Flawed Prescriptions for Radical Change

The Health Policy Consensus Group is an affiliation of health policy analysts, mostly located at think tanks around the country, who believe market-based reforms can produce broader coverage and higher value care while preserving the best features of American medicine.

Today, the group -- of which I am a member -- released a Statement on Health Reform, with twenty-two signatories, that raises serious concerns about the overall direction of reform effort taking shape in Congress. Here’s the key passage:

We are gravely concerned that several of the proposals offered by the President and the Congressional leadership would make matters worse, not better. These flawed prescriptions for radical change should not be accepted as part of any serious and sustainable health reform proposal:

  • A new government health insurance plan
  • An employer “play-or-pay” mandate
  • A uniform, government-defined package of benefits
  • A mandate that individuals must purchase insurance
  • A National Health Insurance Exchange extending federal regulatory powers over private insurance
  • Federal interference in the practice of medicine through a federal health board, comparative effectiveness review, and other government intrusions into medical decision-making

The full statement is available here in PDF format.

posted by James C. Capretta | 12:19 pm
File As: Health Care

Will Americans Get to Keep the Health Insurance They Have Today?

President Barack Obama has promised, repeatedly, that Americans who are satisfied with the health insurance they have today can keep it, even if Congress passes the sweeping reform program he favors.

But is it true?

In May 2007, then-candidate Obama issued a plan to change the way working age Americans get their health insurance. He claimed his approach would “build on” the employer-based system, but a more careful examination reveals it would actually be the demise of job-based coverage.

Under the Obama plan, employers would have a “pay or play” choice. They could either provide coverage directly to their workers (“play”), or they could pay a tax to the federal government to partially finance the coverage offered through a new “national exchange.” Workers getting insurance through the exchange would also have a choice. They could either select a private insurance offering — or enroll in a new government-run plan.

But the new, government-run insurance plan wouldn’t be just another offering. No, it would be a “game changer” in every sense. Why? Because the government can present the fees it will pay for medical services on a take-it-or-leave-it basis — and doctors and hospitals have little choice but to take it, lest they get shut out of the market completely. Private insurers, on the other hand, must negotiate contracts with their networks of service suppliers. Consequently, government-run insurance almost always charges artificially low premiums based on price and other cost controls that are rightly not part of a truly private-sector marketplace.

The implications of all this certainly hasn’t been lost on single-payer advocates. They see the government-run option as a way to achieve their long-standing goal — through the backdoor.

And they’re right to see it this way, as estimates provided by The Lewin Group, a health-policy consulting firm, demonstrate. According to Lewin’s analysis (summarized in a series of slides, available here in PDF format), if the government-run option pays fees as Medicare does today, scores of employers would choose to “pay” instead of “play,” thus forcing workers out of their job-based plans and into the national exchange. Once there, quite predictably, workers would end up largely in the government-run plan because it would pay for hospital and physician care at rates that are only about 70 and 80 percent, respectively, of what the competing private insurers would be forced to pay for the exact same services.

Lewin’s bottom line is thus truly alarming: They expect 118 million people would move from private coverage to government-run insurance pretty much overnight. And it would be anything but voluntary. There would be tens of millions of workers who would rather stay with their current job-based plan than sign up with the government-run plan — but they would no longer have that as an option.

President Obama thus faces a choice. He can change course, recommit himself to meeting his campaign commitment to protect current coverage, and begin working on a reform approach that doesn’t disrupt most job-based arrangements. Or he can continue on his current course, which would lead to massive upheaval and a clear break with what he promised voters. He can’t do both.

[Cross-posted at the Corner]

posted by James C. Capretta | 7:47 pm
File As: Health Care

The Public Plan Option

The so-called “public plan option” has emerged as one of the most controversial elements of the emerging health-care reform effort in Congress. Critics have argued that it would pave the way for a full government takeover of American health care.

They’re right, as rigorous analysis from The Lewin Group, a health policy consulting firm, shows. Lewin analysts have modeled what a new, price-controlled, government-run option would do to insurance enrollment in the United States. Their conclusions are alarming. If the new plan paid the same fees as Medicare, private, job-based insurance would effectively cease to exist, and some 118.5 million Americans who were previously in private plans would end up in government-run insurance. It would only be a matter of time before American health insurance resembled the single-payer models of the United Kingdom and others.

