Obamacare

Bend It Like Obama

Can the government control health care inflation through subsidies?

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First President Obama said critics of his health care plan had no ideas worth considering. Then he said he never said that. Now he says he is eager to hear those previously unacknowledged ideas.

Taking Obama at his word (always a risky thing to do), is there any realistic prospect that the meeting he plans with legislators from both parties later this month will, as he suggests, produce "some agreements" on how to proceed with health care reform? Not if he continues to ignore the conflict between his approach to expanding medical coverage and the other major goal he says must be addressed by any serious reform proposal: bringing health care spending under control.

Obama wants to cover the uninsured by expanding Medicaid and providing various other subsidies: to small businesses that buy insurance for their employees, to individuals who buy policies from a government-created "insurance exchange," and to high-risk patients with pre-existing conditions. That last group would be subsidized not only by taxpayers but by younger, healthier policyholders who would be forced to pay higher premiums or to buy insurance they otherwise would have gone without.

The Senate health care bill would spend $1.8 trillion during the first decade after it fully takes effect in 2014 to cover some 30 million people (out of an estimated 46 million without insurance), and that's leaving aside the unfunded mandates imposed on states, employers, and individuals. Yet in his interview with CBS News anchor Katie Couric on Sunday, Obama said "the package that we've put together" will "start bending the cost curve on health care" and "cut the deficit by a trillion dollars." How is that possible?

The $1 trillion figure, which Obama misleadingly attributed to the Congressional Budget Office (CBO), is highly speculative. The CBO estimated that the Senate bill would reduce the deficit by $130 billion in the first decade after it was enacted through a combination of higher taxes and Medicare cuts. The CBO also more tentatively projected that if Congress retains its planned reductions in the growth of Medicare payments to providers (instead of rescinding them, as it always has in the past), the savings could amount to between 0.25 and 0.5 percent of gross domestic product in the second decade. Using generous assumptions, the Obama administration converted that highly uncertain estimate into a nice round figure of $1 trillion.

Still, restraining the growth of Medicare, which will swallow a bigger and bigger share of the federal budget as baby boomers retire, will be necessary to avoid crushing payroll taxes and/or sudden, drastic benefit cuts. That's one possible area of bipartisan agreement, although Republicans have dimmed the prospects by demagogically accusing the Democrats of trying to take away Grandma's health care.

But note that Obama's plan to restrain spending has nothing to do with his proposals to expand coverage, which would have the opposite effect, contributing to health care inflation by increasing subsidies. By contrast, market-based reforms that seek to expand coverage by making it more affordable also help to "bend the cost curve."

Obama has made gestures of support for a couple of these ideas. His proposed excise tax on especially expensive medical benefits is a roundabout, half-hearted attempt to address the tax incentive that encourages employers to offer health coverage in lieu of higher pay, which insulates consumers from prices and retards competition. At the same time, however, Obama would contribute to the problem by requiring employers to provide insurance.

Similarly, Obama says he is open to the idea of fostering interstate competition in the health insurance market. Yet he insists it cannot be allowed to happen without federal coverage mandates that would boost premiums and undermine the benefits of such competition.

Pressing Obama to confront the contradictions in his own proposals—between spending restraint and huge new subsidies, between amplifying and blocking price signals, between promoting choice and impairing competition—might not yield agreement. But it could produce a little clarity.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.

© Copyright 2010 by Creators Syndicate Inc.

NEXT: Pulling Out the Little Guns

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  1. Good Morning again reason!

    Suki’s Morning Video that has not a thing to do with the topic at hand. Maybe someone more creative than me can dream something into it or it into something.

    Morning Links preview repeat on the morning links open thread.

    1. …and Good Morning, Suki!

  2. Suki? Are you freaking Tri?u Trinh reincarnated?

    Back on topic, skip to the chase: Obama is full of shit. He wants to shut down private industry and health care is just the second one he is going after. Didn’t nationalize the banks yet, so it is only second. He already has the car industry and if Ford (I really don’t like Ford as a brand, but I dislike nationalization worse) thinks they are going to get away from him they have another thing comning (cue Judas Priest with their old leather-boi frontperson).

