WellPoint Founder: Health Reform Law Is Not Enough
Leonard Schaeffer, founding CEO and former chairman of WellPoint insurance company, gave a sobering opinion on the ability of the federal reform legislation to bend the health care cost curve at The 8th Annual American Health Care Congress and Exhibition.
While Schaeffer applauds the federal government for passing the Affordable Care Act, extending insurance coverage to an estimated 32 million Americans, he doubts the law will achieve the requisite cost savings. Schaeffer makes the case that health reform and the economy are inextricably linked.
“In the past 30 years, total spending of health care has more than doubled as a percent of GDP,” Schaeffer told the crowd in Anaheim, California, on December 5-6. “In a little over 20 years, health care will be one quarter of our GDP. By 2080, it will be 43% of GDP. The key issue is that Medicare and Medicaid costs drive the growing gap between federal revenues and spending, which drives our cumulative deficit, which is a big economic problem and a security problem for our nation.”The rising cost of health care in America is a serious national security issue.Schaeffer describes several reasons for his skepticism that health care costs will stabilize anytime soon. Actuaries with the Centers for Medicare and Medicaid Services show rates of health care costs will rise more quickly under the Affordable Care Act in all categories, with the biggest increase in drugs and physician services, Schaeffer says. For another reason, the phased-in approach that implements portions of the law over time makes it vulnerable politically.
“It gives people who want to change the law time to build support, and it creates time-specific targets for them to intervene and attack things they don’t like,” Schaeffer says. “These interventions will occur not, I don’t think, in attempts to repeal the whole bill but will be rifle shot changes, not based on health care but a bunch of other issues that will sound compelling when they’re introduced.”
For instance, there are 14 different tax increases necessary to generate $525 billion over 10 years along with $455 billion in cuts required to make the law revenue neutral.
“Believe me, there are lobbyists working to reduce or repeal every one of those 14 increases,” Schaeffer says. “As that happens, it probably won’t be about tax increases. It will be about the role of government. Is this an appropriate thing for government to do? And it will be about tax policy and the impact on the economy.”
Reasons for Doubt
Schaeffer also cites the following as reasons to doubt that federal reform will save money:
√ The failure of Congress to hold down Medicare costs based on the Sustainable Growth Rate formula, which it overrode every year, including this one, since its enactment.
√ The pure difficulty of implementing health insurance exchange markets in individual states while there remain 26 states opposed to the law and objecting to its requirements in court.
√ In 2018, a provision in the law requires poor people to pay more for their health insurance, which Schaeffer speculates may be something lawmakers could end up opposing when the time comes for political reasons.
But above all, Schaeffer says his pessimistic outlook comes from a career of observing politics.
“I’ve been at this a long time,” he says. “There’s no organized constituency to reduce health care costs, everything is associated with income and services. Providers all want more money. If you look at the history of health reform, the provider community has basically been in favor of more money or against any changes.”
Schaeffer then made a national security case for why health costs need to be contained. He said our national security is threatened by an expanding national debt driven largely by Medicare and Medicaid.
A Matter of National Security
The current federal debt, at $14 trillion, represents 69% of the U.S. Gross Domestic Product. By 2035, the debt is projected to reach 250% of GDP, which means the United States will continue to borrow more and more money. Nearly half the current debt is funded by interests outside the United States.
“The political consequences of relying on other people to finance our debt is troublesome,” Schaeffer says. “The national security fear is that at some point the Chinese and the Japanese will have an interest that’s not the same as ours.”
The breakdown of the Congressional “Super Committee” that was charged with fixing Medicare demonstrates another sign of the intractable nature of American politics and provides further reason, Schaeffer says, to be skeptical.
“If we want to reduce our deficit, we’ve got to do something about Medicare and Medicaid,” Schaeffer says. “We’ve got to transform the underlying delivery system to significantly impact quality and control costs.”
Schaeffer echoes arguments also made in recent years by certain politicians such as Sen. Tom Coburn (R-OK) as well as former comptroller general David Walker. After leaving the federal government, Walker has made a career out of sounding the alarm about Medicare and its devastating effect on the national economy.
Like Schaeffer, Walker argues that the nation’s 78 million Baby Boomers soon eligible for Social Security and Medicare have the potential to sink the economy unless drastic reforms are made soon.
There is one thing, Schaeffer says, to be optimistic about, which is that he won’t be around to deal with the aftermath because he’ll be retired.
