ObamaCare


What If . . .

Speculation is rampant on what will happen if State Senator Scott Brown pulls off an improbable upset and wins the special election for the U.S. Senate seat today in Massachusetts.

Of course, that’s still a big if. Most votes have yet to be cast in this race, and low-turnout special elections are notoriously difficult to predict. 

What we do know for sure is that the more ballots that are cast for Brown, the less likely it is that any of the current versions of Obamacare will pass. So those who are in position to help Massachusetts fire another shot heard even in faraway places should take nothing for granted.

Still, it is interesting to see so many stories popping up, such as this one in yesterday’s New York Times, in which Democratic operatives are openly speculating on what they will do on health-care if Brown were to win. That’s probably an indication of where most Democratic insiders now think this race is headed.

And what exactly would be their Plan B? Apparently, some Democrats believe the best course to follow would be to take the Senate-passed bill and jam it through the House without amendment.

That would be some trick. House liberals have spent the last month trashing the Senate bill. They hate the so-called high-cost insurance tax, the mandate which gives Americans no choice but to send their premiums to profit-driven private insurance plans, and scores of other provisions as well. Moreover, their main patrons — labor unions — despise the Senate bill for the same reasons.

Those advocating this fall-back plan think it is possible that objections to the Senate bill could be overcome if House members were promised that a second health-care bill would be passed later in 2010 with corrections to the first. Presumably, the second bill would include the recently struck White House–union “deal” which would exempt union workers from the high-cost insurance tax through 2017, as well as other provisions now under negotiation in talks between House and Senate Democratic leaders. House Democrats would also be promised that this second bill would be passed using so-called budget reconciliation procedures, which means it would need only majority support in the Senate, not 60 votes.

House members who oppose the Senate bill but went along with this particular version of Plan B would have to be awfully gullible. There’s no guarantee at all that a budget-reconciliation bill devoted to health-care would sail through either chamber, especially given the public’s utter disdain for the process that produced the first one. Plus, any item that reduced tax revenue or increased spending would need an offset, which is sure to stir up opponents and controversy. In short, this second bill would almost certainly be as red-hot politically as the first, and as time-consuming as well. Do House Democrats really want their 2010 legislative agenda dominated again by health care? That’s almost certainly what would happen if they agreed to pass the Senate bill with these conditions attached.

More fundamentally, the whole idea of a quick pivot to a Plan B is absurd. If Brown were to win, it would send shock waves through Democratic ranks unlike anything we have seen in recent years. Democratic infighting would intensify. Many more closed-door meetings would be held as members vented and fought over what to do. It would takes weeks, not days, for this process to play out. There would be no health-care bill before the president is forced to deliver a state of the union address.

In the end, the White House and Senate Democrats might be able to convince enough House members to go along with some version of Plan B to get the bill passed and the debate behind them. But they would not get there easily or quickly.

Of course, if Brown were to win today, it need not be a permanent setback for the president or congressional Democrats. They could do the smart thing and take the voters’ message to heart. Start over, shelve the ideological ambition, and work with Republicans on a sensible and targeted plan. That would leave them with a fighting chance to get through November 2010 with heavy losses instead of total annihilation.

posted by James C. Capretta | 11:41 am
Tags: Massachusetts, Scott Brown, 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

Not As Advertised

Now that health care bills have passed in both the House and the Senate, Democrats just can’t seem to stop themselves from rhetorical excess. Just before Christmas, as the bill sponsored by Majority Leader Harry Reid was clearing its final hurdles in the Senate, Democrats took to the chamber floor and cable television shows to trumpet the “historic” nature of the legislation they were about to vote on — legislation that would, at long last, move toward their long-sought goals of “universality” and a government-guaranteed right to health care.

But is it so?

