Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

30 May 2007

Obama’s Health-Care Plan

      NOTE: For an update on mandates and Paul Krugman’s column of February 4, 2008, see this post.
Yesterday Senator Barack Obama (D., Ill.) unveiled his health-care plan. It was exactly what you would expect from someone who is smarter than any two other presidential candidates combined. It was a tour de force. Anyone who doubts Obama’s presidential qualifications should read his speech carefully.

What’s so brilliant about Obama’s plan? Just about everything. In a relatively short speech, Obama displayed a consummate understanding of realism, politics, economic motivation, economics, actuarial science, quality, transparency, and “customer service.” You won’t find all those words in his talk because he chose simple language that anyone could understand. But he covered all those bases and more, and he covered them well.

Let’s begin with politics and realism. Many Democrats yearn for a “single payer” system, what doctors used to call “socialized medicine.” But powerful forces have made that system politically unattainable in our country.

You have to be of a certain age to understand this point. For decades, the foremost authorities on health care—doctors—have gone ballistic at the mere mention of socialized medicine, however described. Why? They fear that government control of payment will lead to government control of pricing and treatment. For the last two decades, insurers’ bureaucracies and HMOs have forced doctors to work harder, for less pay, under closer supervision than ever before. In that atmosphere doctors are never going to support what they see as yet another huge bureaucracy looking over their shoulders, however well intentioned.

Forget for a moment that insurers, drug companies and most conservatives (even the few remaining moderate ones!) all hate the idea of a “single payer.” Anyone who seeks to pass important health-care legislation over the opposition of the doctors who actually provide health care is pissing into the wind. Obama is much too smart to do that.

Yet as he displayed his firm grasp of political realism by avoiding single payer, Obama also showed us where his heart lies. Toward the end of his talk, he showered praise on our Medicare system, an existing “single payer” plan for seniors. He touched his Democratic bases by lauding Harry Truman, who first conceived the idea, and Lyndon Johnson, who signed it into law. With subtle brilliance, Obama told us, in effect, “Look, folks, I’d like single payer, too. But this problem is urgent and we have to do something that Congress can pass this decade.”

Obama’s realism did not stop there. He wove into his speech an explanation why the stars are all aligned for health care reform in a way they never have been before. He even graciously excused his chief opponent’s earlier failure in health care, referring to the nineties as too early to catch this wave.

The current economic motivations for health-care reform that he cited touch both the left and the right. Several times, he mentioned the 45 million Americans without health care. He began his speech with a story of an Iowa couple, owners of a small Internet business, who had health care but were being driven into bankruptcy by rising premiums as the husband battled cancer.

Obama’s statesmanship lay in what he said next. He did not stop with what steely-eyed business people might call “bleeding heart” stories. He gave all the reasons why business people should (and increasingly do) support sweeping health care-reform. He explained how rising health care costs are ruining American automobile producers. He mentioned the burden on small business. And he noted the disadvantage that huge health-care costs impose on all American businesses as they compete in the global marketplace against firms in Europe and Japan, whose workers enjoy universal, government-sponsored health care.

By invoking reasons why both consumers and business need health-care reform, Obama built a “big tent” for his proposals, all the while explaining how the political stars’ present alignment now makes real reform possible.

Like his substance, Obama’s tone was statesmanlike. He laid out facts showing inefficiency and greed in the health-insurance and drug industries, but he never railed against them. He didn’t promise to “fight” them or exclude them from the legislative process. He merely observed dryly that “it’s time to let the drug and insurance industries know that while they’ll get a seat at the table, they don’t get to buy every chair.” Besides laying out facts to make his points, that was about the strongest thing he said.

But Obama’s realism and statesmanship are only half the story. We have lots of smart politicians in this country, but they don’t seem to have solved any real problems for us in a long time. We desperately need more than clever politics. What we need is substance, i.e., solutions that work. That’s where Obama shines.

The “headlines” on Obama’s plan say nothing terribly new. Like other federal and some state proposals, his rely primarily on the private insurance market. He would reach universal coverage by requiring most businesses (all but “the smallest”) to provide health-care insurance. He would subsidize policies for those who cannot afford them. He would finance his program by letting Bush’s tax cuts for the wealthy expire, by reducing inefficiency and waste, and by requiring greater competition in the insurance, drug, and health-care industries. And he would lower the cost of insurance for everyone by creating bigger insurance pools to spread the risk.

While these proposals are good and should work, they are not really new. In broad outlines, Obama’s program is similar to that which Massachusetts enacted recently and is now implementing. The other Democratic presidential candidates all have similar features in their plans.

What is original—and impressive—is the five subsidiary points of Obama’s plan. They show exactly how thoughtful, creative, non-ideological and practical a leader he is.