    He is working energy like a hooker trying to make it to the next trick. More like working energy AND healthcare as a double trying to make it to the next trick.

    What’s next? The media? Yea, that one is on the plate with the big papers begging to be nationalized.

    Quit playing coy with this Communist. Take the fucking gloves off, Reason.

    1. I’ll be in my Ford Heading Out to the Highway.

      1. That’s what I drive, but I think I’m staying in today.

    2. This administration is so totally owned lock, stock, and barrel by the SEIU, they should paint the freaking White House purple.

      1. Well, I saw the thing comin’ out of the sky.
        It had the one long horn, one big eye.
        I commenced to shakin’ and I said “ooh-eee!
        It looks like a purple eater to me.

    3. JT, “He wants to shut down private industry and health care is just the second one he is going after…He is working energy like a hooker trying to make it to the next trick. More like working energy AND healthcare as a double trying to make it to the next trick.” The reality is that “The bill for lobbyists, television ads and political donations has topped $375 million…The largest chunk has gone to direct lobbying of lawmakers and other policymakers. In the first half of 2009, the health care industry spent nearly $280 million on lobbyists” Why would he shut down any industry that is a cash cow? A hooker needs Johns and it is obvious that a politicians needs them too.

      1. Great share thanks for the read!

  3. Tri?u Trinh? Maybe if I were Vietnamese that would be a compliment. UGH! I doubt Suki character would like it much either with Tri?u Trinh being NORTH Vietnamese, even from the third century AD.

    Non Gae is more me and her portrait resembles me a little better.

    YES I SLEEP! Are you taking Naga notes or something? I just don’t sleep when you do, [evil laugh].

    1. We *really* do not care about your Mary Sue character’s adventures in Terrible FanFic Land.

      1. Here is one of the few times me and TAO agree. It’s crazy enough to create faux personas and post under them, but to have conversations between them and yourself…Can’t you just post under MultiWacko for truth in advertising?

  4. “His proposed excise tax on especially expensive medical benefits is a roundabout, half-hearted attempt to address the tax incentive that encourages employers to offer health coverage in lieu of higher pay”

    How? I always thought it was just a tax. I can’t see how a tax on employees discourages employers from offering the most generous plans it can. Wouldn’t just removing the incentive to employers be easier?

    The biggest contradiction I see is the one between the excise tax and the federal benefit mandates. You wanna tax the living fuck out of me for having a Cadillac plan, but the mandates make EVERY PLAN a Cadillac plan. That’s the fundamental problem in the insurance market – the lack of shitty plans. The closest thing I can get to one now is a high deductible (catastrophic) plan with an HSA, and even that covers way more shit than I want to pay for. That’s how you know liberals don’t have a clue what in the fuck it is they are talking about when they make the “interstate competition = race to the bottom” argument. We NEED a race to the bottom, fast. That’s the only way to really bend the cost curve.

    1. How? I always thought it was just a tax. I can’t see how a tax on employees discourages employers from offering the most generous plans it can.

      Why do you think companies offer plans in the first place? They care about the total cost of compensation, in whatever form they feel is most likely to get them the best employees. If they are offering something that costs them $15k, but only gives their employees $7k worth of “benefit” due to a specific tax, then why not just give them the $15k?

      1. But it’s not clear to me whether or not the excise tax is supposed to be implemented in addition to or in place of the current tax incentives given to employers. If it’s intended to be given in addition to the current incentives, it’s a wash, really, and as an employer, I can still ‘offer’ the 15k of benefits (and the government takes what it takes, not my fault). If it’s given in place of the employer tax benefit, then what you’re saying makes pretty good sense.

        1. It’s in adddition to. And you’re not doing the math.

          Company A offers $65k salary + $20k in tax-free benefits.