Yes, both the House and Senate would provide essentially free health insurance, through the Medicaid program, to many millions of low-income people. But, even so, enrollment in Medicaid is a far cry from getting good care when it’s needed. For starters, about 40 percent of the nation’s physicians don’t see Medicaid patients because the payment rates are too low, which also means certain hospitals have very low rates of Medicaid admissions. The truth is that current Medicaid enrollees already have trouble getting access to high-quality care when they need it because the network of providers willing and able to see them is constrained and over-burdened. The House and Senate bills would add 15 million or more people to this program’s rolls without any guarantee whatsoever that there will be doctors and hospitals that can see them.

Ironically, the very Democrats who most frequently tout “universality” as the goal are also the ones who ensure it will never actually come about by insisting that America’s lower-income families enroll in government-run insurance — with no other options.

Beyond the Medicaid expansion, Obamacare is really an obligation, not a right. Every citizen would be required to sign up with a government-approved health-insurance plan or pay a tax penalty for going without coverage. According to the Lewin Group, households with at least one uninsured member and an income between $50,000 and $75,000 per year would see their costs rise for health care by $2,133 under the Senate bill. “A new tax on the uninsured” isn’t exactly a catchy slogan for Obamacare — but that’s essentially what it is. There would be a lavish new entitlement program to offset some of the premium for some households, but the vast majority of working Americans would get no additional help. They would just get the unfunded mandate, and that’s it.

Meanwhile, despite all of the talk of painlessly slowing the pace of rising costs with more efficient care, the Democrats’ bills would cut costs mainly by imposing arbitrary rate reductions in the Medicare program — pushing it more and more toward the Medicaid model. In fact, at the end of December, the Mayo Clinic announced that it would no longer see Medicare patients at one of its clinics in Arizona because the program’s payment rates are simply too low to cover its costs. A small glimpse into our Obamacare future.

In the coming days and weeks, we will hear a great deal more about how close the nation is to making history. Readily available health care for all, without limit — that’s what the overheated rhetoric will imply. But the public figured out months ago that the reality under Obamacare would be very different. There would be higher costs, higher taxes, and more regulation. Worst of all, clumsy governmental “cost-control” efforts would put the quality of American medicine at risk for everyone. Which is why public sentiment has hardened in opposition, and why the debate is not over yet.

posted by James C. Capretta | 7:51 pm
Tags: Obamacare, Medicaid, Medicare, Harry Reid
File As: Health Care

The Heart of the Cost Problem

Over at the Mirror of Justice website, Robert Hockett posted a thoughtful reply to my previous defense of Charles Krauthammer’s critique of the health-care legislation wending its way through Congress. Here (and cross-posted at Mirror of Justice) I offer a short reaction to some of the points he made.

First, there seems to be some confusion over what exactly is in these congressional health-care bills. Yes, they do contain many provisions related to reworking the nation’s approach to health insurance coverage and regulation. But that is far from all that they would do. The bills are called “health care reform” for a reason. A central argument of their proponents is that rising costs is a problem — a crisis, even — that must be addressed, and the presumption of most Democrats is that the federal government can, and must, help orchestrate a “cost-control” effort. Consequently, both the House and Senate versions of the legislation are filled to the brim with provisions that are aimed at the changing how medicine is practiced in this country. For instance, the bills would penalize primary-care physicians who are outliers in terms of specialist referrals. The bills would also try, through various disincentives, to discourage physicians from practicing in small groups. And the bills would create a new structure for hospital-physician affiliation, called Accountable Care Organizations. The ambition of the sponsors goes well beyond just “health insurance reform.”

Second, the most important question in the health-care debate is this: what process has the best chance to deliver continuous improvement in the productivity and quality of patient care? That’s the only way to slow the pace of rising costs without harming patients. The Obama administration and its allies in Congress believe a governmental process is the answer. That’s why the bills are so unwieldy and complex. If the government is the answer to rising costs, then the government is going to need to get involved in nearly every aspect of resource allocation in the health sector. This is what I mean by “central planning.”

