Know Your Government

Ask the President: Can we afford health care reform?

On April 2, 2010, President Obama met with employees of Celgard, a manufacturer of lithium battery components in Charlotte, N.C., and extemporaneously answered a question that is of concern to many Americans:

In the economy times that we have now, is it a wise decision to add more taxes to us with the health care, because it — we are over-taxed as it is?

The President’s response was comprehensive, clear and coherent:

U.S. President Barack Obama speaks during a town hall meeting at Green Valley High School February 19, 2010 in Henderson, Nevada.

OBAMA: Well, let’s talk about this, you know, because this is an area where there’s been just a whole lot of misinformation. And I’m going to have to work hard over the next several months to clean up a lot of the misapprehensions that people have.

Here’s the bottom line. Number one is that we are the only — we have been, up until last week, the only advanced country that allows 15 million of its citizens to not have any health insurance. And the vast majority of those folks work; it’s just that they don’t happen to work for a company that is either big enough or generous enough to provide them any coverage.

So that’s point number one: There is a moral imperative that is important.

Number two: You don’t know who might end up being in that situation. See, those of us who have health care right now ask ourselves, “Well, is this something that should be a priority right now?” But anybody here who lost their job and then COBRA ran out, or COBRA wasn’t subsidized the way the Recovery Act made sure COBRA — paid 65 percent of the cost of COBRA, and you had somebody at home who was sick or you had a child who got sick, you’d suddenly say to yourself, “Well, now I see the need.”

(LAUGHTER)

And so part of what we have to do is always say to ourselves, “There but for the grace of God go I,” and have a basic — basic safety net.

So that’s point number two.

Point number three is that the way insurance companies have been operating, even if you’ve got health insurance, you don’t always know what you’ve got. Because what has been increasingly the practice is that if you’re not lucky enough to work for a big company that is a big pool, that essentially is almost a self-insurer, then what’s happening is is that you’re going out on the marketplace, you may be buying insurance, you think you’re covered, but then when you get sick, they decide to drop the insurance right when you need it; or when you get sick, they try to find what’s (sic) they consider to be a pre-existing condition that would justify them canceling your policy; or there’s some fine print in there where you’ve got a lifetime limit and it turns out you thought you had coverage but it turns out the coverage only goes up to a certain point and then after wards you have to start paying out of pocket, and even after paying all those premiums, you’re now in the hole for $100,000 or $200,000 and you’re going bankrupt or losing your house.

And the final point is that the cost of health care, setting aside anything we did in reform, I mean, if we just allowed the current trajectory to go on, is out of control.

Now, I haven’t talked to Bob about what his costs are looking like for Celgard employees, but I can tell you that health care costs have gone up, the price of health care has gone up three times faster than wages. So either the company is having to swallow those costs, which means that’s less money that they could use for hiring new workers or investing in new plants and equipment, or they’re passing on those costs to their employees in the form of higher premiums, higher deductibles, higher co-payments.

And what’s happening federally is, because the costs are so out of control, all the programs that we already have — Medicare, Medicaid, the Children’s Health Insurance Program — all those things are completely out of control.

So if you’re concerned about the deficit, what you’re really concerned about is the cost of Medicare, Medicaid and all the other programs that are already in place.

So here’s what we did. What we said is, number one, we’ll have the basic principle that everybody gets coverage. And the way we’re going to do that is to say that most people individually shouldn’t buy health insurance on their own because they have no leverage and the insurance companies take advantage of them.

Instead, what we’re going to do is we’re going to set up a big pool, a marketplace, that allows everybody to buy into this pool — that members of Congress, by the way, will be a part of, so you know it’s going to be a good deal, because members of Congress, you know, they’ve got to look out for their own families. They wouldn’t vote for it if it wasn’t going to be a good deal.

And just like Wal-Mart is able to leverage a really good price from its suppliers for everything, because they’re such a big purchaser, well, this pool will be a big purchaser and it will be able to get a better deal from insurance companies.

