Could Heath Care Reform's Success Bring Failure Again?

Without a doubt, it is good news that the major players in America's health delivery system have come together on a strategy to reduce the cost of health care by 2 trillion dollars over the next 10 years. Millions of American families and businesses have been struggling to keep up with costs for health insurance that have been rising far faster than wages and prices in the rest of the economy. But is this announcement, made first by the White House, further evidence that the medicine, pharmaceutical, and health insurance industries, former opponents of changes to the health care system, are now Obama's allies in bringing about reform -- or is this another effort to undermine reform?

The 1993-94 Clinton health care reform effort was successful in at least one respect. The health care delivery system dramatically slowed the pace of price increases that had fueled demands for reform, until the reform failed. Then, for some reason, health care costs began rising again, fueling the renewed interest in health care reform that is driving this week's news.

The Henry J Kaiser Family Foundation has compiled a great deal of data about US health care and health insurance costs and made them available here. The pattern is pretty clear. The annual rate of change in national health expenditures (NHE) per person was 10.8% in 1988 the year George H.W. Bush won the White House. This was well over the annual rate of change in consumer prices (CPI) of 4.1%. The health spending inflation rate stayed above 10% per year until it dropped to 8% in 1991, the year Harris Wofford won an upset Senate race in Pennsylvania by calling for health care reform.

The rate of inflation in health spending continued to decline each year as Bill Clinton campaigned for and won the White House (1992 = 7.1%), Hillary Clinton prepared her plan (1993 = 6.1%), and Congress debated and killed the plan (1994 = 4.1%). There may, of course, be sound economic reasons, rather than political ones, to explain why the pace of increases in health care costs was more than cut in half during this period.

Throughout this period, much of the discussion coming from the White House centered on ways to extend coverage to more uninsured Americans, but as we discussed here, public opinion polls revealed that the driving force of voter interest in health reform was rising costs, just as it is today. To be fair, the managed care movement was in full swing in the early 1990s and this may account for some of the reduction in the rate of health care spending inflation, but at best this is a partial explanation for why one of the most vexing political challenges of the era, double digit increases in health care costs, would simply solve itself before the government could step in with a new regime.

And it was temporary. As the recent update to the chart shows, rates stayed low through the next presidential election (1996 = 4.1%) and then started creeping back upward, jumping up in George W. Bush's first year (2001 = 7.5%) and reaching a peak of over 4 times the rate of change in consumer prices back up at 8% in 2002.

This time around, the health care reform battle lines are far less clear. Many of the 1993 adversaries have come to the White House for "stakeholder meetings" and announced their support for reform in principle, while reserving the right to differ over specifics. The greatest area of difference has been over the question of whether the plan will include a "government option," a health insurance plan offered by the government that competes with private plans that some opponents see as a gateway to a government takeover of all of health care.

Many veteran Washington watchers are starting to assume that there will be some health care reform this year, but the real question is whether it will include a government option or not. It remains an open question whether the recently-announced concern from hospitals, doctors, drug makers, and insurance companies about the rates they charge represents, on the one hand, a new spirit of coming together to solve national problems, or on the other hand, the smartest way to undercut public demand for inclusion of the "government option" in the reform proposal.

Comments

[oneherenow]

The 2 trillion dollars is not a real decrease in cost. It is a decrease in the projected rate of increase of these costs, reported today on the radio to amount to $2,500.00 over 10 years for an average American family. That's $250.00 per year. But there's no way to judge this proposal without knowing what the increase would be without this cut. If the projected costs were going to be $500.00 per year, then the headline for the story might just as well read "health care industry vows to increase costs by 2 trillion over 10 years"..!

When you're up to your neck in a swamp think with leeches and mosquitos, here's not much comfort in hearing that the blood suckers still plan to keep biting more and more in the years ahead, just not as much more as they previously thought they could get away with.

Meaningful reform must include a public plan option. But let's not count on too much help from the bloodsuckers in drawing a map that will get us there.

[Sheri and Allan Rivlin - Huffpost Blogger]

There is always a comment that says about what we said in far fewer words and with a more colorful metaphor. Well put.

[oneherenow]

Thanks for the compliment. There's another metaphor I'd like to squeeze into this debate, but I'm not sure how to do it because I made up the word: "financialize."

Defiinition: financialize--to maximize the handling of money so that it sticks to the fingers of those who do the handling.

Because private health insurance companies have financialized the product, that have no real incentive to control long term costs. Just like hedge funds, and casinos, private health plans make money on the size of the handle. I'm afraid that the current 2 billion "give back" is the same kind of tokenism we get when a casino dials back it's take on the slots a couple of points in advance of a hearing by the gambling commission.

[elmerfude]

Senator Ben Nelson
720 Hart SOB
Washington, DC 20510

Dear Senator Nelson:

You recently stated that the option for people to choose a government Medicare type option for insurance coverage would create an “unfair” competition because the government could negotiate lower prices from hospitals and doctors than private insurance. What are you thinking? Are you a socialist? This is like saying that WalMart is an unfair competitor because they can negotiate lower prices from suppliers. If the government can offer lower cost insurance than private insurance providers, so be it. The overhead rate for Medicare is only about 5 %--far better than private insurance.

As a retiree I have found Medicare to be very well operated as is Group Health (a non profit) that supplies my supplementary and prescription insurance. In fact the Medicare premiums have not increased that much and Group Health premiums have not increased at all for the last several years. If private insurance cannot compete with the government plan on cost, let them compete on service and quality although I have no problems with Medicare along those lines.

I think you have lost sight of the main objective. It is to provide Americans with health coverage, not to keep private insurance companies in business. I am sure you will be lobbied and given a lot of money to oppose real health care reform. This is a real shame if not downright unpatriotic. Step up and do what is right.

Yours truly,