          Company B offers $70k salary + 20k in benefits taxed at 50%.

          How long will Company B stay in business when it is offering less compensation, but paying more to do it?

          1. I gotcha, but that’s not the plan, so I guess the point’s moot. The plan is, as far as I can tell, to force company A to issue insurancebut give them a tax incentive to do so, tax the employee for receiving it, but only if it’s a Cadillac plan, but mandate that everyone’s insurance must cover everything so that they are all Cadillac plans. I guess my confusion is derived from giving this administration a bit too much credit. Turns out they are every bit as clueless as I suspected. I won’t make that mistake again.

      2. How? I always thought it was just a tax. I can’t see how a tax on employees discourages employers from offering the most generous plans it can. Wouldn’t just removing the incentive to employers be easier?

    2. “You wanna tax the living fuck out of me for having a Cadillac plan”

      As you note later in your post you are not a productive enough person to afford anything close to a “cadillac” plan, so what’s up with the whining about that?

      1. Not wanting to pay for something and not being able to pay for it are two different things. Did you know that?

        1. Technically, you’d have to spend well over the Cadillac threshold in order to offset the fact that the first $15k was tax free.

          You are only against the parts of specific social engineering by tax law that doesn’t give you money.

          1. As costs continue to rise, this won’t take long.

            “You are only against the parts of specific social engineering by tax law that doesn’t give you money.”

            I’m against the parts that cost me money, including the ones that encourage employers to over-insure their employees, yes. Is that a bad thing?

            1. I’m against the parts that cost me money, including the ones that encourage employers to over-insure their employees, yes. Is that a bad thing?

              So just to clarify then, you think that insurance benefits be taxable as ordinary income? No subsides to make companies over-insure, and no specific taxes on it other than that?

              Cause that’s not how I read your individual comment.

      2. You mean the unions are productive enough to afford them?

        Like the UAW?

        1. I’m against the parts that cost me money, including the ones that encourage employers to over-insure their employees, yes. Is that a bad thing?

    3. Don’t knock the HSA plan. It could actually be the solution to the whole healthcare problem.

      As I see it, insurance for non-catastrophic medical treatment causes the demand and price to skyrocket, while driving down the quality of service. If you’ve already paid for a service why not take advantage of it?

      The beauty of an HSA is that people have to spend their own money for treatment, even if its in a pre-tax, medical treatment only account somewhere. People managing their own money will make them more prudent about how it gets spent.

      1. I’m not knocking it, really, I’m actually reasonably happy with my plan. Reasonably. It’s not for everyone, though. I was really simply noting that I would like a bit more choice, specifically a more menu-based insurance model where people who want a bit more insurance than I don’t have to pay a higher premium to be thrown in the risk pool for hangnails because the government says so.

  5. which insulates consumers from prices and retards competition.

    First of all – racist!

    Second, the tin ear on this guy is unbelievable. Repackaged again is the same bullshit that won’t work and whose internal inconsistencies are irreconcilable, but with some new made-up financials that won’t pan out. And now we’re going to listen to “other ideas”. Except we can’t start over (best idea), we have to start from where we are.

    Brilliant. I’m up for anyone who pursues getting the federal government out of anything except Medicaid/Medicare as a start – and then let’s go from there. Unlikely, I realize, but one can hope. And change.

    1. First of all – racist!

      Glad people are still making this ‘joke.’ Do you have any about Mission Accomplished or Lewinsky you wanna crack out while you’re at it?

  6. Oh whats the big deal, time to get over it and move on. Stop beating the dead horse!

    Jess
    http://www.online-anonymity.cz.tc

    1. Anon Bot, I love your brevity

  7. If the Republicans weren’t some combination of evil and retarded, they would take whatever handful of things the Democrats have said they want that actually would be an improvement (like interstate competition) and say “We’ll agree to all of this stuff here that you say is good right now, let’s go vote on it.”

