Briefing Report: National Health Care Reform and Magical Thinking

Wednesday, May 20, 2009

"You never want a serious crisis to go to waste"
- Rahm Emanuel, White House Chief of Staff, to The Wall Street Journal's CEO Council, November 18, 2008


In running for president, one of Senator Obama’s signature campaign issues was reforming health care. He said, "My plan would not only guarantee that every uninsured American could get the same kind of health care that Members of Congress give themselves, it would bring down premiums by $2500 for the typical family, and bring down costs for the entire country by making our health care system more efficient through better technology and more emphasis on prevention."1

Mr. Emanuel’s statement is an audacious one, but less so than President Obama’s plan to remake how Americans receive their health care. Upon assuming office in January, the Obama Administration signaled it was going to exploit the nation’s economic recession to advance health care reform as its top legislative priority. In its 2010 budget introduced on February 26, 2009, the administration committed $634 billion over 10 years to this project, calling it "a down payment on health care reform."2 This is an extraordinary amount, as it nearly matches the $452 billion and $290 billion budgeted for Medicare and Medicaid in 2010.3 However, relative to the president’s plans, it is only a down payment from taxpayers, as independent experts have estimated the president’s health care reform proposal could exceed $1.5 trillion (mostly to subsidize coverage4) over ten years.5 Still, even that may not be enough.

According to the Centers for Medicare and Medicaid Services ( CMS), from 1965 to 2007, health spending as a percent of GDP has increased steadily from 5.9 percent to 16.2 percent, roughly an average of 0.25 percentage point per year.6 CMS estimates national health expenditures increased from $2.2 trillion in 2007 to $2.4 trillion in 2008. CMS estimates by 2018, total national health expenditures will increase to $4.35 trillion. The health care sector comprises nearly one-fifth of the U.S. Gross Domestic Product in 2009.7

In addition to growing costs, the rate of uninsured Americans animates the administration’s agenda. According to the US Census Bureau, the percentage of people without health insurance in 2007 was 15.3 percent, (down from 15.8 percent in 2006) and the number of uninsured was 45.7 million, (down from 47.0 million in 2006)8. As most Americans receive health care coverage through their employers, these numbers are expected to increase significantly for 2008 and 2009 as employers cut costs by shedding jobs or health care coverage during the economic recession.

Moving Quickly

"I will not rest until the dream of health care reform is achieved in the United States of America," the president declared in the White House's State Dining Room on Monday, May 11 when he announced a voluntary offer made by a consortium of hospitals, insurance companies, drug makers and doctors to reduce health care costs by $2 trillion over the next ten years.9 This aggressive effort to co-opt health care industry leaders signals the administration learned a lesson from the failed Clinton reform efforts in 1993-94. Instead of presenting a highly detailed program to Congress which proved fatally vulnerable to opposition, the administration is working with those interests, and banking on Congress taking its broad policy goals and constructing the program through the legislative process. To that end, the administration announced Wednesday, May 13 an agreement with House of Representatives Democrats to pass a health care reform bill by July 31 of this year.10

Reform Goals

In ostensibly reforming health care for Americans, the administration’s stated goals11 are to:

  • Reduce long-term growth of health care costs for businesses and government
  • Protect families from bankruptcy or debt because of health care costs
  • Guarantee choice of doctors and health plans
  • Invest in prevention and wellness
  • Improve patient safety and quality of care
  • Assure affordable, quality health coverage for all Americans
  • Maintain coverage when you change or lose your job
  • End barriers to coverage for people with pre-existing medical conditions

If these look familiar, it is because they are strikingly similar to previous plans in Massachusetts and California to expand access, control costs, and improve quality. Although Obama’s effort is still unfolding in Congress, just as Massachusetts12 and California’s projects failed on their own terms (albeit in different ways), so too should one expect the president’s plan to fail, as it suffers from the same constraints and contradictions facing earlier reforms.

