cost control
Is Government-Driven “Cost Containment” Our Only Option?
President Obama continues to argue that it is crucial for Congress to pass a health-care bill because it will help slow the pace of rising costs. Perhaps the president and his aides actually believe that to be the case. But, in recent days, it has become abundantly clear that virtually no one else does.
Today, in a column in the Wall Street Journal, the dean of the Harvard Medical School, Jeffrey Flier, says the bills under consideration in Congress are not health reform bills at all, but just access expansion proposals. As he puts it, “I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it.”
Flier is just the latest commentator to sound the alarm on costs. Robert Samuelson and David Broder made similar points in columns published in recent days in the Washington Post, as did David Leonhardt in the New York Times.
So what do Obama apologists say in response to this chorus of criticism?
Here, a friendly discussion between the Post’s Ezra Klein and MIT Economics Professor Jonathan Gruber is useful. Their counter-argument can be essentially boiled down to two points: there’s no real alternative to the kinds of government-driven cost controls favored by most Democrats, and, although the measures inserted into the House and Senate bills are perhaps weak, they’re directionally right and better than nothing.
Of course, in the current environment, with large Democratic majorities determined to pass a bill based on heavy, centralized governmental control, there is little prospect for bipartisan reforms that would rely on decentralized financial incentives and cost-conscious consumers to allocate resources in the health sector. But it is flat wrong to suggest there is no alternative to a clumsy and politicized governmental process for health-care cost control. There is. It’s just that Democrats don’t like it. They want full governmental control, not a functioning marketplace.
Indeed, that’s the debate we should be having this year. Are Klein and Gruber right? Or are their opponents? In other words, what process stands the best chance of bringing about continual improvement in the efficiency and quality of patient care? Can the federal government really root out wasteful spending in the health sector without harming the quality of American medical care?
Most Democrats seem to think so, but all of the evidence indicates otherwise. The federal government has been running the Medicare and Medicaid programs for more than four decades. There have been countless efforts to use the leverage of provider payment regulations to push doctors and hospitals to organize themselves differently and to change the way they care for patients. They haven’t worked. In fact, Medicare’s current payment systems are now rightfully seen as effectively underwriting the problems found in today’s arrangements. They encourage fragmentation and autonomy, not integration and coordination. The focus is on maximizing revenue from the government, not patient satisfaction. And yet, if the current bills in Congress were to become law, in ten years time, Medicare would look and operate pretty much just as it does today, except with even heavier reliance on fee-for-service medicine. In fact, the administration’s push for a new Medicare Commission with the authority to rewrite how providers are paid by the program is a tacit admission that neither Congress nor the executive branch can be trusted to run a governmental health insurance program efficiently. But there’s also little reason to assume a commission, accountable to its political patrons, would do any better.
The only thing the federal government can ever do well to cut costs is to impose arbitrary payment reductions. Of course, that’s exactly what the Democrats are proposing to do in the current health-care bills. These cuts aren’t calibrated based on the quality of patient care. All providers would get cut pretty much the same. If Obamacare passes, we can expect more of the same, just with worse consequences. At some point, price controls always lead to a reduction in the willing suppliers of services, which means queues and other barriers to accessing care.
There is an alternative, however. Congress could establish a decentralized approach to resource allocation — an arrangement in which consumers have strong financial incentives to pick lower-cost insurance and health delivery options, and in which insurers, hospitals, and physicians have strong incentives to reorganize for efficiency. Importantly, building such a marketplace would require converting today’s open-ended federal tax and entitlement arrangements into fixed contributions which the consumers, not the government, would control. That was the basic design of the prescription-drug benefit in Medicare, and it has worked far better to hold down costs than any other health program introduced in recent years.
The real debate in health care has always been the same: should the country adopt full governmental control, or can a market deliver better value at lower cost? There is a choice, even if those currently in power don’t want to admit it.
posted by James C. Capretta | 5:41 pm
Tags: Obamacare, Medicare Commission, Robert Samuelson, David Broder, David Leonhardt, Ezra Klein, Jonathan Gruber, cost control
File As: Health Care
ObamaCare: Worse Than You Think
Tevi Troy and I co-authored a piece for the current edition of National Review on the emerging health care plans in Congress. Although much has already been written about the structural flaws of these plans — their immense costs and excessive reliance on governmental control — their details are just as worrisome. Indeed, the more the public learns about what these plans would actually do if passed, the less they will like them. That article is available here.
