Health Care Commitments and Realities


Jeff GingoldEarly in pursuit of
the presidential nomination, Sen. Barack Obama acknowledged two health-care
reform realities: Covering more people will cost more money, and a
government-run, single-payer program might not make sense in an established
system with heavily invested stakeholders. How will reform commitments and
economic realities play out in the new administration?

President Obama, ever the pragmatist, must view current
economic circumstances as an impediment to implementing health-care reforms.
Estimated to cost somewhere between $50 billion and $65 billion, such reforms
would be funded primarily by rolling back the Bush tax cuts for Americans
earning more than $250,000 per year and retaining the estate tax at its 2009
level. Reinstating taxes in a time of recession could cost the president
political capital needed both to build bipartisan support for an economic
stimulus package and to end the war in Iraq. 

Other funding sources could be similarly problematic.
“Savings” initiatives targeting the pharmaceutical industry include legalizing
drug re-importation from countries such as Canada, promoting the use of generic
drugs and allowing Medicare to negotiate drug prices—a practice that is now

Only the Medicare change would produce significant savings.
But doing so represents projected revenue losses of between $10 billion and $30
billion annually for the pharmaceutical companies. Generating these “savings”
would require President Obama to authorize Medicare to remove drugs from the
Medicare formulary when its manufacturer refuses price reductions. Big Pharma
can be expected to vigorously oppose any such plan. 

Another significant “savings” target is the Medicare
Advantage program. Its insurers provide Medicare managed care benefits. Taking
on the pharmaceutical and insurance industries also could cost the president
political capital and undermine bipartisan alliances needed to address the
economy and the war.

Despite funding concerns, it would be a mistake to dismiss
Obama’s health-care reform proposals. The ailing Sen. Ted Kennedy (D-Mass.) may
be able to pass his “last hurrah” legislation, ensuring that all Americans get
health coverage. Also, Health and Human Services Secretary-designate Tom
Daschle co-authored a health reform book, Sen. Max Baucus (D-Mont.) issued a
“Call to Action” for health reform, and the Obama transition team invited
citizens’ meetings to discuss “overhauling” the health-care system.

The case favoring reform in the face of a weak economy is
that the long-term cost of doing nothing outweighs the up-front cost of
reforms. Absent unanticipated revenue sources, there will be temptation to fund
reforms from “future savings” that may not materialize for years, if ever.

Intriguing possibilities can be conjured from other pieces
of the Obama plan: treating children’s coverage as a stand-alone, mandated
priority; upgrading public health-care services, including through schools;
reinstating physical education programs; attacking childhood obesity as a
driver of health-care costs; and instilling personal responsibility in
health-care decisions.

Although they tend to have fewer resources, younger,
healthier people are the ones who subsidize older, less healthy people under a
community-rated health-care system. This situation decreases affordability of
insurance among younger workers who lack any expectation that the system will
subsidize them if they actually get old.

Could the Obama administration be contemplating a completely
new approach for young Americans? One that can be phased in over time,
beginning as a children’s program, then extending into lifetime coverage? Will
this plan reform the existing system incrementally through its completion for
those who are reluctant to give up what they are accustomed to having?

President Obama’s success in reforming our health-care
system will be measured by his ability to identify positive changes that are
achievable, sustainable and affordable. It will be fascinating to see how the
new administration balances economic reality with change.

This is a sponsored report from Lane Powell PC. Jeff Gingold, a shareholder at Lane Powell, can be
reached at 206.223.7955 or via e-mail at

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