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Federal E-NewsSpecial 2008 Elections Edition The 2008 Elections and Public Pensions Mr. Obama won decisively, both in the popular vote as well as among the all-important Electors, who voted for him by more than a 2 to 1 margin when the Electoral College actually elected the new President on December 15th. Control of the Senate by Democrats was also solidified, with the addition of at least 7 new members of their party. In the House of Representatives, Democrats also have increased their majority position by at least 21 seats. These numbers may not represent a landslide – such as the 525 to 13 electoral vote victory of Ronald Reagan over Walter Mondale in 1984. Nevertheless, the voters have clearly provided the new President-elect with a mandate. What does this portend for 2009 and beyond? If Presidential historian Michael Beschloss was correct in his 2008 NCTR conference keynote address, then the first several months of the Obama Administration will present a critical window of time during which major reform initiatives will be attempted. As Beschloss pointed out, when Presidents are given clear mandates and provided with solid majorities in both houses of Congress – as was the case with Franklin Roosevelt in 1933, and Lyndon Johnson in 1965 – major accomplishments can occur. Therefore, while we may not see changes as dramatic as those of Roosevelt’s first “New Deal,” or Johnson’s “Great Society,” there is clearly the potential for significant policy initiatives in the first half of 2009. Healthcare reform and energy independence are two likely topics, but the need for a significant economic stimulus package, the potential for continued Federal interventions (bailouts) involving threatened industries, and major reforms of the financial services industry certainly top the list. A reworking of the Federal government’s role in supporting retirement security is another likely topic for debate. In all of these cases, the potential impact on governmental pension plans could be very significant. Economic Stimulus While the details of this proposal -- as well as any other infrastructure component that might appear as part of the new economic stimulus package -- are still sketchy, one specific idea that has been floated by two top Obama supporters is directly aimed at public pension plans. Specifically, in a column appearing in The Christian Science Monitor in May of this year, Kansas Governor Kathleen Sebelius (D) and Andy Stern, president of the Service Employees International Union (SEIU), proposed that public pension funds pool their assets and invest directly in projects to build new roads and bridges, thereby “bypassing the Wall Street firms that want to siphon off profits.” In their view, the revenue streams generated by tolls and other sources “would deliver stable, long-term returns to working Americans, while creating well-paying construction and service jobs connected to each project” that will “[e]nsure that billions of dollars stay in our communities instead of going to big financial firms.” For those of us who are old enough to remember the “Economically Targeted Investment” (ETI) initiatives of the early years of the first Clinton Administration, this is not necessarily a new idea, and it can pose significant fiduciary issues. Sebelius and Stern acknowledge that “[h]urdles remain to pension funds' direct investment in infrastructure,” but they argue that “one important barrier could be lifted by passing federal legislation that would allow pension funds to access tax-exempt debt to finance infrastructure investments.” Will such a proposal be part of the stimulus package that will surely be front and center during the first days of the Obama Administration? According to Ms. Sebelius and Mr. Stern, preliminary discussions about how to create this type of investment vehicle have been underway among pension funds, governors, state treasurers, comptrollers, and the SEIU. There are also reports that others are working on infrastructure alternatives that would target pension funds and other institutional investors. Therefore, it is certainly possible that something along these lines will surface. As was the case with earlier ETI approaches involving the Federal government, the proof of the pudding will be in the tasting, and the details of any such proposals and their potential impact on fiduciary independence will need to be carefully considered. The possible impact on government jobs is also a sensitive issue when such investments involve privatization. Nevertheless, investing in infrastructure -- public roadways, utilities, airports, hospitals, and even prisons -- has certainly been a focus of increasing interest among investors, including some pension plans, and the Federal government’s potential role in infrastructure in order to stimulate much-needed jobs growth raises the possibilities of many intriguing intersections of interest and need. For example, what about a Federal “Infrastructure Investment Bond,” paying an attractive return (8%?), as an alternative to the new “infrastructure funds?” That could be a very interesting way in which to leverage institutional investor support for such projects, and could present plans with a politically attractive “we’re-doing-our-part-to-help” message