Washington, DC -- (ReleaseWire) -- 11/08/2016 --DAWN BENNETT: Dr. Scott Gottlieb is a practicing physician and served in various capacities at the Food and Drug Administration including Senior Adviser for Medical Technology, Director of Medical Policy Development and most recently as Deputy Commissioner for Medical and Scientific Affairs. Dr. Gottlieb has also served as a senior policy adviser at the Centers for Medicare and Medicaid Services and is a published author. On September 14th, 2016 in The Wall Street Journal he wrote a piece titled 'Clinton's Stealthy Single Player Gambit' where he begins by saying 'It looks like 2017 will be ObamaCare's worst year yet.' Scott, welcome to Financial Myth Busting.
SCOTT GOTTLIEB: Thanks for having me.
BENNETT: So do you remember when Obama toured around the country telling everyone that ObamaCare was going to increase competition and lower health care premiums?
GOTTLIEB: Well, it didn't work out that way, did it?
BENNETT: No, no. As it turns out, pretty much nothing that Obama and his health care experts predicted about ObamaCare actually came true. And now we're going into 2017 and across the country ObamaCare premiums are expected to increase on average of about 25 percent nationally. One of the hardest hit states will be Arizona where the biggest loser with the rate is, I think, Phoenix. Could these skyrocketing rates inevitably toss the entire ObamaCare system into a death spiral?
GOTTLIEB: Well, I think what's going to happen is the ObamaCare system itself won't crumble. It's just going to be fewer choices as it is right now. But the choices that you have are going to look more and more like Medicaid plan. So the way that these premium increases are going to be held down in the future is that the plans themselves are going to be cheapened out to the point where they're basically like Medicaid plans. And in fact, if you see what's happening inside ObamaCare, the reason why choices are leaving the market right now is because traditional commercial insurers like Aetna, United Healthcare, Cigna and Anthem this week announced they're getting out of the ObamaCare market but what's growing their footprint inside these ObamaCare changes are the traditional HMOs that have serviced the Medicaid market like Molina and even some of the Blue Cross Blue Shield plans. So this is going to look like a Medicaid benefit. There will be fewer choices and the choices you do have will be much more like Medicaid coverage.
BENNETT: But why now? Why is this happening, this dramatic price increase, and at the same time choice decreases associated with the Affordable Care Act which we can refer to as ACA?
GOTTLIEB. Well, I think initially the insurance companies drank the administration's Kool-Aid, quite frankly. They thought this was going to be a more viable market where more young consumers, healthy consumers would be getting into the market and they'd have more people entering ObamaCare. But people are rational economic actors and they realized that this, except for a very narrow income demographic, this really isn't the good financial deal so fewer people got into the market, fewer healthy people got into the market and now the insurance companies are realizing this isn't the viable risk pool that they can service. With a higher cost, higher margin product, that offers more choice but that's also more expensive to administer.
BENNETT: Even if we didn't know it before we now know that this current model of ACA is not sustainable, even in the short term. Because we've already gone through the short term and many are leaving and obviously there's no long term there. But I think the thing is what's going to happen. The ongoing financial impact on the insurance industry, on the lives of the American people and on the federal government won't permit that problem to linger much longer, I would think. So which is it going to be? A greater market-based health care solution or increased government control of health care?
GOTTLIEB: I think it's going to be a little bit of both. I think you're going to have more government regulation on health care and certain things that the government feels these plans are now trying to skimp on in order to save money but the government wants to mandate them. So, for example, the ObamaCare plans mandate first-dollar coverage or surgical sterilization. So you might not be able to get your cancer drugs paid for but if you need surgical sterilization the government will pay full freight on that so there are certain politically favored things that the government is stepping in now to mandate full coverage of, first-dollar coverage of. But I also think the bigger piece of this is going to be the plan's just not offering certain benefits. So if you look at, for example, the drug coverage, I think the reason why consumers are now feeling a lot of hardship with respect to their drug spending isn't because drug costs have gone up exorbitantly over a very short period of time. These true drug costs are going up over time. But they haven't actually gone up that much in recent years relative to historical norms. On average, drug costs are increasing about 4-5 percent and certain pockets of drug spending are going up faster than that but what has really changed quite dramatically in short period of time is the nature of coverage for drugs where more of these ObamaCare plans are closed formularies meaning that if your drug doesn't make it on the formulary list you're completely uncovered and you're completely out-of-pocket for whatever you have to spend. There's no coverage whatsoever and more of these formulary lists are very skimpy meaning most drugs aren't on the formulary list. And so now what's happening is the same sort of constructs that have been created in the Affordable Care Act to make those plans somewhat affordable and being rendered politically acceptable by the federal government now are being imported into the commercial market.
