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Obama’s State of the Union Address: The Healthcare Economist’s Take

Below are healthcare-related excerpts from President’s Obama’s State of the Union Address with my comments afterward.

Now let’s be clear – I did not choose to tackle this issue to get some legislative victory under my belt. And by now it should be fairly obvious that I didn’t take on health care because it was good politics. True.  Support for Obama’s health reform policies are hitting all-time lows.

The approach we’ve taken would protect every American from the worst practices of the insurance industry. Here, Obama may be referring to the fact that he wants to prohibit insurers from denying insurance coverage based on pre-existing conditions.  In many cases this is a good thing.  It is hard for people who have diseases to get insurance coverage, and when they don’t get coverage, they may forego necessary care.  However, when insurance companies don’t deny coverage to individuals with pre-existing conditions, each person has an incentive NOT to buy health insurance until they come down with a serious disease.  This way, you’ll save money on health insurance and when you decide to buy health insurance when you’re sick, it’ll cost the same as it does for healthy people.

It would give small businesses and uninsured Americans a chance to choose an affordable health care plan in a competitive market. The subsidies individuals would get to purchase nongroup insurance would help people purchase insurance for individuals who work for a business that does not offer a group plan.  However, the small businesses generally oppose health reform.

It would require every insurance plan to cover preventive care.  Most already do.

And by the way, I want to acknowledge our First Lady, Michelle Obama, who this year is creating a national movement to tackle the epidemic of childhood obesity and make our kids healthier. Although losing weight will generally improve your health, calling obesity an epidemic is a bit of a hyperbole.

Our approach…would reduce costs and premiums for millions of families and businesses. And according to the Congressional Budget Office – the independent organization that both parties have cited as the official scorekeeper for Congress – our approach would bring down the deficit by as much as $1 trillion over the next two decades.  Cost will decrease for some people.  Those who are newly eligible for Medicaid will see lower health insurance premiums.  Those who receive subsidies to buy health insurance will see lower premiums.  However, the taxpayer will have to cover this cost.  Thus, there will be winners and losers if health reform passes.  The Medicare cost cuts the Obama is proposing are small in comparison with the fast rate of growth of overall Medicare spending.  Further, political pressure will make it difficult to actually enact these cuts.  Although Obama may claim the health reform will decrease federal spending, insurance companies believe health reform will increase health care costs.  I’ve already stated my belief that the cost-cutting measures in the health reform bills are meager.

As temperatures cool, I want everyone to take another look at the plan we’ve proposed. There’s a reason why many doctors, nurses, and health care experts who know our system best consider this approach a vast improvement over the status quo.  Providers should support health reform.  In general it expands the number of people with insurance (i.e., it expands their potential market).  Further, because there is little cost cutting, doctors and nurses should see an increase in profits.  Doctors and nurses may also believe that health reform is good for their patients, but without a doubt it will benefit the provider’s pocketbook.

Do not walk away from reform. Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people.  In other words: “Please pass health reform.  Pretty please!

Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will.  A spending freeze sounds like a great idea to reduce the debt.  However national security (21%), Medicare & Medicaid (23%), Social Security (21%), other mandatory spending (10%) and interest on the debt (8%) make up most of the federal budget.  This leaves only 17% of the budget which is not under a spending freeze.  That is like saying, “Yeah, I’ll keep living in this house I can’t afford and driving this car I can’t afford, but when I go to Taco Bell I’ll get the regular taco instead of the taco supreme.”  That is not the way to financial security.  Additionally, some of the discretionary programs will be cut but others will receive increased funding.  Obama even campaigned against spending freezes in the election.

More importantly, the cost of Medicare, Medicaid, and Social Security will continue to skyrocket. That’s why I’ve called for a bipartisan, Fiscal Commission, modeled on a proposal by Republican Judd Gregg and Democrat Kent Conrad. Read: “I know it’s not a good idea politically to cut Medicare, Medicaid or Social Security.  So instead I’ll call for a commission to write a report that gets ignored a year from now.

We are helping developing countries to feed themselves, and continuing the fight against HIV/AIDS.  Feeding the poor and helping those with AIDS are important goals.  They are also goals that few people would oppose politically.

Conclusion: Overall, Obama has proposed nothing new on health reform, but has just asked nicely for Congress to pass it.  He has imposed a spending freeze on 17% of federal budget while letting entitlements continue to gobble up more and more of worker’s incomes through taxes.  There is no solution to the impending budget shortfalls for Medicare and Social Security.  To sum up, on the health care front it’s more of the same.


  1. Great post. I always love reading these commentary-type posts. Few comments:

    – As far as the pre-existing conditions argument, it just seems logical to remove them from the general pool for the sake of keeping the market from failing. We already removed other high-risk and high-cost individuals to protect the market, such as the elderly (Medicare) and the poor (Medicaid). Easiest way might be to just add pre-existing conditions to qualify for Medicaid.

    – As far as reducing the deficit…the CBO claims we will save $1 trillion over the next 2 decades, but that is off of their projections of the next 2 decades — projections that are questionable at best. There is reason to believe that the rate of healthcare inflation was halted in the early 1990s, and excessive growth will not ever reach the crazy numbers they are talking about, such as 50% of GDP etc…

    – Not in your article, but I got a good laugh when he was talking about politics as usual etc etc, but forgot to mention his backroom deals with Nebraska and the labor unions. Want real reform? Don’t try to please everyone, because as you say Mr. President, change is not easy. Change is tough. The unions will not be happy, but you have to do what you have to do.

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