Health Care


Is Government-Driven “Cost Containment” Our Only Option?

November 18, 2009

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

November 16, 2009

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

November 10, 2009

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

November 9, 2009

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 Central-Planning Conceit

November 6, 2009 • This weekend, House Democrats are planning to pass two health-care bills. One is a sweeping plan that would shift nearly all power over the organization of American health care to Washington, D.C. The other — a full repeal of the “sustainable growth rate” (SGR) formula governing Medicare physician fee payments — is proof positive that the first bill’s strategy of centralized planning is ill-conceived and dangerous to the quality of U.S. medical care.

To understand why, it is worth reviewing how the SGR came to be. In the late 1980s and 1990s, the Medicare bureaucracy set out to reform the way physicians are reimbursed for providing services to the program’s enrollees. The idea was to shift more resources toward generalists, who were then thought to be undercompensated for spending time with patients, and to control overall costs by limiting the growth of aggregate payments to growth in the size of the U.S. economy. After several years of study, lengthy payment regulations were issued, including a predecessor to the SGR formula, which had immediate and profound financial consequences for nearly every practicing physician in the United States.

And so what happened? The exact opposite of what was intended. Instead of encouraging more physicians to enter into primary care, the Medicare physician-fee schedule has rewarded more specialization. The fee schedule only controls prices, not volume. As Medicare’s administrators have tried to hold down costs with fee cuts, specialists increased their share of the pie with more tests and procedures, at the expense of primary-care reimbursement rates. Not surprisingly, the trend of physicians entering specialist practices has accelerated dramatically in the last twenty years. Moreover, overall costs have never been brought under control. With volume soaring, the SGR formula governing annual fee updates has gone completely off the rails. In 2010, fees are supposed to get cut by 21 percent unless Congress overrides it yet again. To secure the AMA’s endorsement of their health-care bill, House leaders are planning to scrap the SGR component of the physician fee system altogether, at a cost of more than $200 billion over a decade.

The irony of the situation seems to be lost on House Democrats: Congress is moving to repeal a prime example of health-care central planning run amok while simultaneously extending federal control to every corner of American health care.

For its part, the Obama administration has been promising for months that it would deliver new and improved central planning to “bend the cost-curve.” The White House Budget Director, Peter Orszag, in a February interview with Politico, suggested that the incoming Obama team was working on groundbreaking ideas that would use the levers of government payment policy to painlessly eliminate inefficiency in American health care. As Orszag put it, “Medicare and Medicaid are big enough to change the way medicine is practiced.”

Now, nine months later, it turns out the Obama administration doesn’t actually have any new ideas of what to do. It is instead proposing to empower an unelected, unaccountable commission to come up with the whiz-bang ideas, which would go into effect automatically without further congressional action. But House Democrats found the commission approach unacceptable, as it would take too much of the central planning power away from them. And so they have instead filled their bill with assorted pilot projects and tests of new Medicare payment approaches. Orszag touts these as good ideas with potential, too. But these ideas would have virtually no impact on federal spending, according to the Congressional Budget Office, and they certainly are not up to the task of offsetting the costs of the massive increase in entitlement spending contemplated in the House leadership bill.

Instead of clever new ideas that painlessly root out waste and inefficiency, the House bill finds savings the same way all central planners ultimately do: with deep and arbitrary across-the-board payment rate cuts. Despite all of the talk of delivery system reform, there’s no real effort to make distinctions based on the quality of patient care. Everyone gets cut the same.

And that’s the real danger of the House bill. There’s no prospect that the federal government will become more nimble overnight at managing the vast and complex health sector in the United States. To control costs in health care, the federal government will do what it always does — it will set prices. In time, that will have the predictable result of driving out willing suppliers of services, leading to queues and access problems. Call it centrally-planned rationing of care.

posted by James C. Capretta | 9:29 am
Tags: central planning, House vote, Medicare, Peter Orszag
File As: Health Care

Not Even Health-Care Trumps Pro-Abortion Radicalism of Obama Democrats

November 5, 2009 • The stated number-one priority for Democrats is passage of a government takeover of American health-care. President Obama and his allies in Congress have essentially bet the future of their party on securing something radical and sweeping. Congressional leaders have set aside everything else until they can pass some version of Obamacare, and they have pledged to do whatever is necessary — taxpayers beware — to reach their goal.

