What Obama Actually Said About Health Reform

1965 – President Lyndon Johnson signs Medicare bill while President Harry Truman looks on. Truman signed up for Medicare right away.

President Obama closed his address to the joint session of Congress by scolding those who have raised the absurd charges regarding his health care initiative. It was well timed and diverted attention from fundamental flaws in his proposal.

This article examines the Obama plan as outlined in his speech. His goals were clear and the speech was well structured. The heart of the address provides the type of information necessary to judge the merits of the plan as presented.

Obama got serious when he said, “The plan I’m announcing tonight would meet three basic goals:

“It will provide more security and stability to those who have health insurance.

“It will provide insurance to those who don’t.

“And it will slow the growth of health care costs for our families, our businesses, and our government.” Pres. Barack Obama, Sept. 9

Cost and availability are the core issues in health care today. They subsume all others. What’s missing here? Instead of universal coverage, the uninsured get “insurance,” most likely private insurance, if they can afford it. Instead of beating back prices or bold initiatives to reduce them, we’re hearing “slow the growth.” Health care costs are unaffordable to many already. The promise here seems to be that they’ll still be unaffordable, just less so.

“Bending the curve” may happen but it fails to address the key problem — people can’t afford insurance rates and medical bills. As a result they get sick more, suffer more, and die before their time.

“Here are the details that every American needs to know about this plan”

Obama detailed the impact of his plan on two distinct groups, those currently with insurance and those without. This is a key distinction since the public option, for example, is available to only those without insurance.

Those with Insurance

Those with insurance were promised that “nothing in our plan requires you to change what you have.” That’s assuring to some. But to others who lave plans that are too expensive, plans purchased directly from insurance carriers, there may be a desire or need to change to a more affordable plan. You’re out of luck. Let’s say that you own a small business and pay $1200 an employee a month for health insurance. The plan offers no apparent benefit other than slowing “the growth of health care costs.”

The plan will offer four ways “to make the insurance you have work better for you.” It will: get rid of preexisting conditions as a reason to deny coverage; bar insurance companies from dropping coverage due to a major illness; limit “out of pocket” expenses; and require coverage for preventative care. These are all positive steps.

That’s it for “security and stability.” You can stay in your current plan. You can go elsewhere with certain long overdue guarantees of coverage but for those insured, there’s no freedom to choose a Medicare-like public option or use the insurance “exchange” There’s no security that you will ever see affordable health care.

Health insurance and pharmaceutical companies who have jacked up prices at record setting rates will be unimpeded.

The health care “exchange” that was part of Obama’s campaign proposal is not available to those with insurance:

“But an additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchange. Let me be clear ”“ it would only be an option for those who don’t have insurance.” Sept. 9

We’re left to assume that “keeping the “insurance companies honest” is only a benefit saved for those citizens who are uninsured.

Those without Insurance

Those without insurance will be offered membership in “one big group” that will leverage their numbers to drive competition from insurance companies on a public “insurance exchange.” The exchange aims to fulfill a huge promise:

“If you strike out on your own and start a small business, you will be able to get coverage. We will do this by creating a new insurance exchange ”“ a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices.” Sept. 9

What if you don’t have a job? What if you have a job but can’t afford the prices on the “exchange?” This was not addressed.

The president elaborated his argument for the “exchange:”

“Insurance companies will have an incentive to participate in this exchange because it lets them compete for millions of new customers.” Sept. 9

Who are the members of this group that the insurance companies will so desire? They’re the uninsured, the people who get sicker more frequently and have great medical needs because they’re uninsured. Is that an appealing market for companies who are in the business of excluding sick people? Is there some major group of very healthy uninsured ready to balance out the generally poor, low income uninsured?

To further bolster the insurance “exchange,” Obama offered this argument:

“As one big group, these customers will have greater leverage to bargain with the insurance companies for better prices and quality coverage. This is how large companies and government employees get affordable insurance.” Sept. 9

No it isn’t. The largest companies have “self funded” health insurance plans. They don’t buy insurance coverage from the Blue Crosses of the world. They set up a fund for benefits that pays for employee health care. They hire out the administration of benefits to private insurance companies who issue checks and reimbursements but that money is from large companies. The entire “exchange” argument is based on a factual error. Since the assumption of competition underlies the “exchange,” the plan crumbles for those without insurance.

