What Will Bring About More Mayo Clinics?

David Ignatius has an interesting piece in today’s Washington Post on what Dr. Denis Cortese, the head of the Mayo Clinic, is saying about the health care debate as it has been playing out this summer.

Dr. Cortese certainly comes to the reform table with unsurpassed credentials. Mayo is universally acknowledged to be an industry leader in high quality, low cost health care — the kind of health care people would like to see available in every town in America. So when Dr. Cortese speaks, people listen, and rightfully so.

And what is Dr. Cortese saying? According to Ignatius, it’s no ringing endorsement of Obamacare. He is concerned that the legislation moving in Congress is too focused on new insurance coverage and not enough on getting better health care value for what is already being spent. He advocates focusing first on reform of the programs the government already runs — Medicare, Medicaid, the VA, military and federal employees' health care — to make them much more efficient than they are today. If the government paid for value instead of services, Dr. Cortese suggests, new more efficient and patient-focused integrated systems of care — other Mayos — would replace the fragmented and disorganized arrangements which are dominant in most communities today.

So far, so good. But how exactly will the government move from paying for “services” to buying value? Here, it appears both Ignatius and Dr. Cortese fall into the same trap as the Obama administration. They all seem to hold the view that if central planners were just given the chance, they could devise new and clever ways to pay for health care that will drive physicians and hospitals to act differently than they do today.

But why would we expect future efforts to be any more successful than the scores of governmental initiatives that have been launched in the past? The federal government has been running Medicare for nearly half a century, and for at least twenty-five years, there have been repeated initiatives to move the program in exactly the direction Dr. Cortese recommends. They have come up woefully short. Why? First, there’s politics. Buidling a network of high value providers of care means excluding some hospitals, physician groups, labs, and home health agencies from favored status. That is nearly impossible for Congress to sustain, especially when those left out complain that the data used to measure their performance is inaccurate or of poor quality. A few years ago, HHS tried to designate certain hospitals as “Centers of Excellence.” The effort died when the centers deemed not so excellent went to Congress and complained of an unfair designation process.

But even if political considerations could be overcome, the idea that the federal government has the capacity to construct a new payment system which will provide ongoing rewards for innovation and quality is foolhardy. The U.S. health system is too complex, diverse, and dynamic to fit neatly into the kinds of one-size-fits-all payment systems bureaucracies inevitably devise.

If we want our health- are system to be patient-focused and provide the highest quality care possible, we have to give patients the financial power to hold doctors and hospitals accountable. That can only happen in a market-based system where consumers have the ability to take their money elsewhere if they are dissatisfied with how they are being treated. Building such marketplace will require changing the tax treatment of employer-sponsored insurance to give workers more control over the federal tax subsidy for such insurance, and reform of Medicare and Medicaid to give the beneficiaries more control over their entitlement. The government can provide appropriate oversight of the marketplace, but, fundamentally, it needs to be driven by consumers selecting the kinds of insurance and medical care arrangements they find most satisfactory for the prices that are charged. In that context, is there any doubt that organizations which can deliver high value at a reasonable cost — more Mayos — will flourish?

posted by James C. Capretta | 7:34 pm
File As: Health Care

Where Things Stand

President Obama has changed his health care sales pitch. Gone is "health-care reform" and "bending the cost-curve." Now he emphasizes "health insurance reform" and "basic consumer protections." But the legislation moving through Congress hasn't changed to match the new rhetoric. The bills under consideration would still lay the groundwork for a complete federal takeover of U.S. health care. This disconnect is the subject of a column I wrote for Kaiser Health News, available here.

posted by James C. Capretta | 2:40 pm
File As: Health Care

Never Inevitable, Now Implausible

Wednesday, White House spokesman Robert Gibbs denied the premise of a New York Times article, which is that Democrats have all but abandoned hope for Republican votes in the health care fight and are planning a go-it-alone approach come September.

We’ve seen this two-step before. In today’s version, “top Democrats,” presumably including Chief of Staff Rahm Emanuel, who is quoted in the story, suggest Team Obama is ready to pass a bill with just Democratic votes. Earlier this month, it was Sen. Charles Schumer who said Senate Democrats were preparing to pass a health care bill using the so-called “reconciliation” process, which would allow them to do so with a simple majority instead of sixty votes. In both instances, denials quickly followed that the Democrats were abandoning bipartisanship in health care.

What’s really going on here? Is this yet another sign of Democratic disarray on health care? Or is it simply a premeditated bad cop/good cop routine aimed at scaring moderate Republicans into agreeing to something soon, or else? That’s the hypothesis of John Podhoretz in this post, and he’s probably right.