There is an alternative to central planning. Mr. Hockett indicates that he would support converting today’s open-ended tax preference for employer-paid health insurance into refundable tax credits controlled by individuals, as proposed in 2008 by presidential candidate John McCain. The McCain proposal was not just a way to expand insurance coverage, although it would do that. It would also dramatically change the cost equation, creating millions of cost-conscious consumers who are today passive enrollees in job-based plans. The government can and should provide oversight of the health insurance marketplace. But the way to drive more efficiency in health care arrangements is with a functioning marketplace in which doctors and hospitals have strong financial incentives to reorganize how they do business. Getting there would require reform of federal tax laws and the Medicare and Medicaid programs so that beneficiaries have more control over the use of their entitlement resources.

Third, Medicare is not the solution to American health care. Indeed, it is really at the heart of the cost problem. Yes, the program provides valuable insurance coverage to seniors. But the program’s design is also a primary reason for widespread inefficiency in how care is delivered to patients. Medicare’s dominant fee-for-service insurance model encourages provider fragmentation instead of integration, and organizational autonomy instead of cooperation. Medicare’s per-service payment rates are low, but providers earn more by providing more services, and the Medicare program has no effective check on volume.

Even the Obama administration admits that Medicare is more problem than solution. That’s why they argue that changes in the way Medicare buys services can lead to cost reductions system-wide.

But that’s a lot of wishful thinking. Medicare’s administrators have been trying for forty years to move the program away from unmanaged fee-for-service, with no success whatsoever. The reason is politics: Politicians don’t want to pick winners and losers among the hospitals and physician groups in their states and districts, which would be necessary in building a high-quality network. In a budget crunch, they would rather have Medicare pay all licensed providers the same exact rate, even if it is low, than to leave someone out of a government plan. So that’s exactly what is happening in the current health care bills. Despite all of the talk of painless efforts to bend the cost curve, the real “savings” in the Democratic bills come from arbitrary price cutting in the Medicare program. All hospitals and other institutions would see cuts in their reimbursement levels, without regard to any metric of quality. In fact, Medicare’s fee-for-service design would be even more entrenched than it is today.

Fourth, Mr. Hockett argues that any deficiencies found in the current bills should be brought to the attention of the sponsors, not waved around as justification for scrapping the whole enterprise. For starters, the critiques I noted are on the public record, in prominent places. A conference was held at the American Enterprise Institute highlighting the disparate subsidies that would be created by the Senate bill, and opinion pieces have been published in, among other outlets, the Wall Street Journal and Boston Globe highlighting the problem. Is that not prominent enough?

The truth is that the Democratic sponsors don’t want to fix this problem because it would blow a hole in their budget constraint. The bills provide generous subsidies to a relatively small segment of the population who would get their coverage in the exchanges, but nothing to those who would be forced to remain in job-based plans. Providing equitable treatment would drive the cost of the bills much higher, jeopardizing passage. Which is why you won’t find any Democrat mentioning it — or being able to deny that the problem exists.

Our country does need to reform our health care arrangements. But there are far better ways to do so than with the approach now emerging in Congress. A different bill, based on a different reform philosophy, would be more straightforward, less unwieldy, and less subject to influence by interested parties. Oh, and by the way, it would be more effective too.

posted by James C. Capretta | 7:38 pm
Tags: Robert Hockett, central planning, Obamacare, Medicare
File As: Health Care

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

Gas on the Entitlement Fire

President Obama has argued all year that a primary reason to enact a version of his health-care plan is to “bend the cost-curve” that has been burdening government and household budgets for years. Of course, the president has not shown that he has a credible plan to address rising health-care costs. But that hasn’t stopped him or his aides from talking as if they did.

Robert Samuelson has been a skeptic of Obamacare’s supposed cost-control potential from the beginning, but his column in today’s Washington Post summarizes his case with particularly effective force. It doesn’t hurt that all the evidence is on Samuelson’s side in this debate.

