Price Controls "Pay" for President Obama's Health Care Reforms

Today in a speech before the American Medical Association, President Barack Obama outlined how he plans to raise the $1 trillion necessary to pay for his proposed health care reform agenda over the next decade. First, the president cited his $635 billion health reserve fund as the famous "down payment" for his reform agenda. About half—$300 billion—of this aspirational reserve fund is "paid for" by capping the tax breaks on charitable deductions of rich Americans to 28 percent. Never mind that this proposed tax hike has yet to pass Congress and that many key Democratic leaders on Capitol Hill oppose it.

Another chunk of the notional Health Reserve Fund will come from reducing payments—$177 billion—to private Medicare Advantage companies that provide insurance coverage for about 10 million Medicare beneficiaries. The president also plans to reduce hospital Medicare reimbursements by $25 billion over the next ten years. Another $30 billion is accounted for by charging wealthier Medicare beneficiaries more for their drugs.  

In his weekly radio address and his speech today, President Obama claimed to have found an additional $313 billion in Medicare and Medicaid savings over the next ten years which will help pay for his $1 trillion health care reform agenda. These savings include a cut of $109 billion in payments to physicians based on recalculating the federal government's productivity payment formula.

Another $106 billion will come from cuts in payments to hospitals for treating uninsured people. The argument here is that once the reforms are enacted there won't be many uninsured people seeking uncompensated services at hospitals. This gambit may "save" money for Medicare and Medicaid, but some other agency or enterprise will be paying for the hospital services that the newly insured receive. Isn't this shifting the pots from which $106 billion will come rather than reducing overall spending on hospital care? Isn't it likely that a good part of the $106 billion will have to come from the president's proposed government insurance scheme? 

More "savings" of $75 billion that could used to "pay for" President Obama's health care reforms would come from "more efficient purchasing" of prescription drugs. The Medicare Part D prescription drug plan was adopted in 2003 with a non-interference clause that promised that the federal government would not impose price controls on pharmaceuticals. Of course, when Medicare was established in 1965, the government made the same promise to physicians and hospital then. I suspect that "more efficient purchasing" is just a nicer way of saying "price controls." And it should be noted that according to the president, "we can save about one billion more by rooting out waste, abuse, and fraud throughout our health care system." Just a billion? 

After parsing the numbers, it looks as though most the "savings" that President Obama wants to use to finance his health care reforms are achieved by imposing price controls. 

It must be asked: can federal government "savings" projected over a decade really be credible in any case? Recall that in December 2000, the Clinton administration declared that "the United States can be debt-free this decade. By dedicating the entire budget surplus to debt reduction, the United States can eliminate its publicly held debt by FY 2009." 

It is undeniable that health care in America needs massive reform. But the best step toward health care reform would be to begin unwinding our dysfunctional system of third party insurance payments and shifting toward consumer driven health care. But President Obama has made it clear that it not the direction he intends to go.