Numbers Don't Add up for Obama's Health Plan

Donald Lambro

6/3/2009 12:01:00 AM - Donald Lambro

WASHINGTON -- Nearly four weeks after President Obama met with health-industry officials touting a "watershed" cost-cutting agreement, the goal of slowing the sharp rise in medical-care spending is elusive as ever.

*** Special Offer ***

Appearing with executives of six industry groups on May 11, Obama announced what he called a "historic" and "unprecedented commitment" by the medical-care industry to "cut the rate of growth of national healthcare spending by 1.5 percentage points each year" that would yield $2 trillion in savings over 10 years.

The story got front-page play and nightly news coverage across the country. However, after American Hospital Association president Richard Umbdenstock returned to his office, he was besieged by calls from AHA members opposing such large cuts in spending. Days later, during a conference call with 230 members, he told them that the 1.5-percent-a-year savings touted by Obama was a gross exaggeration.

The agreement with the White House to slow the growth in healthcare costs had been "spun way away from the original intent," Umbdenstock told his members, according to an account on the Politico Web site and other reports. "There has been a tremendous amount of confusion and frankly a lot of political spin," he said.

"It's been spun -- or misunderstood -- that these six parties would save all $2 trillion. Not true. We can't do this. We don't represent the whole supply side of the equation, and we can't do it without the American public being involved on the demand side of the equation," he said.

Instead of 1.5 percent a year in cost savings for the next 10 years, the groups had agreed to cut expenditures by up to 1.5 percentage points over 10 years, not by that much each year. That meant that the healthcare groups had agreed to a much smaller reduction in future healthcare costs that would add up to only a small fraction of the president's imagined $2 trillion savings.

Annual healthcare spending is estimated to grow by an average of 6.2 percent a year over the next 10 years to $4.4 trillion by 2018, according to the Department of Health and Human Services.

Needless to say, reports of AHA's revision of what Obama announced did not get the same front-page coverage as the original announcement. A few newspapers ran stories (on the inside), and several blogs wrote about it.

The White House seemed unsure how to handle the contradiction in Obama's original story and Umbdenstock's charge that the agreement had been exaggerated beyond its original intent.

Nancy-Ann DeParle, White House Office of Health Reform director, "said 'the president misspoke' Monday (May 11) and again on Wednesday (May 13) when he described the industry's commitment in similar terms," The New York Times reported on Friday, May 15. But then DeParle "called back about an hour later on Thursday (May 14) and said: 'I don't think the president misspoke. His remarks correctly and accurately described the industry's commitment,'" the Times reported.

Days later, after testy discussions that went back and forth between the White House and the six healthcare groups, the organizations issued a statement, saying, "We are committed to working together to bend the healthcare cost curve." But no details were offered as to how the cost savings would be achieved.

"This thing looks like it was thrown together as a photo-op event. They made claims for $2 trillion worth of savings over 10 years that had no credible basis in econometric analysis," said Robert E. Moffit, director of the Heritage Foundation's Center for Health Policy.

"When the photo op took place, they spoke in terms of generalities, like standardization of forms, use of health-information technology and administrative simplification. Unless you have some kind of detailed explanation of how the initiatives would be implemented, there is no way you could arrive at such a figure," Moffit told me.

Then on Monday, the health-industry officials took another stab at the elusive cost-savings figure that Obama sought from them, but apparently they still fell way short of the White House's goal by several hundred billion dollars.

The groups identified several general areas for savings -- from vague administrative efficiencies and standardizing claim forms -- which they said could total $1 trillion to $1.7 trillion in a decade. But they did not say how much the savings would accrue to the government instead of the healthcare system at large. Also missing: any annual percentage.

Each group offered its own proposals but did not say how much they would save because they didn't know.

"Clearly, this cost-control plan was not well thought through and reflects the administration's difficulty in finding a way to pay the $1.5 trillion price tag on its health-reform plan," said Grace-Marie Turner, president of the Galen Institute, a healthcare-reform group.

Obama hoped to bankroll his plan with his cap-and-trade energy taxes and placing limits on mortgage interest and charitable deductions, but both of those proposals are dead. A value-added tax, a national-sales-tax idea, is going nowhere, either.

Between the failure to find specific, measurable savings and attainable tax revenues, prospects for Obama's healthcare plan are looking kind of shaky right now.