Percent of workers in self-insured companies

From Exhibit 10.1 Kaiser Family Foundation 2008 (p. 162)

Why would companies do this? Because self funded plans save money by cutting out insurance company profits as an operating cost. Self funded plans also provide more control of expenditures. There are no $800,000 a day salaries for plan employees as we’ve seen at insurance companies.

The underlying premise for the insurance exchange for the uninsured is flawed operationally and factually. So how will people pay for this coverage?

Tax credits! We’re told that, “For those individuals and small businesses who still cannot afford the lower-priced insurance available in the exchange, we will provide tax credits, the size of which will be based on your need.”

Who will be in the exchange and what can they afford with or without tax credits?

The Distribution of the Uninsured and Total U.S. Population by Income

72% of the uninsured are below the income level required to afford
employer health insurance. Based on U.S. Census Bureau data, 2005 Link

This augmented chart shows an estimate of the income level required for the uninsured to afford a “company insurance plan.” Self funded plans covered 54% of those insured (p. 162) at the time this data was collected. According to the study, an individual needs income of 300% of the federal poverty level, $27,000 to afford “employer insurance.” A family of four needs an income of 300% of the federal poverty level for families or $57,000 for “employer” insurance. This study didn’t presume an insurance “exchange” but the analysis is applicable as a model for answers we need to determine the ability of people to purchase insurance under the president’s proposal.

Even if everything worked perfectly for the uninsured, the president said, “This exchange will take effect in four years, which will give us time to do it right.” If that’s the criterion, do it right, it will take a lot longer than four more years before the uninsured benefit.

With a flawed basis for the exchange, no mandatory participation by insurance companies, no price controls, and a poorer, less healthy “big group,” what chance is there that the very limited public option proposed will be “be self-sufficient and rely on the premiums it collects” as Obama requires? What chance is there that private insurance companies will be more inclined than they are today to insure those that they don’t want to insure?

What about Medicare?

Medicare is a well liked plan with lower administrative costs, and no requirements for shareholder returns. It’s also much less intrusive in care decisions than private insurance plans. But that’s not in the cards. The president said:

“Since health care represents one-sixth of our economy, I believe it makes more sense to build on what works and fix what doesn’t, rather than try to build an entirely new system from scratch.” Sept. 9

Medicare is a national program in operation since 1965. It provides universal health care for those 65 and older. It faces challenges from the bulge in beneficiaries that don’t negate its lower unit costs, lower administrative fees, and high satisfaction rate. Medicare would be even more effective in delivering improved health if seniors were it able to negotiate discounted drug rates with the major drug companies. But Congress outlawed that in 2004. That wasn’t mentioned as part of the plan. Why?

In his apparent attempt to preserve the private health insurance industry and to appease the major pharmaceutical companies, the president missed a key lesson from the market place.

When large companies want to save money on employee health costs, they get rid of the private insurance companies. As a result, they save money and often offer more coverage. They save even more money bypassing the built in cost of insurance company profits and excessive CEO compensation.

Medicare is the big company self funded plans writ large. In fact, you could argue that the Medicare approach of direct funding for “the big group” of seniors was the model for self funded big company health plans.

Isn’t it time to stand back and reevaluate the entire process?

Isn’t it time to say no to more corporate welfare?

How many more bailouts can we take?

END

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Michael Collins

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  • Medicare is the big company self funded plans writ large.

    This is especially helpful. Anyway, so much for those of us who thought universal health care would form the fourth pillar, along with Social Security, Medicare and Medicaid. Strange to think, if introduced today, the last three would never have been passed.

  • I have searched the net for a coherent analysis of Obama’s speech and plan, I have to say, this is by far the best thing I have come across.

    Of course, almost nobody (or nobody who doesn’t make a living analyzing employer health care economics) is going to read the Kaiser report. So we need analyses like this one to help us make sense of it all.

    Unfortunately, health care reform has been reduced to a political football. I have a sense that Obama is trying to include a meager, defanged “public option” to curb public outrage that there is no real public option with any guts in it.

    I think we have to take the long view here. Obama passing this shoddy legislation will be a proxy victory. It will establish, for the first time since the 1960s, that health care reform can be pushed through congress. It will put the insurance CEOs on notice, that in fact, change is in the works. It could be, if Dems take the initiative to keep fighting on these issues, a first victory leading to more skirmishes over implemetation and further(incremental) reforms.

