Health Care

When the Government Runs Health Insurance

June 17, 2009

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

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

Well, guess what?

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

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

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

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

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

CBO and the Kennedy-Dodd Bill

June 16, 2009

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

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

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

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

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

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

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

Obamacare is Getting Less Inevitable by the Day

June 11, 2009

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

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

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

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

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

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

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

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

Joint Tax Committee Letter to Senator Baucus

June 11, 2009 • Last week, the Joint Tax Committee sent a letter to Senate Finance Committee Chairman Max Baucus outlining the potential revenue that could be raised from some of the tax options the committee is apparently considering. Three of the options would limit the tax preference for employer-paid premiums. It is clear from the wide range of the revenue estimates provided by JCT that the details of any taxation of benefits proposal are crucial. The full JCT letter and accompanying revenue table are available here in PDF format.

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

There’s No Doubt Now

June 5, 2009

Those outside groups and interested parties who have held their fire in the health-care debate while waiting for the details to emerge — well, there really is no excuse now. Everyone should know what is coming.

On Tuesday, President Obama sent a letter to Senators Kennedy and Baucus outlining what kind of bill he wants and will support. And what he wants is a government takeover of American health-care, plain and simple.

Sure, the letter’s only three pages long (that constitutes a “plan” in this administration). But it was probably written to give the senators some political cover for the more controversial provisions they plan to pass, and thus it contains just enough coded language to confirm that all involved are planning to hand full control over American health-care to the federal government.

For starters, President Obama unequivocally endorses the creation of a new government-run insurance option for working age Americans and their families. For weeks, Senator Baucus has hinted that, well, maybe such an option isn’t necessary. That led many on the left to put pressure back on Democrats in Congress to deliver what they had promised — or else. With the president’s re-endorsement of the idea (he supported it during his campaign), it is now inconceivable that the Democrats won’t include a heavily price-controlled government-run plan in the bill they try to pass.

The Obama letter also endorses a so-called “individual mandate” — a requirement that everyone enroll in some kind of insurance or pay a penalty. During the 2008 campaign, then-Senator Obama made a big deal of opposing this idea — which was the centerpiece of Senator Hillary Clinton’s reform agenda. Now, however, he has flip-flopped — as Politico reported — and endorsed it, so long as “hardship” cases are exempt.

The individual mandate has long been accepted orthodoxy among most Congressional Democrats. For them, the real goal is to be able to say they passed “universal coverage,” and the only way they can say that they did is if they make those who would opt out enroll in something anyway.

Moreover, the individual mandate is the excuse for everything else they want to do. The government can’t make people buy insurance if they can’t afford it, so there needs to be an expansive new health-insurance entitlement program (Sen. Kennedy’s outline would allow everyone up to 500 percent of the poverty line qualify). And if there’s a mandate, the government must define what qualifies. And on and on.

The primary obstacle in the way of rapid passage of the emerging Democratic plan remains cost. The bill will be enormously expensive, at a time when the federal government is already running massive budget deficits. Despite all of the talk of “bending the cost curve,” the Democrats have offered nothing that would put a dent in rising costs. And many rank and file Democrats are likely to balk at Senatir Baucus’s push to tax employer-paid premiums.

So what’s their way out? A gimmick, of course.

The Obama letter floats the idea which has been making the rounds among Democrats for weeks. Instead of making tough budgetary choices themselves, they are now hoping they can simply require some unelected, unaccountable advisory group — the Medicare Payment Advisory Commission (MedPac) — to find the savings for them.

This is the worst of all possible worlds. Call it the black box of government-driven rationing of care. MedPac — or any other federal agency for that matter — would be working from the same laundry list of price-controls and fee cuts that Congress has always used to try to control costs in governmental health programs. The idea that somehow an existing or new agency will discover new ways to painlessly reduce costs is a fiction. They would end up doing what every other government around the world has done — impose artificial cost limits on providers of services, which will reduce the number of willing suppliers and lead to waiting lists and queues.

Perhaps in this sense President Obama’s letter is a blessing. It is now much clearer how the Democrats plan to impose bureaucratic rationing of care on the public. This should become the basis for determined opposition, inside and outside of Congress.