    It would not only be smart politically – Obama would then have to explain why he’s blocking good reforms in order to try to get bad ones passed with them – but it would be nice to see them actually do something rather than ignore problems until the Dems are in power and then say how many great ideas they have.

    1. We’ll agree to all of this stuff here that you say is good right now, let’s go vote on it.”

      Republicans have already tried to introduce bills, they can’t get them out of committee. Democrats aren’ stupid, they know if they pass a “baby step” plan, the voters will be satisfied for awhile, and then they won’t be able to get the public option in. It’s all or nothing in their minds, which, yes, is it’s own form of obstruction.

      1. damn i used it’s instead of its.

      2. I think you’re missing the point. Obama is going to go on TV with them and make a big spectacle of it. THAT is when they need to say this stuff, point blank, and make him suffer for it.

        No amount of bills introduced when nobody is watching will help, but this way they can force his hand. He’s still not going to allow it to come to a vote, but it’ll put a stake in the heart of the current push.

        1. Alternatively it could make the Republicans look horrible, setting up some Democrat wins this year.

          1. If there is one thing the Red Team is good at, it’s staging populist political theater. I think they could pull it off.

            But that’s making the assumption that they don’t want to prevent any good reforms from happening out of pure partisan malice. That’s a pretty huge assumption.

    2. It doesn’t work like that. The negotiating process is one where the ems try to get as much as they can, picking up just enough Republican votes to pass it. They need those things as bargaining chips to get the rest of the thigns they want. if they handed them all to the GOP for free, they would never get the insurance subsidies or exchanges or mandates.

      1. What is so complicated about my post that multiple people are rewording what I wrote and trying to give it to me as new information?

        OF COURSE the Democrats don’t want that to happen. I specifically said so. I’m saying that if they have a live debate like they say they will and the GOP doesn’t serve it up to them exactly like that, they are obscenely negligent.

    3. No amount of bills introduced when nobody is watching will help, but this way they can force his hand. He’s still not going to allow it to come to a vote, but it’ll put a stake in the heart of the current push.

  8. I can see how Obama’s plans to expand cover will result in higher costs, but I think if you reverse the order, i.e., try to bring down costs, that would expand coverage. I guess the concern some liberals have is that many ways of bringing down the cost may involve a crappier product that doesn’t address concerns about people who can’t afford treatments.

    1. Well, there are these “free market” thingees that usually manage to lower costs and improve services at the same time. But that generally involves evil profit-making, so we can’t have that.

  9. “No, says Senior Editor Jacob Sullum, unless Obama is prepared to acknowledge the conflict between his approach to expanding medical coverage and the other major goal he says must be addressed by any serious reform proposal: bringing health care spending under control.”

    Actually, that’s not what Jake says. What he says is that it’s very unlikely that Obama will have the guts to make the cuts in health care spending that he says he’s going to make. Which is pretty likely, considering the fact that Obama gave old folks on Social Security a “cost of living” increase even though the cost of living went down rather than up, and also considering the fact that when a commission of experts recommending making breast examinations for women under 40 “not mandatory,” the Administration bailed after about three hours of pressure from the breast cancer lobby.

    So here’s the solution: Marry a French chick. Problem solved!

    1. Which is pretty likely, considering the fact that Obama gave old folks on Social Security a “cost of living” increase even though the cost of living went down rather than up,

      cite please

      1. Brother Ben is right to ask. There was a lot of smoke and fire here on H&R about the cost of living increase that Obama (or rather, Team Blue) was supposed to be giving to old folks despite the decrease in cost of living, but it didn’t actually happen in the end.

        Take this for instance, from the Minnesota Spokesman-Recorder:

        Until this January, Mama D could count on at least a little help from Uncle Sam in the form of annual cost-of-living increases in Social Security payments.

        But President Barack Obama put an end to that, eliminating that increase for at least the next three years.

