Obama health care plan: He needs to cut medical costs first

The Obama health care plan includes a policy shift toward price controls on insurance rates. That wouldn't be necessary if Congress first contained medical inflation.

After more then 13 months in office, President Obama has finally put his healthcare proposals on the table, posting specific details on the White House website.

Why the long wait? 

For one, the House and Senate have been stymied in reconciling big differences between their own bills. 

Second, there is less public appetite for the pending healthcare bills. Mr. Obama needed to show his cards if he expects passage of any bill this year.

Also, Obama can’t very well negotiate a compromise with Republicans at Thursday’s healthcare “summit,” or later, if no one knows the details of his ideas.

And details matter, not just because of healthcare’s complexity but also because Obama keeps changing his tune on healthcare. 

He once favored a federal takeover of healthcare insurance (or “single payer” system) before he agreed to keep the employer-based insurance system.

He once opposed the idea that every American now without insurance be required to buy it – until he favored this “mandate.”

He once wanted a government-run health insurance entity (the “public option”), until he said it wasn’t necessary. 

And now, with his detailed plan public, he is suggesting that he doesn’t really believe his healthcare reform will end up reining in medical inflation. 

He once promised that universal coverage and other reforms would “bend the curve” on rising costs within the medical and insurance industries. But in implicit admission that such reform probably wouldn’t bring enough savings, he proposes the creation of a seven-member federal board – the Health Insurance Rate Authority – that would bluntly set price controls on rate increases in health insurance. 

In other words, don’t expect much savings from the Obama plan, and so government will need to keep a cap on insurance premiums.

Insurance companies are easy political targets but they are not the main drivers of medical inflation. The causes are more fundamental, from Americans living longer to ever more costly medical procedures to too few incentives for consumers to control costs. Those issues need to be addressed first before taking an expensive leap into making sure the uninsured are insured.

In 2006, Massachusetts took a leap toward providing universal coverage. By 2010, it had the country’s highest increases in insurance premiums. Now, because the state didn’t first contain healthcare costs, Gov. Deval Patrick has proposed state regulation of health insurance rates. 

And Obama is doing the same even before his bill passes – a bill roughly modeled after the Massachusetts law. 

While a small state like Massachusetts might be able to recover from the mistake of not containing costs first, it would be much more difficult for the federal government to do so. It would be prudent – and easier – for Obama to find common ground with moderate Democrats and Republicans and first pass a bill that contains medical inflation. 

Many states are already reforming their medical systems, such as Pennsylvania’s attempt to provide 24-hour nonemergency care for the uninsured, to prevent costly visits to hospital emergency rooms. 

Obama, for instance, could tackle Medicare’s rising costs by asking Congress to approve an independent commission empowered to recommend changes to the federal program, subject to an up-or-down congressional vote. 

Both political parties might blend their cost-saving ideas, such as compromising on tort reform that would contain the costs of malpractice insurance. They could agree to provide incentives for states to set up one-stop markets known as insurance exchanges where consumers and businesses could buy health coverage. 

Congress could also encourage the type of insurance that moves doctors away from the current fee-for-service system – which drives up costs – and adopt some successful models that pay for healthy outcomes.

The country needs a win-win victory on Capitol Hill for both parties to reduce the polarization that pervades politics in Washington. Agreeing on healthcare cost containment first could be such a victory.

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