The bottom-line question is this: can Congressional Democrats pass a sweeping and controversial takeover of American health-care on their own? Here’s a clue to the likely answer: if they could, that would have been plan A. Why bother talking with political opponents if you could pass the next New Deal without them?

Nothing is certain of course, but it should be obvious to all concerned that Obamacare is not inevitable, and never was. Most Americans do not want to hand over total control of U.S. health care to the federal government, and that is the central premise of the bills now being written in Congress. Beyond that, the bills are highly controversial for many other important reasons, any one of which is enough to sink the entire effort. The massive, $1 trillion-plus price tag, even as the government is already piling up debt at a record pace. New taxes and mandates on employers which stifle hiring and job growth, which is the number one concern of most voters. The regressive requirements on low wage workers to buy government-approved insurance. The one-size-fits-all regulatory scheme. The prospect of government-driven rationing of care. None of this is popular.

Then there are the “pay fors.” In addition to massive tax hikes, House and Senate leaders are looking at $400 to $500 billion in cuts in Medicare to pay for their ambitious plans. Whatever else might be said about this month’s town halls, it should be obvious by the reactions of large numbers of senior citizens that deep cuts in Medicare to pay for “universal coverage” will generate significant political heat, to put it mildly. Are rank and file Democrats really prepared to carry that political baggage into 2010?

The public is sending unmistakable signals that they want their elected leaders to drop the controversial provisions and pursue consensus and targeted reforms instead. So far, it appears the Obama White House and Congressional Democrats are ignoring what’s being said and are hoping to scare Republicans into helping them pass a government takeover as originally planned. If Republicans simply hold firm in unified opposition, it is much more likely the public will, in the end, get a bill that’s tolerable, or that nothing at all will pass.

posted by James C. Capretta | 2:35 pm
File As: Health Care

Making It Up as They Go

President Obama and his chief of staff have said that the only non-negotiable principle in the health care debate is success, by which they seem to mean passage by Congress of something. From their perspective, that’s a smart place to be. With such large Democratic majorities in both the House and the Senate, just about anything that passes will tilt heavily toward Democratic priorities, which is to say toward heavy governmental control.

The problem of course is that most Democrats don’t want a “down payment” or “progress” toward their goals. They want the whole thing: a full government takeover, and so-called universal coverage. They see this year as perhaps a once in a generation moment to get what they want, and they aren’t about to settle for something less until its clear they can’t get it.

Which is why Democrats have dug in for a fight even as it has become increasingly apparent that passing a government takeover of American health care on a partisan basis will be exceedingly difficult. Senate Majority Leader Harry Reid has been downplaying the importance of “bipartisanship” in health care, and suggesting that perhaps he only needs, or wants, a handful of Republicans to support the bill Democrats are trying to write in the Senate. Meanwhile, Senator Chuck Schumer has let it be known that he is not willing to abandon the concept of a muscular, government-run insurance plan just to get Republicans on board.

But it is hard to overstate the difficulties Democrats will face if they try to pass the kind of bill they are talking about on an entirely, or even mainly, partisan basis. It is chock full of controversy. The price tag (at least $1 trillion in new spending). The largest tax increase in decades, which would hit the middle-class too. The movement of tens of millions of people out of job-based coverage and into government-run insurance. Deep, arbitrary, and cost-shifting cuts in Medicare’s reimbursement rates. Job-killing mandates on employers. And, most especially, the prospect of government intrusion into medical practice and the rationing of care. These are all highly unpopular steps with most voters, and the Democratic strategy is predicated on somehow getting all of them passed in one bill.

So what’s the Democratic game plan to overcome all the obvious political obstacles? Hard to know for sure, but it looks mainly like a “make it up as you go” approach. Cut a deal with Pharma today. Extract some Medicare savings from hospitals tomorrow. Float a “co-op” as a fig leaf for government-run insurance to entice some Republicans. Keep working the deals and hope it adds up at some point to a bill. Above all, of course, “keep moving forward” to hold everyone at the so-called table.

It might work. But it might not too. The primary problem for Democrats is not stakeholders. It’s the general public. They were told “reform” would leave them alone if they liked their coverage — and their premiums would go down too by $2500 per year. But the bills the Democrats in Congress are now writing will increase costs for people with insurance and shift tens of millions of them out of the employer plans they generally like. That’s not the deal they are expecting to be offered, and they aren’t likely to agree to it anytime soon.

posted by James C. Capretta | 9:32 am
File As: Health Care

The President Tries to Change His Health Care Tune

At his press conference today, President Obama scrambled to “clarify” his promise to Americans on health care. It won’t work.