BENNETT: Is this the ObamaCare tipping point, the significant sticker shock we're experiencing with health care coverage?
GOTTLIEB: Well, I think it's certainly a tipping point in terms of we're going to see a dramatic change in this market where now we're seeing the private plans get out. This isn't really going to be commensurate with commercial coverage. It's going to be a Medicaid benefit for working class Americans who earn too much money to qualify for Medicaid but are being forced into ObamaCare. Many of these folks are going to be people who had employer-provided coverage that might have been better in the past and now they're going to be downgraded into ObamaCare.
BENNETT: That's just horrible.
GOTTLIEB: That's the worst outcome, yes.
BENNETT: Meanwhile, the Obama Administration continues to insist that all is well with the Affordable Care Act/ObamaCare because many people participating in the exchange received taxpayer-funded subsidies which is fine, of course, unless you're one of the 1,000,000+ people in the county who purchased private insurance without the benefit of subsidies. When you want to correct a problem the first thing you've got to do is admit it. Why aren't they just simply admitting it?
GOTTLIEB: Well, even with the subsidies, people are getting crushed—I talked to one patient on Friday, a middle class guy who manages a store in a small town. He was on ObamaCare with his wife and his child, paid about $200 a month for a premium. His child got a job so now because the household income went up his premiums were going to go up a lot so he took his child off his plan. She got her own separate insurance. His wife's premium along with his now went up from $200 to $600 because they were only a two-person household and not a three-person household and then they found out that because his daughter had gotten her job halfway through the year but they hadn't reported that their household income went up even though they tried, they owed back their subsidies that they had gotten for that year and it was $6,000 that they owed back. They had two years left on the mortgage on their house. They had to take out a 15-year mortgage to pay back the government the $6,000 to cover the increased premium costs. That's the type of middle class family that the ObamaCare architects purport to help. I'm writing up this story for Monday on Forbes.com because this is exactly the target demographic that ObamaCare was created for and that's what's happening to these folks.
BENNETT: On Tuesday Americans will likely decide the fate of ObamaCare, I think, and indirectly President Obama's legacy. Now, it's no secret he realizes this and he's campaigning hard for Hillary to become his successor. Before we talk about Trump, you recently wrote a piece for The Wall Street Journal about how Hillary plans to use the collapse of ObamaCare to push the single payer system. She would even go about it with the Republican Congress. I want to know how she's going to get that done.
GOTTLIEB: Every time she talks about single payer she talks about the states being active in helping to support single payer. What she's referring to there very cleverly is that section of ObamaCare called 1332 Waivers which basically gives the states the ability to collect all of the ObamaCare premiums and subsidies that their residents would otherwise be eligible for, and use it to design their own health plans. There are a number of states – Vermont, Colorado, California, Minnesota – that are now trying to use this scheme in order to create a state single payer plan. So that what she's going to try to do. She's going to try to allow states that want to create their own single payer scheme to use the ObamaCare subsidies under section 1332.
BENNETT: Donald Trump has been less specific about what he plans to do with health care, so let's focus on him. As far as I understand, he's taken to saying ObamaCare is a disaster and he's promising to repeal and replace it within the first days of his presidency. Do you have any further insight into what Americans can expect from a Trump presidency with regards to health care and how would this contrast with Hillary's plan?
GOTTLIEB: I think that the Republican and Conservative playbook on the replacement for ObamaCare has been pretty clearly written. There's about five substantive long plans out right now: one from Congressman Price, another one from Senator Hatch, a group of senators. We put out one at the American Enterprise Institute. And the reality is they're basically all the same plan. I mean, there's variations between the plans but the basic architecture is the same. And I worked on one of those. We put out a 70-80 page version of that so I can fairly admit that they all look pretty similar. The replacement plan's been written for what the replacement to ObamaCare would look like. The question is whether or not they would repeal ObamaCare right away before you had the replacement in place and I think the answer is they probably would. That's what Trump has intimated, that he would have a special session meeting. He would try to do it through reconciliation early on, repeal ObamaCare and then come back in with a replacement plan.
