Health Care Expansion

President Barack Obama
The White House
1600 Pennsylvania Avenue
Washington, D.C. 20500
July 4, 2009

Dear Mr. President:

Today is Independence Day. We Americans have always valued our independence which is why I take note of this date. The value we place on independence applies to health care today as much as it did on other matters when the Declaration of Independence was signed.

Many Americans are concerned that the proposed health care expansion will make a bad situation worse when it comes to the national debt and the projected multi-year deficits. Most people believe that health care costs need to be constrained and the uninsured need some short-term help with their insurance premiums. However, the reform revenue and cost estimates are another matter entirely. The cost of adding the uninsured and those with pre-existing conditions is certain to be underestimated and obviously will increase rather than reduce the overall costs of health care in America. More thought needs to be given to promoting HSAs and catastrophic health insurance as the best alternative for those who cannot afford more expensive plans.

Critics say the public health care insurance alternative, which is being promoted as a way to drive down costs, will force private insurers out of business. This criticism has the ring of truth and therefore is another major concern about a public program. Finally, I needn't remind you of the unfunded liability or insolvency of another public health insurance plan, Medicare. The cost of Medicaid has also ballooned to unanticipated levels. These programs deserve to be fixed before any new program is entertained.

Instead of another potentially insolvent public program, why not simply establish realistic cost goals and guidelines for drug companies, doctors, and hospitals that would achieve the same objective as competition from a public-funded program? Hospitals and drug companies have already come forward with plans to reduce costs by a substantial amount. Perhaps doctors will also step up with similar concessions. We do, of course, need to keep in mind that adequate drug company profits are needed to drive research on new drugs and attract investors. Similarly, adequate compensation for doctors, after their long and arduous training, is an important factor in determining the quality of the health care we receive.

The Public is appropriately skeptical about how health care reform will be funded. They have heard similar fairy tales too many times before. Government estimates are rarely worth the paper they are written on. I know, I used to be a government cost analyst. All too often political appointees overrule legitimate cost estimates because they do not support the programs they favor.

Social Security and Medicare are good examples of programs that have grown beyond their means. Congress has added new benefits and new recipients without commensurate increases in the contribution rate and base necessary to cover the additional costs. Although faulty estimates of revenue and expense may have been a factor, the Congress has never had the political will to take the steps necessary assure full funding of the programs it enacts.

It’s time to remove Social Security and Medicare from the political arena by establishing a Board of Trustees with full authority to increase the contribution rate and base as necessary to both eliminate the unfunded liabilities of both programs over time and assure their long term viability. Congress should chip in a significant amount from the general revenues of the Treasury. This amount could be based on a CBO estimate of the amount needed to make up for the portion of the current unfunded obligation or liability that is attributable to past failures of Congress to properly fund these programs. Congress should not be able to overturn the Board’s decisions except by a 60% vote in both houses.

I suggest a novel approach regarding the funding of the proposed health care reforms. Once we have a sound estimate of the cost based on demographic, actuarial, and other studies, we need to clearly identify the specific sources of revenue that will be dedicated to cover the cost of the reforms. Then let’s limit the maximum cost and scope of the reform program to the actual amount those specific revenue sources produce. (Politically-motivated estimates are certain to be unreliable.) This approach would relieve some of the skepticism about government cost and revenue estimates. The Public could heave a collective sigh of relief knowing that for once the scope of a program would be limited to the actual amount of its earmarked sources of revenue. The funds available could be adjusted throughout the year based on the latest monthly estimate of costs and revenues.

Adjusting the cost to actual revenue could be done by establishing a priority list based on the family income of those who are receiving government subsidized coverage under the new reform program. In times of revenue shortfall, the subsidies for those on the cusp with the highest family income would be reduced or eliminated. These folks would be on notice that they have to be planning for that possibility. In any event, the objective should be to create incentives for people to get off the subsidy rolls and work toward self sufficiency.

Finally, we need to provide the appropriate incentives for the current uninsured to wean themselves from any new government subsidies and to open HSAs as soon as they are able. If promised cost reductions are actually achieved, that should make it easier for them to do so. These subsidies are a form of welfare and should be clearly labeled as such so that all recipients will know that they are imposing their health care costs on their more productive neighbors. They also should be put on notice that they will be expected to seek the education and job training to enable them to fund their own health care plans. Any new government subsidies should never be allowed to become entitlements. We will never be able to control health care costs if a significant number of the participants view health care as a free good or an entitlement. Limiting the available funding to the actual earmarked revenues would be one way to avoid that problem. Steep out-of-pocket co-pays is another.

Finally, it appears that what is being proposed will create a three tier system of health care insurance. At the top of the pyramid is Congress. Second are what I call sub-seniors and third, the seniors and aging baby boomers who are at the bottom of the totem pole. I understand that the already inadequate Medicare funding may be further reduced by $400 billion and the health care for seniors strictly rationed rationed. Many will view the latter as a sort of inverse euthanasia in which seniors are required to endure treatable medical problems and associated pain rather than receive the care they deserve. This sounds like a proposal to deprive one group of citizens of the care they need, so another group can be served. Does this represent equal treatment under the law? Is this the beginning of a "duty to die" program for the elderly?

Promising cost reductions while at the same time adding new coverage for those with pre-existing conditions and those without coverage sounds implausible on the face of it. Let’s not promise more than can be delivered.

Respectfully submitted,

Ultima