Announcing health care savings without a plan

Color me unimpressed by Obama's announcement yesterday of the pledge by America's health care providers to cut $2 trillion from the growth of the price of health care over the next ten years. Poof! That was easy. They didn't need to tell us how they plan to do this, just make the announcement and that seems to be enough for the administration to start patting itself on its collective back.

Keith Hennessey, a former economic adviser to the Bush administration, finds a parallel that exposes how silly this announcement was.

Imagine if the mayor of your nearest big city were to hold a press conference with the General Manager of the city’s Major League Baseball team. The Mayor announces that the GM, working with the coaches and players, has committed that he will work to develop plans for the team to hit the Mayor’s new goal of winning 40 more games this season than they otherwise would have won. Those plans will improve the team’s hitting, pitching, and fielding. The Mayor also announces that the manager’s plans, combined with the Mayor’s new policy initiative for better parking at the stadium, will make fans happier and help the team win more games.

Baseball fans would reply, “Great, I’m all for it.” They might then ask a few questions:

* What do you mean the GM “will develop plans”? Doesn’t he have any specific plans yet? How will he improve hitting, pitching, and fielding?
* How are we supposed to verify that the team won 40 more games than they otherwise would have, since we will never know how many games they would have won?
* Other than picking the number 40, why is the Mayor involved in this press conference? What does the Mayor’s new parking initiative have to do with the coaching changes, and how will the new parking initiative help the team win more games?
* If this is such a good idea, what has changed to make it happen now? Is the Mayor claiming that his persuasive powers alone are worth 40 more wins? Why didn’t the GM make these changes before?

The only substance to this announcement is that the manager agreed to the Mayor’s target of winning 40 more games. Everything else is fluff or unrelated.

Read the rest of Hennesey's post. He exposes exactly how silly this announcement was.

There seems to be little confidence that simply streamlining billing procedures and some of the other proposals out there will produce those kinds of savings.

Despite the high-profile attention -- complete with a photo opportunity in the White House State Dining Room -- the industry offered just a handful of ways to achieve significant cost reductions, most of which were included in Obama's budget proposal.

"An unrivaled set of abstractions and posturing," said Alan Sager, a professor of health policy and management at Boston University. Among the specific money-saving items listed in a White House document are streamlining billing procedures, investing in preventive care and offering financial incentives to hospitals that reduce readmission rates.

"It would be difficult to wring 1.5 percentage points out of this list of proposals," said Robert D. Reischauer, former director of the Congressional Budget Office.

Many experts say it is possible to reduce the rate of growth in medical spending, but that it could take years to accomplish and it could involve painful trade-offs for patients and providers.

"We know that there's a lot of wasteful spending, but it's incredibly hard to identify it and then to figure out ways to eliminate it without putting some administrator in the doctor's office," said Dana Goldman, director of health economics at the Rand Corp.

Kathleen Sebelius, in her conference call with reporters, said that this wasn't just a photo op. Then, as Philip Klein points out, exposed that, yes, it was just a photo op with no real substance behind the announcement.

"Well actually today was not an opportunity to talk to each of the groups in the room about their specific plans, but what I can tell you is that they were all urged to and made a commitment to put together a very specific list and to report back," Sebelius said. "We didn’t have time at this morning's meeting to go around and get the top three or four things they're each going to do."

And later in the call, another reporter asked what would specifically need to happen for families to save $2,500 on their health care costs, a claim being touted by the administration.

"Well the discussion today was if we were able to achieve the significant success that the stakeholders today felt was very achievable, we're talking about cutting 1.5 percent out of the rising cost of health care, about $2 trillion over the next decade," Sebelius explained. "So, that would achieve the kind of individualized savings of $2,500 per family."

That's like saying, if I had a million dollars I'd be a millionaire.

As Hennessey and the Wall Street Journal point out, the real goal here is to co-opt the health care industry and keep them from opposing the President's future proposals on health care. Hennessey concludes,

While the President’s announcement was silly and meaningless as a policy matter, it is tactically significant as the legislative battle over expanding taxpayer-financed health care heats up. The health insurance companies were a major industry opponent of HillaryCare in 1993-1994, and it appears they are trying to ingratiate themselves with the new President. Similarly, the drug manufacturers, who have historically aligned themselves with Republicans, are doing everything possible to get on the President’s good side. They want to share in the spoils of increased government spending on health care, they want to avoid being the political and policy targets of legislation, and they see no political downside to supporting a popular and powerful President with Democratic supermajorities in both the House and Senate.

Today’s announcement was about a budding political coalition that could support the President’s legislative push. Nothing more.

And the WSJ reminds us of previous attempts to manage health care like the HMO movement from the 1990s and their unpopularity.

Administrative hassles led to a consumer backlash, with patients feeling they were getting inferior care in return for insurer profits. The political class eventually forced the HMOs to dilute or end most of their cost-control strategies.

Democrats have now acknowledged that the managed care dream will work only if government is the one doing the managing. That is, we can only control costs with a new government entitlement. More is less.

But you can only allocate a scarce resource in two ways: market prices or brute force. In health care the brute force will come as price controls and waiting lines for rationed services. The implicit assumption in the providers' deal announced yesterday seems to be that the private companies will do the price controlling so the government won't have to do it for them.

But when the savings prove illusory, as in the past, the feds will step in and order them to do so. To win a false reprieve for themselves and give cost cover to the politicians, these private CEOs are offering to make themselves even more unpopular with patients. By that point, most patients will have no choice but to assent, since most of them will be in one government program or another.

The health care industry might think that they've bought themselves a breathing space by their substance-free announcement yesterday; they will find that they are the ones being managed to a result that totally change the way we get health care in our country.

Megan McArdle is also underwhelmed by the President's phony event yesterday.

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!

The details leave her quite skeptical.

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? (link via Instapundit)

And then the magic will, poof!, go away and we'll be left paying more for worse health care.