INTRODUCTION Health Insurance costs had increased tremendously during the Bush Administration (2000-2008). The premiums had been doubled, and risen faster than wages. Moreover, increased co-pay and deductibles threatened access to care. Many insurance plans were also limited, only allowing certain amount of doctor visits or hospital days. And over half of all personal bankruptcies were due to medical bills. A changed needed to be made. As a result of increased medical costs, about 45 million Americans including over 8 million children were uninsured, and millions more were on the brink of losing their coverage due to the rising costs.
Even those individuals who were insured struggled to cope with the soaring medical costs. Due to the high costs, employers (mainly small businesses) also found it difficult to provide health coverage to their employees. Health care became more like disease care where ‘rush’ treatments were given in dire cases, rather than taking preventive measures such as cancer screening and immunization to protect against flu, pneumonia, or other illnesses.. These ‘rush’ treatments will hypothetically cost the government an immense amount of money in the long run.
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For this reason, Barack Obama proposed a plan that will provide affordable and accessible health care for all-‘the universal health care plan,’ in an attempt to also turn the economic crisis around. According to Obama, you can’t fix the economy without fixing health care. However, the main question lies as to whether ‘the universal health care plan” will really fix the economy. Layout of Obama’s Health Care Plan The main idea of Obama’s universal health care plan is to increase the number of people who have health insurance by spending a significant amount of money upfront.
According to Obama, the estimated cost of the proposal would be between fifty to sixty-five billion dollars annually when completely assimilated. However, Obama plans on cutting the high costs of its implementation by the discontinuation of Bush’s tax cuts for those making more than 250, 000 a year. The universal health care reform plan is composed of three parts which he claims builds upon the strengths of the U. S. health care system: 1) Quality, Affordable and Portable Health Coverage For All 2) Modernizing The U. S Health Care System to Lower Costs and Improve Quality 3) Promoting Prevention and Strengthening Public
Health Quality, Affordable ; Portable Health Coverage for All In this coverage, Obama builds upon existing private and public programs, such as employer health insurance, private individual health insurance, Medicare, and Medicaid. Obama aim was to establish a new public plan, equivalent to Medicare for individuals under 65 years old. This plan will be available for those who do not have an employer plan or qualify for Medicaid, as well as open to employers who do not offer a private plan. He also mandated participation into disease management programs to help patients and also reduce government spending in the long term.
Over seventy-five percent of total health care dollars are spent on patients with one or more chronic conditions, such as diabetes, heart disease, and high blood pressure. Many patients with chronic diseases benefit greatly from disease management programs, which help patients manage their condition and get the care they need. (Ibid) In addition, Barack Obama will require that plans such as Medicare and Federal Health Benefits Program (FEHBP) that participate in the proposed new public plan will utilize proven disease management programs. This will, as a result, improve the quality of care and lower costs.
Other features of this plan include creating a National Health Insurance Exchange (NHIE), and providing an employer ‘pay or play’ plan. The NHIE would be a government-run marketing organization that will sell insurance plans directly to individuals who do not have an employer-based plan or public coverage. This exchange will effectively organize an insurance market for individuals without coverage. While an employer ‘pay or play’ provision would require employers to either provide health insurance or contribute towards the cost of a public plan.
Obama’s plan will also require all children to be covered under a private or public health insurance plan, as well as enable government programs such as Medicare and Medicaid to cover more people by expanding eligibilities. Obama’s goal is mainly to ensure insurability by providing a generous minimum comprehensive benefits package like that required for federal workers, and also the ability to take their policy from one job to another (portability) when purchased through the new public plan (or NHIE). This plan, in a sense, mimics the European idea of universal health care for all.
In Europe, the common term used is ‘solidarity,’ which is based on the idea that all are covered in the same pool and share the burden equally. Obama’s universal health care plan is aimed at providing health care solidarity by creating a system that ensure everyone will be covered not only by a single government run plan but also assuring access to a myriad of government and private plans. Obama is well aware of the fact that the vast majority of Americans are not ready to give up their private health insurance plans, and that creates a political imperative to continue making private health insurance as a part of any unique American solution.
