From the July 2009 issue of Investment Advisor • Subscribe!

The Great Health Reform Debate

Debate ensues as Obama pushes to revamp healthcare this year.

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President Barack Obama has set an ambitious deadline of October to achieve comprehensive healthcare reform, traveling to-and-fro across the nation to warn civilians and lawmakers alike that the current healthcare system could bankrupt the nation.

During a speech to the American Medical Association (AMA) in Chicago June 15, Obama told physicians that "healthcare reform is the single most important thing we can do for America's long-term fiscal health. That is a fact." Indeed, during a June 11 town hall meeting on healthcare, Obama said that the single biggest problem the U.S. has "in terms of the debt and deficit is healthcare--it's Medicare and Medicaid." Medicare and Medicaid costs, he said, are going up "much, much faster than inflation." Medicare and Medicaid "are the real nightmare scenarios."

But reforming the healthcare system won't come cheap. The Administration proposes to pay for the full cost of health reform--which is estimated at $1.2 trillion to $1.5 trillion over 10 years--by reducing Medicare and Medicaid spending and raising revenue. Published reports say that Obama wants to cut federal payments to hospitals by about $200 billion and cut $313 billion from Medicare and Medicaid over 10 years. He also is proposing a $635 billion "down payment" in tax increases and spending cuts in the healthcare system.

Obama's plan would offer a public health insurance option, a health insurance exchange, would allow individuals to keep their current coverage, and promote best practices to improve health quality. Obama is advocating preventative and disease management through healthy living as well as the continued expansion of electronic health records. As Obama stated during his speech to the AMA "...No matter how we reform healthcare, we will keep this promise: If you like your doctor, you will be able to keep your doctor. Period. If you like your health care plan, you will be able to keep your health care plan. Period. No one will take it away. No matter what."

The "Affordable Health Choices Act," introduced June 9 by Senator Ted Kennedy (D-Massachusetts), chairman of the Health, Education, Labor and Pensions (HELP) Committee, would allow individuals to keep their current coverage, as in Obama's plan. Earlier this year, Kennedy and Senator Max Baucus (D-Montana), chairman of the Senate Finance Committee, which shares jurisdiction of healthcare reform with HELP, established a joint process that will lead to complementary legislation being marked up in June and on the Senate floor by July, according to a statement from the HELP committee.

While the Obama plan is trying not to disrupt people's current coverage, it does require "people to purchase coverage and [puts] some kind of obligation on the part of the employer to pay for coverage," notes Joel Michaels, partner-in-charge of the Health Law Department in McDermott Will & Emery LLP's Washington, D.C., office. "The trickier challenges will be how to subsidize those that can't afford coverage and what other kinds of exceptions there would be for the employer community as far as what their obligations are."

The other controversial aspect of the plan is taxation, Michaels says. "Again, how do you pay for it?" One way would be to tax employee benefits once they exceeded a certain premium level, he explains. "There is a lot of debate and controversy over the taxing of employee benefits and what that would do and who it would impact." The other controversial aspect of the Obama plan is the "public plan benefit option; there are a number of folks who think this is the next step to a single payer system," he says. "From the private insurance perspective, there's a concern that it will disrupt what they would want to have as a level playing field, particularly if the government sets the provider reimbursement levels that are problematic to the rest of the industry. Those two pieces--the taxing of the benefits and the public plan option--will require a lot of debate and discussion."

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