    The reason it should be passed, unfortunately, is political and has nothing to do with improving anyone’s health care. If passed, it puts Democrats on the offensive, with opportunities to take initiative to push for better options later.

    If it fails, it will be a resounding victory for Republicans, who will have proved that they can defeat any of the President’s initiatives by simply going negative. This frees them from coming up with any plans of their own, other than fighting to prevent any changes in the status quo.

    So I think those who realize this plan fails to enact real change, need also to realize that the better is the enemy of the good.

    To vote with the Republicans because this plan isn’t good enough is equivalent to giving the Republicans vindication that all they have to do is say “NO” to ANYTHING that Obama does for 4 years, then take back the White House by running on a platform that he failed to get anything passed.

    Obama declared that he has no time for those who think the plan is merely about politics. But really, that point is already established. It IS about politics. If the Obama administration can’t get a first down in this round, they hand over the ball, and the Administration will be forced to play defense until they can get it back, which might be a good long while.

    If we refuse to run interference for our quarter back because we don’t think he has the best game strategy, then we will, of course, lose in the end.

    So, yes, his bill is full of holes. But we still have to establish the fact that he has the clout to put major legislation through both houses of congress.

    Otherwise, we can plan on waiting yet another decade before we get the next chance to help ourselves.

  • Obama’s first legislative victory as Democratic candidate was whipping FISA through, validating the profits that lawbreaking telecoms got for their services from the Bush administration. Then, his first legislative victory after the general election was whipping through subsidies to Goldman Sachs. Of course, he worked on those bills. He proved his “clout to put major legislation through both houses of congress.”

    On health care, his clout has been used to keep single payer off the table while he negotiates deals with the pharmaceutical companies behind closed doors. Clout on legislation? He’s tried to keep from engaging. I think it’s because the bill will be so awful for everybody but medical sector firms that he wants to be able to blame Congress later, but that’s just my reading.

    So I’m not willing to try to be a brilliant keyboard political strategist, predicting how Washington insiders will play their games. I support or reject legislation based on whether it’s good policy. The giveaway to the medical finance sector is horrendous policy imposing more than alleviating suffering. Let Obama prove his clout with good policy, not be given allegiance on faith.

  • Last night, Barack Obama betrayed his political base. He caved to the private insurance industry, offering on national TV to make a deal with vampires.

    Here’s the deal with vampires: You drive a stake through their hearts, then you bury them. You don’t make deals with them. Get it, President Renfield?

    America can do better than a smooth talking corporate sellout.
    .
    Good times for Smiley! 😀

  • That’s a true statement about Social Security, Medicare and Medicaid. There would be public support with a fair debate but the give and take is so expertly managed, they’d surely fail. If this passes, it will be a Pyrrihic victory. You’re either getting the health care you need at a cost that you can afford or you’re not. It’s one of the few examples of binary choices in politics. We’ll see but I think the “four more years” until “the exchange” will attract attention soon.

  • And there is a huge demand for an improvement. I didn’t realize the structural similarities between self funded big company plans and Medicare but it’s right there.

    The fury over the public option was a masterpiece of clever political navigation. Many was focused on that but the real ball game is taking “four years … to get it right.” People will notice that there’s no “there there” and then the demand will be seriously cranked up.

    I think there’s a major tactical mistake in the speech, could be wrong on that though. The strictness of making the “big group” poll of uninsured pay for itself through premiums, i.e., be revenue neutral, stands in stark contrast to the $23 trillion that we don’t have set aside for the Wall Street firms or just the total given to the banks, etc., to date. Where’s the revenue neutrality in that? Or, “Why do the banks get a pass on the budget when we get nothing.” If that question goes around, then there’s a real unification of the argument against the corporate welfare state. Wouldn’t be bad at all but too many people have to suffer to get from here to there.

    So, yes, I hope the bill passes and so we can give our rulers the “bad choices” lecture kids get at school when they pull a bone head maneuver;)

  • “alleviating suffering” is the paramount goal here. It is a moral issue but the Democratic leadership won’t take that stand because it leads down just one path – single payer, however that’s handled, and coverage for all.