to deliver to their governors/state legislatures. The general public, many of whom are looking for a safe place to invest what remains of their 401(k) finds, may also find such a product to be a welcome alternative to the current equity markets. • Stern/Sebelius Infrastructure Proposal Federal Bailouts Under the new “Troubled Asset Relief Program,” or TARP, created by the landmark October legislation, the Treasury Department has used its authority to provide more than $150 billion in capital investments in 52 financial institutions as of November 25, 2008, according to a report from the Government Accountability Office (GAO) released on December 2, 2008. Treasury has also provided the American International Group, Inc. (AIG) with $40 billion and given Citigroup a further $20 billion. As part of a program to guarantee approximately $306 billion in Citigroup’s troubled assets, Treasury also will receive $4 billion of Citigroup preferred stock and warrants. In return for its investments, the Federal government receives senior preferred shares paying annual dividends of 5% for five years and 9% thereafter, and the shares can be redeemed at face value after three years or, if the institution receives a minimum amount from “qualified equity offerings,” prior to three years. In addition, Treasury receives warrants to purchase common stock up to a market value of 15% of senior preferred investment for public securities or 5% for private securities. The exercise price is the financial institution’s market price of common stock on the day it is accepted into the Treasury’s Capital Purchase Program (CPP). The exercise price of the common stock warrants is reduced each six months if shareholder approvals are not obtained or if the institution completes a qualified equity offering prior to December 31, 2009. Finally, institutions participating in the program are subject to specific restrictions on dividend payments or repurchasing shares as long as Treasury has preferred shares outstanding. These so-called Federal bailouts, involving direct Federal ownership of private corporations, pose significant challenges to public pensions, many of whom are also shareowners of these same companies. Furthermore, it can be assumed that if the automakers are allowed access to the TARP to address their current economic woes, the terms will be similar to those offered banks. What are the implications for current investors, whose holdings are clearly diluted by Uncle Sam’s new equity interests? For example, will the Federal government have voting shares or board seats? Perhaps not right away, but what about in the future? Under the TARP, there is a process by which the government could gain the right to elect directors. Who should these directors be, and what kind of skills should they possess? As Stephen Davis, a senior fellow at the Millstein Center for Corporate Governance and Performance at Yale University, points out, “Will they act as independent directors or representatives of the interests of the government? How will they handle risk management?” Richard Koppes, of counsel to the Jones Day law firm and former general counsel of the California Public Employees” Retirement System (CalPERS) recently observed, “We’re in such unchartered waters here. How active of a shareholder will the government will be? Who is going to make the decisions about how active the government will be?” The answers to these questions could be of major significance to other shareowners. While the Federal interest in protecting Federal taxpayers is understandable, public pensions invested in these same companies also represent taxpayers. How can these interests also be respected and protected if, instead of being a passive investor, the Federal government decides to try to force boards to make certain decisions driven more by politics than business needs? One suggestion, made by Mr. Davis, is that Congress should consider an approach similar to that used in Great Britain, where a new oversight entity, the Shareholder Executive, was created in 2003 to “improve the government's performance as a shareholder in businesses.” It currently has a portfolio of 29 businesses in which the British government has a shareholding, and it describes its role as working “to create a climate of ownership that, while challenging, is genuinely supportive and provides the framework” for these businesses to succeed. Creation of a similar entity in the United States, with input from institutional investors and others, could perhaps be an approach that public plans should support. Another possibility involves the Congressional Oversight Panel (COP), created at the same time that Congress authorized the TARP program. The COP was established to “review the current state of financial markets and the regulatory system.” It is to oversee Treasury’s actions and, among other things, guarantee that they are in the best interest of the American people. In addition, Congress has instructed the COP to produce a special report on regulatory reform that will analyze “the current state of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers.” The COP therefore could also potentially provide an important forum for public plans to express their concerns in this area, and to help educate the Congress on the