        Given the number of whiny complaints about no SS COLA increases that a Google News search turns up from just the past few days, I’d say that H&R writers never made some retractions that those who rely on Reason for all their news would have needed.

  10. (like interstate competition)

    The Democrats are opposed to that you retard.

  11. Actually I think the Republicans are reacting to this in the best possible way for their own self-interest. They’re saying (rightly) that the bill as it exists now reflected the fact that the Dems had no need for Republican support as they had a majority in the House and a supermajority in the Senate. Since that reality no longer holds, the bill needs to be started over.

    Now mind you, what is good for the GOP is not necessarily good for America, but in this case it makes sense to root for them to be an effective check on Dem excesses.

  12. How can all thoughts be directed to – 1 – Providing more coverage, through subsidies (More does cost more – Right?), and – 2 – Then, making up for that cost (Not to mention our existing costs) by dinging the providers?

    Makes no sense – Seems like the 1st thought ought only to be – How to assure coverage for those in need, in a way that costs can be accepted & agreed to? Why not focus on just that 1 thought, without looking to mask it, or find a way to pay for it be taking something from someone else’s (The providers’) hide

    Could they/we 1st get consensus on who needs coverage, why & at what cost? (Myself, think answer there, while admittedly complex, goes in direction of perhaps expansion of Medicaid for some; perhaps catastrohic coverage for others; perhaps community rating for all, so that pre-exisiting conditions fairly managed for all, among all)

    But, let’s stop & try to get that 1 thought right 1st (However consensus should & can be accomplished)

    Then, let’s go on to the next thought – How to bend the cost curve? (Myself, think only fair & honest answer there is all about eligbility & benefits, not making providers go to poor house, or allowing govt to tell providers what to do, how to do it & at what price)

    Trying to get all thoughts covered in 1 big sweep just makes for governmental incompetence (Which is where we’re at & where we seem stuck on going)

  13. What an uninformed article! How can you possibly analyze the Obama health care plan and its effect on costs and the deficit without once mentioning rainbows and unicorns? Any serious analysis would mention these incredibly important factors.

  14. The philosophy of both parties presupposes that healthcare is a right. The only way for Republicans to earn any credibility is to propose repealing healthcare/health insurance laws, not “reforming” them.

    1. That would be politically destructive, because Americans don’t want logic, they want ‘they Obama moneys’.

      It’ll take a while for everyone to realize that healthcare is not a right.

      1. ….because it is.

        1. But you see, RCTL, that’s what the fight is about. On the one hand, the Republicrats and the Demopublicans who – even tho they may not say it – believe what you just wrote that health care is a right. On the other hand, about 50% of the American people don’t want it, because they – stupid, racist, semi-educated, religion-doped as they are – believe that what they have is good enough. Or, maybe, that what’s being proposed is not going to do what is claimed for it. Or, maybe, that they believe that the government is really really really going over the top on this one and it’s just beyond the Fed’s Constitutional authority. Probably not that third one, given how ignorant, stupid and prejudiced we all are down here in the working class.

          Compare those things ordinarily considered a “right” – which taken together imply the definition of that word is the moral perogative to class of actions – with health care or child care or food or water or any other concrete limited resource and you’ll see that health care in, in point of logic, not a “right” as that term is being used in this context.

          1. Ike, cite where you found the about 50% figure. “While most Americans oppose the plan, two reforms in it are supported by more than 70% of the public — creating a new national insurance exchange and requiring health insurance companies to accept applicants with pre-existing conditions.”

            1. @RCTL

              Here is one poll for you:

              http://msnbcmedia.msn.com/i/MS…..NBCWSJ.pdf

              – only 31% of people surveyed say it is a good idea versus 46% that say it is a bad idea.

              And another:

              http://i2.cdn.turner.com/cnn/2010/images/01/26/rel2c.pdf

              38% generally support and 58% generally oppose Obummercare.

              I checked the Constitution – no health care right included there.