Expanding Access – Planning for Failure

The most important objective for Democrats in health care reform is ensuring universal coverage.13 The president’s plan has this objective in mind when it seeks to guarantee Americans a choice of doctors and health plans, assure affordable, quality health coverage for all, provide coverage when one changes or loses a job, and take away barriers to coverage for people with pre-existing medical conditions. Yet the reality of providing universal coverage in America already suffers from a physician shortage, especially of primary care providers, and most acutely in rural areas. The Obama Administration is even aware of this problem, as the New York Times reports, "Obama administration officials, alarmed at doctor shortages, are looking for ways to increase the supply of physicians to meet the needs of an aging population and millions of uninsured people who would gain coverage under legislation championed by the president. The officials said they were particularly concerned about shortages of primary care providers who are the main source of health care for most Americans."14

How does the administration propose to fix this shortage of physicians? No one knows. It takes at least four years of medical school and three years of medical residency before one can become a doctor. Even without expanding insurance coverage to the uninsured, according to the Council on Graduate Medical Education (COGME), "the demand for physicians is likely to grow even more rapidly over this period (2000-2020) than the supply."15 It is not apparent what virtue the administration sees in promising every American access to their own doctor of choice if that doctor does not exist.

Controlling Costs – An Illusion without Rationing

The president promises his plan will "bring down premiums by $2500 for the typical family," reduce long-term growth of health care costs for businesses and government, protect families from bankruptcy or debt because of health care costs, assure affordable, quality health coverage for all American, all while investing in prevention and wellness programs. He thinks better health information technology ( HIT), prevention and wellness programs are the key to unlocking these savings. Yet the president’s own Budget Director, Peter R. Orszag, headed the Congressional Budget Office when it published an analysis discounting the savings resulting from HIT: "Research indicates that in certain settings, health IT appears to make it easier to reduce health spending if other steps in the broader health care system are also taken to alter incentives to promote savings. By itself, the adoption of more health IT is generally not sufficient to produce significant cost savings."16

So then, do prevention and wellness programs offer sufficient savings to fulfill the president’s promise to reduce health care costs by $2,500 annually for the typical American family? One would think, intuitively, the answer is yes. Yet an article by research professor Louise Russell published just last January in Health Affairs concludes: "Over the past four decades, hundreds of studies have shown that prevention usually adds to medical spending."17 Russell cites 279 cost-effectiveness ratios for preventive interventions from 599 studies published between 2000 and 2005 in which 20% of preventive options produced cost savings, while 80% added more medical costs than they save.

Additionally, the president’s plan fails to recognize medical utilization drives coverage costs. According to a January 2006 study by PricewaterhouseCoopers (PwC) report titled "The Factors Fueling Rising Healthcare Costs,"18 approximately 86 cents out of every premium dollar go directly towards paying for medical services such as hospital care, physician care, medical devices and prescription drugs. The remaining costs are spent on consumer services, marketing, government regulation and three percent for insurer profits. Furthermore, premium increases very closely follow healthcare spending growth over time. In the ten-year period (1993-2003) for which data are available, premiums grew at an annual rate of 7.3 percent, while the cost of healthcare services grew at an annual rate of 7.2 percent.

As medical utilization is the primary driver of health care costs, the only way to ensure controlling these costs are to ration care directly by limiting services, or indirectly by capping provider reimbursement rates. Neither approach will give Americans access to doctors of their own choosing as the president promises them.

Improving Care – The Parable of the Loaves and Fishes

The president promises Americans he can deliver a health care system that improves patient safety and quality of care, and invests in prevention and wellness programs. It is true that those with health care coverage generally have better health care, and better health care outcomes, than those without coverage. It is also accepted as true that HIT may improve efficiencies and quality of care, but that remains unproven. So, of all the benefits the president promises to deliver through health care reform, improving care could be a promise he fulfills – for the 15-16% of Americans who currently do not have health care coverage. For the remaining 84-85% of Americans with coverage, care is very likely to get worse.

How so? Merritt Hawkins & Associates, a physician search and consulting firm, conducted a survey of physician wait times in 15 different metropolitan areas nationwide, and concluded:

"… Boston experiences by far the longest average wait times of any of the 15 metropolitan markets. In addition, wait times in Boston increased in 2009 over 2004 in three of the four specialties where comparisons are possible: dermatology, Ob/Gyn and orthopedic surgery. In general, wait times decreased in 2009 relative to 2004 in most metropolitan markets surveyed, with several exceptions.

Long wait times in Boston may be driven in part by the healthcare reform initiative that was put in place in Massachusetts in 2006. The initiative succeeded in covering many of the state’s uninsured patients. However, it has been reported that many patients in Massachusetts are encountering difficulty in accessing physicians. Survey results support these reports. Long appointment wait times in Boston also may signal what could happen nationally in the event that access to healthcare is expanded through healthcare reform. Increased demand resulting from improved access to care for approximately 47 million uninsured people can be expected to extend doctor appointment wait times in many markets."19

Notwithstanding the potential improvements to patient care resulting from greater deployment of HIT, without a significant infusion of primary care physicians into the workforce, it is very unlikely the president can fulfill his promise to improve care for all Americans. Waiting longer to access care, as noted in Boston, will be the natural result of increasing demand by expanding coverage.