Samuelson’s critique is particularly important because the nation’s long-term prosperity is already threatened by rising entitlement costs. For starters, we are on the cusp of an unprecedented demographic shift. Over the course of the next quarter century, the population age 65 and older will increase from 39 million to 76 million people. This flood of new enrollees in Social Security and Medicare will push the costs of these programs up very dramatically. And runaway per capita health-care costs will exacerbate the problem substantially. According to the Congressional Budget Office (CBO), between 1975 and 2007, per capita Medicare spending rose, on average, 2.3 percentage points faster than per capita GDP growth. Medicaid’s per capita spending growth rate was not far behind. CBO expects both programs to continue growing at an accelerated pace for the foreseeable future. With an aging population and rising health costs, the long-term budget outlook is already challenging, to put it mildly. CBO projects that federal spending on Social Security, Medicare and Medicaid will rise from 10.1 percent of GDP in 2009 to 15.7 percent in 2035. That jump — 5.6 percent of GDP in twenty-five years — would be equivalent to adding another Social Security program or Defense Department to the federal budget without any additional revenue to pay for it.

And so, faced with a mountain of unfunded entitlement obligations, what would Obamacare do? Pile on more. According to the Census Bureau, in 2008, there were 127 million Americans under the age of 65 living in households with incomes between 100 and 400 percent of the federal poverty line. The House and Senate health-care bills would essentially promise all of them either free insurance through Medicaid or caps on their insurance premiums based on their incomes. This would constitute the single largest entitlement spending expansion since the Great Society programs of the 1960s. CBO expects the federal spending associated with these new open-ended health entitlement commitments to reach about $200 billion annually by 2019 and escalate at about 8 percent annually thereafter.

Meanwhile, the measures being touted as potential health-care cost-control steps are, by and large, nothing more than minor adjustments to existing provider payment arrangements in Medicare, and sometimes only tests of new payment approaches. For instance, the administration has been pushing a provision that would limit payments to hospitals that have high rates of preventable readmissions. The House-passed bill includes this change, but at a savings of only $1.6 billion in 2019. And even this level of savings is highly questionable, given the tendency of Congress to water down “payment reforms” over time. Indeed, it’s easy to imagine Congress rolling this payment change back at the first word that some hospitals are keeping the sickest patients out of their beds to avoid risking readmission payment “adjustments.” But even if it and other tweaks in the bills survive, they wouldn’t amount to much and certainly wouldn’t offset the cost pressures unleashed by extending new entitlement promises to a vast portion of America’s middle class.

And that’s not just the conclusion of critics like Samuelson. That’s also what the Chief Actuary for the Centers for Medicare and Medicaid Services (CMS) found in his review of the House-passed bill, released on Friday. As he put it, the provisions aimed at slowing the pace of rising costs would, by and large, have a “relatively small savings impact.” Consequently, instead of “bending the curve,” overall national health expenditures would rise by nearly $300 billion over a decade.

The only cost-cutting items in the House bill that the Chief Actuary said would really pinch costs are the across-the-board Medicare payment rate cuts applied to hospitals, nursing homes, and others. Of course, these kinds of arbitrary payment changes have been tried many times before and have never worked to really ease cost pressures. But, on paper at least, they appear to reduce federal spending. However, the Chief Actuary made it clear in his review that even though he listed the savings on his tables, he doesn’t think things will work out that way in the real world. As he put it, the cuts would push payment rates so low over time that some institutions wouldn’t be able to survive if they continued to serve Medicare patients. The threat of reduced access to care would be reason enough for Congress to reverse course and increase the payment rates at a later date. (Of course, that’s exactly what Congress is planning to do this year with physician fees, now scheduled to get cut 21 percent in January based on a previous congressional payment-rate policy that has now run amok.)

For a while, some Democrats liked to deflect calls for entitlement reform by suggesting that what the country really needs is a health-care plan that slows the pace of rising costs. Indeed, it has become almost a mantra among some Obama apologists to say “health reform is entitlement reform.”

But the bills moving through Congress thoroughly discredit that contention. There’s no reform in these bills. They are entitlement expansions, plain and simple.