But there’s apparently one thing most Democrats aren’t willing to do, even if it jeopardizes their health-care ambitions. And that’s back down on their unwavering commitment to abortion radicalism.

For months, pro-life Democratic Congressman Bart Stupak has warned Democratic leaders that he and a sizeable bloc of like-minded colleagues would vote against the Democratic health-care bill in the House if it didn’t clearly and unambiguously preclude taxpayer funding of elective abortions in a reformed system of subsidized health insurance.

This should be a no-brainer for House Democratic leaders. Giving Rep. Stupak what he wants — which is a clean vote on a no-funding-for-abortion amendment — would remove one more roadblock on their way to the nirvana of government-run health insurance.

But Speaker Pelosi apparently sees a big problem with that approach, which is that Rep. Stupak would very likely win, perhaps cementing for good in permanent law a strong prohibition against taxpayer funding of abortions in a national health-care plan. To abortion radicals, that’s simply too much to stomach.

So instead of giving in to Stupak, House Democratic leaders are apparently working overtime on another course of action, which is to try to divide the Stupak bloc and pick off enough of his fellow Democrats with minor tweaks to the existing bill to allow passage.

Squishy pro-life Democrats shouldn’t be fooled. If they enable passage with their votes of a health-care bill that facilitates public funding of health insurance covering elective abortions, they will be held accountable by pro-life voters. It won’t matter if every pro-abortion politician in the country, from President Obama on down, asserts that the plan doesn’t pay for abortions. Pro-life voters won’t listen to them. They will listen to more trusted voices, and if they say that the health-care plan expands the abortion license, that’s all that will matter.

President Obama came in to office proclaiming a new openness to the pro-life position. But that was just a lot of talk to divide the conservative coalition. Actions speak louder than words. And his administration and its allies in Congress are using every tool at their disposal to make elective abortions a part of mainstream insurance coverage. Any Democrat who helps them to do so is no pro-lifer.

posted by James C. Capretta | 10:18 am
Tags: Bart Stupak, Nancy Pelosi, federal funding of abortion, pro-life Democrats
File As: Health Care

It’s $1.5 Trillion, Not $900 Billion

October 30, 2009

The health-care bill unveiled yesterday by House Speaker Nancy Pelosi is being advertised as costing “only” $894 billion over a decade. But that is highly misleading.

For starters, the gross cost of expanded Medicaid coverage and a new entitlement to subsidies for health insurance is much higher than Democrats are suggesting, according to the cost estimate released yesterday by the Congressional Budget Office (CBO). The Democrats report a lower number by netting out the taxes some individuals pay when they don’t enroll in insurance, as well as the tax payments from employers who choose to “pay” rather than “play.” But that accounting confuses tax increases with spending reduction. The gross spending increase from the entitlement expansions in the revised House bill is $1.055 trillion over ten years, not $894 billion.

In addition, as I noted previously, House Democrats have conveniently decided to take the so-called “doc fix” out of the larger health-care bill and pass it as a standalone measure, at a cost of $250 billion over ten years. The House health-care bill is bursting with other Medicare-related provisions. What could possibly justify separate accounting for the physician fee fix? In fact, there is no justification, other than budgetary smoke and mirrors. House leaders are splitting the costs of their scheme into two bills and pretending that this maneuver somehow brings down the overall cost to taxpayers. It doesn’t. In reality, House Democrats are still planning to spend $250 billion on Medicare physician fees, and that should be made clear in any honest accounting of what’s afoot here.

