Will The Bond Market Finally Force Serious Health Care Financing Change


Originally published 11/23/10 on Health Policy and Marketplace Review

When will the Congress and the White House finally make the hard decisions in order come to grips with the federal deficit problem?

When will we finally deal with real health care reform and get the entitlements, and with them the private health care cost issue, under control?

My focus on trying to answer those questions has always centered on what’s going on in the health insurance market: When will costs simply become untenable and therefore force real change?

Watching “Meet the Press” on November 14th, it occurred to me I may have been missing the catalyst for real health care change.

Here is an exchange between moderator David Gregory and former Fed Chair Alan Greenspan:

MR. GREGORY: But don’t we have to have an adult conversation with people about what the real [deficit] problem is?

DR. GREENSPAN: Look, I think something equivalent to what Erskine Bowles and Alan Simpson put out [Deficit Commission Chairs’ report] is going to be passed by the Congress. The only question is, is it before or after a bond market crisis?


DR. GREENSPAN: Because there’s no alternative. Look, I…

MR. GREGORY: But you got to explain a little bit more what that means. You’re talking about debt.

DR. GREENSPAN: Well, here, here’s the issue. Right now we have very low bond prices, the markets are functioning in a reasonably good way. The big, serious problem is whether or not the outlook for the longer term deficit spooks the bond market to a point where long-term interest rates and mortgage rates move up very sharply. If that happens, that will cause the double dip. And I’m just basically hoping that we have enough sense to realize that we’ve got to resolve this issue before it gets forced upon us.

“The only question is, is it [our finally dealing with the debt and entitlement problems] before or after a bond market crisis?”

The single biggest driver in our national debt problem is the cost of our health care entitlements.

It may in fact not be the health care system itself and its unaffordable costs that finally force real action for health care cost containment––it may be the global bond market and its lack of confidence in America’s ability to finally deal with our debt, and its health care driver, that will cause a crisis that forces health care action.

But would such a crisis force meaningful and rational health care reform or just draconian fee schedule cuts across the board that puts the health care sector––particularly the providers––in a crisis of their own?

Robert Laszewski is president of Health Policy and Strategy Associates, LLC (HPSA), a policy and marketplace consulting firm specializing in assisting its clients through the significant health policy and market change afoot.

3 thoughts on “Will The Bond Market Finally Force Serious Health Care Financing Change

  1. Bob:

    Thanks for bringing this do our attention. The dot-com bubble and the housing bubble were both the result of unrealistic financial expectations and a failure of leadership. We have done so little to address the core problems in our medical system that I am very worried about the consequences. Just as before, the impact is likely to be severe and to reach far beyond medicine. Thanks again for your insight.

  2. Controlling entitlements, Medicare and Medicaid, can only be accomplished by negotiating directly with the providers of care and the pharmaceutical industry on price controls. There, I said it. If this is not done, then our only choice is rationing care and Americans won’t stand for more rationed care. Let’s face it, when you are sick you want anything, everything, all the latest technologies, procedures, expensive pharmaceuticals, etc. The cost of healthcare will continue to plague us until we can negotiate with the primary cost drivers. The new paradigm, “Creating a Culture of Wellness” will only go so far. Yes, if American’s become healthier then we reduce the need for care. However, it will take another generation before we see marked results on wellness.

  3. Health care inflation is generated in a number of sectors in the health care industry – the health insurance industry; the medical profession; hospitals, nursing centers and other health care suppliers; and the pharmecutical business. If we are to address the containment of health care inflation (running now at about 3% of GDP), we need to know how each of these four sectors contribute to the total. Does each contribute about the same amount, or do some sectors contribute more than others? If the latter, which contributes the most? If we don’t have this information, how can we target a response? Has anyone calculated this information? If not, who would be in the best position to do so? Until this is done, I don’t see how we can work out effective means of dealing with the gravest danger to our country’s economic welfare.

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