For months now, going all the way back to the early days of the 2008 campaign, President Obama has been promising Americans that, if they like the insurance plan they have, they will get to keep it. He didn’t just mention this once or twice. It was a staple of his pitch, repeated over and over again.

Of course, he made the promise for sound political reasons. His strategists are listening carefully to what their focus groups have to say, and they are hearing the same message Americans have been delivering on health care for years. Yes, many voters wouldn’t mind seeing health-care reform pass in Congress because they perceive problems of cost and coverage that they would like to see fixed. But they don’t want to trade in their good job-based insurance for an untested, government-heavy program.

The problem for President Obama is that he and his allies want to pass an untested, government-heavy program — but without saying so.

Every bill now being drafted in Congress would establish a “pay or play”-type choice for employers: Employers must either offer government-approved coverage to workers (“play”) or pay a tax to the government instead to partially cover the costs of their premiums for insurance secured through a new “exchange” system. For years, Democrats have argued that this construct would ensure that reform “builds upon” the employer-based insurance system. But, in fact, the Democratic approach to reform would have exactly the opposite effect. Employers would get burdened with new costs and insurance requirements, even as the government used price controls to offer a government-run insurance option with artificially low premiums and provided new subsidies for coverage only for workers getting insurance through the “exchange.” That’s a recipe for dismantling job-based insurance. The Lewin Group has estimated that, assuming certain plausible specifications, some 119 million people would end up leaving job-based coverage for a government-run plan as employers opted to “pay” rather than “play.”

Faced with incontrovertible evidence that he and his allies have no intention or ability to fulfill their commitment to Americans regarding their current coverage, President Obama decided today at his press conference to try to redefine the promise. What he meant, he now says, is that the government wouldn’t force people out of their health-care plan. If tens of millions of people get pushed out of their current coverage, it would be because firms chose to drop their insurance plans — never mind the fact that they would do so based on the financial incentives the government put in place.

The president’s “clarification” seems highly unlikely to be the final word on this. For starters, it doesn’t matter much to the voting public who pulls the trigger. They don’t want today’s stable, job-based coverage turned upside by “reform.” When they hear that tens of millions of people will get moved out of employer plans and into the “government option,” they will wonder if they themselves will have to switch insurance — and most don’t want to. The president’s comments today aren’t likely to put their fears to rest.

Then there’s the issue of the president’s credibility. The straightforward commitment that “you can keep what you have” was stated over and over again. In fact, it helped the president get elected in the first place. If his clarification today was what he meant all along, why didn’t he just so say sooner? That question seems likely to cross a few people’s minds.

posted by James C. Capretta | 1:05 pm
File As: Health Care

The Baucus Plan Is Obamacare Too

It is a foregone conclusion that the bill now getting marked up in the Senate Health, Education, Labor, and Pensions Committee (HELP) is not going anywhere. Even the president and his advisers are distancing themselves from it. It costs a fortune — $1 trillion over ten years, according to a Congressional Budget Office (CBO) estimate of an incomplete draft version of the bill — and still only covers a third of the uninsured. Throwing in Medicaid for everyone below 150 percent of the poverty line — as the authors say they intend to do — would reduce the number of remaining uninsured further but at a whopping expense. When all is said and done, the HELP bill almost certainly costs closer to $2 trillion over ten years than $1 trillion. There is no way the congressional Democrats can assemble, on a largely partisan basis, a package of spending reductions or tax increases of that magnitude that their rank-and-file members will support.

But what about the bill the Senate Finance Committee is trying to put together? There, the committee chairman, Senator Max Baucus from Montana, is desperate to strike a deal with the so-called “coalition of the willing” — four Republicans on the committee who have been willing to talk with Baucus on what might be possible in a bipartisan bill. Senator Baucus apparently realizes that there is significant value in the label “bipartisan compromise.”

Here, it is important to remember that Senator Baucus’s strategic objective is to get a bipartisan bill, yes, but only if Democrats can claim the product provides “universal coverage.” That’s what motivates him in this debate — and most Democrats for that matter.

But he has a cost problem too. CBO informed him that an earlier draft of his plan would increase federal spending by $1.6 trillion over ten years, which apparently sent shock waves through the Democratic ranks this week.

In response, Senator Baucus has pledged to produce a bill that only costs $1 trillion over ten years, even as he remains committed to “universal coverage.”

