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James C. Capretta

New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@eppc.org.
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James C. Capretta’s Latest New Atlantis Articles

 Health Care with a Conscience” (Fall 2008) 

 Health Care 2008: A Political Primer” (Spring 2008) 

 The Clipboard of the Future” (Winter 2008)

 

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Text Patterns - by Alan JacobsFuturisms - Critiquing the project to reengineer humanity

Thursday, May 21, 2009

Cost-Curve Confusion 

So much confusion, so little time.

Let’s start with OMB director Peter Orszag’s blog entry from last week on the 2009 Medicare Trustees’ report. In it, he suggested that Medicare’s financial problems really aren’t related to the retirement of 78 million baby boomers. No, he asserted, the problem is really just rising per capita health-care costs, hence the presidential emphasis on “bending the cost-curve.”

But, as Andrew Biggs of AEI has noted, that’s a very inaccurate characterization of the problem. Over the short and medium term — indeed, until nearly 2050 — the predominant reason for rapid entitlement spending growth is population aging and massive new enrollment in Social Security and Medicare. Between 2010 and 2030, the U.S. population age 65 and older will increase from about 41 million to 71 million people. Paying governmental benefits for those 30 million new “senior citizens” is going to be expensive — indeed, could drive us off of a fiscal cliff — even if, by some miracle, per capita health-care inflation moderates. We face an entitlement train-wreck no matter what is done on health-care costs.

But Orszag’s assertion to the contrary begs the question: Where is this plan to “bend the cost-curve,” anyway? And who’s writing it?

It is telling that Orszag entitled his blog, “Medicare Trustees to America: Bend the Curve!” But the Medicare Trustees actually send their report to leaders in Congress and, in a sense, to national political leaders in general. After all, it’s the president and other elected representatives who can actually do something about the problem if they want to, not the average citizen.

Of course, the administration would argue they do have a plan. In a Wall Street Journal op-ed last Friday, Orszag suggested the curve would be bent by investing in health-information technology, comparative-effectiveness research, and prevention and wellness, and by changing financial incentives for providers to deliver care more efficiently. But the so-called “stimulus” bill already invested billions in the first three of these items. If these ideas were really going to do the job, why do all of the experts still say costs are going to rise as rapidly as ever?

Regarding “provider payment reforms,” the administration’s own numbers show there’s no real fundamental bending of the curve going on. Yes, there would be some budgetary savings, but it would be from the predictable cuts in government spending, not a slowing of health-care inflation.

The truth is that the administration has no plan to bend the cost curve, and neither does the industry which signed that infamous letter pledging cooperation. All involved continue to talk as if the problem can be solved with unspecified — but clearly non-controversial — measures. More investments. Better coverage. Smarter payment rules. Poof, the curve is bent.

But it’s not going to work that way. There are only two ways to really change the cost trajectory. Build a real marketplace with cost-conscious consumers, or impose arbitrary government cost constraints, as many other countries do today. The Democrats are unwilling to trust consumer choice, but they’re also afraid — with good reason — of the political fallout that would ensue if they openly embraced the kinds of tough cost limits they actually favor. Which is why no one can seem to find that much-discussed plan to bend the cost curve.

posted by James C. Capretta | 6:35 pm
File As: Health Care