Health Reform and the State of the Union Address

While it is true that the Affordable Care Act is the law of the land, lingering political resentment, second thoughts and inconvenient truths promise to distract President Obama from his new "jobs" agenda over the next two years. Last night's State of the Union (SOU) not only gave the Disease Management Care Blog a preview of the strategy that will be used by the Administration to counter this, but was a lesson on the use of the kind of self-serving rhetoric that the DMCB can use to get its way.

The relatively brief 209 words specifically devoted to health care reform were tucked away in the latter half of the speech. It acknowledged that there were concerns, made use of humor, offered vague concessions, pointed to some favorable anecdotes, concocted a villain, portrayed Mr. Obama's positions as principled and held out the possibility of compromise. In other words, change the subject while trying not to burn a lot of political capital, confound the opposition with time-consuming as well as unsubstantive negotiations outside of the public spotlight and always, but always, take the high road.

The DMCB likes the approach so much, it's adapted the speech to a recent favorite topic:

Now, I have heard rumors that you still have concerns about the DMCB purchase of a multi-media surround sound system with a 3D HDTV. (Laughter.) So let me be the first to say that anything can be improved. If you have ideas about how to improve this situation by making our cable TV viewing better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the set-up that has an unnecessary wire dangling out the back of the screen. (Applause.) What I’m not willing to do -- what I’m not willing to do is go back to the days when room acoustics could deny us of adequate audio because of cheapo speakers..... (Applause.)

The DMCB also looked into the "skutnik" SOU anecdotes.

One involved a Texan brain cancer patient. According to this link, the DMCB believes the patient didn't buy insurance (or, rather took a big chance) until he developed headaches. The other apparently involved an Oregon businessman who used tax breaks (which generally has bipartisan support) to purchase commercial insurance (that is becoming arguably unaffordable due the lack of any spending restraints as well as mandates). Hardly fair, says the DMCB.

How will the Republicans counter this? The DMCB predicts by forcing the White House speak a lot more words about health reform. By holding noisy hearings and passing unacceptable legislation. By demanding big concessions, finding other anecdotes, portraying big government as the villain while also appearing pleasant, humorous, principled and reasonable. The Republicans have the additional advantage of arguing that a moribund job outlook and scary government deficits are linked to the ACA.

Let the games continue.

90% in 2020, Health Reform and the State of the Union

When the Disease Management Care Blog views the State of the Union (SOU) this week, it will be keeping the following in mind, courtesy of Mike Chernew et al writing in the New England Journal here:

The accumulated U.S. debt at the end of 2009 was $14 trillion*. While that's a big number, economists use the debt to gross domestic product (GDP) ratio to put things in perspective. The European Union would like to see its members keep it less than 60%. Troubled Greece and Japan - who stepped in to save their banks - have exceeded 100%. Bond markets and economists seem to agree that a sovereign debt ratio up to 90% may be manageable, but not for long. The U.S. was at 53% in 2009 and is on pace, even with the growth of our economy, to exceed 90% by 2020.

Government debt is financed by borrowing, which is accompanied by having to pay interest. About 1.3% of today's U.S. GDP goes to pay that interest, which is likewise manageable. As debt levels increase, the risk to lenders (who fear inflation more than default) also increases, which leads to higher interest rates. So far, the all-important 10 year US Treasury Bond rates haven't notched up, which is good news at two levels. The U.S. government hasn't been forced to pay higher interest rates, which means there is more money for important public programs. In addition, the cost for consumer borrowing hasn't gone up, since consumers are "competing" with our government for loans. That cannot continue forever.

Want to avoid 90% in 2020? Assuming the economy's growth will not appreciably change, you'll have to raise taxes and/or reduce spending.

While increasing taxes seems to be a political bridge too far, the other problem is the tax code equilibrium of "Hauser's Law." Real world tax receipts are remarkably pegged at 20% percent of GDP and always fall short of projected revenues no matter how much they're raised. Economists and politicians are also worried that increasing taxes will harm a fragile economy, which could ironically hamper tax receipts. So that's not a good option right now.

That leaves government spending cuts. In health care, that means the painful prospect of cost sharing, skinnied benefits and higher eligibility thresholds along with reductions in provider payments. While politicians may be tempted to assuage their constituents by pairing cuts with new programs, that will do little to avoid the looming 90% debt to GDP ratio.

The amateur economist DMCB's opinion?

The U.S. is not on the brink of financial crisis, but a day of reckoning is taking shape and there are huge implications for health reform. While the Congressional Budget Office is on record as saying that the Affordable Care Act's tax increases, benefit changes, risk pooling and innovations will reduce the deficit, the inconvenient truths above add up to a good reason to be skeptical.

The lack of any pre-SOU signals about credible spending cuts is lowering the DMCB's expectations. If there is more economic bad news in the coming months, renewed urgency over deficits will mean either a) more posturing with budget gimmicks or b) spending reductions... finally.

The former will increase the risk of rising interest rates, which would hurt consumers and undercut the economy. The latter will mean immediate trouble for two constituencies: 1) the politically marginalized medically indigent and 2) physicians, who have the bad luck of dealing with Medicare (see SGR) and Medicaid payment rates in the middle of a increasingly perfect fiscal storm.

*Not "1.4 trillion." The DMCB appreciates the correction