Analysis – Obama Healthcare Speech

gavin p smith - obama health care speech to congressOn September 9, 2009, President Barack Obama addressed a joint session of Congress to discuss an issue of both importance and controversy that has plagued the United States for decades – how to reform healthcare.  Initiated as a main platform in his bid for the Presidency, Obama is pushing for healthcare reform to occur this year.  He has set deadlines for Congress, pushing them to negotiate in a bi-partisan fashion and form a consensus on reform.  However, the debate on both sides has grown to a fever pitch.  As a result, the President chose to address a special joint session of Congress in order to give a broad overview of the problems that exist with the current healthcare system.  He also was pressed to deliver key itemized solutions that would make up his desired plan for reform.

In his speech, Obama pointed to the problem of cost within the healthcare system and the potential consequences of inaction.  He argued his case by addressing costs both to the government and to individuals, families and small businesses.  Obama asserts that the growing costs in healthcare directly affect the budget deficit of the United States.  According to Obama, the total cost of healthcare is now approximately “one-sixth of our economy”.  The President further asserts that as costs grow, current entitlements such as Medicare and Medicaid will not be sustainable.  He argues that these costs would have a direct impact on the taxpayer not only in terms of cost but also access.  The implication is that the need to control future budgets will determine the extent of availability of Medicare and Medicaid funding.  The fact that the costs are out of control will inevitably put a squeeze on funding of these entitlements, which in turn would limit access.

In addition, the President discusses the more personal impact of rising healthcare costs on individuals, families and small business.  According to Obama, the United States “spends one and a half times more per person on healthcare than any other country”.  However, the President could have gone a step further to note studies showing how Americans are less healthier when compared to citizens of other countries that spend much less per individual.  He does also mention that the public is footing the bill for emergency room and charitable care costs that get shuffled around within the system.  Obama also mentions that insurance premiums are rising at a rate that is substantially faster than wages.  He claims that this cost situation is the root cause for less employer contributions, employer drops of coverage, tougher competitive situations for companies that trade globally and lower overall entrepreneurial desire.  These all have a detrimental effect on the economy as a whole.

In these opening arguments, President Obama lays out the fiscal dilemma that healthcare poses to the government, businesses and the citizens.  Rising costs that go unchecked would harm the national budget, creating a much larger deficit.  This might also create a potential national security issue in the long-term.  According to Obama, the rising costs also constrict or restrict the growth of the economy and dampen the initiative and drive of the U.S. economy both nationally and internationally.  Finally, the skyrocketing costs directly impact the wallets of Americans, widening the gap between those who can afford access, and those who are left to fend for themselves.

While analyzing the speech by the President, it is important to consider the question – what is true healthcare reform?  Although Obama addresses some solutions, he does not specifically address reform across all of the key actors of healthcare.  He does focus in on the insurers and purchasers, but leaves out any direct proposals for reform that would affect suppliers and providers.  Again, his arguments about the rising costs are also made to encourage and convince purchasers (individuals, families and small businesses) to support his efforts for an eventual bill.

Here are the solutions provided by the President in the speech.  First, he focuses in on the insurers.  Obama wants to make denials of insurance, due to ‘pre-existing conditions’, completely illegal.  He also wants to curb the ability of insurers to be able to alter or change policies while an individual is sick.  The President’s plan also includes the elimination of caps on amounts of coverage that a person can receive in a given year.  Further, he does want new limits on how much individuals can be charged for ‘out-of-pocket expenses’.  Finally, the President intends to push for insurers to cover routine checkups and preventative care at no additional cost.

But how do these proposals truly impact insurers and purchasers?  On the surface, these would sound like very good benefits to the purchasers, and added expense to the insurers.  However, there is no detail as to how to prevent potential loopholes.  For example, purchasers may no longer be denied coverage due to pre-existing conditions, but what would restrict the insurer from creating new plans that address this but at much higher premiums?  This would, in turn, be restrictive in cost and access.  The President wants insurers not to be able to cancel or change policies on individuals when they are sick, but what about terminations of policies altogether during sickness?  There are still many questions left unanswered in areas where potential loopholes could form.

As for purchasers (specifically individuals and small businesses), there would be a more affordable insurance exchange or marketplace that is created.  Again, there are no specifics on how this marketplace would be regulated, what would be deemed as “affordable”, and how those affordable rates would be set.  The President also does not mention who would set those rates, leaving open the potential for abuse by insurers.  Would they be left to have a hand in the rates of the exchange, or even control the rates completely?