impact of this Federal investment activity on public investors and the taxpayers they represent. What do you think? • New Congressional Oversight Panel Report on TARP • GAO December 2008 Report on TARP • UK Shareholder Executive Agency Financial Markets Reform While some corporate governance supporters have questioned their efficacy, Federal restrictions on executive salaries and other perks that would have been unthinkable just a few months ago are nevertheless now much closer to reality for companies participating in the various Federal bailout programs. Also, it should be remembered that earlier drafts of the massive bailout legislation would have required participating companies to provide (1) access to the corporate proxy for the purpose of nominating and electing boards of directors to any shareholder or group of shareholders holding, in the aggregate, 3 percent or more of the equity securities of the company; and (2) an annual, non-binding “say-on-pay” vote on executive compensation. Therefore, although these provisions were ultimately dropped from the final legislation, it is very likely that similar corporate governance reforms applicable to all corporations could fare much better when new legislation reforming the regulation of the capital markets is taken up in 2009. Indeed, legislation that would require public companies to include in their annual proxy to investors the opportunity to conduct an advisory vote on the company’s executive pay plans has already been approved by the House of Representatives (the “Shareholder Vote on Executive Compensation Act,” H.R. 1257, introduced by Congressman Barney Frank (D-MA) and adopted in April of 2007), and a companion bill (S. 1181) was introduced in the Senate by none other than then-Senator Obama (D-IL). (See May 2007 NCTR Federal e-News.) However, financial markets reform can also present potential downsides for institutional investors in general and public pension plans in particular. For example, the current discussions on Capitol Hill focus on the concept of a central “systemic risk” regulator, most likely the Federal Reserve Board. Given the Fed’s focus on banking regulation, and the fact that the Obama financial team is heavily “bank-centric,” what are the implications for investor protection and the traditional role of the Securities and Exchange Commission (SEC) in this regard? Some would argue that the absence of a new chief for the SEC among the leaders named to head the President-elect’s new economic team on November 24th was a clear indication of the lesser role that the SEC, or some new hybrid thereof, has to look forward to in a new Obama Administration. While a new “consumer protection” agency is also being discussed as a potential part of the overall restructuring of the financial markets, institutional investors will need to be alert to any structural changes than diminish the traditional protections they have received from the SEC, even if the SEC’s “charter” is retained as part of a “new-and-improved” consumer protection function. In short, if important corporate governance improvements that have long been sought by institutional investors are finally obtained, but their implementation is handed off to a much weaker and ill-defined enforcement agency, will this really amount to a victory for shareowners? Powerful players in both the House and Senate, including key Democrats, have also questioned the appropriateness of public pension fund investments in alternative products such as hedge funds and commodities futures. There have been efforts to either ban such investments outright, or to place procedural and structural limitations on them that are tantamount to a ban in the eyes of some. Some would impose such restrictions in an effort to protect “unsophisticated” investors from themselves, while others have suggested that pension plans, and their “herd behavior,” have actually exacerbated some problems: “People need to step back and look at who they are enabling in their investment activities,” was the way one Hill aide described the situation. Even when it comes to the controversy surrounding the performance of the credit rating agencies and their role in the sub-prime meltdown (see July/September NCTR Federal e-News), some key Congressional staff continue to suggest that perhaps public pension plans may have played a role in creating the problem. Specifically, they question whether plans failed to conduct sufficiently independent investigations of investment decisions, relying too heavily on the credit-rating agency “seal of approval.” “If they (public pension plans) can’t do the work (of performing such independent ‘due diligence’ reviews of alternative investments), should they be in the business of investing in them?” asked one top House Financial Service Committee staffer recently. The impact of the current economic crisis and the severe market declines on public pension investment activities are also of growing concern to some Congressional leaders. For instance, Senator Charles Grassley (R-IA), the Ranking Member of the Senate Committee on Finance, has recently requested that the Government Accountability Office (GAO) review public pension plan investment strategies. According to the GAO, they will be “considering the investment strategies, asset