Lewin’s analysis is summarized in a series of extremely useful PowerPoint slides (available here in PDF format), which were the basis for a presentation to the Republican staff of the Senate Finance Committee last December.

posted by James C. Capretta | 2:43 pm
File As: Health Care

There Is No Obama “Plan” to Control Health-Care Costs—Not Yet, Anyway

President Barack Obama seems to think—or at least he wants voters to think—that he has a credible plan to control health-care costs in the United States. At various points in his televised press conference on Tuesday, he said the following:

[Our budget] invest[s] in reform that will bring down the cost of health care for families, businesses and our government....

I expect that [in an acceptable Congressional budget] there’s serious efforts at health care reform, and that we are driving down costs for families and businesses, and ultimately for the federal and state governments that are going to be broke if we continue on the current path....

What we have to do is bend the curve on these deficit projections, and the best way for us to do that is to reduce health care costs. That’s not just my opinion; that’s the opinion of almost every single person who has looked at our long-term fiscal situation. Now, how do we—how are we going to reduce health care costs? Because the problem is not just in government-run programs, the problem is in the private sector as well. It’s experienced by families. It’s experienced by businesses. And so what we’ve said is, look, let’s invest in health information technologies, let’s invest in preventive care, let’s invest in mechanisms that look at who’s doing a better job controlling costs while producing good-quality outcomes in various states, and let’s reimburse on the basis of improved quality as opposed to simply how many procedures you’re doing. Let’s do a whole host of things, some of which cost money on the front end but offer the prospect of reducing costs on the back end.

These statements are completely disconnected from reality.

The Congressional Budget Office (CBO) has already stated, unequivocally, that the Obama proposals currently on the table—more health IT, more comparative-effectiveness research, more preventative care—will do virtually nothing to slow the pace of rising costs, even after the “investments” are given plenty of time to kick in.

Meanwhile, the president is using the “cost-control” argument as a primary justification for Congressional passage this year of a massive new entitlement for health insurance. All of the Democratic plans under consideration are built around extending new federal health-insurance subsidies to households with incomes below 300 to 400 percent of poverty. Reasonable estimates show such a program will cost about $150 billion annually.

For more than three decades, federal per capita spending on Medicare and Medicaid has risen much faster than per capita economic growth—in fact, on average more than two percentage points faster per year. If Congress creates another health-care entitlement without also facilitating a properly functioning marketplace in the health-sector, the new program’s costs will escalate just as rapidly as Medicare and Medicaid costs have risen historically.

Of course, President Obama and his advisors understand all of this. They are hoping they can pass their massive coverage-expansion plan this year without endorsing the heavy-handed, government-driven cost-control measures they actually favor (price setting, benefit restrictions, premium caps, etc). They know that introducing such ideas now would be highly controversial—and perhaps sink the entire effort—because voters would finally see that the Obama approach to reform will lead, inevitably, to government-imposed rationing of care.

Indeed, to avoid a debate on government-driven rationing of care, the president would have been well-advised to not bring up cost-control at all. But, since he has, it would seem the press should ask him, and his team, the following obvious question: Where is this famous Obama plan for cost-control? It certainly hasn’t been presented yet. And, if the Obama team has their way, it won’t be until the coverage train has already left the station.

[Cross-posted at the Corner]

posted by James C. Capretta | 4:35 pm
File As: Health Care

The Geithner Plan, Cont.

After months of delay, Treasury Secretary Tim Geithner finally unveiled the Obama administration’s plan for jump-starting a marketplace for “troubled” real estate-backed assets held by banks.

As noted in an editorial in Tuesday’s Wall Street Journal, a more direct, Resolution Trust Corporation-type facility, if initiated months ago as some had advocated, would have worked better, faster, and with more transparency for taxpayers than what Geithner is now planning. But we are where we are, and this plan is much better than no plan. It is long past time to remove the uncertainty hanging over the markets.

And, to be fair, the Geithner approach also seems to stand a reasonable chance of working, too. Some troubled assets should begin changing hands again fairly soon, thus pulling back the curtain on their true value, which should finally allow a bank “work out” to get underway in earnest. There’s no value at this point in Republicans pushing for an alternative approach. It is much better for the country to just get on with the plan that has been presented.