Indeed, the Obama administration likes to suggest it has a plan to painlessly root out unnecessary health spending without harming patient care. In truth, there is no such plan, and there never will be. The federal government has no capacity to drive greater efficiency in the diverse and complex health sector. When cost pressures mount, as they surely would if Obamacare passes, the federal response will be what it has always been in the past: price controls and arbitrary caps. All Americans will pay the cost with inferior quality of care and access restrictions. The proponents of the current bills are betting that, by the time this reality has sunk in, it will be too late to wean the public off of another vast and irreversible entitlement.

posted by James C. Capretta | 5:45 pm
Tags: CBO, entitlements, cost, Obamacare, Robert Samuelson, CMS
File As: Health Care

Rahm Emanuel vs. Obamacare

Obamacare is predicated on the assumption that the federal government has the knowledge, capacity, and will to drive greater efficiency in American health care. Inadvertently, White House Chief of Staff Rahm Emanuel has become an articulate spokesman for why that assumption is dead wrong.

For months, the president and his team argued that stepped-up investments in health information technology, comparative effectiveness research, and prevention and wellness programs could “bend the cost-curve,” thus making an expansion of coverage affordable for taxpayers. But the Congressional Budget Office, along with a chorus of independent skeptics, said those steps would never be up to the task of reliable cost control without more fundamental changes in the financial incentives facing consumers and providers of services.

Unfazed, the administration argued that it had other ways to control costs waiting in the wings. The conversation turned to “delivery system reform,” with the administration and its allies in Congress suggesting that new ways of paying health-care providers in Medicare could spur a wholesale shift in how doctors and hospitals cared for patients. As White House Budget Director Peter Orszag put it, “Medicare and Medicaid are big enough to change the way medicine is practiced.” The implication was that the new team was working on ways to painlessly root out wasteful spending by compensating providers for their services differently than they are paid today.

But no such proposals were ever forthcoming (except for relatively minor adjustments related to payments for hospitals with high readmission rates, and some baby steps toward more “bundling” of payments for a full episode of care). What the White House did eventually propose was a commission that would have the authority to change the way Medicare pays for services without further approval by Congress. So instead of offering a serious plan to “bend the cost-curve,” the administration offered a commission that would come up with a serious plan to “bend the cost-curve.” Quite predictably, many in Congress have not been so keen on this idea, as it would hand off to an unelected commission the power to rewrite Medicare’s provider-payment regulations. The administration’s commission idea is not in the House-passed bill.

Not to worry! The administration has another favorite cost-cutting tool. The idea is to tax so-called “Cadillac” health insurance plans, thus forcing both the insurers and the plan enrollees to find ways to economize to avoid the tax. But there’s a little problem with this idea too. President Obama was against it before he was for it. Recall that Republican presidential candidate John McCain proposed to convert today’s preferential tax treatment of employer-paid insurance premiums into a refundable credit. In October 2008, the Obama-Biden campaign excoriated this idea in scores of ads because it would tax health benefits “for the first time ever.” Now, the president wants to do just that — but, again not surprisingly, the populist revolt he stoked against it in 2008 was still smoldering when he endorsed it in 2009. It turns out that taxing high-cost insurance plans will actually hit many middle-class households, especially those with union members enrolled in collectively-bargained plans. House Democrats wouldn’t go near the idea, and reports indicate that the version of the high-cost insurance tax in the Senate Finance Committee bill is getting watered down by the day. If some version of it survives at all, it is highly unlikely to pinch enough to generate meaningful cost control.

Reviewing this legislative landscape, it’s suddenly dawning on all concerned that the bills moving in Congress won’t come close to “bending the curve” after all. That’s the thrust of a piece today in the New York Times, as well as one from last week in the Washington Post. Of course, even as House members and Senators shy away from tough decisions, they are not nearly as reticent about extending new health entitlement commitments. Thus, it is now abundantly clear that if anything is produced by this legislative process, it will be a bill that piles more unaffordable entitlement commitments on top of the unreformed ones already on the books.

And so what’s the White House response to this alarming state of fiscal affairs? As recounted in the Times piece, Emanuel blames the limits of politics. “Let’s be honest,” Emanuel apparently stated in a recent interview. “The goal isn’t to see whether I can pass this through the executive board of the Brookings Institution. I’m passing it through the United State Congress with people who represent constituents.”