allocations, and governance structures that public sector pension plans have employed in recent years to direct and oversee their investments as well as the ways, if any, that these investment strategies, asset allocations, and governance structures have changed in light of recent financial market conditions.” (Emphasis added.) Senator Grassley has previously expressed serious concerns with the general funding of public pension plans (see August 2006 NCTR Federal e-News), and is one of the top members of Congress who has also been very troubled – even before the current economic crisis -- by what he has called “pressures for sufficient pension funding and adequate retirement savings.” He believes that these have led “under-funded plans sponsored by financially weak employers” to invest in hedge funds and other alternative investments in an attempt to “quickly build plan assets.” This new GAO request appears to be yet one more effort on his part to document this dangerous chasing of returns; the report is expected to be issued sometime next summer. Therefore, it is also possible that restrictions on investment options for institutional investors could also be part of the mix when legislation reforming financial markets is considered. In any case, the reorganization of capital markets presents any number of possible issues for institutional investors, particularly public plans, and certainly merits careful monitoring. • CII Letter to Congress Urging Corporate Governance Reforms
Pensions/Retirement However, things have obviously changed significantly since this 401(k) style proposal was developed. As Peter Orszag, the then-head of the Congressional Budget Office -- and currently President-elect Obama’s choice to head up the Office of Management and Budget (OMB) – testified before the House Education and Labor Committee on October 7th, data from the Federal Reserve suggested at that time that the decline in the value of financial assets had cost pension funds (both defined benefit and defined contribution models) roughly $1 trillion -- almost 10 percent of their assets -- from the second quarter of 2007 to the second quarter of 2008, the latest period for which data was then available. Orszag noted, however, that the significant further drop in asset prices since the end of the second quarter made it “plausible” that the cumulative decline in pension assets over the past year and a half amounted to about $2 trillion. )It is well to note that on the day he testified, the Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, and has only dropped further since then.) Indeed, later in October, Congressman George Miller (D-CA), Chairman of the House Education and Labor Committee, said that new research suggested that the losses might be as much as double even the $2 trillion figure, of which more than half would be attributable to 401(k) style pensions. Compounding this dramatic drop in value, some companies have now begun either cutting their 401(k) match or else suspending the match altogether. Furthermore, according to a recent AARP survey, one in five middle-aged workers have stopped contributing to their retirement plans in the last year because they had trouble making ends meet. Also, the number of investors taking loans on their 401(k) accounts has been significantly increasing, as have been hardship withdrawals. In short, the defined contribution model – already under fire in recent years as an inadequate vehicle for true retirement security (see, for example, the December 2007 NCTR Federal e-News) -- has suffered what some view as a final, fatal blow. Indeed, there are those who are now arguing that the 401(k) approach should be abandoned, and some in Congress are beginning to take such a discussion seriously. For example, during the same hearing at which Mr. Orszag testified, Teresa Ghilarducci, the Irene and Bernard L. Schwartz Professor of Economic Policy Analysis at The New School for Social Research Department of Economics in New York City, proposed a universal “Guaranteed Retirement Account (GRA). Under her proposal, every year the Federal government would deposit $600 (inflation indexed) in a GRA for every American worker. Furthermore, every worker (not in an equivalent defined benefit plan) would also be required to put 5% of their pay into their Guaranteed Retirement Account each year. The Federal government would then pay a 3% inflation-indexed guaranteed return. The goal would be to provide a supplement to Social Security that would achieve an overall 70% income replacement rate at retirement. The Federal government would pay for this program by scaling back substantially the tax breaks for 401(k) type accounts (estimated currently to be about $80 billion annually). Although Chairman Miller did not specifically endorse such an approach, he did say at the hearing that "We have to start to think about ... whether or not we want to continue to invest that $80 billion for a policy that's not generating what we now say it should." Of course, reinvigorating Federal policymakers’ appreciation of alternatives to existing defined contribution models for retirement security could provide a much-needed shot-in-the-arm for the defined benefit model, which has pretty much been written off by many policy-makers and think-tank policy wonks