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Brooks Wilson's Economics Blog: The Obama Medical Plan

Wednesday, May 13, 2009

The Obama Medical Plan

Scott Gottlieb, a former official at the Centers for Medicare and Medicaid Services, a fellow at the American Enterprise Institute and a practicing internist, has written an interesting article in the Wall Street Journal ("How ObamaCare Will Affect Your Doctor," May 12, 2009).

The new plan will be modeled on Medicare, which, according to government projections, will run out of funding in eight short years (Kenneth Bazinet. "Medicare's in critical condition, cries report," Daily News, May 13, 2009).
At the heart of President Barack Obama's health-care plan is an insurance program funded by taxpayers, administered by Washington, and open to everyone. Modeled on Medicare, this "public option" will soon become the single dominant health plan, which is its political purpose. It will restructure the practice of medicine in the process.
The government will use market power, the ability to alter a competitive market price, and political leverage to negotiate lower prices. The government program will crowd out private plans meaning that your employer may push you into the government plan.
Like Medicare, the "public option" will control spending by using its purchasing clout and political leverage to dictate low prices to doctors. (Medicare pays doctors 20% to 30% less than private plans, on average.) While the public option is meant for the uninsured, employers will realize it's easier -- and cheaper -- to move employees into the government plan than continue workplace coverage.

The Lewin Group, a health-care policy research and consulting firm, estimates that enrollment in the public option will reach 131 million people if it's open to everyone and pays Medicare rates, as many expect. Fully two-thirds of the privately insured will move out of or lose coverage. As patients shift to a lower-paying government plan, doctors' incomes will decline by as much as 15% to 20% depending on their specialty.
Ironically, the Obama administration believes that tactics the government will use to reduce costs are illegal when used by private firms. Christine A. Varney, the new head of the Justice Department's antitrust division said (Brent Kendall. "UPDATE: DOJ Antitrust Chief Withdraws Bush Monopoly Law Report," Wall Street Journal, May 11, 2009)
Some dominant firms may need reminding that their right to compete aggressively remains qualified. When their conduct becomes predatory or unjustifiably exclusionary, the division will take action.
Doctors will earn less, an unfair outcome given the time and effort needed to earn a medical degree, and the quality of service will decline.
Physician income declines will be accompanied by regulations that will make practicing medicine more costly, creating a double whammy of lower revenue and higher practice costs, especially for primary-care doctors who generally operate busy practices and work on thinner margins. For example, doctors will face expenses to deploy pricey electronic prescribing tools and computerized health records that are mandated under the Obama plan. For most doctors these capital costs won't be fully covered by the subsidies provided by the plan...

Doctors will consolidate into larger practices to spread overhead costs, and they'll cram more patients into tight schedules to make up in volume what's lost in margin. Visits will be shortened and new appointments harder to secure. It already takes on average 18 days to get an initial appointment with an internist, according to the American Medical Association, and as many as 30 days for specialists like obstetricians and neurologists.
The private sector is creative. The government sector is not. Rather than come up with an innovative product, the Obama administration will structure its new program after Medicare. To illustrate that government is neither innovative nor creative, and in other ways, a bad supplier of goods and services, I ask my students if they would like the government to pick their music. They demur, concluding that they would be listening to classical music or polkas, yet we are about to let the government provide our medicine.


  1. Jared Wolf28/5/09 8:14 PM

    If doctors are paid less, then eventually the supply of doctors will go down, and when the economy needs more doctors they will have to either pay the doctors more or lower the level of difficulty for becoming a doctor. Personally I would not like someone less qualified to perform surgery or diagnose me. Although Obama is trying to help the poor here, more people will be upset with this medical plan rather than embrace it.

  2. We live in a country that is known around the world for the expertise and expedience in taking care of our medical needs. Our government hasn't even been able to manage social security or medicare problems, and now they are attempting to get their hands on MY medical plan!! Visits to the doctor will mimic that of the department of motor vehicles, or the post office, as we wait and beg for our medical needs. Sure they can come up with inflated numbers of uninsured, but where in America will any one of those individual be turned away from an emergency room?