Here are the five main “detail” points of his plan, in the order in which he presented them, but in different words:

    1. Partial government re-insurance of “catastrophic” claims, such as claims for cancer care and heart surgery.

    2. Financial incentives for preventive care.

    3. Incentives for quality care through (a) public disclosure of quality “report cards” and (b) direct financial rewards for quality.

    4. Taming waste, inefficiency and medical errors through modern electronic record-keeping and transmission systems.

    5. Changing the law to require health-care, drug and insurance companies to engage in real competition, with financial penalties if they don’t.

Unfortunately for Obama, you need some background in health care, and more than a little knowledge of economics, to appreciate just how smart these points are.

Take the first point, for example: partial subsidies of insurance company losses from “catastrophic” claims. At first glance, it sounds like a giveaway to insurance companies, right? Wrong. The proposal is brilliant on two levels.

First, take the economic and practical. Imagine that you are a health care insurer trying to price your premiums. You are looking at a horde of Baby Boomers just beginning to retire. Many of them will get expensive diseases like cancer and heart problems. In order to price your premiums well, you have to guess how many will get these expensive diseases and approximately when. You also have to guess how expensive their care will be as medical science progresses and the price tag for therapy keeps going up.

If you guess too low, your premiums won’t cover your losses and you’ll go bankrupt. If you guess too high, your competitors may undercut you; but if they don’t you’ll earn windfall profits. This very real actuarial problem causes most insurers to “overprice” their premiums. It is also one of the chief causes of high inflation in health-care costs.

But now suppose the government offers to subsidize part of your catastrophic losses. The risk of Baby Boomers’ expenses no longer seems so overwhelming. More important, you know that your competitors will be protected as well, so they’ll be likely to set more aggressively low premiums, which you’ll have to match in order to stay in business. Depending on the level of government subsidy and the definition of “catastrophic” expense, Obama’s Point 1 could do much to alleviate the actuarial pressure that is causing health-care costs to skyrocket.

But that’s not all. There’s a political angle, too. Like doctors, the health-insurance industry has steadfastly (you might say fanatically) resisted any government involvement in health care. But suppose the government offers to help you with your biggest problem—increasing and increasingly hard-to-estimate risk. Might you then not budge a little? If single payer wants to get a foot in the insurance industry’s door, helping it with its biggest problem is certainly a good way to do that.

What a brilliant win-win! Health insurers get help with their most difficult problem and an insight that government programs actually may work for them. “We the people” get lower and more stable premiums.

Obama’s second point is financial incentives for preventive care. He is not the first person to make this suggestion, but it is an important one.

We have an epidemic of obesity and diabetes. Nearly a quarter of our population still smokes, although smoking is the single largest cause of preventable disease and death. Study after study shows that people don’t get enough exercise, don’t eat well, and don’t take their medicine—even medicine for potentially life-threatening conditions like diabetes, high cholesterol and high blood pressure. Why?

One answer is that doctors are paid to diagnose disease and do procedures. They are not well paid for preventive care, far less for nagging their patients about unhealthy life styles. Yet study after study also shows that, if doctors did these things, people would be healthier and happier, and health-care costs would drop. The trick is arranging financial incentives for doctors so they are paid more—much more—for keeping people healthy, not just curing them once they are sick.

This idea is not rocket science, but it’s vital for both good public health and cost control. The fact that Obama lists it as his second priority shows he has his priorities right.

Obama’s third point—quality reporting and incentives—is likewise not original. But the way he presents it is. His speech reflects acute awareness of the human suffering, as well as the cost, of medical errors. He specifically notes the high rates of preventable infections in hospitals—a medical scandal just recently revealed. In discussing these inexcusable shortcomings of the medical profession, Obama shows a sensitivity to people—i.e., patients—that all of us want in a leader.

But more than that: Obama already has done something about it. As a state senator in Illinois, he sponsored a bill that required hospitals to disclose their quality “report cards,” including “the ratio of nurses to patients, the number of annual medical errors, and the quality of care [patients] could expect at each hospital.”

For those of us of a certain age, this is manna from heaven. I’ve reached the age when the warranty on my body has expired and it needs frequent repairs. When I need something important done, I want the best doctor and/or hospital within reach.

I’ve worked with computers for over forty years, I can program in HTML, and I love the Web. Without much trouble, I can find out whether a doctor has been disciplined, suspended or “defrocked” for outrageous misconduct, or whether a hospital has lost its accreditation. But I’ve found no way to compare competent docs or decent hospitals and find out which is better. Most of the information I want is locked in the files of a little-known organization called JCAHCO (pronounced “JAY-Co”), the Joint Commission for Accreditation of Health Care Organizations. I can’t get the information I really want without special authorization.