Still, it’s worth noting why the Geithner plan looks as it does. By all accounts, a primary motivation for its complex financial flows is the desire to avoid going back to Congress for funding and approval. Hence the use of FDIC reserves, loan guarantees, Fed money, and the last resources available from the $700 billion in TARP funding. This patchwork approach may work, but it also may leave the administration without any ability to deal with other contingencies—not a good position to be in with a crisis of this magnitude still unfolding.

Indeed, it’s a lamentable state of affairs when, in a true crisis, a Congress controlled by the same party as the president is not trusted by the administration to produce sound emergency legislation when it’s really needed. But that seems to be where we are. And the Obama team really has no one to blame but themselves for this particular box they now find themselves in. The constant drumbeat which has laid the entire blame for the turmoil on private-sector “greed” and “de-regulation” simply reinforces the worse instincts in a left-leaning Congress. What the public needs to hear from President Obama is that this crisis has complex origins, but it would not have occurred if there weren’t massive public-policy failures too, with many powerful Democrats and Republicans to blame, including himself. The flawed corporate structures of Fannie and Freddie which privatized gains and socialized losses. The excessively expansionary monetary policy earlier this decade. Long-standing tax policy which encourages ever larger mortgages. The flow of foreign reserves, driven by excessive U.S. consumption of imported goods, into U.S. credit markets. And the structural federal budget deficits that have fueled more consumption than our incomes could really support. Economists have been warning policymakers of the dangers of each of these policies for years—and far too few in positions of power ever lifted a finger to reduce the risks.

But it is almost too late now for the Obama team to change their tone and start treating the economic crisis with the intellectual seriousness it deserves. The damage has been done. Most members of Congress think they know why we are in this position, and it’s because profit-seeking firms, well, sought profits.

In this environment, the Obama team would be well advised to scuttle the idea of seeking new powers for the Treasury to seize non-bank institutions deemed too big to fail. If the Congress cannot be trusted to provide the financial resources needed in an emergency, can it be trusted to judiciously write a new law allowing the seizure of just about any private sector firm in the country? The same impulse that pushes members toward simplistic explanations for the crisis would surely lead them to support to ill-advised interventions we would regret for decades.

There needs to be a sober discussion of what kind of regulatory approach will prevent a recurrence of this disaster. But this is not the way to go about it. The Obama folks are playing with fire if they ask for sweeping seizure authority now, with this Congress and in this environment.

[Cross-posted at the Corner]

posted by James C. Capretta | 10:53 am
File As: Capitalism/Commerce, Politics, U.S.

CBO’s Bucket of Cold Water

Here’s a story, posted at Politico, that should alter the coming debates on the budget, health care, energy, and pretty much everything else Congress is planning to consider this year.

The Congressional Budget Office (CBO) is apparently readying a forecast of the president’s budgetary proposals—to be released officially tomorrow—which will show that the administration’s overall plan would leave the nation saddled with much more debt than the Obama team had advertised.

According to the story, CBO is going to say the president’s budget would leave the country with a budget deficit of more than $700 billion in 2014—well above the administration’s forecast of $570 billion. Over the coming decade, CBO will show the Obama budget adding about $8.4 trillion to the nation’s debt burden, or more than $1.5 more than the Obama team predicted. And there are no signs anywhere in sight that the ugly trend lines will turn in a more favorable direction, even with a growing economy. In 2019, CBO will show the annual budget deficit reaching $1 trillion—and it will only get worse from there as the baby boomers age and drive up retirement and health-care costs.

At least one Democrat, Senate Budget Committee Chairman Kent Conrad, seems to understand how untenable this all is. He is apparently advising his Democratic colleagues and the Obama administration that the budget framework the president submitted to Congress is unworkable and needs a major overhaul, with renewed emphasis on fiscal restraint.

But what are the Democrats going to do? Raise taxes on upper-income households still further? Cut defense still more? Take even more out of private health-insurers and drug companies?

President Obama gambled that he could govern from the left this year. The model is the “stimulus” bill. Secure near-unanimity among Democrats, and a stray Republican or two to ease passage in the Senate.