Also this week, Yuval Levin and I have a piece in the Weekly Standard. In it, we point out that the costs of the bills now being considered in Congress are much higher than advertised because tens of millions of low- and middle-income Americans would be forced to sign up for costly job-based insurance, with no additional financial support from the government. That will create tremendous pressure on Congress to extend premium subsidies to even more families, which will drive costs well above current projections. Moreover, the Obama administration's main cost-control idea — a new commission for setting Medicare payment policy — is not really a new idea at all. The current system for paying physicians under Medicare was designed by just such an expert panel twenty years ago and it has been a disaster. It was supposed to encourage and reward general practitioners, but it actually drove many new doctors to become specialists instead of primary care physicians. You can read the full article here.
posted by James C. Capretta | 4:50 pm
Tags: Tevi Troy, ObamaCare, Yuval Levin, cost control, Medicare
File As: Health Care
On-the-Fly Audacity
Yesterday, the Director of the Congressional Budget Office (CBO) did everyone a favor and spoke some serious truth to power: The health care bills under consideration in Congress will make our long-term budget outlook worse, not better, Elmendorf said, and that would be very bad for our economic future.
Elmendorf’s assessment, welcome as it certainly was, shouldn’t have been a surprise to anyone, especially the Democratic authors of the bills now under consideration. They more than anyone else should know that the bills moving through their committees would add massive new entitlement spending to the federal budget while making only the most marginal of changes to the prevailing financial incentives which are pushing costs up rapidly every year. What did they think Elmendorf would say?
Still, Elmendorf’s assessment seems to have caught some Democrats by surprise, starting with the president. Just days earlier he told a gathering of skeptical Blue Dog Democrats that they should get behind the House bill because it would deliver savings beyond the ten-year window. That wasn’t a credible assertion even then (see this post from Tuesday), but, in the wake of Elmendorf’s testimony, it really has no standing.
So what’s the administration next move? Desperate times apparently call for some serious audacity.
Today, the Obama administration delivered one of the more remarkable presidential power grabs seen in recent memory (the transmittal letter is here, and a section-by-section description of the proposal is available here).
The president has decided — just days before the deadline he himself set for passage of health care bills in both chambers of Congress — that he wants to create a new and very powerful executive branch agency, the Independent Medicare Advisory Council (IMAC), which would be accountable only to him and have the authority to re-write the Medicare program from top to bottom by executive memo. Now that’s audacious.
The council would be made up of five members, all selected by the president and confirmed by the Senate. The president could fire any one of them for cause. They would have two jobs. First, each year, the council would make recommendations to the president regarding inflation updates to Medicare’s payment rates for hospitals, doctors, and other suppliers of services. Those recommendations, if approved by the president, would automatically go into effect in thirty days unless Congress passed a resolution disapproving them — which the president would also have to sign into law. Of course, if the president approved the council’s original package of recommendations, it is unlikely he would sign a congressional disapproval resolution overturning them. So, as a practical matter, the proposal would force Congress to find a two-thirds supermajority to stop presidentially-approved IMAC recommendations from going into effect.
That would be a remarkable shift of power on its own, but the president’s proposal doesn’t stop there. Not only would the council make recommendations on payment updates, it would also have the authority to propose other “Medicare reforms” which would go into effect unless Congress could muster veto override majorities in opposition. What are “Medicare reforms”? From the write-up, it seems they could be just about anything. Changes in beneficiary cost-sharing. New rules for establishing qualified hospitals and doctors. Penalties for physicians who don’t follow government guidelines. Pretty much anything except for the payroll tax and premium structure. The only parameters are that the “reforms” must improve the quality of medical care and the efficiency of Medicare operations.
The administration is touting this as a belated cost-control idea. It’s not. By itself, it doesn’t change anything, as there are no hard targets that must be hit. So it doesn’t answer the Elmendorf critique that the bills now moving in Congress, even if such a provision were added to them, don’t bend the cost-curve of governmental health spending.
Still, the fact that the administration is pushing this bill at all speaks volumes. Here’s a Democratic president telling a Democratic Congress that it can’t be trusted to run Medicare anymore. That’s stunning, especially so because Democrats, including the president, are working feverishly to exert additional governmental control over health insurance for working age Americans. If Congress can’t run Medicare well, what possible rationale is there for standing up another government-run insurance plan?
Nonetheless, the audacity is something to behold. Certainly unilateral executive branch authority to re-write entitlement programs from scratch would have come in awful handy during the Reagan and Bush years. But that may dawn on others as well. Like Medicare beneficiaries, physicians, hospitals, labs, nursing homes, and, of course, House and Senate members too. Good luck, Mr. President.
posted by James C. Capretta | 11:55 am
Tags: CBO, Doug Elmendorf, Blue Dogs, House bill, IMAC, Medicare, cost control
File As: Health Care
