The Obama Plan – Part I

We’re starting to hear about how Obama intends to implement healthcare in this country.

President Barack Obama says he’s open to requiring all Americans to buy health insurance, as long as the plan provides a “hardship waiver” to exempt poor people from having to pay.

Obama opposed such an individual mandate during his campaign, but Congress increasingly is moving to embrace the idea.

In providing the first real details on how he wants to reshape the nation’s health care system, the president urged Congress on Wednesday toward a sweeping overhaul that would allow Americans to buy into a government insurance plan.

Obama outlined his goals in a letter to Sens. Edward Kennedy, D-Mass., and Max Baucus, D-Mont., chairmen of the two committees writing health care bills. It followed a meeting he held Tuesday with members of their committees, and amounted to a road map to keep Congress aligned with his goals.

The letter published at, lays out some basic ideas, but it seems as though Obama is willing to have congress work out the specifics.

Let’s go through his recommendations and talk about the implications.

First the frontmatter:

The Honorable Edward M. Kennedy
The Honorable Max Baucus
United States Senate
Washington, D.C. 20510

Dear Senator Kennedy and Senator Baucus:

The meeting that we held today was very productive and I want to commend you for your leadership — and the hard work your Committees are doing on health care reform, one of the most urgent and important challenges confronting us as a Nation.

In 2009, health care reform is not a luxury. It’s a necessity we cannot defer. Soaring health care costs make our current course unsustainable. It is unsustainable for our families, whose spiraling premiums and out-of-pocket expenses are pushing them into bankruptcy and forcing them to go without the checkups and prescriptions they need. It is unsustainable for businesses, forcing more and more of them to choose between keeping their doors open or covering their workers. And the ever-increasing cost of Medicare and Medicaid are among the main drivers of enormous budget deficits that are threatening our economic future.

In short, the status quo is broken, and pouring money into a broken system only perpetuates its inefficiencies. Doing nothing would only put our entire health care system at risk. Without meaningful reform, one fifth of our economy is projected to be tied up in our health care system in 10 years; millions more Americans are expected to go without insurance; and outside of what they are receiving for health care, workers are projected to see their take-home pay actually fall over time.

We simply cannot afford to postpone health care reform any longer. This recognition has led an unprecedented coalition to emerge on behalf of reform — hospitals, physicians, and health insurers, labor and business, Democrats and Republicans. These groups, adversaries in past efforts, are now standing as partners on the same side of this debate.

I think we can all attest to these facts. There is a problem, it needs a solution. As we’ve emphasized in our discussions of health care, we pay far more per capita for healthcare than should be expected based on our GDP. We pay about twice as much as any other country. For this, we receive care that by almost all measures is inferior. Other universal systems have less rationing, better access, and better measures of health in almost every metric imaginable. While in this country you may receive excellent health care, we ration access based on wealth rather than need. If you are Bill Gates, you will receive excellent care. If you are an average citizen, even with insurance, it’s not so clear you will get the treatments you need, when you need them, or be able to afford the treatment with out-of-pocket expenses built into our system. Worse, if you are so unfortunate as to develop a chronic illness, or really just grow old, insurance is rarely enough to cover expenses, and insurance companies are highly motivated to dump you from their rolls.

At this historic juncture, we share the goal of quality, affordable health care for all Americans. But I want to stress that reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care. That means promoting the best practices, not simply the most expensive. We should ask why places like the Mayo Clinic in Minnesota, the Cleveland Clinic in Ohio, and other institutions can offer the highest quality care at costs well below the national norm. We need to learn from their successes and replicate those best practices across our country. That’s how we can achieve reform that preserves and strengthens what’s best about our health care system, while fixing what is broken.

This is my least favorite argument in the world. In fact, when I hear it, I’m usually immediately pissed off. This is the argument that is discussed in Atul Gawande’s article in the New Yorker. I think those who propose it must be purposefully obtuse. Private clinics in the Midwest provide excellent care for less cost per patient for numerous reasons that are no mystery. We should all be so lucky to work in hospitals that only have to treat patients they choose, patients that have insurance, that tend to be well-educated, from a homogeneous population, that can afford the travel and expense of the trip, and that don’t have to provide extensive services for the public, often at a loss. Running level I trauma centers, mental health wards, ERs and clinics in large cities full of poor people is difficult and costly. People often cite UCLA as a big spender in these conversations, but you try to offer the same services to the population of LA as you do to the relatively homogeneous, employed, housed population in Minnesota. While these are excellent clinics I would suggest the difference observed in costs are mostly due to the patient “protoplasm”. That is, healthy, wealthy, employed populations are easier and cheaper to treat than say, the population of inner-city Baltimore or Los Angeles where many excess costs are built in to provide services to those who can not afford it, and where you tend to have highly expensive frequent fliers, homeless populations, drug users, mentally ill, trauma patients, uninsured populations, immigrant populations, etc. These people who pontificate about why o why is it so much easier in Minnesota? Please.

The plans you are discussing embody my core belief that Americans should have better choices for health insurance, building on the principle that if they like the coverage they have now, they can keep it, while seeing their costs lowered as our reforms take hold. But for those who don’t have such options, I agree that we should create a health insurance exchange — a market where Americans can one-stop shop for a health care plan, compare benefits and prices, and choose the plan that’s best for them, in the same way that Members of Congress and their families can. None of these plans should deny coverage on the basis of a preexisting condition, and all of these plans should include an affordable basic benefit package that includes prevention, and protection against catastrophic costs. I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.

