Wednesday, November 5, 2008

Yes We Did

Red or Blue. Republican or Democrat. Adam Smith of the St. Petersburg Times got it right, “Whether you celebrate this outcome or lament it, the American ideal is true: Anything is possible. We are today a very different country than yesterday.”

I’ll avoid the temptation to philosophize about the events that culminated with Election Day 2008—there are enough other, better people out there to do that. But, now that the potential angles have been reduced by one-half, we can begin a more focused conversation about the federal government and any likely impacts of yesterday’s vote on the US healthcare system.

There appear to be three highly-interconnected, concrete realities that will shape the macro conversation:

1. The Wars and the Economy are Jobs #1 and #2. President Obama has an ideological promise to fulfill on one and a practical necessity to tackle on the other. His transition and key policy energy has to be focused here—especially in the immediate-term. These are so complicated, so tricky and so potentially politically dangerous they will require great attention and care. Barack is a student of history and surely doesn’t want a repeat of the first two years of the Clinton administration. He will have to reign in Congress and any desires to force a partisan agenda. He seems to understand the magnitude of the work to be done and surely knows he can’t afford a mid-term election revolution like the one led by Speaker Gingrich in 1994.

2. There Simply Isn’t Any Money. President Obama has to deliver the tax cut he promised and prove Joe the Plummer isn’t going to be screwed. Further, it looks like he’s going to inherit a budget deficit approaching $1 trillion. There’s no way he’ll be able to advance a complex, expensive healthcare system overhaul through the Congress. Nor would it be an expedient use of political capital. There aren’t riots in the streets over this issue. Again, President and now-Senator Clinton got scalded for overreaching unnecessarily on healthcare reform. See item #1. He’s got bigger fish to fry and there’s no cash for this.

3. Medicare is a Ticking Time Bomb. In September 2008, McKinsey & Company published a study projecting that, “[i]f current trends persist…by 2080…the United States will devote more than half of GDP to [healthcare].” They go on to posit, “What will have to change to prevent health care from devouring half of a national economy? There are a few possibilities. Younger people may eventually balk at paying for older people’s health care. The competition for public funds will become keener, as governments must also cope with rising demand for education, defense and, especially, pensions.”

Medicare’s own trustees predict the program will go broke long before 2080—in 2018 or 2019. It will start paying out more than it takes in several years before that, just as the baby boomers are flooding into the program. Geoff Colvin of Fortune Magazine sees it worse, “Somewhere in the next president’s first term, Medicare Part A will go cash-flow-negative.” He goes on to cite the Financial Report of the US Government’s projections requiring physician payment cuts of 41% over the next 9 years to stay in line with statutory guidelines. The Report is practical, admitting cuts of that magnitude are simply not feasible.

But, some action is necessary. Obama won’t be able to invest in infrastructure, fuel economic stimulus, and cut taxes without getting serious on Medicare. When it comes to healthcare in America, this issue will likely move front and center very, very quickly, taking away whatever political oxygen might have been available for considerable benefit/insurance expansion. It will be the show to watch, as the program will likely have to change in dramatic ways that will impact hospital strategy significantly.

A last, more temporary factor is the tight credit market. We are already seeing hospitals freeze and/or eliminate budgets for capital and other expenditures. Adding this hospital skittishness over the availability and cost of capital to a preoccupied federal legislature leads me to believe we can safely table talk of sweeping federalization of the healthcare system.

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