Obamacare is Coming: Reforming $2.3 Trillion US Healthcare Industry

Washington, United States, 10 September 2009. After the ‘summer of discontent’ when it seemed like President Obama’s signature reform of the US Healthcare industry was on the ropes, his primetime address to both Houses today has been heralded as a pivotal victory.

Washington, United States, 10 September 2009. After the ‘summer of discontent’ when it seemed like President Obama’s signature reform of the US Healthcare industry was on the ropes, his primetime address to both Houses today has been heralded as a pivotal victory. Obama said ‘I am not the first President to take up the cause of healthcare reform, but I intend to be the last.’ Early polling after the speech was delivered suggests he has the backing of the majority of Americans, and the Democrats have working majorities in both houses. Despite the legislative hurdles, we believe that Obamacare is coming – but why is it so important?[br]

It can seem slightly strange to non-Americans that something as mundane as health insurance should be the key US domestic policy issue for decades, seemingly more important even than the Financial Crisis. In most advanced economies, health care is taken for granted and funded in one way or another by the state, while in most other countries people are used to relying on their own savings or family support.

The US is in a unique position. As a rich country, health coverage can certainly be afforded, and the fact that over 40 million Americans are not covered is seen by many as a travesty of natural justice. Republicans, on the other hand, see any attempt to improve coverage as a thinly disguised attempt to bring in more ‘big government’, something that they oppose with religious fervour. Free market ‘believers’ see the market as the solution for all problems.

The fact is however that in the case of healthcare, the free market, and the healthcare industry it has spawned, has failed Americans. It is far and away the largest healthcare industry in the world, at $2.3 Trillion, or one sixth of US GDP. It costs twice as much to provide healthcare to US citizens as it does to look after most other advanced economies populations. And yet Americans are unhealthier – and have shorter lifespans – than the rest of the G7. How can that be?[br]

A cursory economic analysis would point to some home truths:

• US Healthcare Insurance companies are extremely profitable, and their profits have been steadily growing
• They wield effective monopolies in many US states
• Doctors and hospitals are incentivized by volume not value, leading to needless tests and treatments
• Suing those same doctors and hospitals in America’s litigious culture leads to defensive operations and escalating legal bills
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• Americans suffer from expensive health problems, in particular what has been described as an obesity epidemic

The simplest solution to the first two problems would be some form of national insurance, as has been practiced for decades in the UK and Canada. However this is seen as ‘un-American’. Even though Americans know the current system is crazy, they are not comfortable with the idea of ‘socialised medicine’.

President Obama has therefore suggested a ‘uniquely American’ solution that would ensure coverage for all, but that would provide a means to keep private insurance companies in check. Liberal advocates of reform have hung their hat on the ‘public option’, insurance provided by the government. While supporting this idea, Obama has left himself wiggle room by allowing political compromises such as trigger that would only provide a public option if the private insurance industry doesn’t meet certain requirements, or non-profit co-ops.

Whatever the outcome of that legislative battle, the principle of choice, with the government keeping the private sector honest, will be enacted. In further concessions to conservatives, the bill is expected to be tort reform (ie making it harder to sue medics) and a mandatory requirement for anyone who can afford health insurance to buy into a program.

How about getting Americans to be less obese and more healthy? That approach is likely to go down like a bomb with the electorate, so neither party is actively pursuing that area, although academics are investigating what a ‘fat’ tax might look like.

That still leaves one major issue, which is the cost of these reforms. Having spent wildly in the Bush years, Republicans have suddenly become worried about the federal deficit. This is indeed a major problem. If the deficit was a problem last year, it has become a major issue after the bailouts and economic stimulus. It worries independents and has led to open calls for the

US dollar to be replaced as the world’s reserve currency, sending the dollar plummeting.

President Obama said that he will not add ‘one dime’ to the deficit, and that the program will pay for itself through cost savings, and maybe even reduce the budget and therefore the deficit. It is here, perhaps, that the President has the least credibility. Despite the record of President Clinton, a Democrat who turned deficit into surplus, Democrats are still known as what the Brits would call the ‘tax-and-spend’ party. The electorate is concerned that the deficit is growing out of control, while seniors are worried that the program will be paid for by cuts to their healthcare under Medicare and Medicaid. Meanwhile the Republicans have found their mojo again by attacking anything the Democrats intend to do, and are likely to continue to staunchly oppose this bill. No-one said it would be easy.

Vladimir Gonzales, EconomyWatch.com