But it’s one thing for the “Obama coalition” to spend $800 billion “stimulating” the economy, and it’s quite another to carry the political burdens associated with fiscal retrenchment.

CBO’s bucket of cold water should be a wake-up call to Democrats. A partisan governing agenda may bring political rewards, but it carries substantial political risks as well.

[Cross-posted at the Corner]

posted by James C. Capretta | 3:51 pm
File As: Health Care

No Miracle in Massachusetts

It was only a matter of time before this story appeared, as it did in yesterday’s New York Times.

Having promised lavish subsidies for expansive health insurance, it seems state officials in Massachusetts have finally begun to admit that their health-care reform program, passed in 2006, is unaffordable for the state’s taxpayers.

This should surprise no one.

Whatever else might be said about the Massachusetts plan, it was clear from the get-go that it would overwhelm the state’s budget—it was just a matter of time. All the state really did was buy hundreds of thousands of residents into heavily regulated insurance plans by moving around some existing pots of money and raising taxes. They didn’t build a functioning marketplace with cost-conscious consumers, nor did they pursue—initially—the kinds of heavy-handed, government-imposed cost controls that many Democrats actually favor. In short, there was never any reason to expect health-care premiums in the state to escalate less rapidly after the “reform” than they did before the plan was adopted.

But, just as predictably, now that it is difficult to turn back and start over (hundreds of thousands of Massachusetts households are now enrolled in newly-subsidized insurance), the state wants to impose cost controls. There is much talk of new whiz-bang systems for paying doctors and hospitals, devised by government officials, which reward more efficient ways of delivering care. Don’t count on it. Inevitably, when the government tries to micromanage payments and prices, the result is indiscriminate, across-the-board cuts, protection of incumbents, and strong disincentives for innovation. Indeed, Massachusetts’ Democratic Governor Deval Patrick has already signaled where this is all likely to head: state-imposed caps on private health insurance premiums.

There are lessons here for the unfolding debate in Washington.

The Obama team is essentially pursuing the Massachusetts political strategy—cover everybody first with a massive new entitlement program and worry about imposing cost controls later. In fact, Sen. Ted Kennedy’s top lieutenant assigned to pulling together a health-care bill was a principal architect of the Massachusetts’s approach. And, on costs, the Obama administration keeps touting the same benign-sounding initiatives—like expanded use of health information technology—that Massachusetts officials used to cite, even though the Congressional Budget Office (CBO) has already said these kinds of steps won’t come close to solving the cost problem. It is obvious that the administration is hoping it can get a bill passed without endorsing the kinds of measures which would rightly be attacked as rationing care.

But make no mistake: If President Obama succeeds, he and the Congress will be back in a year or two or three—when the coverage train has already left the station—to say the financial future of the country depends on agreeing to government-imposed cost constraints, just as Massachusetts officials are doing today.

Even the Times story hints at what’s really at stake here. If we don’t rely on market principles to allocate health-care resources, the country will inevitably turn to the government to keep premiums in line with income. And, as some anonymous “experts” candidly admit in the Times piece, government-written “payment practices” are highly unlikely to do the trick. Instead, these “experts” say, “the state and federal governments may need to place actual limits on health spending, which could lead to rationing of care.”

[Cross-posted at the Corner]

posted by James C. Capretta | 2:31 pm
File As: Health Care

The Hypocrisy of the Obama-Baucus Two-Step

Remember this devastating political ad from last year?

Many Americans probably do, as it represented a real turning point in the presidential campaign.

Aired in October, the ad picked up on an exchange from the vice-presidential debate between then-Senator Joe Biden and Alaska Gov. Sarah Palin. Palin had just explained that the McCain health-care plan would provide refundable tax credits of $5,000 per household to help families buy portable insurance. Biden, who had clearly been waiting for the issue to come up, responded with a scripted attack. What the McCain-Palin folks don’t tell you, Biden warned, is that they would—“for the first time in history”—tax your employer-provided health benefits.

The public, most of whom get their insurance from their workplaces, was taken aback and confused. Why would Republicans want to tax employer-sponsored health-care benefits? Aren’t Republicans for cutting taxes? Aren’t they for private, as opposed to public, health insurance? And how could a tax increase make anyone better off?

