Obama Shows Us the Money on Medicare and Health Care

Personal Health

While billed as a health-care-reform project, the bulk of the details on the health plan concern Medicare -- who is going to pay for it, how it is going to be restructured.

There are three key components: The first is changing the bidding process on Medicare Advantage plans, which the administration estimates will generate $175 billion over 10 years. The second is to force costs lower on services to Medicare, particularly the drug rebates that companies now must give. The third is tighter management of practitioners and health providers.

Obama has signaled a willingness to work on the "details" of the plan, but has laid down how much he is willing to pay. The amount is $100 billion a year over the next 10 years by high-end estimates, but has budgeted an average of $63.4 billion a year.

What is in here is upper-income tax increases in the form of tightened deduction rules. This is half of the fund, estimated on average to be $31 billion a year in additional revenue.

It is also clear that Obama's target is Medicare costs, not a general health care reform. Indeed, by focusing on give-backs on Medicare, he invites companies to attempt to make up the lost revenue on other parts of the health care system.

It's a variation on "starve the beast" tactics, because part of the problem of Medicare is that it takes much of the most unprofitable health services off the books of insurance companies while still providing for profits for the services to health care providers.

By pushing costs back on to the insurers and providers, they will either have to eat some of the profits, or they will have to charge more to their private customers, or both. This could work, or it could backfire badly by creating a large wave of uninsured, the way mandates have in Massachusetts. Trying to get people to pay who have falling real wages is trying to get blood from a stone.

It isn't that there are not inefficiencies in the system: One study reports how regional differences can double the cost of Medicare treatment without improving outcomes.

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