Obama's Magical Mystery Tour of Health Care Savings

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This weekend, I was on a panel where the other economics journalist and I spent a great deal of time belaboring the obvious:  Obama's health care plans are very, very expensive, and they mean higher taxes for everyone, not just that elusive klatch of greedy fools who are not in the 95% of working families now allegedly slated for stable or lower taxes.  Otherwise, how could Obama hope to pay for it?

I think we found out today:  magic!

Obama got the SEIU and various corporate entities involved with health care provision in a room and got them to promise to slash 150 basis points from the annual rate of increase in health care spending.  How will we achieve this?  Whitehouse.gov has a fact sheet which outlines the concrete proposals that came out of this meeting:

  • Improving Care after Hospitalizations and Reduce Hospital Readmission Rates payments will be bundled to include the 30 days post discharge; readmitted patients will become a cash drain.  If hospitals really are making patients sicker (or not bothering to make them well) because readmissions are lucrative, it should be interesting to see what lengths they will go to to avoid readmitting very ill patients.
  • Reducing Medicare Overpayments to Private Insurers through Competitive Payments.  Bye-bye, Medicare Advantage.  Maybe.  Medicare Advantage seems to cost more because it, er, provides more benefits.  It also apparently has good patient satisfaction. Directly playing with senior health care can be politically dangerous.
  • Reducing Drug Prices  Only for Medicaid.  No dollar item attached to it, probably because the savings are relatively trivial; Medicaid is a small part of the overall budget, and prescription drug prices are a small part of its budget, and an 8% decrease in a small part of a small part doesn't sound as good as Reducing Drug Prices.
  • Improving Medicare and Medicaid Payment Accuracy aka the infamous Waste, Fraud, and Abuse.  Traditionally much harder to get out of the system than promised by reformers, in part because the Waste, Fraud, and Abuse subsidizes other services, so if you eliminate Medicare overpayments, you suddenly get higher prices.  This is why retailers do not actually attempt to push "shrinkage" to zero.
  • Pay for Performance  The Holy Grail of health care wonks.  Good luck.  Projected cost savings:  $12 billion

You may recognize these proposals; they are recycled from the Obama budget.  Estimated cost savings listed:  $215 billion over ten years.  That leaves just $1.785 trillion for the "stakeholders" to find.  And with a model of stakeholder cooperation like Chrysler before us, that shouldn't be hard.

This is all very well as political theater; politicians convene never-never working groups all the time.  But, being perhaps too cynical, I suspect that the announced plan to save $2 trillion is going to be used to sell Obama's healthcare plan as if we'd already found it.  Then when oh, darn, the SEIU doesn't agree to hold down wages or eliminate jobs, and pharma ratchets up the average price it charges the private sector to make sure it doesn't lose too much on its mandatory Medicaid discounts, etc, well, we'll all just have to dig into our pockets to pay for it, won't we?


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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