Obama’s health care proposal is the wrong medicine

BY KIP SULLIVAN
published December 1, 08  

Now that Barack Obama is president-elect, the media is filled with speculation about whether he can keep his promise to enact universal health insurance by the end of his first term. Long suffering Americans should not hold their breaths. Odds are not good that Obama will sign a bill that establishes universal health insurance in his first term. Odds are very good that he will sign several bills that expand coverage for the poor and for children by funneling more tax dollars to the insurance industry. But reducing the uninsured rate among children and the poor by throwing more money at the insurance industry is not equivalent to creating a sustainable system of universal health insurance.

To some, this prediction that Obama will not sign a universal coverage bill soon may seem foolishly pessimistic. At first glance, all the stars seemed to be aligned in favor of universal health insurance. The health care crisis has never been worse. Our popular president-elect said numerous times during his campaign that he would sign a universal coverage bill by the end of his first term. At a speech in Ames, Iowa, on May 30, 2007, for example, Obama said, “I will sign a universal health care plan into law by the end of my first term in office.”

Moreover, powerful senators, including Senator Max Baucus (D-MT) and Ted Kennedy (D-MA), are drafting bills they claim will get us to universal coverage within a few years, and influential organizations, such as AARP and a coalition called Health Care For America Now, are running expensive advertising campaigns demanding universal health insurance now.

All of this looks promising, but the most important reason to doubt that Obama will sign a universal health insurance bill in the next four years is that neither he nor the Democrats in Congress with the most influence over health policy have any idea how to cut health care costs. And without a substantial reduction in the cost of health care in America, there is no chance that America or any individual state will achieve and maintain universal health insurance.

Obama would, of course, disagree with the assertion that he knows little about cutting health care costs. He said frequently throughout his campaign that his proposal would bring costs down. According to a May 2007 memo prepared by three Harvard professors who advise Obama, their “best guess” is that Obama’s proposal will cut total spending on health care in the U.S. by 8 percent.

Specifically, they say Obama’s proposal would reduce the 2009 U.S. health care bill of $2.5 trillion by about $200 billion. That $200 billion in annual savings would be more than enough, they say, to pay for the $125 billion or so that will be needed on an annual basis to insure America’s 46 million uninsured.

Unfortunately, Obama’s claim of $200 billion in savings cannot be documented. The actions he plans to take to lower costs will probably raise costs.

The savings claimed by Obama’s Harvard advisors are supposed to come from three “reforms.” Seventy-seven billion will allegedly come from switching all 300 million Americans from paper medical records to electronic medical records (EMRs). (Currently only about one-fifth of American doctors and one-third of our hospitals keep medical records on computers.) Forty-six billion dollars will allegedly come from reducing administrative costs within the insurance industry. And $81 billion will come from greater use of preventive medicine and a new service the insurance industry is peddling called “disease management.” (DFL and Republican leaders here in Minnesota have been making the same claims about EMRs, prevention and disease management for years.)

These claims have all been rejected by less biased experts. I will examine the claims made about reduced administrative costs and more preventive services and disease management in a future article. Here I will address the claim that converting medical records from paper to electronic form will save money. The success of this claim illustrates how corporate America can fool even smart people like Obama and his Harvard advisors.

Obama bases his claim for universal EMRs on a 2005 “study” by scholars at the RAND corporation. This study purported to find, among other things, that EMRs will permit faster production of report cards on doctors, reduce medical errors, and facilitate more “disease management,” and that all of these activities inevitably lead to lower costs even when the cost of all the computer hardware and software doctors and hospitals will have to buy is taken into account.
The first thing you need to know about this “study” is that it was financed by the computer industry (Cerner, GE, Hewlett-Packard, Johnson and Johnson, and Xerox, to be precise), the very industry that stands to make a lot of money if politicians can be persuaded to swallow hype about EMRs.

The second thing you need to know is that the study was not based on original research on EMRs, but rather on a review of existing research, and the authors adopted some patently foolish criteria for evaluating this research. The most foolish criterion they adopted was one that dictated that they reject any research which found that EMRs actually worsen the quality of health care or raise costs. Here is a direct quote from the RAND paper: “We chose to interpret reported evidence of negative or not effective [EMRs] as likely being attributable to ineffective or not-yet-effective implementation.” In other words, computers never screw up, only people screw up. This should remind you of the National Rifle Association’s mantra, “Guns don’t kill people, people kill people.”

