Friday, August 18, 2006

Bush League Economic Team

The Bush Economic Team advised by Alan Hubbard, National Economic Council Director, heads into their annual meeting. Rather than Crawford as in years past, the team is avoiding record Texas heat by retreating to Camp David in the mountains of Western Maryland.

They will take up the macroeconomic picture and job growth, financial markets, tax policy, the budget and current and future spending on government entitlement programs. A significant chunk of those government programs goes toward healthcare.

Alan’s group released a report earlier this year on “Cost Drivers in Healthcare”. Did you know one of the major cost drivers for rising healthcare prices is first dollar health coverage? I don’t know about you, but I haven’t seen first dollar healthcare coverage for 20 years. My deductibles and co-pays have spiraled upwards in order to keep my health insurance affordable. As a leader in a healthcare organization, I saw our hospital do the same thing to keep from increasing the employee portion.

The only group I can envision receiving first dollar health care coverage are corporate executives as they often have a special part of their compensation related to “executive health”. For profit hospitals market such services to corporate boards and CEO’s.

The President’s healthcare plan also wishes to leverage the forces of supply and demand. Bush admits demand exceeds supply currently and is projected to grow dramatically with the aging of the population.

Market theory would suggest supply needs to increase in order to keep prices stable. This is the basis for the Bush energy plan, incentives for oil companies to increase supply. However, the Bush healthcare plan makes no mention of doctor supply.

Even worse, the Bush plan involves a Medicare 5% fee cut for doctors. Many doctors in my hometown already don’t accept new Medicare patients, so supply is constrained for new Medicare beneficiaries. How will this change after a 5% fee cut? As doctors manage their payor mix, will they drop existing patients on Medicare?

The Bush healthcare plan uses the term “modernization” to describe the shifting of administration for Medicare and Medicaid to the private sector. Both programs' administration costs have traditionally run 6-7%. Private health insurers spend 12-15% on administrative costs, roughly double. Moving Medicare and Medicaid to private insurance companies alone takes a significant chunk of funding away from the beneficiaries and apportions it to the administrator.

The President’s economic team did note the employer trend of reducing health insurance benefits or dropping it altogether. The most precipitous drops in employer coverage occurred during the Bush Presidency. It wants to accelerate this trend. It does so by promoting high deductible health plans and health savings accounts.

Note what Mr. Hubbard had to say about health savings accounts in a White House Q & A session:

DIRECTOR HUBBARD: To be honest, when we started out, we started with a blank sheet of paper to figure out what is the best way to approach the. And we ultimately decided that the proposal that we presented to the President -- he decided that the proposal that was presented was a correct proposal.

Not to get into the weeds, but I think some people thought the Hubbard-Cogan book was going to be adopted as the President's package. But as I told you a week or so ago, we certainly studied that -- what Cogan and Hubbard and Kessler proposed. But we considered a number of other approaches. And in the end, the President decided on what we're describing -- what he described last night and what we're describing today.

Employers save 30-40% by switching from high dollar coverage to cheaper plans. Data shows not all employers contribute their employees’ health savings accounts. Workers under these plans are responsible for meeting annual deductibles of $1,000 to $5,000 before most insurance benefits begin.

The President’s signature plan to address high health care costs is like hunting a tiger with a BB gun. With 46 million uninsured, only 1-2 million people are covered by health savings accounts despite rapid growth. Most of those don’t have a funded health savings account. As for the projected take up on HDHP’s and HSA’s, Alan Hubbard had this to day:

DIRECTOR HUBBARD: I'm sure we have those numbers available. I don't have the numbers at my fingertips, in terms of what the Treasury estimates in terms of the take-up. Will that be in the budget that -- I don't know what's actually in the budget. But, again, the President is a big believer in HSAs, and that's why he made the decision to make these tax credits apply to HSAs.
Q Okay, is the take-up rate something that you could check on today?
DIRECTOR HUBBARD: Roy, can we -- I don't know where we stand on that.
MR. RAMTHUN: We can check.
DIRECTOR HUBBARD: Yes, we can check.
Q That would be helpful.

Despite Al’s commitment to release numbers and my writing letters to elected representatives, I have never seen projections for the President’s signature strategy.

The Crackerjack Bush Economic team will discuss healthcare in their retreat. Reading between the lines, the message will be clear. More Americans will be on their own!

Rest assured Alan Hubbard will be looking out for someone’s welfare. Will it be the Carlyle Group’s new affiliate, Multiplan? They say they offer health care cost management solutions where everybody benefits.

It sounds just like the Bush team is looking for! What they don’t mention are their administrative costs or their profit margin, items much smaller in the less modern Medicare and Medicaid.

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