Thursday, May 28, 2009

Failure Through Compromise?

Make no mistake. The health industry likes the status quo and wants health reforms to fail. Why? Because "what the rest of us call health care costs, they call income" as Paul Krugman noted on May 10. A meaningful reform package will drastically cut costs that will affect all or most players, so the industry has strong incentives to unite to oppose it.

President Obama ought to fully know this even as he lauded the health industry's promise to cut $2 trillion in costs over the next 10 years. The industry is doing this to get a seat at the table on health care reforms. Pundits and reformers are rightly suspicious of industry intentions. Krugman in his May 21 column exposed insurer moves to kill the public insurance option in a repeat of the Harry and Louise ads that helped sink Clinton's 1993 reforms.

This public option is vital for the US unlike other countries like the Netherlands as explained in my previous two posts - because engineered provider scarcities in the US require a centralized entity with buyer's clout to keep pricing reasonable. The cost-effectiveness of the public option will essentially sink the private insurers as the private market is likely to shrink to less than a fifth of its current size. So yes, I empathize with the desperation of private insurers. The question for Obama and Congress is, whose interests should be paramount? The American public whose health care costs can be chopped dramatically, or the employment and profits of private insurers?

Despite the obvious answer, reforms may be stymied as in decades past. With so much at stake, private insurers will spare no efforts to buy over lawmakers, and advance fallacies of "free market" virtues and "socialized medicine" evils to sway public opinion. The biggest hurdle is the US Senate where Republicans are a 40% minority, but can be joined by enough Democrats to block the most useful changes through "compromise legislation." Such Democrats call themselves "centrists", but like good and bad cholestrol, such centrists can be good or bad types depending on how they choose to accomodate Republicans.

An example of a bad centrist is Democratic Senator Ben Nelson who opposes the public option and gave eight easily refutable reasons for doing so, and basically parrots Republican objections. Then you have Sen. Charles ("Chuck") Schumer ostensibly addressing Sen. Nelson's objections in a compromise proposal by handicapping the public option and constraining it to pay providers higher rates than Medicare. Just as in G.W. Bush's ill-conceived drug plan for seniors, what's the point of not allowing the government to use its buying power to lower costs, particularly to counter monopoly or scarcity pricing by providers?

President Obama's Administration can of course use his high popularity and his bully pulpit to call out the Democratic Senate hold-outs. They will support the public option without undue handicaps if they fear a voter backlash from failure to do so and heightened suspicions of their backroom dealing. Obama at times seems over-eager to be inclusive, but it's early yet and I hope my misgivings are misplaced. We will know soon.

Finally, an aspect that escaped comments by Krugman and other experts is about the numbers in the health industry's promise to cut costs. They'll cut $2 trillion over ten years by reducing the projected annual growth rate of health costs by 1.5%. Is that it? While $2 trillion sounds like a lot, it's under 5% of cumulative costs. Given our outrageously high costs and pricing compared to peer economies we should be aiming for over a trillion dollar reduction per year at current levels. That's about $15 trillion over ten years.

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