The third thing you need to know is that the RAND scholars said it would take 15 years for savings to rise to $77 billion a year, but Obama is assuming all these bogus savings will accrue during his first term. And the last thing you need to know is that the Congressional Budget Office (a nonpartisan research arm of Congress that assesses the claims made by members of Congress about bills they introduce) recommended in a report released last May that Congress ignore the RAND paper because it is so bad. Other research indicates converting all medical records from paper to EMRs will raise costs by 2 percent.
Interestingly, the Harvard advisors did not argue in their May 2007 memo that increased “competition” within the insurance industry will save money. But Obama and his allies, including Health Care for America Now (HCAN), do make that argument. They claim that Obama’s plan will strengthen insurance industry competition by inserting a public plan like Medicare into the current health insurance jungle.

Their argument goes like this. We all know Medicare is more efficient than private-sector insurance companies. Medicare spends only 2 percent of its total expenditures on administrative costs (like rent for offices) and spends the other 98 percent on health care, while insurance companies spend 20 percent on administrative costs (such as advertising and profit) and only 80 percent on health care. So, if we give Americans vouchers based on their income and require that they use the vouchers to buy health insurance from either a public program like Medicare or an insurance company, the Medicare-like program, with its lower premiums, will force private insurers to become as efficient as Medicare.
The problem with this scenario is that the reverse will probably happen.

The Medicare-like program will be forced to become as inefficient as the private insurers. Consider just two of the survival tactics that private insurers use that a Medicare-like program will have to adopt. First, Medicare would have to advertise in order to let the public know that it has a “product” available for “sale,” just as Blue Cross Blue Shield does. This will raise Medicare’s administrative costs.

Second, Medicare will have to hire bureaucrats to deny services to patients, just as Blue Cross does now. If the new Medicare program does not deny services to patients as aggressively as the private insurers do, Medicare’s premiums will rise as it pays for more medical care and as it attracts sick people fleeing private insurers out of frustration with their anti-patient policies. But as soon as Medicare begins to hire bureaucrats to deny services, its administrative costs will rise closer to the level of the private insurers.

In short, public insurance programs like Medicare are very efficient precisely because they are the single insurer—the single payer—for the population they serve. The minute you rob them of their single-payer status and demand that they survive in a multiple-payer environment where unethical practices are a normal business practice, public programs face the awful choice of either becoming as inefficient and hostile to patients as the insurance industry is, or retaining their formerly efficient and pro-patient practices and being crippled or completely destroyed.

Common sense and expert opinion tell us that America will not achieve and maintain universal health insurance if we do not reduce our health care costs. Because Obama’s plan does not reduce health care costs and may well raise them, he will be unable to live up to his promise to sign a universal coverage bill. He may sign something that has the look of universal health insurance, but the look will be an illusion. It will either leave some people uncovered or it will leave out important medical services. And it might do both.

A coalition of single-payer organizations, including Physicians for a National Health Program, Healthcare Now, Progressive Democrats of America, and the California Nurses Association, held a meeting at the AFL-CIO headquarters in Washington, D.C., on Nov. 11 and 12 to map out a strategy to educate Congress on what is wrong with the Obama-HCAN proposal and what is right with HR 676. HR 676 is a single-payer bill currently supported by 94 members of the U.S. House of Representatives. HR 676 would replace America’s grossly inefficient health insurance industry with one public insurer like Medicare. Unlike the Obama-HCAN plan, HR 676 will achieve comprehensive, universal coverage (including long-term care, something few universal coverage groups advocate) for no more than we are paying now and within a few years considerably less.

The single-payer groups are calling on everyone who cares about real universal coverage to write and meet with their U.S. representatives and urge them to support HR 676, and to urge U.S. Senators to introduce a companion to HR 676.
 Kip Sullivan is the health systems analyst with the Greater Minnesota Health Care Coalition, and is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program.