cost curve


Another Broken Promise

Obamacare Is Driving Costs Up, Not Down

One of the few major promises made by the president about the Affordable Care Act that has not been exposed as empty and false in the wake of the law's disastrous rollout has been that Obamacare will drive overall health care costs down. In a post on The Weekly Standard's blog yesterday, I show why the recent claim by the president's Council of Economic Advisors that Obamacare will drive down health care costs is mistaken.

The CEA paper attempts to make the case for Obamacare by looking at trends from the most recent release of National Health Expenditure (NHE) projections.  The NHE data, compiled by the independent Office of the Actuary in the Department of Health and Human Services (HHS), does show a slowdown in health spending in recent years.  NHE spending growth per capita has averaged 3.1 percent since 2010, down from 5.9 percent in the previous decade. 

But the slowdown did not start abruptly in 2010.  In 2002, NHE spending per capita rose 8.5 percent and then began to slow over the ensuring years.  In 2008, NHE spending per capita rose just 3.7 percent – two years before Obamacare was enacted.

You can read the rest of the piece here.

posted by James C. Capretta | 1:44 pm
Tags: cost curve, Medicare, Obamacare
File As: Health Care

The President Caves In to Union Pressure — Shamelessly

As a candidate, Barack Obama promised an audacious presidency. If nothing else, he’s delivering on that.

For a year now, the president has argued that the health-care bill he is pushing will “bend the cost-curve.” Of course, his own Chief Actuary of the Medicare program — the man charged with actually running the numbers for the administration — has said repeatedly that there’s no curve-bending going on in the bills being written in Congress. His estimates show both the House and Senate-passed versions of Obamacare would increase overall health-care costs, not decrease them (see here and here). And that’s assuming all of the implausible assumptions written into the bills actually pan out, which they won’t.

But no matter. The president and his team have continued to press the argument nonetheless, citing in particular provisions in the Senate-passed bill that they believe will do the trick.

Among the most cited “game changers” is the so-called “high-cost insurance tax” — which was the subject of yesterday’s day-long, backroom deal-making in the White House. As passed by the Senate, the new 40 percent excise tax would apply to any insurance plan, including those sponsored by employers, with premiums exceeding $23,000 for family coverage and $8,500 for policies sold to individuals. The idea is to force insurers and employers to develop and sell policies that stay under the premium threshold, almost certainly by pushing more cost-sharing requirements (deductibles and co-payments) onto the plans’ enrollees. In the Senate bill, the high-cost plan excise tax would become effective in 2013 — conveniently after another presidential election.

It was always a stretch to say this provision — which would have applied to a very few plans for most of this decade — was robust enough to offset the massive cost pressures unleashed by expanding health entitlement promises to tens of millions of people. But if there were any optimistic holdouts still hoping cost discipline would eventually emerge from this unbecoming legislative process, they almost certainly have given up all hope today. Because yesterday, the president showed he is not only shameless but utterly weak as well. In the face of withering pressure from liberals in the House and labor unions, the president essentially caved by gutting one of his signature “bend the curve” ideas in the name of political expediency. In the deal struck between the White House and labor unions, employer-sponsored health insurance plans that are collectively bargained will be exempted from the tax until 2018 — well past the time when the president will have exited the White House. The deal also raised the thresholds to $24,000 for family coverage and $8,900 for individuals and exempted dental and vision plans beginning in 2015.

It’s takes a special kind of audacity to go behind closed doors and strike a deal using the taxpayers’ money to pay off political supporters at the expense of everyone else (no wonder they don’t want C-SPAN to record it for history!). But caving into to the unions is likely to unravel the entire high-cost tax idea before all is said and done. The administration will argue that the deal still leaves in place 60 percent of the Senate-passed bill. But that assumes no further backpedaling — which seems highly unlikely given the track record. What could possibly justify applying to this tax only to non-union workers? What will companies with a non-union workforce think about the federal government providing special favors to their unionized competitors? News of this deal is already producing a backlash, just like the Cornhusker Kickback did. And that backlash is only going to become more intense as the negotiators look to raise taxes on others to make up for the payoff they have promised only to their union patrons. In the end, pressure will build to exempt even more people from the tax. And, when that occurs, on what basis will the president be able to resist?