That’s exactly right of course. But it’s also an indictment of the entire Obamacare enterprise. The health-care bills under consideration would hand over to the federal government nearly all power for organizing American health care. And yet there is not a shred of evidence that Congress or the administration can handle these tasks well. Indeed, there is abundant evidence that, in a crunch to control costs, politicians will do what they always do, which is impose across-the-board payment-rate cuts. That’s certainly how the House-passed bill reduces Medicare spending. There’s no delivery system reform. It’s not “pay for performance.” There’s no calibrating of reimbursement levels based on the quality of care provided. It’s cuts for all providers, no matter how well or badly they treat patients.

Ultimately, the question in health reform is this: what process has the best chance to bring about continual improvement in the efficiency and quality of patient care? The only way to provide better care at less cost is with higher productivity in the health sector. What can make that happen, year in and year out?

Rahm Emanuel has given us the answer. The federal government, subject as it is to the constraints of politics, can’t do it. The only way to slow the pace of rising costs without sacrificing quality is by building a functioning marketplace, with cost-conscious consumers driving the allocation of resources. The government must play an important oversight role in such a marketplace. But if we rely on politicians, or even commissions that answer to them, for cost control, what we will get is lower quality, not more efficiency.

posted by James C. Capretta | 4:27 pm
Tags: Obamacare, Peter Orszag, Rahm Emanuel, control, competition, taxes
File As: Health Care

After the House Vote

Conservatives need to hammer home four points to shift indepedent voters and moderate Democrats even more decisively against enactment of Obamacare.

One, Obamacare will impose substantial new costs on the already insured middle class. The bill approved by the House establishes one-size-fits-all insurance rules which will drive up premiums and raise taxes on the health-care sector which will be passed onto middle-class health-care consumers.

Two, Obamacare will destroy jobs. The House bill would impose an 8 percent payroll tax on all but the smallest employers who do not offer health insurance and a 5.4 percent income tax surcharge on higher income individuals who also own small businesses. These taxes will discourage hiring and force layoffs when the number one concern of most American voters is job creation.

Three, Obamacare will ration care. The House bill relies almost exclusively on arbitrary, across-the-board payment rate reductions for health-care providers to achieve savings. If passed, that would just be the beginning of it. Despite all of the talk of painless efficiency measures, the Democratic sponsors really have no plan to control costs except with price-setting. Always and everywhere, price controls drive out willing suppliers of services, leading to queues and waiting lists.

Fourth, Obamacare is entirely unnecessary. We can fix the problems in U.S. health care without a government takeover by pursuing sensible, targeted reforms. With properly structured high-risk pools and insurance regulation, pre-existing conditions could be insured at reasonable costs. With tax credits and small-business reforms (such as those implemented in Utah), most of the uninsured would have access to coverage. And the competitive model used to deliver Medicare drug coverage should serve as the basis for controlling costs.

posted by James C. Capretta | 4:22 pm
Tags: Obamacare, House bill, tax hikes, rationing
File As: Health Care

The Insanity of the House Bill

At the beginning of this year, there was great hope in some circles that Congress would enact significant health-care reform that would address the central, vexing problem of today’s arrangements, which is rapidly escalating costs. That hope has waned considerably as the Democrats controlling the process have made a series of decisions revealing that their only real ambition is to get to a signing ceremony for something called “universal coverage.”

Still, there have been some true believers in the business, health, and policy communities who have thought it better to keep their powder dry and not criticize the emerging legislation based on the hope that some level of constructive engagement might improve matters. Fat chance. The bill unveiled today by House Speaker Nancy Pelosi should put to rest for good the thought that this year’s legislative process will produce anything other than a total fiscal and health policy disaster.

To sum it up, the House bill is nothing but a massive, uncontrolled federal entitlement expansion — at a time when the central, looming threat to the nation’s long-term prosperity is the unaffordable health-care entitlements already on the federal books. To create the impression of fiscal responsibility, the bill is jury-rigged with budget gimmicks, implausible eligibility rules, and arbitrary, government-dictated price controls — that have been tried repeatedly without success — to make it look like it costs “only” $900 billion over a decade.

