Obama Health-Care Plan Collides With Financial-Crisis Spending

Obama Health-Care Plan Collides With Financial-Crisis Spending

By Aliza Marcus
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Nov. 5 (Bloomberg) -- Barack Obama made revamping the $2.2 trillion U.S. health-care system a centerpiece of his presidential campaign. He will have to make good on the promise in the midst of a financial crisis.

The Democratic president-elect wants to expand government health programs and subsidize coverage for people who can't afford it, at a cost of up to $65 billion a year. He also would spend $50 billion a year for five years on computerized health records, technology he says would save money.

Obama has called his health-care overhaul ``priority No. 2,'' after energy independence. He said he will accomplish the makeover during his first term, even though the government has committed $700 billion to rescue banks and more to prop up credit markets. Fiscal and political realities may foil Obama's ambitions, analysts said.

``We may get incremental change, but I don't think we're going to get substantial change,'' said Paul Keckley, the Washington-based executive director of the Center for Health Solutions at Deloitte & Touche USA LLP, in an interview. ``How much do you want to tweak health care while dealing with bank mortgages?''

Initially, Obama may back spending more on existing programs that subsidize care for low-income Americans, and that would provide more customers for insurers and drugmakers. He also proposes steps, such as cutting Medicare payments to insurers and letting Americans buy medicines in Canada, that are opposed by the companies.

Children's Health

The new president may start by endorsing expansion of the state children's health insurance program, or Schip, which subsidizes insurance for 6 million low-income children, Keckley said.

The $5 billion-a-year program must be reauthorized by the end of March, and Democrats who control Congress have said they will push again to add 4 million children, legislation that was twice vetoed by President George W. Bush last year. The rejected measure would have increased tobacco taxes to raise $35 billion over five years.

Expanding Schip and possibly Medicaid, the U.S. health insurance plan for the poor, would benefit insurers that run the plans, said Carl McDonald, an analyst with Oppenheimer & Co. in New York, in an e-mailed response to questions. Indianapolis- based WellPoint Inc. and UnitedHealth Group Inc., of Minnetonka, Minnesota are among providers.

Insurers may be hurt if Obama keeps his campaign promise to cut $15 billion that he says the companies just ``skim off'' of payments for Medicare Advantage, government insurance for the elderly provided through the companies. UnitedHealth and Humana Inc., of Louisville, Kentucky, are the biggest participants in the program, expected to cost taxpayers $100.1 billion this year.

Medicare Advantage

Providers of Medicare Advantage plans receive on average 13 percent more than it costs the government to provide coverage directly. While insurance companies have lobbied against cuts, they say they could live with the results because the change wouldn't take effect immediately. Insurers have said they plan to begin charging premiums to beneficiaries and reducing benefits that aren't included in standard Medicare.

``We have planned for the eventuality'' of payment cuts, said Tom Noland, a spokesman for Humana, which has 1.37 million Advantage members, in an interview during the election campaign. ``But understand, we're looking at a horizon at least a couple of years beyond any changes already enacted. That gives us all a chance to adjust on behalf of our members if we need to do that.''

Drugmakers, bracing to lose patent protection on $84 billion in medicines through 2012, also may face cutbacks under Obama, said Kim Monk, a health analyst with Capital Alpha Partners in Washington, in a telephone interview.

Drugs From Canada

The Democrat wants to give Medicare authority it now lacks to negotiate directly with drugmakers on prices for prescription plans. Premiums for the drug plans will rise an average of 24 percent next year, according to Washington-based Avalere Health LLC, which consults on health policy for companies and medical foundations.

Obama also wants to let Americans buy drugs from Canada and other countries where prices are cheaper.

``These are easy ones to pick off,'' Monk said.

Among companies that may be squeezed are makers of expensive treatments made through biotechnology, such as Genentech Inc. of South San Francisco, California, which charges $40,531 to certain breast cancer patients for a course of treatment with its drug Herceptin.

Kevin Sharer, chief executive officer of Thousand Oaks, California-based Amgen Inc., predicted before the election that drugmakers will be pressed by the next president to justify the prices of their medicines.

`Budgetary Pressures'

``That pressure is going to be there no matter who is in charge, and I also think that just the general budgetary pressures are going to be there,'' Sharer said on an Oct. 22 conference call with analysts.

Whatever piecemeal changes Obama may back initially, Americans will be expecting more before long, said Celinda Lake, a Democratic pollster and president of Lake Research Partners in Washington.

``Democrats have a huge advantage over Republicans so if they want to solidify their majority, they will want to go into the 2010 elections having made some significant changes,'' she said in a pre-election interview. ``So they have to start now.''

To contact the reporter on this story: Aliza Marcus in Washington at amarcus8@bloomberg.net
Last Updated: November 4, 2008 23:09 EST

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