Senator Baucus’s effort to produce a new, “scaled-back” plan is apparently reflected in options covered in a slide deck used at a recent committee meeting — and obtained and posted by Ezra Klein of the Washington Post.

Based on what’s contained in these slides, it is hard to see how the re-tooled Baucus plan would have appeal to any Republicans.

For starters, it’s still a massive tax-and-spend bill. At a minimum, it’s going to cost $1 trillion over ten years to stand up a new health-care entitlement for tens of millions of households. To pay for it, Senator Baucus wants to impose a hugely unpopular tax on the middle-class and cut Medicare’s payment rates to hospital and other suppliers of medical services. The more the public learns of this plan, the less they will like it.

Then there’s the Democratic push to include a government-run insurance option in the reform plan. Senator Baucus knows this is an issue which could drive Republicans out of the negotiating room. And so he is looking for a way to pass a “government option” without calling it that. Enter Senator Kent Conrad. He has suggested a so-called non-profit insurance “co-op” as a substitute for an overt Medicare-like plan (Keith Hennessey, as usual, is all over it with a dead-on critique here). All that one really needs to know about the Conrad co-op is what’s stated in the Finance Committee’s slides: The “advisory boards” of the co-ops would report to the HHS Secretary, who would make the “final decision about approvals of business plans and distribution of funds.” Enough said.

Finally, there are the onerous mandates. How does Senator Baucus plan to fit a $2 trillion scheme into a $1 trillion sack? Make someone else pay, of course. The Baucus plan would impose costly new mandates on both individuals and employers to purchase insurance. Several options are presented in the slides, but the thrust is clear: Employers will be forced to offer and pay for government-approved insurance or pay a new tax, and individuals would pay a fine too if they failed to enroll in an approved product.

Senator Baucus is starting from the same flawed premise as the president and his Democratic counterparts at the other relevant committees. They are bound and determined to pass “universal coverage” without any coherent plan to slow the pace of rising costs. That’s a recipe for onerous mandates, costly new entitlement spending, high taxes, counter-productive regulation, and ultimately government-imposed cost-controls and rationing. In short, all of the bills, including Senator Baucus’s, plant the seeds for a full government takeover of American health care.

What’s needed is sensible, gradual reforms of today’s tax law and entitlement programs to build a functioning marketplace with cost-conscious consumers and effective government oversight. But Congress won’t be able to consider such an approach unless and until it’s clear to all involved that Obamacare, of whatever variety, cannot pass.

posted by James C. Capretta | 12:34 pm
File As: Health Care

When the Government Runs Health Insurance

President Obama’s announcement on Saturday that he was proposing an additional $313 billion in Medicare and Medicaid cuts over ten years — on top of the $309 billion in his 2010 budget — is noteworthy for a couple of reasons, despite the meager coverage it has gotten in most newspapers.

For starters, there’s the sheer hypocrisy of it all (see this and this). Recall that then-Senator Obama based his final push for the presidency in October 2008 largely on a coordinated attack on the health-care plan put forward by his Republican opponent, Sen. John McCain. Senator Obama told Americans that the McCain plan would be bad for the country because it would tax employer-paid health benefits “for the first time in history” and impose damaging Medicare cuts to partially pay for the costs of the tax credits McCain was offering.

Well, guess what?

President Obama is now all in for massive Medicare cuts, and he’s changed his tune on taxing health benefits too.

The Obama plan to cut Medicare’s reimbursement rates should be exhibit A in the case against ObamaCare. This is what governments do when they run health-insurance plans. They promise targeted “reforms” to root out waste and inefficiency, but what they actually deliver is indiscriminate, across-the-board price controls that do nothing to change the underlying cost structure of health-care. These cuts won’t “bend the cost-curve”; they will simply further widen the gap between public and private payment rates, thus shifting more of the costs to private premium payers.

President Obama and his aides have talked incessantly about how they want to even out regional disparities in spending that don’t produce better health outcomes. The emphasis should be on quality, not quantity. But their actual proposals make no such distinctions. The highest quality, lowest cost hospitals will get cut just as much as the highest cost, lowest quality hospitals. There’s no purchasing of “value.” It’s reimbursement cuts for everyone, no matter how well or badly they treat patients.