Modernizing The U. S. Health Care System to Lower Costs and Improve Quality In this section, Barack Obama sought out to redesign our current health care system to reduce inefficiency and wastes, prevent medical errors, and improve health care quality, which will in turn lower the costs for individuals and families. Obama’s first approach is to enable a more electronic handling of medical files. Most medical records are still stored on paper, which makes them difficult to use to coordinate care, measure quality, or reduce medical errors. (Ibid, p. ) Processing paper claims also costs twice as much as processing electronic claims. As a result, Obama proposed to invest $10 billion annually for the next five years in order to implement in the United States, a standards-based electronic health information systems, which includes electronic health records. (Ibid, p3) These new systems termed ‘Health Informational Technology” will be available even in rural and underserved areas. Moreover, Obama ensures that patients’ privacy would also be protected by means of such technological advancement.
A study by the Rand Corporation found that if most hospitals and doctors’ offices adopted electronic health records, up to $77 billion of savings would be realized each year through improvements such as reduced hospital stays, avoidance of duplicative and unnecessary testing, more appropriate drug utilization, and other efficiencies. Another approach taken by Obama is to reduce the costs of catastrophic illness for employers and their employees. Catastrophic health expenditures account for a high percentage of edical expenses for private insurers. In fact, the most recent data available reveals that the top five percent of people with the greatest health care expenses in the U. S. account for 49 percent of the overall health care dollar. As a result, health insurance becomes unaffordable for workers in a particular firm. For this reason, Obama proposed the plan to reimburse employer of a portion of the catastrophic costs they incur above a threshold, if they guarantee that the savings will be used to reduce health premiums for the workers.
Obama’s plan also proposed to increase the investment in comparative effectiveness reviews and research. This information will help eliminate wastes and missed opportunities by reviewing past literature, analyzing electronic health care data, and conducting simple, real world studies of new technologies. Access to the old and new data will grant Americans and their doctors a more comprehensive and objective information to make the best decisions for their health and well-being. In Obama’s plan, he also suggests reforming medical malpractice and at the same time preserving patient rights.
Increasing medical malpractice insurance rates are making it harder for doctors to practice medicine and raising the costs of health care for everyone. (Ibid, p5) Barack Obama will strengthen antitrust laws to prevent insurers from overcharging physicians for their malpractice insurance. A third step taking by Obama is to reduce health care costs by tackling the anticompetitive actions of drug and insurance companies. It is not right that Americans families are paying skyrocketing premiums while drug and insurance industries are enjoying record profits. Ibid) The Obama’s plan aims to increase the competition between insurance and drug market in an effort to reduce costs of insurance premiums. The insurance business is dominated by a small group of large companies that has been thriving and eliminating their rivals. In the last ten years, for-profit companies have bought up not-for-profit insurers around the country. There have been over 400 health care mergers but only 2 companies dominate more than half of the national market. Ibid) Such changes were actually supposed to make the system more efficient, but rather caused premiums to increase nearly doubling over the past 8 years. (Ibid) With Obama’s plan, instead of large companies abusing their monopoly power through unjustified price increase, they would be required to pay out a reasonable share of their premiums for patient care. This will prevent them from keeping a ridiculous amount for profits and administration, especially in a non-competitive market. Barack Obama’s new National Health Insurance Exchange will also help increase competition by insurers.
Other steps taking by Obama to reduce costs is to allow consumers to import safe drugs from other countries, to prevent drug companies from paying off generic makers not to enter the market, and to allow Medicare to negotiate for cheaper drug prices. All the aforementioned is in an effort to provide affordable drugs for consumers in the United States and prevent pharmaceutical companies from abusing their monopoly power. Promoting Prevention and Strengthening Public Health Obama’s health care plan also lists various steps that should be taken to increase awareness on the current health crisis that plague many Americans.