All of us—even doctors when they are patients—want that kind of information. But most doctors and hospitals don’t want to publish it. They’re afraid that market forces will keep their feet to the fire and that “report cards” might judge them unfairly.

Without sounding in the least divisive or contentious, Obama recognizes this as a fight worth fighting. Subjecting health-care providers to market forces will improve quality and cut costs in medicine, just as it has in every other segment of our diverse economy. In the long run, it may be the single best way to improve the quality of health care for all of us.

Obama’s fourth point—dragging health care kicking and screaming into the electronic age—is also not original. But his speech recognizes its importance to both quality and cost. He notes the studies on medical errors. He cites tragic outcomes caused by stupid little things like doctors’ illegible handwriting. He notes the need for automated cross-checking of prescribed medicines against patient’s reported drug allergies.

In this point as in others, Obama has clearly done his homework, understands where the bodies are buried, and has the right priorities. His speech doesn’t say exactly how he would handle this problem, but presumably he would do the obvious: establish reasonable technical standards for electronic records and data transfer, set minimum requirements for doctors, analytical laboratories and hospitals, and create strong financial incentives for moving beyond the minimum requirements as quickly as possible.

So far, so good. But if you want to see what really sets Obama apart, look at his last point: bringing competition back to drug distribution and health insurance. Lots of politicians laud competition; it’s like motherhood and apple pie. But Obama is different. He doesn’t just praise competition. He understands exactly how private firms use business and the law to stifle competition and harm the public.

Obama’s short political speech mentions two methods by which drug and insurance companies distort and avoid competition. One is a series of mergers, reducing competition in a particular market, such as a city, metropolitan area, whole state, or even larger region. The other is a process by which so-called “proprietary” drug companies avoid competing with generic drugs by paying the generic makers to stay out of the market.

These techniques of market control are highly sophisticated and largely invisible to the general public. Under present law, they are sometimes legal, although they do tremendous damage to competition and (through higher prices and reduced consumer choice) to the public. Both the law and the economics involved are complicated. The challenge for any leader is curtailing these practices without doing more harm than good.

To meet that challenge, you have to be smart and well-informed on some pretty esoteric issues. I have watched several congressional hearings on these problems. The average Senator or member of Congress does not appear even to understand what is going on, let alone how to fix it. By mentioning these two points in a brief, general political speech, Obama showed that he understands what is going on and knows its importance. In that respect he is head and shoulders above the average federal legislator and the other candidates for president.

In sum, Obama’s health-care plan reveals the extraordinary brains, understanding and skill that will make him an extraordinary president. He has political realism and statesmanship. He knows that “single payer” will not fly, and he wants to give us the next best thing.

But unlike most politicians, Obama does not shoot for the “easy kill.” He won’t sell us what’s easy to sell and call it a solution. Some of his proposals—like report cards for doctors and hospitals and subsidies for insurance companies’ risks of catastrophic loss—will be hard to sell. They will meet resistance and will require explanation and persuasion. In making these proposals, Obama gives us notice that he will not shrink from the hard work of leading a nation.

Most amazing of all, Obama’s speech shows deep understanding of health-care economics. It recognizes that real solutions to real problems require more than just points on a list. Obama seems to understand the quantitative effect of his proposals—i.e., how much each point will likely improve things—and his priorities reflect that understanding. That fact alone puts him so far ahead of most politicians that he seems to be from another species. It is as if he were Homo sapiens, and the rest Neanderthals.

Unfortunately, the very brilliance of Obama’s plan may hurt him politically. We’ve all become accustomed to bumper-sticker solutions to real and complex problems. Obama’s careful analysis cannot be condensed into a bumper sticker; it requires thought or explanation just to understand why it’s so good.

The most accurate bumper sticker for his health-care plan might read as follows:
    Thoughtful, Creative and Effective Solutions by a Very Smart Man Who Does his Homework, Cares About People, and Has Genuine Respect and Empathy for all Points of View.
That’s much too long for a bumper, but it might fit in small letters on the side of a big, gas-guzzling SUV.

And therein lies Obama’s political problem and the paradox of our democracy. Can we even recognize political genius any more when we think collectively in bumper stickers and thirty-second replies in stage-managed presidential debates? Our last, best hope is for Obama to overcome our broken system and corrupted media and drag us all back to respect for governance that works. As brilliant as his plan is, it will take a lot more than a good health-care plan to do that.

Update: the “Cover Everyone” Flap

For an updated discussion comparing Barack Obama’s with Hillary Clinton’s health-care plan, which debunks the canard of failing to “cover everyone,” see this post.

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