Finally, there’s the other spending in the health-care plan. There’s loads of it. Higher Medicaid matching funds to buy off selected governors. A new program aimed at encouraging more physicians to enter primary care. Prevention spending. And apparently just about anything else House Democrats could think of to spend taxpayers’ money on. When it’s all racked up, these programs cost $230 billion over a decade. And that’s not even including the extra spending on Medicare drug coverage, which is obscured in CBO’s accounting by provisions which allow the government to set payment rates for certain products.

All totaled, then, Democratic leaders are planning to ram a $1.5 trillion spending program through the House in coming days, far exceeding the $900 billion threshold that President Obama supposedly established in his speech to a joint session of Congress.

How are House leaders planning to cover these costs? Well, for starters, they aren’t. The cost of the physician fee fix will simply get added to the ballooning debt President Obama is planning to run up during his presidency. The rest will supposedly be covered by a whopping tax increase and implausible price-controls in Medicare and Medicaid.

On the tax side, Democrats are planning to saddle those with annual incomes exceeding $500,000 with a new 5.4 percent surtax. That would raise $461 billion over a decade, according to the Joint Tax Committee. But there’s also the penalty tax imposed on individuals who don’t sign up for health insurance. That raises $33 billion. There’s also the employer “pay or play” mandate, which brings in $135 billion. And finally, there are the taxes on medical device manufacturers and many others. These provisions raise an additional $100 billion over a decade. In all, therefore, House Democrats want to raise taxes on Americans by $725 billion over the period 2010 to 2019 to partially pay for their health-care scheme.

The Democrats close the remaining gap (excluding the physician fee spending) by cutting Medicare and Medicaid spending by about $550 billion over ten years and starting up a new, budget-busting long-term care program that brings in $72 billion in excess premiums in its early years.

President Obama has claimed all year that he would work with Congress to put in place reforms that would make health-care delivery more efficient. But that’s not what House Democrats are proposing with their changes to Medicare. Their plan is for payment rate reductions, indiscriminately applied to all providers without regard to any measure of quality. All hospitals would get basically the same percentage cut in their payments, no matter how well or badly they treat their patients. As the Washington Post noted this morning, these cuts imply that House Democrats have found the magic formula for slowing Medicare per capita spending from a 7 percent average over the past two decades to just 4 percent for the coming twenty years. That is beyond implausible. Congress and the Medicare bureaucracy have been trying to slow the pace of entitlement spending with price controls for nearly half a century, and it has never worked. CBO has to score the provisions as they are written. But common sense indicates that these Medicare payment rate reductions will never finance the massive entitlement spending House leaders are planning.

In sum, then, the House plan is not a $900 billion program. It’s a $725 billion tax increase and a $1.5 trillion spending program. Tax and spend, indeed.

posted by James C. Capretta | 8:16 pm
Tags: House bill, Democrats, CBO, budget, tax increases, Pelosi, Obama
File As: Health Care

The Insanity of the House Bill

October 29, 2009

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

The Insurance Fix

October 29, 2009 • Most Americans are generally satisfied with their current insurance, and they do not believe a government takeover is needed to address the problems they see occuring from time to time. They’re right: It isn’t necessary. What's needed is a targeted reform that ensures reliable protection for those who stay continuously insured. That's the subject of an article I wrote with Tom Miller of AEI, published in the latest edition of National Review, and available here (in PDF format) as well.

posted by James C. Capretta | 11:37 am
Tags: targeted reform, alternative reform
File As: Health Care

The Death of the House Bill

October 22, 2009

In July, the president and the Democratic leaders in the House of Representatives argued that the time for analysis and debate was over and that the House should pass its version of health-care reform before the August recess.