It was a devastating blow. The McCain campaign never adequately explained their plan or offered an effective counter-argument—and the Obama-Biden campaign never looked back. They rode the issue for weeks, airing millions of dollars in attack ads. Indeed, the effectiveness of the coordinated attack on the McCain health plan is surely one of the main reasons for Obama’s victory in November.

Well, guess what? Not five months later, having secured the presidency, President Obama has changed his tune. Taxing health-care benefits is not such a bad idea after all, he and his team now say.

How do we know this is their view? It’s the worst-kept secret in town. Obama’s budget included $318 billion in new revenue from limiting the deductibility of charitable contributions and mortgage interest. But this was never a serious proposal. It was always just a placeholder for the revenue that Senate Finance Committee chairman Max Baucus plans to raise by taxing a portion of employer-paid health premiums, as indicated in this piece from the Washington Post last Thursday.

The administration has already signaled that making this switch would be more than fine with them. In their budget submission, they said they would entertain any “serious” proposals offered by Congress to pay for the health-care plan, noting in particular that some have suggested “capping the exclusion of employer-sponsored health insurance.” This week, Office of Management and Budget director Peter Orszag went even further, stating emphatically that the idea of taxing employer-paid premiums should be “on the table” for consideration.

Why would Senator Baucus take on something that was so ferociously attacked by his own party just months earlier? There is probably only one reason: Sen. Charles Grassley.

Senator Baucus is desperate to secure a deal on health-care with Senator Grassley, who serves as the Finance Committee’s ranking Republican. Once struck, a Baucus-Grassley plan would almost guarantee passage in the Senate, making it much more likely that a bill would reach the president’s desk this year.

It is certainly the case that Republicans have long argued that changing the tax treatment of job-based plans is fundamental to an effective reform plan. Today’s open-ended preference encourages overly-expansive insurance and makes it difficult to jump-start a more robust individual market where people, not firms, would own the coverage.

But will Baucus really offer up a tax change with teeth? There are reasons to be skeptical. Indeed, it is possible to raise a lot of revenue with a flawed change in the tax treatment of health insurance. For instance, Baucus might seek to impose a tax on any benefits offered by firms that exceed a government-dictated minimum plan. Instead of forcing cost-conscious consumption, such a change would simply enforce a new, government-written benefit package.

Moreover, what else would be in the Baucus plan? To get a good change in the tax treatment of health insurance, would Republicans have to sign off on a government-run option? A national insurance exchange? A federal health board? An employer “pay or play” mandate? Price controls and rationing? It is a near certainty that whatever price Baucus would seek from Republicans to get a sensible tax law change would be much too high.

If Senator Baucus and President Obama want to tax health benefits “for the first time in history” to pay for the Obama health-care vision, Republicans should let them see how far they can get on their own.

[Cross-posted at the Corner]

posted by James C. Capretta | 10:27 am
File As: Health Care

President Obama’s Choices

In recent days, several commentators, including some who are otherwise disposed to be supportive of the new president’s agenda, have been startled to find the administration’s budget plan has a strongly liberal tilt (see here, here, here, and here).

It seems the president’s moderate-sounding rhetoric during the campaign and early days in office had convinced many in the political class that he would abandon the political identity he had forged while serving as a legislator and govern from the center.

Now they know better, or at least they should.

Let’s hope the same awakening is occurring among those self-described pro-lifers who vociferously supported the Obama candidacy.

In very recent days, the president has:

  • proposed to rescind HHS’s regulation aimed at protecting the conscience rights of physicians and others, especially in the context of abortion;
     
  • permitted U.S. government funding of organizations sponsoring abortion provision around the world (i.e., rescission of the so-called Mexico City Policy);
     
  • nominated an aggressively pro-choice Catholic to the Secretary of Health and Human Services; and
     
  • opened the door to federal funding of embryo-destroying stem-cell research, claiming as he did so that the decision was carried out in the name of protecting science from politics.

Governing is choosing, as the saying goes, and no amount of words can obscure the priorities reflected in President Obama’s decisions. Less than two months into his term, it should be obvious to all concerned, including voters, that the president’s sympathies lie with a strongly liberal social-policy agenda which is completely at odds with any sensible understanding of traditional moral reasoning.