as virtually extinct anywhere outside the public sector. On the other hand, a Federal plan for employers to consider as a viable alternative could have unintended consequences for existing defined benefit systems. In addition, any re-examination of the so-called “tax expenditures” associated with defined contribution models will inevitably also involve a review of those associated with the defined benefit approach. Currently (as projected by the Congressional Joint Committee on Taxation, October 31, 2008), the “cost” to the Federal government of the net exclusion of pension contributions and earnings from current taxation, including those associated with IRAs, is the largest such cost to the Federal treasury – estimated to amount to a staggering $724 billion for FY 2008-2012 (of which $212.9 billion is associated with defined benefit plans). This total pension-related tax expenditure compares to the $680.3 billion related to exclusions of employer contributions for health care, health insurance premiums and long-term care over the same 5-year period, and the $443.6 billion cumulative total linked to the deduction for mortgage interest. Not only is this the largest such tax expenditure, but given the fact that most low-wage workers do not participate in IRAs and have limited access to 401(k)s or other employer-provided pensions, it is a tax subsidy primarily skewed to middle- and high-income wage earners. At a time when the Democratically-controlled Congress wants to broaden the economic base and the Obama Administration will be looking for ways to “restore fairness to the tax code,” major reforms of the regressive way in which Federal tax laws underwrite retirement security could therefore certainly be a subject of serious discussions. What could such potential changes involve? Modifications to the current 401(k) program such as that proposed by Ms. Ghilarducci would face enormous opposition from financial institutions with an interest in maintaining the status quo and from others with philosophical objections. The reaction of talk-radio host Rush Limbaugh during the recent Presidential campaign, when he attacked the proposal as a Democratic plot to kill 401(k) plans, is a good example of the potential political “blowback.” The more likely Congressional response would be to tinker with existing models, but the fact that the Ghilarducci proposal is even being discussed suggests the seriousness with which key Congressional leaders are viewing the need to look at alternatives to the 401(k) model. Certainly a major overhaul of the Social Security system could be another possible outcome of the desire to reform retirement security. This might also include the idea of add-on accounts, such as the “Universal 401(k)” proposal that has been advanced by Gene Sperling, a former national economic adviser in the Clinton administration, a Hillary Clinton team member and now an adviser to President-elect Obama. Under Sperling’s plan, middle-income and working-poor families would be eligible for up to $1,000 in matching funds from Uncle Sam for savings they contributed to new tax-deferred retirement savings accounts. For low-income families, the government would provide a 2-1 match. According to Mr. Sperling, “a family eligible for a 2-1 match could accumulate a nest egg of $190,000 simply by contributing $500 a year for 40 years, assuming a 5 percent rate of return.” This approach would certainly be more acceptable to vested business interests, but it still presumes the long-term viability of the 401(k) investment model. Nevertheless, Sperling is still pushing the concept, having recently written a column urging Obama to seek a “grand bargain on fiscal policy” that combines fiscal stimulus as well as a commitment to take on entitlement challenges such as Social Security. “With privatization thankfully off the table,” Sperling wrote in a November 20, 2008 column in Roll Call, “now could be the time to seek a progressive Social Security reform deal that … could also include a new universal 401(k) that is separate from Social Security but part of a larger retirement security package that also strengthens defined benefit plans and reduces our nation’s long-term national debt.” But how could any such expensive new add-on be paid for? One approach that has been suggested in the past by the Congressional Budget Office (CBO) is for a flat 5% tax on pension investment earnings. In fact, during the early years of the first Clinton Administration, no less an authority on pensions than Alicia Munnell, currently the director of the Center for Retirement Research at Boston College, argued that the time had come for the current taxation of qualified pension plans. Her 1992 proposal was for an annual 15% tax on pension contributions and pension fund earnings, paid at the fund level, with benefits then withdrawn tax free. The Munnell approach was based on the premise that taxing pensions on a deferred basis can be justified only if pension plans provide rank and file employees with retirement benefits that they would not have accumulated on their own, or, failing that test, if they increase the saving of those who are covered so that national saving and capital accumulation are greater than they would have been otherwise. According to Munnell, that in fact had NOT