Warren Buffett’s Prescription for Fixing US Health Care

Plus, Republicans push to restrict Medicaid

Warren Buffett: Government Health Care ‘Will Probably Be Even Worse’

Warren Buffett says the U.S. health care industry must overcome its resistance to change and figure out ways to fix itself — or run the risk that the public will start clamoring for a government-run system, which could be even worse.

Buffett’s company, Berkshire Hathaway, joined forces with Amazon and JPMorgan Chase in January 2018 to create a new non-profit health care venture, with the aim of improving satisfaction and reducing costs for their combined total of more than 1.2 million employees. Last June, the company tapped surgeon and author Atul Gawande as CEO. Earlier this month, the joint venture unveiled a name: Haven.

In a new interview with Yahoo Finance, Buffett said that the health care venture will have plenty of “market muscle” and that he, Amazon’s Jeff Bezos and JPMorganChase’s Jamie Dimon can steer clear of some of the corporate bureaucracy that might affect other large companies embarking on such a project. But he also signaled that the health care industry’s entrenched interests won’t be easy to overcome.

“We’ve got a unity of commitment and an ability to execute on the commitment. The only problem is you’ve got a $3.4 trillion industry, which is as much as the federal government raises every year, that basically feels pretty good about the system,” he said. “There’s enormous resistance to change while a similar acknowledgement that change will be needed. And, of course, if the private sector doesn’t supply that over a period of time, people will say ‘We give up, we’ve got to turn this over to the government,’ which will probably be even worse.”

In announcing the joint venture last year, Buffett said that health care costs "act as a hungry tapeworm on the American economy.” In his Yahoo Finance interview, he again discussed the costs of the current system: “We've got this incredible economic machine, but we shouldn't be spending 18% [of GDP on health care], when other countries are doing something pretty comparable, in terms of doctors per capita, hospital beds per capita, and all that,” he said. “The very top stuff in medicine, I think, is very much concentrated in this country. And that's great. I want us to be the leader, but I think we're paying a price. If we're paying seven extra points of GDP, that's $1.4 trillion a year.”

Not much is known about Haven, but given the companies and CEOs behind it and its mission of disrupting the current system, interest has been intense. Buffett said the company would experiment and Gawande, while he has a plan in mind to some extent, will also learn more as he goes.

“The plan is to support a very, very, very good thinker on this subject, who's a practicing physician, and who commands the respect of the medical community to in effect, figure out some way so that we can deliver even better care, and have people feel better about their care, too,” Buffett said. “They have to perceive that they're receiving better care over time. And stop the march upward of costs, relative to the country's output.”

Republicans Push Ahead on Medicaid Restrictions

The Trump administration on Friday approved Ohio’s request to impose work requirements on Medicaid recipients. Starting in 2021, the state will require most able-bodied adults aged 19 to 49 to either work, go to school, be in job training or volunteer for 80 hours a month in order to receive Medicaid benefits. Those who fail to meet the requirements over 60 days will be removed from the system, although they can reapply immediately.

The new work requirements include exemptions for pregnant women, caretakers and those living in counties with high unemployment rates and will apply only to those covered through the expansion of Medicaid under the Affordable Care Act. There are currently about 540,000 people on Medicaid in Ohio who receive coverage through the expansion, according to Kaitlin Schroeder of The Dayton Daily News, compared to roughly 2.6 million Medicaid recipients in the state overall.

Once implemented, the work requirements are expected to result in 36,000 people losing their Medicaid eligibility, according to state officials, though critics say the reductions could be significantly larger. Similar work requirements in Arkansas pushed 18,000 people off the Medicaid rolls in six months.

A larger GOP project: The creation of new work requirements is part of a larger effort by Republicans to limit the expansion of Medicaid, says The Wall Street Journal’s Stephanie Armour.

Since the Affordable Care Act passed in 2010, 36 states have expanded their Medicaid programs under the ACA. The number of people in the low-income health care program overall has grown by 50 percent, from roughly 50 million to about 75 million. But many red-state governors have expressed concerns about the cost of Medicaid expansion and worries about a lack of self-sufficiency among the able-bodied poor, and are embracing new limitations on the program for both fiscal and political reasons.

The White House in 2017 gave states the green light to explore ways to limit the reach and expense of their Medicaid programs. Governors have proposed a variety of new rules, which require waivers from the federal government to enact. Kentucky, for example, wants to drug-test Medicaid recipients, and Utah wants a partial expansion and a cap on payments. The Kaiser Family Foundation summarizes the variety of waivers states have requested, which are governed by Section 1115 of the Social Security Act, in the chart below.

Legal challenges: Efforts to restrict Medicaid have received legal challenges, and U.S. District Judge James Boasberg blocked work requirements in Kentucky last year. The same judge, who has expressed doubts about the administration’s approach to Medicaid, will rule on the legality of work requirements in both Kentucky and Arkansas by April 1.

The bottom line: The Trump administration is seeking fundamental changes in how Medicaid works. Even if Boasberg rules against work requirements, expect the White House and Republican governors to continue to push for new limitations on the program.

60% of This Year’s Deficit Is the Result of Tax Cuts and Other Recent Legislation: CRFB

The federal deficit for fiscal 2019 is projected to climb to around $900 billion, or $118 billion more than last year, according to estimates from the Congressional Budget Office. Most of that total — $540 billion — is the result of legislation passed since 2015, according to a new report by the Committee for a Responsible Federal Budget.

The budget watchdog group calculates that the tax cuts passed by Republicans in 2017 will cost $230 billion this year, or 25 percent of the projected deficit. A bipartisan 2018 deal to increase spending over two years will cost another $190 billion in 2019, representing 21 percent of the expected deficit.

Without those two major pieces of legislation and other laws passed since 2015, this year’s deficit would be $360 billion (or 1.7 percent of gross domestic product), the lowest since 2007.

“Fixing our debt will now require reversing the harm that has already been done with unpaid-for tax cuts and spending increases, in addition to confronting the rising costs of Social Security and Medicare with spending changes and/or additional revenue,” CRFB says.

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