Last week I did a post, The Chance for Major Health Care Reform in Either 2009 or 2010 Is Now Zero.
I made the point that the bailout the Congress is now voting on is on top of a 2009 projected federal budget deficit that the White House has already estimated to be $500 billion. Add to that the $300 billion in deals the feds have done for the likes of Freddie, Fannie, and AIG. Then we have the $200 billion expiration of the Bush tax cuts in 2010 the new Congress and President need to deal with next year.
On top of all of this, the notion we are going to spend billions more on health care reform is unrealistic.
I have been reminded that the $700 federal bailout would be "off budget." That is this would all be accounted for not as an expenditure but as an asset purchase and therefore not added to the deficit. That accounting point is true--although about $25 billion in interest on the bailout will add to the annual deficit.
I am also optimistic that the AIG bailout, and the up to $700 billion purchase of "toxic" mortgages, would ultimately at least come close to paying for themselves. I actually believe taxpayers will make a good profit on AIG. The $85 billion loan in exchange for an 80% stake in a company, whose insurance businesses are likely worth far more than that, should end up to be a good bet. The discount paid for the mortgage debt and recourse that buyout is based upon will at least come close to allowing us to make out there.
But, what I have been telling my clients this past week is that we will face a major economic correction because of the more permanent changes that will come to the credit system.
The U.S. economy has been on one incredible run--all based upon unrealistically easy credit. With or without the bailout, that is now coming to a hard end and there will be an adjustment.
To buy a house you will now need good credit and a solid down payment--house sales will rebound but at a more modest level.
In a more reasonable credit environment--the kind we should always have had instead of the foolish credit environment we did, there will also be fewer car loans and credit card limits and interest rates will all change in response.
We will now have to ratchet down to an economy that can be sustained by more reasonable and prudent credit rules. That means less housing construction, fewer cars sold, and less use of credit cards in restaurants and big box stores. That means lower employment in these businesses and at the manufacturers and distributors that supply them.
That means fewer insured lives and it means less tax revenue at the state and federal levels. That will mean less money for Medicare and Medicaid.
This is all bad news for private Medicare. You heard Barack Obama at Friday's debate--Medicare Advantage is where the money is. Even if McCain is President, look for that private Medicare money to be used as needed to cover any Medicare or Medicaid provider cuts on the table--the January 1, 2010 21% Medicare physician fee cut right on top of the list.
Even after taking the "extra payments" from private Medicare, I doubt that will entirely insulate the other providers--docs, hospitals, pharma, device, or others like durable medical equipment providers. The upcoming "food fight" I have been talking about between all the providers about how to divide the Medicare and Medicaid money is only going to intensify. With it, will come the likelihood of cost shifting from public to private programs in the way providers bill commercial health plans.
I do not see this as a pessimistic view. I see this somewhat hard landing as the best view. It presumes our economy begins to respond to all of this restructuring in a relatively orderly way as it ratchets down to a more sustainable level based on a prudent credit market.
The pessimistic outlook, in my view, is that this will be more than a rational economic adjustment. That's the view to really be afraid about.
As the economy adjusts itself to this new reality, there will be no money for big health care reform plans--although what will likely be a growing number of uninsured will create an imperative for it to happen. An imperative that will be stymied by budget issues driven by the economic adjustment.
If you want to be told the financial crisis is not going to have a fundamental impact on the business of health care, or health care reform, you won't hear that here.
Avoid having to check back. Subscribe to Health Care Policy and Marketplace Review and receive an email each time we post.
- ► 2020 (25)
- ► 2017 (33)
- ► 2016 (27)
- ► 2015 (26)
- ► 2014 (36)
- ► 2013 (48)
- ► 2012 (32)
- ► 2011 (36)
- ► 2009 (161)
- What I'm Telling the Health Care Business About th...
- Health 2.0 in San Francisco October 22-23
- The Chance for Major Health Care Reform in Either ...
- AIG and Regulation Versus Deregulation
- AIG--The Feds Did the Right Thing and Only They Co...
- The Pretend Presidential Debate on Health Care--Th...
- "Lipstick on a Pig"--The McCain Campaign is Defini...
- Comparing John McCain's Health Care Plan to Barack...
- The Long-Term Viability of Medicare Advantage--Why...
- The Cost of the Massachusetts Health Insurance Law...
- Do Certificate of Need Programs Reduce Costs? Gove...
- ▼ September (11)
- ► 2007 (235)