Let’s start with the much ballyhooed effort to bring the costs of the bill down from the $1.5 trillion budget-buster which was introduced by House leaders in July. There are two significant changes from that earlier version. First, the bill simply drops altogether the repeal of the so-called “sustainable growth rate,” or SGR, formula. The SGR, ironically, is a product of just the kind of central planning that is at the heart of Obamacare. It was designed by the Medicare bureaucracy to control costs, but all it has done is cut doctors’ fees while volume soars. The scheduled cut in 2010 is for more than 20 percent. Everyone knows it must be fixed, but the full, ten-year costs of repeal approaches $250 billion. The Democratic solution? Repeal it separately from Obamacare — and borrow more. Presto. The House bill now “costs less.” The Congressional Budget Office (CBO) projects that the Obama budget will push the nation’s debt to more than $17 trillion in 2019, up from $5.8 trillion at the end of 2008. It’s only a matter of time before that level of borrowing precipitates a crisis. The last thing our country needs is more unfinanced Medicare spending.

The second major change is a massive expansion of Medicaid, raising the upper income cutoff from 133 percent of the federal poverty line in the July bill to 150 percent in today’s version. According to CBO’s estimate of the plan released today, the total, ten-year cost of the higher Medicaid enrollment will be $425 billion. By 2019, some 50 million Americans will be enrolled in the program (and its companion program for children’s coverage), compared to 35 million under current law. Even before this massive expansion, CBO projected that the combined costs for Medicare and Medicaid would increase from 5.3 percent of GDP in 2009 to 9.7 percent in 2035. Adding more enrollment to Medicaid will only make matters much worse. Indeed, CBO acknowledges that the additional spending on Medicaid in the House bill is likely to increase at an annual rate of about 8 percent indefinitely. That’s not surprising. Medicaid spending has been escalating rapidly for nearly half a century, and the House bill does nothing to change the trajectory. It is true that Medicaid expansions appear to cost less than private insurance coverage, but that’s only because Medicaid shifts costs to private payers by underpaying doctors and hospitals.

Still, CBO’s cost estimate shows neutrality, at least on paper. How? There’s a new, nearly $500 billion income-tax increase, aimed at high-income households. Of course, many of these households own businesses, and so the Democrats are planning a heavy new tax on just the individuals who may be in a position to do some hiring in a recession.

Then there are the payment-rate reductions in Medicare and Medicaid, totaling more than $400 billion over a decade. The president and many other Democrats have claimed for months that they were going to make health-care delivery more efficient, thus painlessly finding new money to pay for more coverage. Nothing of the kind is in the House bill. Instead, there are scores of provisions that are essentially more of the same price-setting payment regulations that have failed so miserably in the past. They get scored by CBO, but that doesn’t mean they will happen. In fact, they have been tried countless times over the past quarter century, and have never worked to permanently slow the pace of rising costs. All they ever really do is shift more costs onto middle-class enrollees in private insurance.

There’s much else in this bill that would do great damage to the health sector and the American economy. Heavy payroll taxes that will reduce low-wage employment. Mandates on employers that will drive up costs and reduce wages. Intrusive federal bureaucracies that will come between patients and doctors. They can do a lot of damage in nearly 2,000 pages.

Fortunately, there remains one very powerful opponent to what House and Senate Democrats are considering — the public. Most Americans want no part of this massive liberal overreach. And there’s still time to put a halt to the madness. But the window is closing.

posted by James C. Capretta | 6:28 pm
Tags: Obamacare, Nancy Pelosi, House bill, Medicare, Medicaid, tax increase, small businesses
File As: Health Care

On Deficits and Doctors

Late last week, Senate Budget Committee Chairman Kent Conrad told his fellow Democratic colleagues that he wouldn’t play along with their transparent scheme to offload $247 billion — the amount needed to pay for the so-called Medicare “doc fix” over ten years — from Obamacare onto another piece of budget-busting legislation. For that bit of independent thinking, Senator Conrad is getting his own, personal meeting today with the president of the United States in the Oval Office.