[Cross-posted at the Corner]

posted by James C. Capretta | 6:16 pm
File As: Health Care

Wishful Thinking, Not a Plan

May 30, 2009

OMB director Peter Orszag continues to talk as if the Obama administration has presented a credible plan to control health-care costs in their push for expanded coverage.

Today, in a new post at OMB’s website, Orszag again highlights for his readers how great things would be if, in fact, health-care costs slowed down. And, of course, it’s true, if Medicare and Medicaid spending suddenly grew at rates that were 0.5, 1.0, or 1.5 percentage points below historical trends then, yes, our fiscal position would improve dramatically over time.

But there’s just one small problem here. There is no plan to do any such thing.

Congress is working on a health-care bill to expand coverage mainly by subsidizing insurance for tens of millions of households. This new entitlement is likely to cost $150 billion per year initially and grow, on a per capita basis, at a rate that is about 2 percentage points above GDP growth each year going forward. In other words, the cost of this new program will rise just as rapidly as Medicare and Medicaid spending has for decades now.

Orszag and others are saying, don’t worry, health-information technology, comparative-effectiveness research, more attention to prevention and wellness, and some very modest provider payment reforms in Medicare will make all of this governmental spending — on Medicare, Medicaid, and the new subsidy program — grow much more slowly in the future than it has in the past.

But this is an assertion — not a fact. Where’s the evidence to back it up?

If the Orszag cost-control plan would really do something to slow the pace of rising costs, it’s within his power to prove it. He can ask the actuaries who do the Medicare and Medicaid projections for the administration to certify his claim.

But we haven’t seen anything from the actuaries because they are probably just as skeptical as their counterparts at the Congressional Budget Office (CBO). CBO officials have already said — numerous times — that the kinds of reforms Orszag likes to cite as the answers to all problems are highly unlikely to do much of anything. What’s needed is much more fundamental change in the financial incentives for consumers and suppliers of medical services — the kinds of changes that would be controversial and therefore haven’t been taken up by the Obama administration or Democratic leaders in Congress.

The president himself has said that we are headed toward a fiscal crisis if we don’t take action to control entitlement spending. And, yet, his administration is pushing Congress to pass the largest entitlement expansion since 1965 based on a cost-control “plan” that amounts to not much more than a lot of wishful thinking. At this moment in our history, it’s hard to think of anything more dangerous than that.

[Cross-posted at the Corner] 

posted by James C. Capretta | 9:20 am
File As: Health Care

Not ObamaCare

Ezra Klein's Confusion
May 27, 2009

Last week, Representatives Paul Ryan and David Devin Nunes, and Senators Tom Coburn and Richard Burr, introduced a comprehensive Republican health-carereform plan, called the Patients’ Choice Act (PCA).

By and large, their plan has been well-received among conservatives (see, for instance, this op-edin theWall Street Journalby Grace-Marie Turner and Joe Antos), and for good reason.It calls for shifting today’s tax preference for employer-paid premiums into a refundable credit which individuals, not companies, would control (the credit would initially be worth $5,700 for households and $2,300 for individuals). Reforming the federal tax treatment of health insurance is the essential first step in building a real marketplace in health care.The plan also envisions moving today’s low-income Medicaid population out of public coverage and into private insurance.

Today, James Pethokoukis of Reuters has apieceon some of the back and forth among conservatives about the perceived merits or drawbacks of the plan.Of course, like everyone else, I might change some aspects of the bill if I could.But, on balance, I applaud the effort — Pethokoukis quotes me in the piece to that effect — because the bill should help solidify rank-and-file Republican opposition to Obamacare.

Which is why I found it so strange to see that some Obamacare supporters — namely Ezra Klein — apparently believe the introduction of the PCA will make passage of the emerging Democratic plan more likely.Klein argues (in the Reuters piece linked above) that the new Republican plan looks so much like the plans Democrats want to pass that it will undermine the arguments for opposing Obamacare.

That’s a real stretch, to say the least.

Unlike the Democratic plans, the PCA does not:require individuals to enroll in insurance; impose any mandates on employers; require a minimum benefit package; federalize insurance regulation; expand Medicaid or other public insurance; micro-manage health-care decisions from Washington; or bankrupt the federal government.Moreover, the PCA is built on individual choice of insurance, while the Democratic plans are premised on government and employer control.