He first suggested that each person must do their part to create the conditions and opportunities that allow and encourage Americans to adopt healthy lifestyles. (Ibid, p7) According to Obama, covering the uninsured and modernizing America’s health care system are first priority, but they are simply not enough. The United States of America is facing a true epidemic of chronic disease. Many Americans are suffering and dying on a large scale as a result of such chronic diseases like obesity, diabetes, heart disease, asthma, and HIV/AIDs, all of which can be prevented.
The chronic diseases are not only taking away human lives, they are also creating a financial toll on health care resources, costing well over $150 billion. To promote the needed prevention mechanisms, Obama lists employers’ wellness programs, attacking childhood obesity in schools, increasing the number of primary care providers, and disease prevention programs. He believes that promoting health and wellness in this nation is a shared responsibility among individuals and families, school systems, employers, the medical and public health workforce, and federal and state and local governments.
All parties must do their part and collaborate with each other to encourage Americans to live a healthy lifestyle. As a result of these prevention measures, the government will realize a significant amount of savings in the long run by containing the ’emergency’ costs associated with patients not seeking help sooner due to inadequate or no health care coverage. However, a lot of catching up would have to be done to provide treatment for patients who haven’t been getting any. A Breakdown of the Economic Effect of Obama’s Health Plan
As laid out in the previous sections, Obama has taken a big leap forward to reducing health care costs and improving the economy. However, will his health reform plan work? Will it really contain costs and lead to an economic recovery either in the short or long run? In this section, I will provide a detailed economic analysis of Obama’s health care plan and whether it is worth the investment. Obama’s health insurance plan will definitely insure most Americans, albeit at a realistic price of at least $100 billion annually.
It is also clear the long-term benefit of the proposed plan mainly because of his preventive measure to chronic illnesses. However, the short-term advantage is in serious jeopardy because the plan requires a huge chunk of money upfront to be implemented. The plan will save Americans a significant amount of money, but at the same time increase government spending by the same amount. One striking aspect of the plan is the idea of reducing cost of catastrophic illness as stated earlier. However, is it really a cost reducer? Rather, it is more of a cost shift.
It is indeed true that it will reduce the cost of health insurance for the workers and their families, but it will also increase government spending by the same amount. The federal government will take upon a huge portion of the highest cost claims, thereby taking these costs out of the price of health insurance. The reimbursement to employers will balance out the costs of these catastrophic illnesses in the short run. As seen in the first section of Obama’s health care plan, he sets as his goal quality, affordable, and portable coverage for all.
Lets’ tackle them one by one. First off, his improvement on quality isn’t really an economic advantage short-term. Improvements in that arena are going on in the market anyway such as the disease management programs. Investing more money in such programs will also be very costly in the short term and add more deficits to the already deflating economy. However, it will be worth the risk in the long term because the purpose of disease management programs is to spread out treatments rather than bombard the system with extreme cases of illness that must be treated immediately.
This strategy is comparable to bonds and interest rates where payments are spread out with the rate of inflation as opposed to a lump sum at the current market rate. Consequently, periodic treatments are better and less costly in the long run, as well as lead to an improved economy. The second aspect of the plan-‘affordability’- is more about shifting the cost of insurance to government than making it a more efficient health care system. The reason why the health insurance will be more affordable for Americans is due to the government spending billions of dollars in subsidizing access to everyone.
Nevertheless, making health care affordable will be worth the risk in the long term. From an economist perspective, lowering the price and insuring enough people in a competitive market will perpetuate significant profit for the insurer as long as price equals the marginal cost of provision. However, since the insurance companies are monopolies, the government must regulate the high price of coverage to provide access to everyone, while still enabling the monopoly to make a normal rate of return.
This regulation will be very effective in the long run because it will save the government money that it will otherwise have to hand out due to emergency treatments for people who cannot afford healthcare. People would promptly go for routine check-ups rather than wait for dire circumstances that will drive down the nation’s budget. Additionally, having portable coverage for all will prove successful in getting most of the uninsured covered and securing coverage for those that currently have it, but it will nevertheless strip the economy in what it costs short term.