For a year now, the president has said he is willing to make the tough decisions to slow the pace of rising health-care costs. But he showed yesterday that he has absolutely no capacity to do so. This health-care bill is a runaway entitlement program, piled on top of an unreformed health-care system. It’s never been anything more than that. And it’s getting worse by the hour.

posted by James C. Capretta | 4:55 pm
Tags: unions, labor, Obamacare, cost curve, actuary, C-SPAN
File As: Health Care

The President’s Reckless and False Health Care Claim

It’s now a clear pattern. When the president senses his position is vulnerable to a factual criticism, he asserts emphatically that the opposite is true — without ever providing evidence to back up his claim.

Here’s the latest example. According to Politico, President Obama told skeptical Blue Dog Democrats last evening that they should support the health care bill emerging in the House because it would produce savings beyond the ten-year budget window.

Oh really. Says who?

The context here is crucial. It’s already abundantly clear that the federal government cannot afford its existing health care commitments. The Congressional Budget Office (CBO) recently projected that Medicare and Medicaid costs will nearly double in twenty-five years, from 5.3 percent of GDP today to 10.0 percent in 2035 (this assumes continuation of current policy with regard to physician fee updates). The Medicare Trustees projected in May that the program’s 75-year unfunded liability has reached $36 trillion.

Moreover, the federal government is projected to run massive budget deficits for the foreseeable future. In 2009, the government has already run up a deficit of $1 trillion through June, and it could reach $2 trillion before it’s over at the end of September. CBO expects the Obama budget plan would increase the government’s debt by $11 trillion from the end of 2008 to the end of 2019. Running up government debt at that kind of pace would put the nation’s economy at considerable risk, to put it mildly. At some point, lenders would demand higher returns for their lending, pushing interest rates up and choking off growth, or the Fed would partially monetize the debt with even easier money and rapid inflation.

It is in this context that Democratic leaders in the House and Senate are trying to rush health care bills to their respective floors for consideration before the August congressional break.

The centerpieces of the bills are the creation of a new, massive entitlement to health insurance subsidization and a large expansion in Medicaid eligibility. The House bill, unveiled today and available here, would add $1.2 trillion in federal costs over a decade with just these two expansions, according to CBO. And the trend is even more alarming. Between 2018 and 2019, federal costs for the new entitlement and the enlargement of Medicaid would increase by a combined 8.9 percent.

That shouldn’t be surprising though, because that’s basically the rate at which Medicare and Medicaid have been growing for more than four decades. And there’s nothing in the House or Senate health care bills which would lead one to assume a new health entitlement program will grow at a more moderate pace in the future than the ones already on the books have done in the past. CBO has said repeatedly that slowing the pace of rising costs will require a fundamental restructuring of financial incentives, for consumers and suppliers of medical services. Nothing currently on the table in Congress comes close to meeting that test.

That was essentially the message CBO delivered to members of the Senate Health, Education, Labor, and Pension committee last week. In response to a question from Sen. Judd Gregg, CBO Director Doug Elmendorf said a bill which simply expanded coverage without fundamental reform “puts an additional long-term burden on top of an already unsustainable path” (Elmendorf’s testimony can be seen here, with his response to Senator Gregg at the 1 hour, 38 minute mark).

Moreover, it seems that President Obama’s own budget director agrees with CBO. Last week, Peter Orszag delivered a letter to House leaders saying their bill doesn’t go nearly far enough to slow the pace of rising costs. But even that didn’t stop the president from saying otherwise in his desperate attempt to round up votes.