“I earnestly hope I’m wrong about the future,” he says. “But I’m afraid many of you are going to have to work through it.”David Rosenfeld is a contributing writer for HealthCXO.
While Schaeffer applauds the federal government for passing the Affordable Care Act, extending insurance coverage to an estimated 32 million Americans, he doubts the law will achieve the requisite cost savings. Schaeffer makes the case that health reform and the economy are inextricably linked.
“In the past 30 years, total spending of health care has more than doubled as a percent of GDP,” Schaeffer told the crowd in Anaheim, California, on December 5-6. “In a little over 20 years, health care will be one quarter of our GDP. By 2080, it will be 43% of GDP. The key issue is that Medicare and Medicaid costs drive the growing gap between federal revenues and spending, which drives our cumulative deficit, which is a big economic problem and a security problem for our nation.”The rising cost of health care in America is a serious national security issue.Schaeffer describes several reasons for his skepticism that health care costs will stabilize anytime soon. Actuaries with the Centers for Medicare and Medicaid Services show rates of health care costs will rise more quickly under the Affordable Care Act in all categories, with the biggest increase in drugs and physician services, Schaeffer says. For another reason, the phased-in approach that implements portions of the law over time makes it vulnerable politically.
“It gives people who want to change the law time to build support, and it creates time-specific targets for them to intervene and attack things they don’t like,” Schaeffer says. “These interventions will occur not, I don’t think, in attempts to repeal the whole bill but will be rifle shot changes, not based on health care but a bunch of other issues that will sound compelling when they’re introduced.”
For instance, there are 14 different tax increases necessary to generate $525 billion over 10 years along with $455 billion in cuts required to make the law revenue neutral.
“Believe me, there are lobbyists working to reduce or repeal every one of those 14 increases,” Schaeffer says. “As that happens, it probably won’t be about tax increases. It will be about the role of government. Is this an appropriate thing for government to do? And it will be about tax policy and the impact on the economy.”
Reasons for Doubt
Schaeffer also cites the following as reasons to doubt that federal reform will save money:
√ The failure of Congress to hold down Medicare costs based on the Sustainable Growth Rate formula, which it overrode every year, including this one, since its enactment.
√ The pure difficulty of implementing health insurance exchange markets in individual states while there remain 26 states opposed to the law and objecting to its requirements in court.
√ In 2018, a provision in the law requires poor people to pay more for their health insurance, which Schaeffer speculates may be something lawmakers could end up opposing when the time comes for political reasons.
But above all, Schaeffer says his pessimistic outlook comes from a career of observing politics.
“I’ve been at this a long time,” he says. “There’s no organized constituency to reduce health care costs, everything is associated with income and services. Providers all want more money. If you look at the history of health reform, the provider community has basically been in favor of more money or against any changes.”
Schaeffer then made a national security case for why health costs need to be contained. He said our national security is threatened by an expanding national debt driven largely by Medicare and Medicaid.
A Matter of National Security
The current federal debt, at $14 trillion, represents 69% of the U.S. Gross Domestic Product. By 2035, the debt is projected to reach 250% of GDP, which means the United States will continue to borrow more and more money. Nearly half the current debt is funded by interests outside the United States.
“The political consequences of relying on other people to finance our debt is troublesome,” Schaeffer says. “The national security fear is that at some point the Chinese and the Japanese will have an interest that’s not the same as ours.”
The breakdown of the Congressional “Super Committee” that was charged with fixing Medicare demonstrates another sign of the intractable nature of American politics and provides further reason, Schaeffer says, to be skeptical.
“If we want to reduce our deficit, we’ve got to do something about Medicare and Medicaid,” Schaeffer says. “We’ve got to transform the underlying delivery system to significantly impact quality and control costs.”
Schaeffer echoes arguments also made in recent years by certain politicians such as Sen. Tom Coburn (R-OK) as well as former comptroller general David Walker. After leaving the federal government, Walker has made a career out of sounding the alarm about Medicare and its devastating effect on the national economy.
Like Schaeffer, Walker argues that the nation’s 78 million Baby Boomers soon eligible for Social Security and Medicare have the potential to sink the economy unless drastic reforms are made soon.
There is one thing, Schaeffer says, to be optimistic about, which is that he won’t be around to deal with the aftermath because he’ll be retired.
“I earnestly hope I’m wrong about the future,” he says. “But I’m afraid many of you are going to have to work through it.”David Rosenfeld is a contributing writer for HealthCXO.