Also, Obama proposes new tax credits for those who still cannot afford health insurance through the proposed exchange.  However, this has three potential problems.  One, the purchaser who receives a tax credit may not receive enough money to purchase the right plan for their needs.  They might get enough money to purchase something from the exchange, but it may not be enough for their specific needs, exacerbating the problem of underinsurance.  As well, some may not bother to use the tax credits to buy insurance, but to spend them on other things.  Individuals may use them towards other debts, and businesses may use them to offset other business expenses.  A penalty may be a smaller cost to bear, even a savings, compared to mandated premiums.  Finally, tax credits would be dependent on income levels.  As studies show, many individuals and small businesses may not make a high enough level of income to receive the adequate amount of tax credits necessary for purchasing any insurance at all.

As President Obama continues in his speech to outline broad solutions for healthcare, the solutions are less than detailed.  For example, his plan would allow for the offering of “low-cost coverage that will protect you against financial ruin if you become seriously ill”.  That’s a very broad promise.  Again, who sets the rates, the government or the insurer?  What constitutes “financial ruin”? There are many other factors that could contribute to this in addition to healthcare costs.  Who decides? Again, the specifics are lacking.  At best, this solution only addresses a group of purchasers, but even that group is not clearly defined.

As the speech moves on, Obama also proposes a mandate for coverage.  This can be viewed positively or negatively, depending on your point of view.  From the provider standpoint, you no longer have to worry about a huge amount of uninsured patients walking through the door.  However, will this mandate necessarily mean better health to the purchasers, and in turn, improvement in the healthcare system overall?  From the insurer standpoint, this mandate essentially gives them a big boost in business, with no incentive to make rates more competitive.  This mandate would guarantee growth in new business.

For the purchaser, they will be faced with a potential “damned if you do, damned if you don’t” scenario depending on their income level.  Those who currently cannot afford healthcare would find themselves forced, by law, to purchase some sort of coverage.  Otherwise, harsh monetary penalties would be imposed.  In some bill proposals, that penalty could be as much as $1500 per year (MSNBC – “Morning Meeting”, Baucus Committee bill announcement).  With average typical premiums of at least $200 per month already, this may be very limiting.  First, if a purchaser did take on insurance cover to avoid the penalty, they may be forced to take on what they can barely afford, which most likely would be a very limited policy.  Therefore, this would cause them to join the ranks of the underinsured, not solving the problem.  Second, if the purchaser cannot afford even the lowest of coverage, they would find themselves forced to pay a penalty, which would cause further financial hardship.  It would also inhibit their ability to save money for acquiring healthcare cover in the future, which adds to the problem.

Finally, the President wants accountability with the insurers.  He discusses how the market works, pointing out that “in 34 states, 75 percent of the insurance market is controlled by five or fewer companies”.  His point is to encourage competition.  Obama even gives a passing mention to a government-provided ‘public option’ that has been highly debated in the past few months.  However, there is no detail in the speech about how to break up the monopolies that are held by insurers.  Should there be a new government regulatory body for this?  Would just one government-run option program help this?  What is there in the proposal that would spur or encourage the future development and growth of new insurance companies to ensure that there are multiple insurers available to providers?  Again, these issues are only vaguely addressed.

The President focused much of his speech not on the overall improvement of the health of citizens, nor improvements in healthcare overall.  Rather, his reforms appear to focus on the workings of the industry.  More specifically, Obama focuses on reforming only one actor in the healthcare industry – insurers.  As already mentioned, the speech almost completely neglects the issues of provider availability, access and cost.  It also neglects supplier costs and their role in healthcare expenditure and waste.  However, Obama does offer support for a Republican initiative to curb frivolous medical lawsuits.  While this may help save a little money, it is not significant.  It also does not address better provider efficiency and it may limit legal recourse for purchasers.

The President’s speech to Congress does have a few good ideas in it.  Some are clear and straightforward and would have a direct impact on better access to healthcare and insurance cover.  However, there are few details and significant flaws that remain.  There was no focus on improving provider care and cost efficiency.  There was no mention of any reforms that might be aimed at suppliers.  Insurers, while appearing to be the target, may not sweat too much over the initiatives if they can simply find loopholes around them.  Purchasers may get a few benefits, but reform may also cause latent dysfunction in the system that could cause further debt due to more underinsured and insolvent individuals.  But most important, these broad proposals do not significantly reform healthcare for America’s citizenry.  They appear merely as a band-aid to the industry itself.