Why would the president drop everything to have a last minute, one-on-one meeting with a single Democratic Senator? Because he will do anything to get a bill done this year, and Democratic strategists have told him that running the “doc fix” as a standalone measure is key to passing a governmental takeover of American health-care, which is their goal. They may be right.

Some kind of “doc fix” provision has been enacted every year since 2002 to override the current Medicare physician-payment rule, known as the “sustainable growth rate,” or SGR, formula. Ironically, the SGR is a prime example of how the kind of health-care central planning at the heart of Obamacare will inevitably run amok. Medicare administrators have been trying for two decades to use bureaucratically-devised payment schemes like the SGR to keep total physician spending in line with overall growth of the economy. But Medicare’s payment regulations can only control prices, not volume. So as use of services has gone up, the SGR formula has called for large, annual reductions in the per service fees Medicare pays to physicians. In recent years, Congress has regularly overridden the SGR formula on an ad hoc basis to avoid the 10 to 20 percent cuts in payment rates that would otherwise have occurred. Under current law, application of the SGR formula would result in a 21 percent reduction in physician fees in 2010.

Everyone knows that won’t happen because neither party supports such deep cuts in physician fees. The only question is how it will get fixed.

House Democrats, sensing an opportunity, offered to include a full SGR repeal in their health-care plan if the American Medical Association (AMA) were to endorse the bill. Tens of thousands of U.S. physicians are adamantly opposed to government-run health-care and would never have agreed to compromise their principles for short-term financial gain. But the AMA bureaucracy is another matter entirely. They worked overtime to get their leadership to accede to the deal.

Then came the president’s September speech to a joint session of Congress, during which he pledged to hold the line on the health-care plan at “only” $900 billion over a decade. The House bill overshoots that mark by about $300 billion at last count, and that’s before Democratic leaders engage in a round of aggressive vote-buying.

And, so, faced with a budget constraint, enterprising Democrats settled on a solution. Instead of one budget-busting bill, why not two? The plan now is to try to pass a full SGR repeal, at a cost of $247 billion over a decade, separate from the health-care bill, thus allowing more spending all around.

The only problem is that even some Senate Democrats find this scheme too shameless by half to support. Senator Evan Bayh said last week that he agreed with Senator Conrad that a physician-fee fix should not add to the nation’s already skyrocketing debt.

Indeed, despite the setting, there’s no reason today’s meeting should have changed Senator Conrad’s mind. The facts are on his side.

On Friday, the Treasury Department announced that the federal government ran a $1.42 trillion budget deficit in 2009, or about 10 percent of GDP. That’s the largest nominal budget deficit in history, and the largest as a percentage of GDP since World War II. From 1789 to 2008, the federal government borrowed about $5.8 trillion. In just two years, 2009 and 2010, the government will borrow nearly $3 trillion more. Further, the Congressional Budget Office (CBO) expects the federal government’s debt to exceed $14 trillion by 2019, and that’s before the full force of the baby boom retirement has hit the government’s books. The Obama administration’s budget plan would make this very daunting budgetary outlook much worse.

In this environment, the last thing our nation needs is another piece of legislation — after all of the bailouts and buyouts of 2009 — to dump $250 billion more onto the pile of debt that will be passed on to the next generation of taxpayers. Doctors’ fees in 2010 will not get cut. That’s a certainty. It only costs about $11 billion to fix the problem next year.

Indeed, this really shouldn’t be a close call for any politician claiming to be a fiscal conservative. The Democratic plan would add $250 billion to the federal budget deficit over a decade, thus allowing an even more expansive entitlement in Obamacare. That should be enough to draw unified Republican opposition. And if Senator Conrad and a few of his colleagues don’t buckle, there should be more than enough votes to defeat this blatant attempt to force taxpayers to pay yet again for plans hatched entirely for political reasons.

posted by James C. Capretta | 6:18 pm
Tags: Conrad, physician-fee fix, deficit, Obamacare
File As: Health Care

Previous  Next