BENNETT: On the off-chance that Donald Trump happens to do as he predicts and shock the world with a surprising 'come from behind' victory next Tuesday and then nominate you, Scott, to head up the overhaul of ObamaCare, what would you propose?
GOTTLIEB: I would propose to try to repeal or replace it altogether or at least when you're repealing it put in place a plan that will allow people who are now on ObamaCare to have some form of coverage during an interim period before you can get a broader replacement plan in place. I think there are mechanisms to doing that and there's funding available in ObamaCare to do that so that you make sure you don't displace people and leave them uninsured because I think as bad of a product as ObamaCare has turned out to be in terms of underinsuring a lot of Americans it is providing insurance to about I would say 5 million Americans who previously didn't have insurance. If you look at the total ObamaCare numbers of maybe 12 million insured, a little more than half of them had coverage previously but were forced into ObamaCare. About a half of them didn't have coverage before. You want to make sure you're not going to leave those individuals uninsured.
BENNETT: When we start looking towards 2017, I think Americans are facing an increasingly grim reality when it comes to health care. And with the three major insurers fleeing ObamaCare exchanges nationwide I think most Americans are facing only one or two choices of providers. Meanwhile, prices are rising and plans and deductibles are spiking. Why does Obama think this lie is a success? I'm still unclear how he could go out and talk about it this way.
GOTTLIEB: Well, I think that they view success differently than maybe you and me might view it because I'm looking at the quality of the coverage that's provided and the amount of choices providing consumers. And I'm also looking at the fact that I think a lot of people have seen their coverage downgraded as a result of ObamaCare so it's actually made health care in this country less egalitarian. I think they're looking at it in terms of it gives the government more control over health care benefits to make sure people are getting what the government thinks they should be getting in the context of a benefit. And it also makes sure that it's harder for people to fall through the cracks and become uninsured. So at the end of the day, if you become unemployed you can get onto ObamaCare or Medicaid for that matter, so it's harder for people to become fully displaced but the reality is that this whole notion that there were a lot of people who had pre-existing conditions who couldn't get coverage or who were falling through the cracks before, there were Americans who faced those hardships but there weren't that many Americans who faced those hardships. So we could have provided a very targeted set of benefits for those folks without disrupting the entire insurance market.
BENNETT: President Obama also blamed young people for the spiking prices being felt by the families. Why aren't more young Americans signing up? Are they realizing this is all a big scheme whereby the older people take the younger person's money?
GOTTLIEB: Well, it's exactly what you said. It's just unaffordable for young Americans and especially young Americans with jobs. The only place where ObamaCare is frankly a good economic deal is if you fall within a very narrow income demographic of about 175-225 percent of federal poverty level. That's about maybe 20-25 million U.S: households. That's a family of four earning about $40,000 a year in collective income, maybe a little less than that. At that income range you qualify for special subsidies called cost-sharing subsidies that buy down your out-of-pocket cost. Once you fall outside that narrow income demographic ObamaCare is not a good economic deal. If you're a family of four earning $65,000 a year of income or more you get crushed by ObamaCare.
BENNETT: I want to talk about how President Obama recently arranged some speeches specifically to trumpet what he says are the successes of ObamaCare and I want to play a little bit of that. Before we get there, though, I want you to tell me why Obama likes to cite the fact that the number of Americans who have insurance is increasing. Isn't this like his similar dubious claim that more American teens are graduating from high school?
GOTTLIEB: Well, the number of Americans who have coverage has increased. The number of uninsured has fallen but the vast majority of that is because more people are on Medicaid. And I don't consider that a triumphant success simply because I see what kind of benefit Medicaid offers because I take care of a lot of Medicaid patients. It really isn't an adequate benefit.
BENNETT: Scott, I want to play you this clip. President Obama recently arranged a number of speeches specifically to talk about the success of ObamaCare and during one of these speeches he actually likened the law to the Samsung Galaxy 7, the phone being taken off the market after it spontaneously combusted. I want to get your opinion.