been the case, and pensions benefitted “a relatively privileged minority of the population, while all taxpayers face higher rates to cover the preferences accorded qualified plans.”The same could be -- and is being -- argued today. As for the problem of dealing with State and local governmental plans, Munnell recognized that ways would have to be devised to work around constitutional constraints against direct taxation, and she suggested, as one possibility, enactment of an alternative tax whereby contributions and earnings would be attributed to individual employees and taxed at a rate greater than the rate applied to the plan if the tax were not paid at the fund level. However, she also realized that State and local governments, being exempt from ERISA, could respond by reducing theirfunding efforts to offset the impact of the tax, so she also recommended that any effort to tax pension accruals for State and local employees “would have to be accompanied by federal legislation to regulate funding of government plans.” Are such proposals likely in the next Congress? There is nothing to suggest that anyone on the Hill or the Obama transition team is currently thinking about such extreme proposals as taxation of DB plans. However, the Federal deficit is ballooning in response to the current economic crisis; there are plans for billions more in spending in connection with infrastructure and additional stimulus efforts; and there is mounting evidence that the current Federal “investment” in retirement savings is not producing what will be necessary for a secure retirement for the “Baby Boomers” just now beginning to enter retirement. As the old saying goes, “Desperate times call for desperate measures,” and dramatic changes may well have to be considered. Again, if the past is prologue, as Presidential historian Michael Beschloss suggests, then the first half of 2009 could be the time when such seismic shifts begin to take shape. One last observation: no mention of Social Security reform would be complete without commenting on the issue of mandatory Social Security coverage. In this regard, it is well to note that Mr. Orszag, mentioned above as Mr. Obama’s designee to head the OMB, has not always been a friend of the public pension community in this area. Specifically,
when he
was a
special assistant
to the
president for
economic policy
during the
Clinton administration,
Orszag was
an advocate
for mandating
that all
state and
local employees
participate
in
Social Security.
For example,
in 1998,
Orszag told
a group
of public
pension officials
meeting with
him at
the White
House that
forcing all
state and
local workers
to participate
in Social
Security was
a "no-brainer" because nearly all Americans are already
in the program and "besides,
we need the money." • Ghilarducci Proposal for Guaranteed Retirement Accounts • Munnell 1992 Proposal for Current Taxation of Pensions • Brookings/Orszag Paper on Reforming Social Security
What would the Obama plan look like? It would most likely be built on existing plans and the employer-based system, in part by providing additional plan options to small businesses and individuals without group coverage. While there are vocal supporters of a single payer system, the consensus both on and off the Hill suggests that all the major proposals that are currently gaining traction clearly favor the employer-based approach. What also appears clear is that controlling costs will be at the center of the Obama plan. Not only did candidate Obama stress the need to hold down skyrocketing health care costs, but Mr. Daschle is also a strong believer in the same, as is Peter Orszag, the incoming head of OMB, who has worked diligently to focus attention on this aspect of the overall problem while at the CBO. At the end of the day, finding effective ways to control these costs may prove to be the biggest challenge that an Obama healthcare reform proposal – or that of anyone else, for that matter – may face. The general thrust of the Obama reforms should be well-received by the public sector. For example, the Public Sector Healthcare Roundtable, a national coalition of public sector health care purchasers -- which includes a number of NCTR member plans and is currently chaired by Gary Harbin, head of the Kentucky Teachers’ Retirement System and a member of NCTR’s Executive Committee -- was formed several years ago to insure that the interests of the public sector are properly represented during the formulation and debate of Federal health care reform initiatives. It has recently adopted a set of principles related to healthcare reform, which stress that “preserving existing employer provided health benefit programs should be a critical component of any reform initiative.” The principles also underscore that any national health care reform effort should include “innovative proposals to constrain costs, increase value, and improve quality and efficiency in the health care delivery system while preserving patient choice,” such as the implementation of a nationwide health information technology (IT) system that “will improve the efficiency and effectiveness of our health care delivery system while accumulating data that is essential to both health care purchasers and providers.” The Roundtable also believes that controlling the