    I’m in favor and supportive of a groundswell to make these folks do the right thing. Absent that, however, I’m in favor of letting them act out their Grand Kabuki and pay the price when there’s absolute nothing of consequence delivered.

    Could you believe that paragraph on the public option:

    “It’s worth noting that a strong majority of Americans still favor a public insurance option of the sort I’ve proposed tonight. But its impact shouldn’t be exaggerated – … The public option is only a means to that end – and we should remain open to other ideas that accomplish our ultimate goal.” Then following u with it may be national, it may be regional.

    How about the issue of profits and huge waste in overhead by the insurance companies? Did it occur to him that this might be the key financing problem. Insurance companies lose their Medicare subsidies but get a chance to fight for a few more years, all the time looking for the next rake off.

  • Hadn’t heard that before but it’s excellent.

    The base has been strung along yet remained loyal. But we’re just months in. People know when they can’t get medicine and get a procedure done. This is one of those cases where you either lead or stand aside. But leading down a path to nowhere won’t do. It may look good and sound eloquent but it gets old.

    Obama may generate a saying – “May I have enemies like Obama’s.” They shove the issues onto the floor by their madness and supreme bad taste. I’d like to see all politicians get numbers and never reveal any personal details – ‘Hey, that #1 came through’ or ‘What’s #1 up to, this is nonsense.’ That way the loyalty business and personality factors would be gone. We’d be retiring a lot of numbers if we looked at it that way.

  • What is his ultimate goal?

    “It’s worth noting that a strong majority of Americans still favor a public insurance option of the sort I’ve proposed tonight. But its impact shouldn’t be exaggerated – … The public option is only a means to that end – and we should remain open to other ideas that accomplish our ultimate goal.”

  • A real public option, one your or I could choose (or anyone reading this) would be the end for both health insurance companies and Big Pharma. The companies would experience a Medicare like evacuation if a Medicare like plan were offered. Big Pharma would be in immediate negotiations with Medicare for group discounts. That would be it for them. No more “free market” plundering in their last stronghold, the United States.

    That was too much weight to carry this time and the costs of failing to get any bill was too great. So we’ve got this.

    Obama, imho, chose not to address what he surely knows – that the profit margins of the health insurance companies are a) the problem and b) the reason his “uninsured” citizens won’t get an affordable deal. There’s just now way insurance carriers will enter a market that they avoid now.

    But then again, that’s just my jaded interpretation. As for his words and the analysis, it’s what he said. Winning this battle may be a “feel charged” experience, but the war is ongoing and this bill is a minor skirmish substantively. In terms of expectations, apres this bill, le deluge.

  • Ian putting it together with Susie Madrak:

    Clearer Obama:

    As Health Secretary Sebelius said, we are determined to create a health system in this country which is designed so it can never become single payer. My mandate system, forcing you to buy insurance from insurance companies with inadequate subsidies, will preclude that possibility and save the American consumer for the American insurance and pharmaceutical industries.

    hee

  • The financial bailout to date HAS been revenue neutral, and markets agree. TARP money is being paid back, and the set-asides are precisely that – set aside. Adding government level assurance to keep market functioning. Those set asides will not likely ever be utilized, and if they are have to be paid back. FDIC functions on fees as well, and those fees if they go negative have to be paid back. We have made money on TARP so far.

    The citigroup buy in, the auto industry bail out, have also all been revenue neutral to the US government. In fact the Fed has made a boatload of money so far on Citigroup that has been trading around $5. The Fed will make money on AIG as well. It is working.

    No inconsistency in offering revenue neutral plans, like healthcare.

    Obama has done a great job, and having all opposition narrow around the public option provides the opportunity for all the other pieces to get a by. Triggers, an outright public option, a national exchange and removing state limitations upon health insurance offerings, and even those co-ops you hear about can all enhance competition. I for one would like to see the health insurance companies themselves busted up in anti-trust filings. All of the above is what I would like to see.

    We will see healthcare passed within 30 days.

  • has issues, but they are not vampires. Reality has to be dealt with. 85% of folks under 65 are in insurance plans, mostly paid for by the companies they work for. The insurance industry itself is hamstrung. They have to operate in the states they sell insurance, can’t sell insurance across state lines like you can every other insurance product. Why is car insurance so cheap right now, because all insurance companies can compete nationally with one another.