The federal government’s budget is already knee-deep in debt, largely because politicians have promised that better days ahead will make all budgetary problems go away. They haven’t, and the current president is making the situation much worse. The last thing any member of Congress should do is simply take the president’s word for it that the health care bills under consideration will ultimately “bend the cost-curve.” If he really believes that — because no one else really does — he should provide some hard evidence to back up his claim. And that’s not a theoretical possibility. He could ask his independent projection experts — not his political appointees — to provide directly to Congress and the public, without review by anyone else, their best estimates of what these bills would do to the long-term (25- or 50-year) budget outlook. Those estimates would be taken much more seriously than unsubstantiated assertions which run against commonsense and all evidence.

posted by James C. Capretta | 9:11 am
Tags: ObamaCare, Blue Dogs, House bill, CBO, projected costs, deficit, HELP, Doug Elmendorf, Peter Orszag, cost-curve
File As: Health Care

Not Reform, and Not Change Either

The Obama administration began the year promising fundamental reforms in health care to “bend the cost-curve” with painless “delivery-system reform.” Peter Orszag, the Obama administration’s budget director, went so far as to claim the administration would institute reforms in Medicare and Medicaid that would literally alter the way medicine is practiced in America.

But it’s not working out that way. Indeed, there’s nothing more business-as-usual than the cuts in Medicare and Medicaid the administration and its congressional allies are planning to partially pay for their government takeover of American health care.

Take the much-touted “deal” with the nation’s leading hospital trade associations — which, by the way, is apparently not a done deal. The specifics of what was agreed to remain somewhat vague, but it is clear enough that what is being planned is nothing more than across-the-board payment rate cuts. Hospitals would get a smaller inflation update, and, beginning in 2015, smaller “disproportionate share” payments for taking care of lower-income and sometimes uninsured patients. All that talk about “rewarding quality” and “purchasing value” and “changing the delivery system” was apparently just talk. These cuts will hit all hospitals — the best and the worst — with basically the same percentage cut in their Medicare and Medicaid revenue. Low-cost, high-quality facilities will get cut just as much as low-quality, high-cost institutions. There’s no effort to steer patients based on hospital performance, or really even to tie payments to what happens in the facilities. It’s budget cutting, and that’s all that it is.

It’s also not surprising, and not new. This is always the way government runs health-insurance plans. Health-care policy types often talk of making health-care more efficient with innovative reforms, written and implemented by government bureaucracies. But the only thing the government ever really does to slow cost growth is pay providers less for the services they render. And it’s been done many times before (see, for instance, here and here).

Of course, nothing of lasting value ever comes from such arbitrary price-cutting. Hospitals shift costs to private premium payers, and perhaps tighten their belts for a while until the payments rise again. But they don’t fundamentally change how they operate, or organize their relationships with physicians any differently. There’s never been any bending of the cost-curve with these kinds of price controls, and there won’t be this time either.

posted by James C. Capretta | 7:07 pm
Tags: cost-curve, Peter Orszag, ObamaCare, payment rate cuts
File As: Health Care

Let the Unraveling Begin

The Obama administration has been desperately trying to create a sense of momentum around its health-care push, which is why it is touting the latest “deal” with hospital associations so heavily.

But there are clear signs that Congressional Democrats and the Obama White House have steered the health-care effort into seriously choppy political waters.

Consider:

  1. Yesterday, Senate Democratic leaders all but rejected Senate Finance Committee Chairman Max Baucus’s months-long effort to impose a limit on the tax preference for employer-paid premiums as a way to pay for his reform plan. Media reports indicate he was hoping to generate $340 billion from such a tax to pay for his plan, but that looks highly unlikely now. House leaders were never much interested in the idea, given the adamant opposition of organized labor, and won’t include it in their bill. Revising the tax treatment of job-based insurance was the one potential “reform” with some potential for bipartisan appeal, as it could, under the right circumstances, encourage more cost-conscious consumption of health care. Senator Baucus had been planning to take up consideration of his bill — with the tax on benefits in it — in his committee next week. Where is he going to find a politically palatable $300 billion in a matter of days, let alone one that can also appeal to committee Republicans?
     