So that’s point number one. That will drive down the prices for people who are participating and it will allow everybody to get a decent deal on insurance. And what we do is we provide tax credits to people who still can’t afford it, so that they can afford it. That’s point number one.

Point number two is we’ve got the strongest insurance reforms in history. So all those things I told you about, you not being able to get insurance because of a preexisting condition, you finding yourself getting dropped even though you’ve been paying premiums for 15 years and suddenly they just decide, “Sorry, we don’t want you because you’re getting sick,” those policies will be over.

And so you will be protected as a consumer to make sure you’ve got security and protection if you’ve got insurance already. That’s the second thing we do.

The third thing we do is we actually put in place a whole bunch of mechanisms to start reducing the actual cost of health care. So for example, one of the things that we do is to say, “We’re going to start encouraging paying doctors not based on how many tests they take, but based on the quality of the outcome, does somebody end up healthy?”

And it turns out that a lot of times, you know, if you go to the doctor, you get one test, then you go referred to a specialist, you get another test. Then maybe you go to a third person, the surgeon, you get a third test. It’s all the same test, but you’re paying three times. So what we’re trying to say is, we’ll pay you for the first test, and then e-mail the test to everybody.

(LAUGHTER)

(APPLAUSE)

Right? Or…

(APPLAUSE)

… or have all three doctors in the room when the test is being taken. But — but that’s an example of the kinds of things that save money and will start reducing costs over the long term. So what we’ve done is we’ve embedded in how Medicare reimburses, how Medicaid reimburses — all these ideas to actually reduce the costs of care.

So our hope is that over time, over the next three, four, five, six years, because of all these changes, that we’ve actually saved money from this even though more people are covered.

And so now you’ll — you’ll hear the critics and the Republicans say, “Now, that just defies common sense. If you’re adding 30 — 30 million more people, then it’s got to cost more money. And it — you know, you can’t pretend like somehow that’s going to help us on the deficit.”

I’ve heard this criticism. I understand it. But let me give you an example.

If you’ve got a house and you’ve got a big hole in your roof, and it’s raining and snowing through that roof, and there’s some people who are inside the rooms where the roof’s OK and they’re nice and warm, and then you’ve got a few — you know, your family members in that room where there’s a big hole in the roof and they’re shivering and they’re cold, if you repair the roof, that’s going to cost some money. But if all the water damage from your floors and all the heat that’s going out of the roof and all — you count all those savings over time, it may turn out that it actually is saving you money and, by the way, all those family members now are warm, too. You’re not the only one who’s warm, right?

That’s essentially what we’re trying to set up.

Now, the last point I want to make: All those savings that we’re anticipating, we don’t even count those when it comes to making sure that this is deficit-neutral. Here are the two ways that we’re pay for this thing.

Number one, we are eliminating a whole bunch of waste, fraud and — and insurance subsidies that were being paid out under Medicare that aren’t making our seniors any healthier. I mean, you’ve got a pretty sweet deal from insurance companies right now in a program called Medicare Advantage where they get $18 billion a year paid to them to manage a Medicare program that about 80 percent of seniors are getting directly from the government and it’s working just fine. It’s just a subsidy to them that doesn’t make anybody healthier. So what we’re saying is, “Well, let’s eliminate the subsidy.”

So that’s about how we pay for half of this thing.

The other half of it, it is true that we have identified some additional taxes that we think are fair. And let me describe, just to give you an example. I don’t think this will affect you, but I don’t know — you know, I don’t know your family’s circumstances.

Right now if you’re on salary, you get your salary from Celgard or any of the — any of the companies around here, you’re paying your Medicare tax on all of that, right? You see it on your — as part of your FICA. But if you’re Warren Buffett and you get most of your money from dividends and capital gains, you don’t pay Medicare tax on that.

You’re eligible for it. You’re going to get the same Medicare benefits as anybody else. But because your source of income is what’s called unearned income, capital gains and dividends, you don’t have to pay this.

