Wednesday, July 23, 2008

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.

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