Now, just three months later, House Democrats are saying that the bill they were in such a hurry to pass during the summer is old news and irrelevant. What matters now, they assert, is their “new and improved” version of reform, which they promise will be much better and easier to pass. Of course, they aren’t sufficiently confident in its virtues to open it up to public scrutiny just yet. No, they assert the bill will be different even though the legislative plan is clearly going to be just as it was in July. House Democrats are hoping to unveil their updated version of Obamacare as close as possible to a vote, probably in November, so that there is no time for public opposition to stop it.

It might work. But then again, that’s what they tried to do with version 1.0. The original bill was made available on July 14 with the intention of having a vote in the full House on July 31. That strategy failed miserably because it took just a few days for the public to figure out that what House Democrats were pushing represented far more governmental control of health care than the public was comfortable with. Momentum toward passage dwindled.

Now even the original sponsors of the House bill are walking away from it. On Wednesday, Representative Pete Stark (D.-California), the chairman of the Ways and Means Health Subcommittee, responded to a new and devastating analysis of the original House bill (as passed by the Ways and Means Committee on July 17) by saying that it is beside the point. House leaders are constructing a new version, so the new analysis is “out-of-date relative to what will ultimately be voted on in the House,” Representative Stark said.

The analysis in question was conducted by the Chief Actuary at the Centers for Medicare and Medicaid Services (CMS). Given what it says, it’s understandable that Representative Stark would now disown the bill he helped write. Here are some of the findings:

  • Total national health spending would increase by $750 billion over the next decade. (So much for “bending the cost curve.”)
     
  • The overall cost of the House bill will be $1.2 trillion over the period between 2010 and 2019. By 2019, the annual cost of the entitlement expansions would be $236 billion, rising at a rate of 9 percent annually. After all this spending, there would still be 23 million uninsured residents in 2019.
     
  • The president’s signature initiatives to slow the pace of rising costs — comparative effectiveness research, prevention and wellness efforts, and payment changes in Medicare — won’t work as advertised. The savings are almost non-existent.
     
  • The cuts in Medicare Advantage plans would result in “less generous benefit packages” for millions of seniors. The actuaries estimate the House’s Medicare Advantage cuts, which are unlikely to change in any new version of the bill, would force about 8.5 million seniors out of the coverage they would prefer and back into the traditional program. (So much for “keeping the coverage you have today.”)
     
  • Democratic proposals to impose arbitrary, across-the-board payment rate cuts for hospitals, nursing homes, and home health agencies based on presumed “productivity gains” are unlikely to work as planned. The actuaries suggest that some institutions won’t be able to hit the targets because health care is more labor intensive than other sectors of the economy. Consequently, the cuts could force some organizations to leave the Medicare program, thus “possibly jeopardizing access to care for beneficiaries.”

In recent days, House Speaker Nancy Pelosi and her “leadership aides” have let it be known to reporters that they have gotten more favorable reviews of their updated bill from the Congressional Budget Office (CBO). According to press accounts, the new bill, which is not available to the public, comes in under $900 billion and will cut the federal budget deficit for two decades.

From a process standpoint, CBO should never allow members of Congress to characterize the findings of confidential cost estimates without consequences. Undoubtedly, CBO staff is told not to share its analysis with anyone until the bill is unveiled. But if House leaders decide to go public with CBO’s apparent bottom line, CBO really should be obligated to go public with the entire analysis to ensure no misunderstanding. Otherwise CBO’s findings can be distorted. House Democrats are trying to build momentum again toward passage by creating the impression they have found a painless way to turn their budget-busting bill from July into one that actually cuts the deficit. It’s CBO’s job to make sure no one gets away with this kind of phony free-lunch argument. If in fact a new version of the House bill reduces the federal budget deficit over two decades, someone is paying. Who? Here’s betting that’s it’s the American middle class. And as soon as that becomes known, the new updated House bill is likely to become just as unpopular as the now dead and buried old one.

posted by James C. Capretta | 10:37 pm
Tags: CBO, CMS, House, Ways and Means, Pete Stark, Medicare Advantage, Nancy Pelosi
File As: Health Care

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