In fact, the plan probably increased spending by adding billions of dollars into the system without any real or effective cost containment techniques to offset the extra expense right away. The question lies as to whether we can wait 10 years to witness a change in the economy. In the second segment of Obama’s health care plan, he plans on modernizing the US health care system to lower costs and improve quality. Obama’s plan includes health information technology, strengthening antitrust laws against malpractice, increasing completion among insurance companies, and reducing the price of drugs.
All of which are very good ideas and can probably save the government some money in the long term. However, I believe that these changes wouldn’t be realized until another ten years as long as they are followed through. My biggest concern, though, is that some of these changes have already been tackled in the market for years with very little success. For example, the health information technology mentioned by president Obama has been implemented since 2004. However, it will take longer than anticipated to be completely fixated in the United States.
Obama claims that $77 million annually will be saved by his first term in office. But according to the RAND study, the health care system won’t reach about $77 million in savings until 2019 and there would also be some costs associated with maintaining the system. Electronic health records can lead to fewer medical errors, duplicate tests, shorter hospital stays, and an increase in prevention efforts paving the way to better health. But all of that mostly reduces costs for the insurance companies paying the bills and, to some degree, uninsured patients who are footing the cost of their health care.
Yet, let’s look at the bigger picture and long term ramifications. The electronic health records will enable a faster and more efficient health care system, thus leading to hospital growth and savings for the insurance company. This will result in a more generous handling by hospital executives and insurance providers to cope with the government and make healthcare affordable for most people if not all. Another facet of Obama’s plan is to strengthen anti-trust laws to prevent insurance from overcharging physicians for malpractice insurance and also to increase competition.
The short-term economic advantages of this proposal are very clear. By strengthen anti-trust laws, the cost of malpractice insurance will decrease, allowing more of the physician’s earning to go towards taxes and in the rebuilding of the economy. Also, strengthening such laws will lead to increased competition, and thus bring the price of insurance down for families and businesses. Analysts say high costs in industries with little competition have kept Mexico’s economy from developing as fast as other leading emerging markets.
Moreover, Obama created the National Health Insurance Exchange to promote more efficient competition and reduce overhead cost for insurance company. On one hand, the proposed reduction on overhead cost isn’t the main cost containment because overhead costs are direct results of the rate of inflation. Reducing insurance company overhead is important but constitutes only a small percentage of costs and those overhead costs have been increasing at the rate of general inflation while health care costs have been increasing by two to four times the basic inflation rate in recent years.
On the other hand, the insurance exchange will guide insurance markets to help them comply with consumer protections and to also compete in cost-efficient ways that would result in more Americans obtaining coverage. By such an exchange, communications between purchasers and insurers will be facilitated in order to address some of the problems that currently exist in private health insurance markets- not enough risk spreading, price discrimination, out of control costs, poor delivery of subsidies, and underinsurance. This will lead to increased awareness and efforts to make health care more affordable.
Obama also proposed to legalize drug importation by consumers, which is a good idea. However, past history hasn’t seen significant improvement in the economy implementing such ideas. Importing drugs from other countries will also carry along with it high shipping costs, and thus balance any savings the consumer might have or even increase costs if not ordered in huge quantity. For example, the amount of drugs imported from Canada has fallen by half in recent years, as this once popular scheme hasn’t produced the savings to even maintain itself at past levels. A letter from the FDA Commissioner also states that the U. S. ouldn’t ensure the safety of drugs from Canada, Europe, Japan and Australia. (Ibid) On the positive side, legalizing drug importation can open the door to new businesses that will take advantage of the cheaper prices overseas by ordering in bulk. These emerging businesses can then sell the drugs to consumers at cheaper price and make the current market more competitive. The emergence of the new businesses will also unlock employment opportunities and thus propel the rebuilding of the economy. As stated earlier, all these changes wouldn’t be realized in the short term but in fact will incur a massive amount of debt to be implemented.
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