Ignore Obama Critics (At Least) On This

This is a dual surprise for me. First, the New York Times (NYT) today questions some of their favorite candidate Obama's assertions. And second, these criticisms are misplaced and Obama is actually on target this time. Let me explain.

I think Obama's healthcare proposals have many shortcomings, including not mandating coverage as pointed out by Paul Krugman way back in February. But I fully agree with his stand in today's article "Health Plan From Obama Spurs Debate."

Put simply, Obama vows that if elected President he will lower projected healthcare costs by $200 billion or 8% by the end of his first term. He backs this with some calculations and analysis put forward by his healthcare advisors including three Harvard professors.

Yet the article goes on to say that pundits and "analysts question whether significant savings would materialize in as little as four years, or even in 10." I'm wondering about these naysayers and the kind of mental straitjackets they've put on their thinking and analysis. I believe that an 8% reduction in health costs in 4 years' time is very conservative and easily achievable.

In our May 27, 2008 OpEd in the Wall Street Journal or its fuller version we describe the potential gains from free trade (or globalization) in healthcare alone. The US can save $70 billion annually from further offshoring of remotely delivered administrative and diagnostic services. Exporting patients for 30 major procedures suitable under medical tourism that cost $220 billion in the US can save $40 billion. Another $40 billion can be saved by alleviating the artificial scarcity of doctors by importing foreign trained doctors from accredited institutions abroad. So the annual savings tally just from free trade in services comes to $150 billion.

Now factor in the savings from allowing drug imports, curbing "lock in pricing" abuses or overcharging by PBMs, and for Medicare to directly negotiate drug prices. Assuming a 20% reduction in drug prices (which is realistic, given that drugs in Europe cost almost half of what they do in the US) will yield savings of $50 billion.

So here you have it. $200 billion of reductions without even tapping the huge savings from reduction in unneeded procedures, better electronic record keeping and tort reforms that cut down on defensive medicine.

Theatrics In Medicare Bill, Bush Veto, Override

As Paul Krugman said in his July 11th column in the New York Times, the passing of the Medicare amendment bill by Congress was a welcome development. McCain was on the wrong side of the issue here and unsurprisingly a prominent absentee in the senate vote.

In a move that plainly sought to protect special interests, President Bush followed through on his earlier threat and vetoed the bill. But Congress moved quickly for a dramatic override of Bush's veto, so the bill has now become law. Apart from preserving the doctors' Medicare fee rates the bill reduces the subsidies payable to health insurers who offer Medicare Advantage plans.

Here are some interesting features about all this activity:

• This is one of the rare times that Republicans were caught between two powerful special interests in healthcare who are both typically strong Republican supporters. The doctors and the AMA ended up on the winning side and the large private health insurers on the losing side
• Many Republicans switched votes only after doctor groups targeted them in effective ad campaigns in their home voting areas, specifically publicising their opposition up to that point on the bill
• Many Republicans ignored directives from their own party whips and Congress leadership, and of course broke from Bush on this as well. Facing difficult re-elections can be effective in prodding lawmakers to do the right thing
• By tying the Medicare fee protection for doctors with doing away with subsidies for insurers, the Democrats (and some like-minded Republicans) have won a high stakes game of chicken

The logic behind encouraging private insurers to run any Medicare type plans is that they will do so more efficiently and cheaply than a more wasteful government. But the private plans have been costing the government 13% to 17% more than what the government incurs in running its own plans. So what's the justification for these private plans with their extra subsidies? So far I've heard nothing beyond empty catch phrases like "more patient choice."

Still, the financial implications of this bill are miniscule ($20 billion over five years) compared to the $2.25 trillion US healthcare expenditure in 2007. Even for these amounts this is basically a transfer of wealth between industry players that doesn't of itself lower total costs. Hopefully it is a prelude to other reforms that bring US health costs somewhat in line with those in the rest of the developed world.