OBAMA: When one of these companies comes up with a new smartphone that has a few bugs, what do they do? They fix it. They upgrade it. Unless it catches fire. Then they just—then they pull it off the market. But you don't go back to using rotary phone. You don't say, 'We're repealing smartphones. We're just going to do the dial-up thing.'
BENNETT: So my question to you, Scott, is, as a doctor and public policy scholar, was the previous health care system like a rotary phone and is ObamaCare like a modern cellphone that occasionally explodes?
GOTTLIEB: Yeah, that's what's ironic about that comparison that he made. Look, I think the architects of ObamaCare really did view it that way. They viewed this as some higher order of health care delivery and health organization. You know, at the end of the day there's nothing inherently wrong with trying to allow people to pool based on state exchanges and get inside larger insurance pools so they don't just have to pool it by coverage at work. So that was always a very sound concept. Now it's frankly a bi-partisan concept. The problem with ObamaCare is all the heavy government regulation on what has to be sold inside those insurance pools that prevents real competition and real choice. It's sort of the fact that the architects of ObamaCare just couldn't help themselves. Once they created these insurance pools and provided subsidies for people to be able to afford coverage truly priced out of market they had to attach literally tens of thousands of pages of rules on what people had to buy and that's what made these markets uncompetitive.
BENNETT: Do you think if Hillary gets in she understands that?
GOTTLIEB: I think, once we're down this road, I think the people who are investing in ObamaCare are just going to create more rules. I don't see them doing things to reform this market in ways that are going to make it more competitive. Their greatest fear is that there might be some consumer somewhere who buys a product, a health insurance product that doesn't cover exactly what the government thinks that they should be covered for. That's what they're worried about. That's what keeps them up at night rather than making sure that the market provides affordable options for the most number of people.
Bennett: Now here is President Obama again comparing the Affordable Care Act, but this time he's comparing it to a starter home. Take a listen.
OBAMA: We've also always known and I have always said that for all the good that the Affordable Care Act is doing right now, for as big a step forward as it was, it's still just a first step. It's like building a starter home or buying a starter home. It's a lot better than not having a home but you hope that over time you make some improvements.
BENNETT: The final myth we should bust that Obama is spreading in the speech this week is that ObamaCare is a lot like starter home, it may not be a mansion but it's better than having no home at all. Before ObamaCare, did you think of yourself as being homeless, Scott? I know I didn't but what do you think?
GOTTLIEB: Yeah, it gets back to this conceit that before ObamaCare there were these tens of millions of Americans who were just fending for themselves and didn't have coverage. And again, it's true that there were some people who were falling through the cracks or who were stuck in jobs that they didn't want to be in simply for the health care coverage but there were far more effective, more efficient, less costly ways to address what was the problem that affected on the order of 5-10 million Americans at the most than basically assuming control of the entire health care system in this country which is what ObamaCare did.
BENNETT: Obama actually admitted the prices are rising but he says it's not the fault of the namesake law. He instead blamed the insurers themselves because they set their prices too low early on and now they have to make up for it all. But in any case, he says it doesn't matter because the tax credits are going to help offset the hikes for most Americans. I haven't seen any tax credits. I'm the business owner. What do you make of that?
GOTTLIEB: Well, that's not true. Again, the tax credit is going to offset the costs for Americans who fall within a very narrow income demographic but for the vast majority of Americans they're going to just see the higher prices.
BENNETT: Again, why aren't they simply admitting that it's just not working?
GOTTLIEB: Because this is the liberal dream of the Democratic Party to get full control over the administration of health care in this country and ObamaCare lets them do that and I don't think they're going to be willing to admit failure.
BENNETT: Thank you, Dr. Scott Gottlieb, for being on Financial Myth Busting. You need to read this piece; it was in The Wall Street Journal on September 14th: 'Clinton's Stealthy Single Payer Gambit'.
For over a quarter century, Dawn Bennett has been successfully guiding clients through the complexities of wealth management. Her unique vision and insight into market trends makes Bennett a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to her highly regarded weekly talk radio program - Financial Mythbusting. Through prudent and thoughtful advice, Dawn Bennett has strived to consistently provide the highest quality of guidance.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.