high cost of prescription drugs must be a major component of any effective cost control effort. Finally, the Public Sector Healthcare Roundtable’s principles underscore that Medicare is an essential component of long-term health care security for most public workers, retirees, and their families. Among other things, in connection with Medicare reform, the Roundtable calls for consensus-based measures that will enable value-based purchasing that pays for quality health; new e-prescribing requirements in order to reduce errors, improve effectiveness, and increase value as well as to serve as a model for future system-wide Health IT implementation; and permission for individuals to “buy-in” to Medicare at an earlier age. However, while there may be general agreement between the public sector and the Obama camp on several key components of reform, what is not clear is the manner in which a new approach to healthcare that is aimed at encouraging and supporting an employer-based system will provide such incentives to non-taxpayers. Traditionally, employer incentives have focused on tax breaks and other tax-related components. For example, both candidate Obama and Senator Max Baucus (D-MT), the Chairman of the Senate Finance Committee who has also recently released his own blueprint for reform of the healthcare system, support tax credits for small businesses that provide health insurance coverage. But such tax incentives will be of little interest or use to tax exempt organizations. What can be offered instead to provide comparable, equitable support for public employers, who collectively provide health care benefits to nearly 16 million American workers and their families at a cost of over $125 billion annually? There is also the danger that new Federal plans (or changes in tax treatment for individuals to encourage them to purchase health insurance) could draw insured public employees away from their current employer plans. Siphoning off younger, healthier employees could result in cost-shifting to other plan providers who may find themselves with older, sicker participants. Public plans that administer healthcare may be particularly vulnerable to such potential problems that could undercut their ability to continue to offer quality health care services at a cost that is affordable and sustainable for employees, their families, and their employers. Of course, another possible focus that could offer both challenges as well as opportunities for the public sector would involve the engagement of large public sector purchasers of healthcare as partners in certain areas of reform. For example, the Roundtable believes that Medicare, as the nation’s largest purchaser of health care, should be encouraged to find ways to exercise its market leadership in order to serve as a national model, “perhaps through innovative pilot programs in partnership with large public purchasers and private providers.” The Roundtable believes that such efforts could help to “stimulate provider competition and to implement systemic reforms, such as enhanced system-wide transparency, incentives for lifelong wellness initiatives, and primary care, prevention, and chronic care case management.” So what is the possible timetable and prognosis for healthcare reform? Once again, President-elect Obama has reiterated his desire to move ahead as quickly as possible, linking healthcare reform to the economic challenges that the nation must confront. Furthermore, his announced intent to establish a White House Office of Health Reform, and to appoint the HHS Secretary as its director, underscores the message that this will be one of the Obama White House’s top priorities. As
to the
fate of
healthcare reform
in the
new Congress,
it will
still be
a very
difficult undertaking,
even with
a full
court press
by the
Obama team.
Remember, as
Alan Katz,
author of
a well-respected
blog on
healthcare policy,
reminds us, “sharing
a goal is a far
cry from agreeing
on solutions.”
And then there is the little issue of how to pay for the sure-to-be-staggering cost of reform…. Nevertheless, reinventing healthcare will definitely be a major undertaking of the new Congress in 2009. Whether it will be done as one giant, omnibus measure, or broken apart into more “digestible” components – as is likely to be the case for reform of the financial markets, discussed earlier – remains to be seen. Also, it is possible that certain elements, such as Health IT, which have relatively broad-based bipartisan support and have come very close to enactment before now, could be seen as “low-hanging fruit” and adopted as steps in the right direction that don’t deserve to be delayed until a much larger, much more controversial reform package can be (hopefully) worked out. In any case, healthcare reform is on its way, and its potential impact on the overall subject of retirement security will be enormous. Public sector healthcare purchasers have unique issues, and the manner in which Congress and the Obama Administration deals with them will be of major importance to all who must struggle with the implications of unchecked medical costs on overall budgets. • Daschle White Paper on Healthcare Reform • Public Sector Healthcare Roundtable Healthcare Reform Principles
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