Well, I’m thinking to myself, how is it that the guy who’s cleaning up the office is paying the Medicare tax and the guy who’s making capital gains isn’t.

So what we said was, look, if you make more than $200,000 and $250,000 a year, then that money that you make over $200,000 and $250,000 a year that’s unearned, that’s from capital gains and dividends, you should have to pitch in to Medicare just like everybody else because you’re going to be using it like everybody else. So it’s a concept of fairness.

(APPLAUSE)

Now, what the Congressional Budget Office has said — I’m sorry, by the way, these questions sometimes are — or these answers are long. But I want to be sure, you guys, that I’m really answering your question. I hope you feel like I really want to respect the importance of your question.

What the Congressional Budget Office has said is that as a consequence of the savings from the waste and fraud, combined with the new revenue sources I just mentioned, that this thing is going to actually reduce our deficit by over a trillion dollars. Over a trillion dollars. We’re actually saving money for the government because we closed the roof, the house is now insulated, it’s warm. And by the way, in the meantime we’ve got a whole bunch of people who were left out in the cold who are now being taken care of.

That’s — that’s the concept. But I know that for a lot of people they’ve got a legitimate concern about, gosh, it just seems like government spending is out of control. I understand that. I feel that.

But understand what happened. When I walked in, we already had a $1.3 trillion deficit. That’s an annual deficit of $1.3 trillion. That’s the day I got sworn in, before I did a thing.

We had $8 trillion in accumulated debt from the war in Iraq, not paid for; the prescription drug plan, Medicare Part D, not paid for; Bush tax cuts, not paid for. So we already had all this debt that had just been piled up, but nobody had noticed because things were going kind of good. Just like a lot of folks didn’t notice their credit card was going up or that their home equity loans were going up because when things are going good, you tend not to notice. So all that debt had already accumulated.

We then had to spend $787 billion on the Recovery Act to do all the things — unemployment insurance, COBRA, what’s called FMAP, which is essentially helping states to keep their budgets afloat so they didn’t have to lay off teachers and cops and firefighters — all of which, if that had happened, would have further depressed the economy and we would have recovered a lot later. The investments we’re making in clean energy and things like Celgard to help spur economic growth, so we had to spend that.

But that’s only a fraction of what our debt was. And in addition, what happens is when the economy goes south, there are fewer tax revenues. And so you’re putting more money out to help people with unemployment insurance and things like that, but you’re getting less money in because folks are out of work and businesses aren’t making money.

Bottom line is, we now have a significant debt that has to be paid down. That’s why I’m freezing government spending. That’s why we re-instituted what is called “pay as you go.” You can’t start a program without paying for it. Our health care program is paid for.

But the big thing if you’re really worried about leaving debt to the next generation, which I know you are, the most important thing we’re going to have to tackle is our health care costs because Medicare is by far — Medicare and Medicaid — are the biggest things that are looming in the horizon in terms of what our debt’s going to be. Nothing else comes close.

If this health care bill never existed, if I didn’t do anything about it, we’d actually be a trillion dollars worse off over the long term. But even with what — the savings we’re getting from health care, we’re still going to have to do more. And if you don’t believe that, you know, go on our Web site, www.whitehouse.gov, and you can look at where — at how the federal budget works.

A lot of people think if you just eliminated foreign aid, we could balance the budget. Or if you just eliminated earmarks, you could balance the budget. Earmarks, you know, pork projects, what everybody calls pork, those account for about 1 percent of the budget, less than 1 percent. Foreign aid accounts for about 1.5 percent to 2 percent of the budget.

Most of the budget is Medicare, Social Security, Medicaid, defense spending and interest on the national debt. That — that accounts for about 70 percent of the budget. And so all this other stuff that sometimes we argue about, that’s not the big stuff. We’re going to have to tackle the big stuff if we’re going to get our budget under control.

Boy, that was a long answer. I’m sorry, but I hope everybody — but I hope I answered her question.