there is the double-counting in the Congressional figures given to the CBO. Part of the legislation includes collecting tax for a new long-term care policy. That money is counted as revenue to pay for the cost of this bill. HOWEVER, the money will be needed down the road when people stop paying into it and instead draw it out as they go into nursing homes. The same money can’t pay for both that AND insuring 31 million new people!

Congress tells the CBO that it will recover much of the cost for health care by taxing those “Cadillac” insurance plans. That plan is so unpopular, however, that it has already been postponed until 2013. Labor Unions, which typically win these employer-provided plans for their members, will fight implementation of the tax. If the tax does go into effect, employers will almost certainly start providing lower-cost (meaning lower-coverage) plans to their workers to avoid the tax. I wouldn’t count on much revenue there. Likewise, high earners will fight additional taxes on their investment income. Even if enacted, revenue from that will depend on how the economy is doing, something no one can predict.

The CBO also assumes there will be large cuts in Medicare and reimbursements to doctors and hospitals. Politically, this would be very difficult to enact. Already, Congress is promising a $200 billion “doctor fix” to increase payments to doctors. This is not counted as part of future health care costs because it will be in a separate bill, and the CBO can only score the bill placed in front of it.
History teaches us that the costs of entitlement programs are greatly underestimated. When Medicare was signed into law in 1965, it was projected to cost around $9 billion by 1990. It turned out to be $67 billion – over seven times as much! And now it turns out that Social Security will be out of funds even sooner than we had thought.

The CBO estimates the cost of the current health reform legislation at around $950 billion dollars over a ten-year period. Congress has proposed cuts and policies that they say will more than offset that cost. The problem is that we have to count on all those cuts being made and the policies working the way they are supposed to. That is assuming a lot. Future legislation can prevent any or all of it from ever taking place.

To be fair, there are parts of this legislation which do hold promise for cutting healthcare costs and reducing the deficit – if they are implemented wisely. More on that in next week’s column.

Book Review: A Century Turns by William J. Bennett

This latest offering in a three-volume American history series by Bill Bennett, conservative pundit, author, and politician, covers the years from 1988-2008. Volumes I and II, entitled America: The Last Best Hope, describe the years from the discovery of America to the end of Reagan’s presidency. According to Bennett, teachers have built entire history curricula from these two books, and schools have added them to their supplemental reading lists. I have not read the first two volumes; in fact, I was unaware of their existence until I began reading A Century Turns. Thomas Nelson Publishing provided me with a complimentary copy of the book for the purpose of reviewing it. I began reading with three main questions in mind: 1. Would reading this book make me want to read the earlier volumes? 2. As a former history teacher myself, would I use these books for my curriculum or supplemental material? 3. Would Bennett’s conservative beliefs make the book overly biased?

Now that I have finished the book, I can answer these questions. I do not feel the urge to rush out and buy the first two volumes and doubt if I will read them. It’s not that A Century Turns is bad. It’s easily read and would be interesting to anyone who wants to know more about the political history of the past twenty years. The book naturally focuses on politics, since Bennett was heavily involved in government himself during these years. He does occasionally veer off into popular culture and other events, but it seems like an afterthought when he does – it doesn’t flow smoothly in my opinion. As a history teacher and CNN junkie, I learned very little from reading this book that I didn’t already know. Like many history books covering a long period of time in a short volume, it is somewhat superficial. Anyone who has paid close attention to current events in recent history may enjoy being reminded of what they have seen on TV news, but it will not be new to them.

I don’t know about the first two volumes, but I cannot see building an entire curriculum from A Century Turns. It would, however, be a good reference book, and I would have no qualms about adding it to a reading list for my classes.

As for bias, I feel Bennett does a fairly good job of being objective in his reporting of events. He was part of the government during this time period and occasionally offers personal anecdotes. When he does offer his opinion, he makes it clear that he is doing so. Readers will have no doubt that Bennett is a conservative, but he doesn’t get preachy about it.

In conclusion, if you have not been that tuned into current events and would like to know more about the politics, government, and some popular culture of the past twenty years, you may enjoy this book.