    My insurance is great, and in my state I find it affordable. It has come through on a number of occasions. That has been a barrier because people who like what they have don’t want change.

    Get a Progressive or Geico version of national health insurance. Same as the WalMart or CVS or Target mini medical clinics, or the $4 generics. Add competition and you add lower price. There are a million ways to do that, and a public option is a good one, but we can’t ignore all the methods out there. Private insurance is not a vampire, or bad or evil. It’s empty rhetoric, and I am happy Obama is not always off chasing after evil. We already had that, it was called George Bush jr. I am sick of it.

    The problems are solvable, and the bill as I see it forming is moving in very strong positive directions. Portability, resilience, subsidies, expansion of medicaid, expansion of medicare, national competition for health insurers, electronic and portable medical records, tort reform. You think we can solve a problem the size of healthcare which has eluded a solution for nearly 100 years in one bite?

  • But the bill in the form it is taking is also doing a hell of a lot. It is taking on the form that cap and trade did. It creates a structure that creates the need for future additional bills. It starts out neutral, gets through, takes form and then grows. Think how cap and trade got through the house, I still cannot believe there is a cap and trade system that got through the house. Most people don’t even know it happened. A senate version is forming. We will have both healthcare reform and cap and trade by next spring.

  • where this came from.
    “85% of folks under 65 are in insurance plans, mostly paid for by the companies they work for.”
    My experience in 30-odd years of being in the workforce is that you may be offered a group policy, but the individual foots the bill, not the company. Company paid insurance is the exception, not the norm.

    ______________________________________________________
    Distrust anyone who wants to teach you something.

  • Save the whales, bison, but, most importantly, save the dodos!

    Had Hillary Clinton stayed in the Senate, ahem (mea maxima culpa) there would be one expert to keep the rest of the crew intellectually honest at least. We might even have had an incremental move towards universal health care.

  • The Obama ‘details’ have those four additional patient rights like dumping pre existing conditions clauses. I’m wondering how much of this could be done under ERISA? Worth looking into. As for all those savings, I hear that and David Stockman pops into my mind, a distinctly annoying experience.

    Raising health care reform was the ticket even if this bill doesn’t pass. They’ve created demand that they can’t control and the economic conditions just add fire. I don’t see the issue going away. It will grow until someone says – Medicare for all.

  • This is a question on two levels. First, employees pay a portion of their insurance $100-$200 a month. That doesn’t cover the costs, not even close, which are $1000 per employee. The company covers the balance due. So you can join a group but, unless you’ve paid hefty monthly amounts for your health insurance, you paid only part of the cost.

    The second level is where do the funds come to cover health care expenditures from employees covered by a health benefit? Of those working, 55% are in plans where the company contributes the money directly. They take your contribution and create a funding source that covers the balance. That’s company “self funded” health insurance. These company funded programs are administered by insurance companies. They “manage” the providers, to a degree, do all the paper work, and write the checks. It looks like you have insurance through Blue Cross etc. but they’re just the administrators and names on the company funded plan.

    Here’s the chart and link to the Kaiser Foundation 2008 report, the original source. If you click on the link, put in 162 in the pdf and you’ll see the excellent chart since for every year from 1999 through 2008.

    Percent of workers in self-insured companies

    From Exhibit 10.1 Kaiser Family Foundation 2008 (p. 162)

    The balance of companies buy directly from an insurance company like Blue Cross and the blues actually pay the bills.

  • Here’s amore pessimistic view of the whole process leading to the bill as it now exists, from Rolling Stone:

    Sick and Wrong
    How Washington is screwing up health care reform – and why it may take a revolt to fix it
    MATT TAIBBIPosted Sep 03, 2009 11:33 AM

    http://www.rollingstone.com/politics/story/29988909/sick_and_wrong/7

    With such memorable tidbits as:

    “…one of the immutable laws of politics in the U.S. Congress is that progressives will always be screwed by their own leaders, as soon as the opportunity presents itself.”

    Basically, the article is the history of how a good idea – a single-payer system for the USA – got beaten back and kicked around by the White House, the senate Finance Committee, 4 other committees charged with coming up with a plan, and the insurance and pharmaceutical industries.

    Obama’s tried-and-true technique of making deals with the devils he says he opposes apparently has been a primary strategy since day one, according to this. It’s a little long at 7 pages, but a thought-provoking read just the same.

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