What does this mean for pro-lifers? Going forward, there should be little wasted energy on “common ground” efforts. What’s needed are tactics to minimize the damage while a thoughtful game plan is put in place to use the excesses of the Obama agenda to leverage electoral victories the next time voters go to the polls.

[Cross-posted at the Corner]

posted by James C. Capretta | 10:01 am
File As: Health Care

Brooks Was Right the First Time

David Brooks got it right the first time.

His New York Times column last Tuesday was a blistering critique of the Obama budget plan. He had been deceived, Brooks said. Candidate Obama spoke like a centrist, but his governing agenda, as reflected in his first budget submission to Congress, betrayed an aggressive liberalism that had to be confronted, even by moderates.

But by Friday, after some apparently very smooth talking from Team Obama, Brooks had changed his tone. The budget is trying to do too much, he maintained in Friday’s column, but the Obama administration isn’t necessarily on an ideological crusade. Moderates can work with them, he concluded.

Brooks cites four arguments used by Obama surrogates to convince him his Tuesday piece was an over-reaction.

#1: They are not on an ideological crusade, Team Obama says. They are just re-balancing policy after the excesses of the Bush years.

That may be how they view themselves, but that doesn’t make it so.

The Obama budget’s large policy shifts are focused on income redistribution, not economic growth. There is a $1 trillion tax increase on upper income households, which is used for new programs and refundable tax credits, not deficit reduction.

As Michael Boskin noted on Friday, the Obama budget would increase the number of households with no income tax liability from 38 percent to 50 percent, with the tax burden falling ever more heavily on a small sliver of the population with higher incomes. To paraphrase Margaret Thatcher, you can’t increase the tax on entrepreneurship and work and expect them to increase.

#2: Their budget is not a “big government” plan.

To bolster their case, they argue that discretionary spending on domestic programs will fall from an historical average of 3.7 percent of GDP to 3.1 percent of GDP. But that number can be manipulated in any number of ways. For instance, the budget moves Pell Grants from discretionary to mandatory funding, which makes the Obama discretionary number look smaller than it really is. And some of the biggest spending in the Obama budget is not even accounted for in the discretionary category, such as the health care plan.

It’s more accurate to look at overall spending. Over ten years, they plan to increase federal outlays by more than $3 trillion compared to a reasonable projection of current law. In 2008, before the full force of the financial crisis had hit, total federal spending was about $3 trillion. In 2013, the Obama budget would increase it to $4 trillion, a $1 trillion increase in the size of government in just five years.

#3: Republicans should like his entitlement cuts and health care ideas.

What entitlement cuts? What health care ideas? The budget includes only the most modest of changes. In 2008, spending on Medicare and Medicaid was $587 billion. In 2019, it will be $1.34 trillion.

The Obama team has talked incessantly about how they understand the problem of rising health-care costs. Where is their plan to do something about it? No one believes the president’s current suggestions—more information technology, better prevention, and even comparative effectiveness research—will come anywhere close to solving the problem.

Meanwhile, expectations are growing that the administration and Congress will pass a plan this year with a new subsidy program for millions of households to buy health insurance. There is ample historical evidence to suggest that the cost of this latest health care entitlement will grow equally as rapidly as the unaffordable ones already on the books.

In the budget plan, President Obama essentially said he will work with Congress to come up with a plan to address escalating costs. Does that give anyone confidence? If anything, this Congress will turn to Medicare-style price controls, not market mechanisms, to control costs.

#4: The budget will not produce a sea of red ink.

Between 2010 and 2019, the Obama budget would add $7 trillion to the nation’s public debt, and that’s before the entire baby boom generation has signed up for Social Security and Medicare. At the end of 2008, the debt that had been accumulated over two centuries stood at $5.8 trillion.

Last November, millions of Americans who had mainly pulled the lever for Republican candidates during their lifetimes voted for Barack Obama for president, despite the fact that he had compiled a strongly liberal record in the Illinois state legislature and U.S. Senate.

Well, now we have President Obama’s first budget. Its numbers are more important than its words. And the numbers show his governing philosophy has not changed since he was a legislator.

[Cross-posted at the Corner]

posted by James C. Capretta | 9:56 am
File As: Health Care

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