This is an excellent idea, and as I suggested Australia may serve as a model for these ideas although the better risk-sharing initiative of the Netherlands seems superior.

I understand the Committees are moving towards a principle of shared responsibility — making every American responsible for having health insurance coverage, and asking that employers share in the cost. I share the goal of ending lapses and gaps in coverage that make us less healthy and drive up everyone’s costs, and I am open to your ideas on shared responsibility. But I believe if we are going to make people responsible for owning health insurance, we must make health care affordable. If we do end up with a system where people are responsible for their own insurance, we need to provide a hardship waiver to exempt Americans who cannot afford it. In addition, while I believe that employers have a responsibility to support health insurance for their employees, small businesses face a number of special challenges in affording health benefits and should be exempted.

Health care reform must not add to our deficits over the next 10 years — it must be at least deficit neutral and put America on a path to reducing its deficit over time. To fulfill this promise, I have set aside $635 billion in a health reserve fund as a down payment on reform. This reserve fund includes a number of proposals to cut spending by $309 billion over 10 years –reducing overpayments to Medicare Advantage private insurers; strengthening Medicare and Medicaid payment accuracy by cutting waste, fraud and abuse; improving care for Medicare patients after hospitalizations; and encouraging physicians to form “accountable care organizations” to improve the quality of care for Medicare patients. The reserve fund also includes a proposal to limit the tax rate at which high-income taxpayers can take itemized deductions to 28 percent, which, together with other steps to close loopholes, would raise $326 billion over 10 years.

It’s easy to say waste, fraud, and abuse, but much of the waste is created by our health care infrastructure. When we discussed excess costs found in US healthcare, we emphasized that administration in this country is outrageously expensive, and costs have increased by about 30% a year since the Bush administration started subcontracting administration to private companies. We need to see some tough talk about administrative costs. We also discussed how on average, Americans pay twice as much for the same pill as citizens of other countries. We need to see some tough talk about collective bargaining and reigning in pharmaceutical costs, while ignoring the industry’s facetious argument about R&D. We also discussed the problem of “defensive medicine”. We need to see some tough talk about tort reform that emphasizes victim compensation for expected complications, and that isn’t used as an excuse to protect incompetent physicians from malpractice. Obama says “waste, fraud, and abuse”. This is very vague. I want to hear specifics about how known specific causes of excess costs will be addressed. I suspect medicare fraud is a tiny fraction of the problem. We know what the big problems are. Administration, drug costs, and the expense of treating the uninsured in ERs that is spread onto the insured already. It’s entirely possible that universality will make our individual premiums go down, if we can force insurers to honestly react to decreased expense from cost spreading.

I am committed to working with the Congress to fully offset the cost of health care reform by reducing Medicare and Medicaid spending by another $200 to $300 billion over the next 10 years, and by enacting appropriate proposals to generate additional revenues. These savings will come not only by adopting new technologies and addressing the vastly different costs of care, but from going after the key drivers of skyrocketing health care costs, including unmanaged chronic diseases, duplicated tests, and unnecessary hospital readmissions.

To identify and achieve additional savings, I am also open to your ideas about giving special consideration to the recommendations of the Medicare Payment Advisory Commission (MedPAC), a commission created by a Republican Congress. Under this approach, MedPAC’s recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress. This is similar to a process that has been used effectively by a commission charged with closing military bases, and could be a valuable tool to help achieve health care reform in a fiscally responsible way.
These are some of the issues I look forward to discussing with you in greater detail in the weeks and months ahead. But this year, we must do more than discuss. We must act. The American people and America’s future demand it.

I know that you have reached out to Republican colleagues, as I have, and that you have worked hard to reach a bipartisan consensus about many of these issues. I remain hopeful that many Republicans will join us in enacting this historic legislation that will lower health care costs for families, businesses, and governments, and improve the lives of millions of Americans. So, I appreciate your efforts, and look forward to working with you so that the Congress can complete health care reform by October.



As we suggested, the electronic medical record may help some redundancy, but the blame must go to those who are generating the most excessive costs. Private administration of healthcare must be reigned in and made less expensive. I understand that Obama wants to create a parallel government insurer for them to compete with, I believe that this will go a long way to correct this problem. If the insurers don’t survive? Well, I won’t shed a tear. If they can not provide a service superior to that of a public insurer then there is no excuse for wasting the extra money on them. We always hear about how the private sector is so superior to the government, let’s see them prove it, side-by-side. And so what if they fail? Why should we pay more for a private service just to support their industry when we can agree to organize a governmental program to address our healthcare problem more cheaply?

I don’t think they’ll fail. I think it’s just so much bellyaching from corporations who don’t like change, who don’t want to face changing profitable business models in the face of a society that can not bear the costs of their system, and are frustrated with their crooked business practices. They’re smart, they’ll adapt, they will figure out a way to make money offering services above and beyond a government provider, and we’ll all benefit from their business model being challenged.

We’ll talk more about specific details as they come out.