If Klein and others are ready to endorse the PCA and abandon Obamacare because there’s no real difference between them, that would be fine.But he shouldn’t expect PCA’s supporters to feel the same about Obamacare.

posted by James C. Capretta | 5:28 pm
File As: Health Care

Reasons to Be Skeptical

May 22, 2009

Last week, I was interviewed for two segments of NRO-TV's "Off the Page."

The first segment, available here, is focused on the health industry's pledge to cut $2 trillion from health spending over the coming decade — and my deep skepticism that they actually have the power to do any such thing.

In the second segment, available here, the subject is the happily insured — those Americans who support reform but don't want to switch out of their current coverage arrangements. I argue that conservatives need to be attentive to their wishes so that they can be enlisted to oppose the worst elements of an Obama-style reform plan.

posted by James C. Capretta | 3:40 pm
File As: Health Care


May 22, 2009

The most recent issue of National Review magazine is devoted to health-care issues and the reform debate. There are pieces by Regina Herzlinger on why sensible reform is necessary; John Goodman on the failures of socialized systems; and Michael Cannon on why the Democratic reforms plans won't work. A full listing of the issue's contents is available here (a subscription is needed to gain access to most of these pieces through this link).

In addition, the issue includes a piece by yours truly: "Prescription: A politically salable approach to market-based reform." In this article, I argue that conservatives need to pursue market-based solutions in health-care in stages, in part because there are tens of millions of happily insured Americans who are wary of reforms that might disrupt the plans they are in today. These voters will be pivotal to the outcome of this year's debate.

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

Cost-Curve Confusion

May 21, 2009

So much confusion, so little time.

Let’s start with OMB director Peter Orszag’s blog entry from last week on the 2009 Medicare Trustees’ report. In it, he suggested that Medicare’s financial problems really aren’t related to the retirement of 78 million baby boomers. No, he asserted, the problem is really just rising per capita health-care costs, hence the presidential emphasis on “bending the cost-curve.”

But, as Andrew Biggs of AEI has noted, that’s a very inaccurate characterization of the problem. Over the short and medium term — indeed, until nearly 2050 — the predominant reason for rapid entitlement spending growth is population aging and massive new enrollment in Social Security and Medicare. Between 2010 and 2030, the U.S. population age 65 and older will increase from about 41 million to 71 million people. Paying governmental benefits for those 30 million new “senior citizens” is going to be expensive — indeed, could drive us off of a fiscal cliff — even if, by some miracle, per capita health-care inflation moderates. We face an entitlement train-wreck no matter what is done on health-care costs.

But Orszag’s assertion to the contrary begs the question: Where is this plan to “bend the cost-curve,” anyway? And who’s writing it?

It is telling that Orszag entitled his blog, “Medicare Trustees to America: Bend the Curve!” But the Medicare Trustees actually send their report to leaders in Congress and, in a sense, to national political leaders in general. After all, it’s the president and other elected representatives who can actually do something about the problem if they want to, not the average citizen.

Of course, the administration would argue they do have a plan. In a Wall Street Journal op-ed last Friday, Orszag suggested the curve would be bent by investing in health-information technology, comparative-effectiveness research, and prevention and wellness, and by changing financial incentives for providers to deliver care more efficiently. But the so-called “stimulus” bill already invested billions in the first three of these items. If these ideas were really going to do the job, why do all of the experts still say costs are going to rise as rapidly as ever?

Regarding “provider payment reforms,” the administration’s own numbers show there’s no real fundamental bending of the curve going on. Yes, there would be some budgetary savings, but it would be from the predictable cuts in government spending, not a slowing of health-care inflation.

The truth is that the administration has no plan to bend the cost curve, and neither does the industry which signed that infamous letter pledging cooperation. All involved continue to talk as if the problem can be solved with unspecified — but clearly non-controversial — measures. More investments. Better coverage. Smarter payment rules. Poof, the curve is bent.

But it’s not going to work that way. There are only two ways to really change the cost trajectory. Build a real marketplace with cost-conscious consumers, or impose arbitrary government cost constraints, as many other countries do today. The Democrats are unwilling to trust consumer choice, but they’re also afraid — with good reason — of the political fallout that would ensue if they openly embraced the kinds of tough cost limits they actually favor. Which is why no one can seem to find that much-discussed plan to bend the cost curve.

posted by James C. Capretta | 6:35 pm
File As: Health Care

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