              Maybe you were reading the UN “Universal Declaration of Human Rights” where article 25 states:

              “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.”

              That still doesn’t say we should force anyone to switch to government insurance (via massive regulation of existing private insurance companies that makes current insurance more expensive) or force you to buy insurance (via statist mandate) or force you to have insurance that covers things you don’t need coverage for (in order to fulfill some Congresscritters pet project or as payback for campaign contributions).

              Government should be doing things to make insurance and health care less costly for all (allow purchase of insurance across state lines to increase competition, remove the tax break on insurance received through employer to make insurance controlled by the individual – portable and right-sized, increase use of HSAs, expansion of health status insurance to protect those with pre-existing conditions, vouchers for Medicare enrollees to allow them to pick any health plan).

              1. It is possible to say that even “about 50% of the American people don’t want it” but only in the context of the way hcr was presented. Your survey reflects that Americans want reform but not any reform. “What do you think Congress should do on health care…pass a health care bill similar to the legislation that Congress has been working on for the past year, start work on an entirely new bill, or stop working on any bills that would change the country’s health care system?
                Pass similar bill 30%
                Start work on new bill 48%
                Stop working on health care 21%”

                The second survey reinforces the idea that the dislike was for his plan and the fighting (93%) between the Dems and Republicans and most compelling is that 84% think “Special interests have too much influence over legislation”.
                Q12 From what you have heard about Barack Obama’s health care plan, do you think his plan is a good idea or a
                bad idea? If you do not have an opinion either way, please just say so.
                Good idea ………………………………….. 31 33 32 38 39 36 36 33 33
                Bad idea…………………………………….. 46 46 47 42 41 42 42 32 26

                “I checked the Constitution – no health care right included there.” Some rights are so basic that they need not be recorded and I always assumed that our constitution was written with that in mind.

                1. @RCTL

                  “Some rights are so basic that they need not be recorded”

                  Like the right to not have government shove something I don’t want down my throat.

                  1. I knew that would irk you. Too easy!

                    1. RCTL,

                      Me and the rest of libertarian scoiety.

  15. No such thing as “Health Care Inflation” but there is Inflation in general. There arent enough subsidies in the country to counteract inflation.

    The way to correct the problem is to get our monetary policy under control and back into the peoples hands. END THE FED.

  16. Subsidies by the way are a joke. It makes me think of this report yesterday played on FOX in regards to the bidget cuts with NASA but not too worry because the private space industry will be moving into Florida to save jobs. Excuse me but there is no such thing as the “private space industry”! Its not like there is this huge demand, especially in Florida, among the people to fly into space commercially and make a profit. All that is going is the federal government reallocating the peoples tax dollars to private firms which is no different and even more unethical!

  17. I also would like to point out one of the many lies on the (R) side of the isle in regards to health care freedom. The Honorable John McCain just introduced S. 3002 to effectively put all Health Food supplements under control of the FDA. You will now need a prescription from your doctor to purchase your multivitamin.

    J.D. Hayworth where do you stand on this issue?

    1. Carl:

      I just read the bill. There is nothing in the bill that states you need a prescription from a doctor to get any vitamin or dietary supplement.

      http://bit.ly/cT4ZT6

  18. I think Democrats latched on to this loony “cost saving” spin because it makes socialized medicine sound cold hearted, if not barbaric. Take that, conservatives! So oddly enough, Republicans ended up in the position of defending the elderly against penny pinching Democrats who want to kill your non-cost-effective grandma.

  19. This is a good,common sense article.Very helpful to one who is just finding the resouces about this part.It will certainly help educate me.Food Additives Suppliers

  20. If people would stop listening to all the disinformation going around and actually read the Obama plan then they would see that it is the best option in the long run. But the way things are going, it seems likely that the big boys will get their way. nice going sheeples, blindly believing what ever BS comes your way. STOP. RESEARCH. MAKE AN INFORMED DECISION.

    Regards, Joseph – CEO at Case de pariuri

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