None of this should be surprising, though. The idea that the government could hire a bunch of analysts to run the U.S. health-care system from Washington with precise and painless efficiency was always a fiction. The only reliable and lasting way to drive greater efficiency in health-care is with cost-conscious consumers in a reformed marketplace. Absent that, the government will always resort to arbitrary cost-cutting to meet budget targets, with no distinction made between high-value and low-value care. And with price cuts come waiting lists and queues. Call it ObamaCare.

posted by James C. Capretta | 11:02 am
File As: Health Care

CBO and the Kennedy-Dodd Bill

The more that is learned about the emerging Democratic reform plans, the less likely they are to pass.

Last evening, the Congressional Budget Office (CBO) released its first cost-estimate for one of the emerging Democratic bills — the Kennedy-Dodd bill that the Senate HELP Committee is planning to take up this week.

As Yuval Levin has already noted, CBO finds that the bill, in its incomplete draft form, would cost a lot — more than $1 trillion — and cover a relatively small portion of the uninsured (about one-third).

CBO director Doug Elmendorf notes in his cover letter that the bill they scored did not include the planned expansion of Medicaid to all persons with incomes below 150 percent of the poverty line. That provision would decrease the uninsured rate, but also add hundreds of billions more to the total budgetary cost.

The CBO cost estimate also makes it clear that the president’s repeated statement that Americans will get to keep the health insurance they have today is simply not true. CBO projects that some 15 million people would get pushed out of their job-based plans and into the so-called “gateways” run by the states. That number will go much higher when the bill includes the promised “government option.”

CBO assumed that the bill would have a somewhat effective “individual mandate,” which penalizes people when they don’t sign up for coverage. They expect the government would collect about $2 billion over ten years from those who don’t buy government-approved health insurance.

posted by James C. Capretta | 8:17 am
File As: Health Care

Obamacare is Getting Less Inevitable by the Day

The administration and Democrats in Congress have been trying to cultivate the impression in the media that passage of an Obama-style, sweeping health-care reform bill is all but inevitable — the only questions are about details and when.

But Obamacare was never inevitable, and it is getting less so by the day.

The reason is simple: There is no coherent and credible plan to pay for it. Most observers expect the legislation will cost somewhere between $1.0 trillion and $1.5 trillion over ten years.

This week we got a glimpse into the challenge the Democrats are now facing. The staff director of Joint Tax Committee sent the letter linked below to Finance Committee Chairman Max Baucus outlining a few potential ways to raise taxes in the health-care bill. For weeks, Senator Baucus has been letting everyone know that he believes an important “pay-for” is capping the amount of premiums an employer can pay for a worker on a tax-free basis. JCT’s letter to Senator Baucus specified two options for doing so that are noteworthy. The first would set a cap at the actuarial value of the standard Blue Cross/Blue Shield option offered to federal employees. JCT estimates that this option would increase federal revenue by $418.5 billion over ten years. The second option would set the cap at the same level as the first but apply it only to households with higher incomes ($100,000 for single filers and $200,000 for couples). This option would only raise $161.9 billion over ten years — which means the cap which would apply regardless of income would increase taxes on middle and lower income families by $260 billion over ten years.

The Democrats are thus faced with an impossible choice. They can either impose a large new tax on the middle-class — thus breaking the president’s campaign pledge to only target the rich and angering their union allies. Or they can apply the cap just to upper income households — and fall far short of the revenue necessary to pay for their expensive new entitlement.

The administration may be hoping they can avoid endorsing any cap on employer-paid premiums by upping the ante in Medicare cuts. But that will be no picnic either. The president’s budget called for about $300 billion in Medicare savings over ten years. Now they are talking about perhaps $500 to $600 billion. But cuts of that magnitude will generate intense opposition from doctors, hospitals, nursing homes, insurers, and others — and rightfully so. Arbitrary price cutting drives willing suppliers out of the marketplace, which is what causes waiting lists and rationing.

Reality is starting to sink in. It’s one thing to promise massive new subsidies for insurance. It is quite another to put together a realistic plan to pay for the program, especially on a partisan basis. There is simply no politically easy or safe way to raise $1.5 trillion for a government takeover of American health care. Rank-and-file Democrats are starting to find that out.

posted by James C. Capretta | 10:22 pm
File As: Health Care

Joint Tax Committee Letter to Senator Baucus

Last week, the Joint Tax Committee sent a letter to Senate Finance Committee Chairman Max Baucus outlining the potential revenue that could be raised from some of the tax options the committee is apparently considering. Three of the options would limit the tax preference for employer-paid premiums. It is clear from the wide range of the revenue estimates provided by JCT that the details of any taxation of benefits proposal are crucial. The full JCT letter and accompanying revenue table are available here in PDF format.

posted by James C. Capretta | 3:26 pm
File As: Health Care

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