Health Plan From Obama Spurs Debate

Original Link: http://www.nytimes.com/2008/07/23/us/23health.html

By KEVIN SACK

It is one of the most audacious promises in a campaign that has been thick with them.

In speech after speech, Senator Barack Obama has vowed that he will lower the country’s health care costs enough to “bring down premiums by $2,500 for the typical family.” Moreover, Mr. Obama, the presumptive Democratic nominee, has promised that his health plan will be in place “by the end of my first term as president of the United States.”

Whether Mr. Obama can deliver is a matter of considerable dispute among health analysts and economists. While there is consensus that the American health care system is bloated with waste, eliminating enough to save $2,500 per family would require simultaneous and synergistic solutions to a host of problems that have proved intractable for decades.

Even if the next president and Congress can muster the political will, analysts question whether significant savings would materialize in as little as four years, or even in 10. But as Mr. Obama confronts an electorate that is deeply unsettled by escalating health costs, he is offering a precise “chicken in every pot” guarantee based on numbers that are largely unknowable. Furthermore, it is not completely clear what he is promising.

His words about lowering “premiums” by $2,500 for the average family of four have been fairly consistent. But the health policy advisers who formulated the figure say it actually represents the average family’s share of savings not only in premiums paid by individuals, but also in premiums paid by employers and in tax-supported health programs like Medicare and Medicaid.

“What we’re trying to do,” said one of the advisers, David M. Cutler, in explaining the gap between Mr. Obama’s words and his intent, “is find a way to talk to people in a way they understand.”

The original arithmetic was somewhat basic. In May 2007, three Harvard professors who are unpaid advisers to the Obama campaign — Mr. Cutler, David Blumenthal and Jeffrey Liebman — produced a memorandum offering their “best guess” that a menu of changes would produce savings of at least $200 billion a year (it has since been revised to $214 billion). That would amount to about 8 percent of the $2.5 trillion in health care spending projected for 2009, when the next president takes office.

The memorandum attributed specific savings to several broad initiatives, with the numbers plucked from recent studies. Investments in computerized medical records would save $77 billion a year, the advisers wrote. Reducing administrative costs in the insurance industry would yield up to $46 billion. Improving prevention programs and chronic disease management would be worth $81 billion.

The total savings were then divided by the country’s population, multiplied for a family of four, and rounded down slightly to a number that was easy to grasp: $2,500. The average cost of family coverage bought through an employer was $12,106 in 2007, with workers paying $3,281 of that amount, according to the Kaiser Family Foundation, a health research group.

Mr. Obama aspires to cover the country’s 47 million uninsured by requiring insurers to accept all comers, regardless of their health status, and by providing generous tax credits to low-income workers. The tax credits could be used to buy into a new federal health plan or private plans marketed through a government exchange.

The subsidies are expensive, estimated at well over $100 billion. Other components of the Obama plan also bear up-front costs, like a pledge to spend $50 billion over five years to speed the computerization of health records, $6 billion a year on tax credits to small businesses that provide coverage to workers, and an unspecified amount to buffer businesses from high-cost insurance claims.

The source Mr. Obama has identified to pay for them — the repeal of President Bush’s tax cuts for those making more than $250,000 — would cover only about half. That means additional health care savings would be needed, not only to keep premiums under control but also to help pay for the subsidies.

A consensus has emerged among health economists that at least a third of the country’s spending on health care is unnecessary. Both Mr. Obama, of Illinois, and his Republican rival, Senator John McCain of Arizona, agree that significant sums could be saved through reductions in unneeded procedures and improvements in electronic record-keeping, prevention and chronic disease management.

But the dollar values Mr. Obama has attached to individual components of his plan are beginning to attract scrutiny. In particular, the Congressional Budget Office issued a report in May questioning the amount to be saved from the computerization of health systems.

Mr. Obama took his estimate of $77 billion a year from a 2005 study by the RAND Corporation (which cautioned that reductions of that magnitude would not emerge for 15 years). The Congressional analysts found, however, that for various methodological reasons the RAND study was “not an appropriate guide” to potential savings.

This month, Mr. Obama’s health advisers tried to recast the debate so that the questioning of any one number would not undermine the plan’s broader credibility. They enlisted eight health policy experts to sign a letter that, without endorsing the math behind any single initiative, proclaimed it was “not only possible, but likely” that Mr. Obama could save $200 billion annually. They did not say by when.

Mr. Cutler, who helped collect the signatures, said he and his colleagues had decided “that our attempt to lay out one plausible scenario for the savings had created more problems than it had solved.” He added: “Putting the debate where this message puts it — do you believe we can save 8 percent of health spending through a major series of public and private reforms — asks the question in a way that is much more productive than the issue of ‘Do you believe a single estimate among many, many studies?’ ”

Mr. Obama’s economic policy director, Jason Furman, said the campaign’s estimates were conservative and asserted that much of the savings would come quickly. “We think we could get to $2,500 in savings by the end of the first term, or be very close to it,” Mr. Furman said.

The campaign won additional backing this week from Kenneth E. Thorpe of Emory University, an authority on health care costs who helped formulate Bill Clinton’s failed plan in 1993. In an assessment that he initiated in coordination with the campaign, Mr. Thorpe wrote that if all of Mr. Obama’s proposals were enacted they would reduce health spending by between $203 billion and $273 billion by 2012. He calculated that half of the savings would accrue to the federal government.

The Obama advisers said that while not all of the savings would translate into lower premiums, consumers would gain in other ways. The savings to employers would be passed along as higher wages, they predicted, and the savings to government would eventually mean either lower taxes or added benefits.

But whether employers and governments respond that way cannot be guaranteed, particularly in a difficult economy. And a number of health policy experts have questioned whether the $2,500 projection is either fiscally or politically realistic. Reducing health care costs, they emphasized, means taking money from someone’s pocket and rationing care that Americans have come to expect, a recipe for stiff resistance.

“There is no easy money because, as the saying goes, one person’s fraud and abuse is another person’s income,” said Joseph R. Antos of the American Enterprise Institute. “I wouldn’t think that four years or eight years or probably 10 years will be enough to see numbers of that sort.”

The Commonwealth Fund, a health research group in New York, published a study in December projecting that a robust overhaul consisting of 15 broad initiatives would generate savings of only 6 percent after 10 years. “Doing it by the end of a first term is ambitious and would require tough policies,” said Karen Davis, the group’s president.

Jonathan B. Oberlander, who teaches health policy at the University of North Carolina at Chapel Hill, called it wishful thinking. “Do they have the potential to generate significant savings in the long run?” Dr. Oberlander asked. “Yes. Do I believe they will produce substantial savings in the short run that can be used to finance Obama’s plan? No.”