Here's one campaign promise President-elect Barack Obama is virtually guaranteed to break: He'll cut health insurance premiums by $2,500 a year
Presidential candidates make many promises that, when circumstances change and political realities intrude, get modified or broken. Just ask George H.W. Bush or Bill Clinton. Here's one campaign promise President-elect Barack Obama is virtually guaranteed to break: He'll cut health insurance premiums by $2,500 a year. That promise was a centerpiece of Obama's health care pitch to voters. But a closer look at his plan shows that he will have a very difficult, if not impossible time, making good on that vow.
The $2,500 figure comes from an estimate by unpaid Harvard University advisers to Obama's campaign. They calculated that if you inject more information technology (IT) into health care, manage diseases better and cut extraneous paperwork, you could save about $200 billion a year in health spending — or about $2,500 off the average family's health insurance bill.
Obama's advisers figure that more IT would save $77 billion, based on a report from the RAND Corp., a prominent research organization. Makes sense. After all, IT saves money in the private sector by improving efficiency. But when the Congressional Budget Office looked at the RAND report, it found serious problems, including that researchers had excluded studies, even those published in peer-reviewed journals, "that failed to find favorable results" from adding more IT in health care.
Meantime, a comprehensive look at ways to cut health care costs by the independent Commonwealth Fund pegged annual savings from IT at just $29 billion — and not until 2017.
Obama's experts also claim that $46 billion a year could be saved by cutting administrative overhead. Anyone who has come in contact with the health care system knows it's paperwork heavy. Administrative costs today eat up about 14% of benefits.
Even so, whether Obama's health plan, which also adds multiple layers of regulation on the insurance industry, will cut that paperwork load is debatable. Increased government intrusion into private markets rarely, if ever, cuts paperwork costs.
The rest of Obama's savings — $81 billion — come from efforts aimed at improving disease management, care coordination and the like. Such savings are possible, but making them a reality will be difficult.
Even if Obama did save all this money, he'd still be hard-pressed to deliver those premium cuts, because other parts of his plan would almost certainly drive up costs.
Simply expanding insurance coverage, which is the main goal of Obama's plan, would boost spending. A study published in the journal Health Affairs calculates that covering all the uninsured would increase the amount they spend on health care by $122.6 billion a year because people with insurance buy more health care.
Absent some form of price controls, this sharp increase in demand for medical service would push up costs for everyone.
Obama also proposes to end the insurance industry's practice of restricting coverage based on pre-existing conditions. But a study by actuarial Milliman Inc. found that when several states implemented "guaranteed issue" — the formal name for Obama's reform — insurance premiums rose.
None of this is to say that reforms aren't needed, or that we shouldn't do what we can to control costs and expand coverage. But Obama's promise that he can deliver more health care to more people while painlessly cutting costs is just not possible. At least, not in the real world.