The president may view the nation’s recession as a crisis to be exploited to reform health care, yet there are a number of risks to the president’s plan – many of which have not been discussed in this paper. Although the president enjoys partisan control of Congress and broad support for reforming health care, and there is only nascent opposition to his efforts now, but as the specific details grow clearer, especially the potential taxpayer subsidy of health insurance for families making up to $88,000 annually,20 opposition may grow. Similarly, do Democrat members of Congress accept the political risk of harming a health care system that, while imperfect, provides coverage for about 85% of the population?

However, hoping for Democrats in Congress to develop a plan that is more affordable and more efficient than our existing private health care system ignores the past. To take two notable examples, Democrats have consistently thwarted any significant effort to reform both Social Security and Medicare, each of which has been actuarially unsound for decades. Consequently, the government announced on May 12 that both programs are heading for insolvency years sooner than previously expected.21 Ironically, both programs are much simpler than the nation’s health care system. However, despite the government’s inability to manage Social Security and Medicare responsibly, Americans are seemingly prepared to surrender their health care system to the very politicians who have proven incapable of acting responsibly.

The greater risk, however, for America lies in what happens if the president is successful in enacting his "reforms." His plan is predicated upon a number of fanciful assumptions that simply will not hold: that unproven technology and prevention programs can significantly reduce costs; that federal regulations can realize health care efficiencies that will reduce costs and improve care; that there are near enough doctors and hospitals to accept the greater demand that will naturally result from expanding subsidized coverage; that a government that mismanages Social Security and Medicare can now, magically, manage to provide Americans with better, cheaper, and more health care coverage than the market is currently providing. Magical thinking is the inaccurate belief that one's thoughts, words, or actions will cause or prevent a specific outcome that does not demonstrate a realistic relationship between cause and effect.22 It now governs the nation.


For more information on this report or other Health issues , contact Tim Conaghan, Senate Republican Office of Policy at 916/651-1501 or

1 Remarks of Sen. Obama, "Economic Roundtable with Democratic Governors," June 20, 2008
2 U.S. Department of Health and Human Services 2010 Budget, February 26, 2009
3 Budget of the U.S. Government, Table S–4. Proposed Budget by Category, 9, May 4, 2009
4 Associated Press, "What to tax to pay for health care?" May 18, 2009
5 California Healthline, "Experts Say Cost of Obama Health Care Plan Could Top $1.5 Trillion," March 18, 2009
6 CMS, National Health Expenditure Projections 2008-2018, April 6, 2009
7 CMS, National Health Expenditure Projections 2008-2018, April 6, 2009
8 U.S. Census Bureau, August 26, 2008
9 Associated Press, Obama lauds Industry Offer to Cut Health Costs, May 11, 2009
10 Associated Press, Pelosi: House taking up health care before recess, May 13, 2009
11The White House website
12 The New York Times, "Massachusetts Faces Costs of Big Health Care Plan," March 15, 2009
13 The Democratic Party, Healthcare for All
14 The New York Times, Shortage of Doctors an Obstacle to Obama Goals, April 26, 2009
15 The Council on Graduate Medical Education "Physician Workforce Policy Guidelines for the United States, 2000-2020" January 2005
16 Congressional Budget Office, "Evidence on the Costs and Benefits of Health Information Technology," May, 2008
17 Louise Russell, Health Affairs, Vol. 28, no. 1 "Preventing Chronic Disease: An Important Investment, But Don’t Count On Cost Savings," 45, January/February 2009
18 PricewaterhouseCoopers, "The Factors Fueling Rising Healthcare Costs," January 27, 2006
19 Merritt Hawkins & Associates, "2009 Survey of Physician Appointment Wait Times," 14, May 5, 2009
20 Associated Press, "House Democrats Consider Aid for Health Insurance," May 14, 2009
21 Associated Press, "Social Security and Medicare Finances Worsen," May 12, 2009
22 Department of Defense Personnel Security Research Center, "Glossary of Selected Psychiatric Terms,"