  2. Party activists pushed Congressional Democrats over the July 4th recess to write a bill reflecting long-standing party goals — which means government-run insurance and near-total government control. This push has made the chances for bipartisan compromise — already remote — even less likely. In response to the pressure, Senate Majority Leader Harry Reid told Senator Baucus that he is not authorized to cut any deals with Senator Charles Grassley, the ranking Republican on the Finance Committee, which would bind the rest of the Democratic caucus. Senate Democrats have now committed themselves to including a muscular, government-run insurance option in the bill — which is, rightfully, a deal-breaker for the vast majority of Republicans. Indeed, at this point, it is hard to see why Senator Grassley or any other Republican senator would continue to negotiate with Senator Baucus or Senator Reid at all, as it is beyond obvious that Congressional Democrats are only interested in Grassley’s views until they can get a bill off the Senate floor — and even then, they are not interested in true bipartisanship but only enough to get two or three Republican votes.
     
  3. Congressional Budget Office (CBO) Director Doug Elmendorf explained in a letter to Sen. Judd Gregg that adding Medicaid coverage for persons with incomes below 150 percent of the poverty line to the Kennedy-Dodd legislation under consideration in the Senate Health, Education, Labor, and Pensions Committee (HELP) would increase the cost of that bill by around $500 billion. That would put the total cost of the bill at about $1.1 trillion, but it is likely to go even higher because states will balk at picking up their part of the tab for the new Medicaid coverage. Thus, when all of the details are finally in the bill, the Kennedy-Dodd plan is likely to cost close to $1.5 trillion over a decade. But even with this massive expenditure, Elmendorf predicted there would still be 15 to 20 million uninsured Americans.
     
  4. In testimony before the HELP Committee today, Elmendorf said this about the Kennedy-Dodd proposal: “This bill will add substantially to the long-term spending burden for health care on the federal government.” Recall that President Obama pledged to oppose any bill that does not — eventually — “bend the cost-curve” and reduces the government’s long-term cost burden.
     
  5. Rumors are circulating that House leaders are apparently considering a trifecta of popular “pay fors”: $500 to $600 billion in Medicare cuts, a new surtax for households making more than $250,000 per year, and $350 billion in funding from the so-called “pay or pay” employer mandate — while unemployment heads toward 10 percent. All of these proposals are going to generate substantial controversy and opposition, to put it mildly. The surtax would come on top of the Obama administration’s plan to let the Bush tax cuts expire for upper-income households, which would increase the top rate from 35 to 39.6 percent. A new, three-percentage point surtax, for instance, would push the top income tax rate to 42.6 percent — a rate not seen in more than two decades.
     
  6. Oh, and those momentum-generating “deals” with PhRMA and the hospital associations — turns out they aren’t deals after all. House Energy and Commerce Committee Chairman Henry Waxman said today that neither he nor the White House is bound by them, and a White House official agreed. Moreover, it remains unclear how much federal savings they will generate anyway, as they have not yet been assessed by CBO. So what do the deals signify exactly?

The Obama White House and its congressional allies have built expectations among their core supporters that this is the year to pass a government takeover of American health care. With expectations set so high, most elected Democrats have concluded they have no choice but to set out on a forced march to try to do exactly that — despite unified Republican opposition. But a partisan bill means that Democrats own all of the messy and unattractive details too. The debate is no longer about vague concepts of “coverage” and “cost-control” but who pays and who is forced out of their job-based plans. The more people learn about these details, the less they will like them —which is why the Democratic committee chairmen are working desperately to shorten the time between a full public airing and a vote. They’re hoping there won’t be enough time for public opposition to put a halt to the proceedings.

posted by James C. Capretta | 5:40 pm
Tags: ObamaCare, House bill, Max Baucus, Harry Reid, Charles Grassley, CBO, Doug Elmendorf, HELP, cost-curve, mandate, pay or play, Henry Waxman
File As: Health Care