Health Care


An Ugly Menu

May 21, 2009

It’s been apparent for some time that the biggest obstacle in the way of Congressional passage of the kind of sweeping health-care plan most Democrats favor is paying for it. As recently as Sunday, OMB director Peter Orszag again pledged that whatever bill emerges won’t add to the federal budget deficit over the next decade.

That means Congress is going to have to raise taxes or cut spending because, despite all of the talk of “bending the cost curve,” there is no plan to do any such thing.

And that’s evident in the Obama administration’s own numbers.

Their 2010 budget submission to Congress doesn’t show any savings in governmental health-care costs from health information technology (HIT), comparative-effectiveness research, prevention, or any of the other “cost-control lite” ideas promoted by Obama aides. Meanwhile, the Medicare Trustees issued their annual update on the program’s finances last week, and it shows the cost curve rising as it always has — rapidly. And that’s after Congress has already spent billions to computerize medical records and conduct research into what someone views as “cost-effective” care. If these were the magic bullets, why didn’t the Medicare Trustees “bend” the cost curve?

No, the Democrats are stuck. They have promised to extend insurance subsidies to tens of millions of households, which will cost at least $1 trillion over the next decade. The only way to pay for such an expensive new entitlement will be to raise taxes or cut spending.

Which is why, on Monday, the Senate Finance Committee’s chairman, Max Baucus, released a white paper with a menu of tax and budget saving ideas.

It’s not a pretty list. There’s the possibility of large tax hikes on beer and soft drinks — just as Americans are heading out to ballparks and lake houses. And then there’s the arbitrary fee cuts for hospitals and doctors, which will only shift more costs onto private payers. This is not change. It’s simply a rounding up of the usual budget-cutting suspects. But, this time, they would pay for the largest expansion of government in history, not reduce the deficit.

For weeks, Senator Baucus has also hinted that he would like to raise more revenue by changing the tax treatment of employer-paid health insurance. Of course, this is the one idea with the potential to appeal to some Republicans because they rightly view the status quo as unacceptable. Today, there is no limit on the amount an employer can pay for job-based insurance, but individuals buying coverage on their own don’t get a similar break.

Conservatives shouldn’t get their hopes up that a sensible reform of the tax treatment of insurance is possible this year. The Baucus white paper does in fact mention, as one possibility, putting a broadly applicable cap on the amount that could be excluded from taxes each year. But the paper also mentions that a cap might be imposed just on upper-income households (such as couples with incomes exceeding $400,000) and that union-negotiated plans might be exempt altogether for the duration of a collectively-bargained agreement. These “details” would render the whole idea useless. The loopholes would be expanded and extended. Much less revenue would be raised. And, most importantly, nothing would change in the health sector as too few consumers would feel the pinch from insurance premiums exceeding the cap.

Democrats in Congress are bravely marching ahead with their plans to pass a $1 trillion-plus health-care plan. To succeed, they have to get their rank and file members to support massive tax hikes and arbitrary price controls in Medicare. If nothing else, the latest white paper from Senator Baucus should makes it clear that Republicans have nothing to gain by helping them.

[Cross-posted at the Corner]

posted by James C. Capretta | 2:29 pm
File As: Health Care

Medicare Under Pressure: The 2009 Medicare Trustees' Report

May 19, 2009

Last week, I had the pleasure of participating in a panel discussion on the latest Medicare Trustees' report at AEI. Rick Foster, the Chief Actuary for Medicare, presented the latest estimates, which were followed by comments from Mark McClellan, Joth Rother of AARP, myself, and former House Ways and Means Chairman Bill Thomas. I focused my remarks on the reasons efforts to "engineer" more efficiency from Washington are a real long-shot. It is no accident that Medicare looks and operates as it does today. Politicians can't pick between two hospitals or physician groups in their districts. They want the government insurance plan to pay all licensed providers the same fees, no matter the quality differences. Hence, Medicare's open network. And, of course, politicians want to insulate retirees as much as possible from any cost consequences of service use. Put it all together and it's a recipe for price controls and unconstrained volume—in other words, for what we see in Medicare today.

A video feed of the event is available here, audio here, and the slides I used for my presentation are here (in PDF format).

posted by James C. Capretta | 5:48 pm
File As: Health Care

As Bad As Imagined

May 14, 2009

As previously noted, today Senate Finance Committee chairman Max Baucus is meeting with the other members of the committee to discuss options for expanding insurance coverage. The slides they are using to guide their discussion (available here in PDF format) are illuminating to say the least.

Among other things, they indicate that the committee is considering a requirement that, if an Obama-like plan were to pass, all health-insurance plans would have to conform to one of four benefit designs: lowest, low, medium, and high. That’s it. Four options for everyone in the United States, determined by the federal government.

Of course, the committee is cognizant of President Obama’s promise that Americans who like the insurance they have today will be able to keep it. So they create a carve-out for “grandfathered plans.” Existing insurance can stay just as it is, they say.

Except that’s not really true. Because elsewhere in the document, the committee makes it clear that existing insurance arrangements that do not comply with government requirements cannot enroll new entrants. Nor can any enrollees get the new premium subsidies the committee is contemplating. Consequently, no “grandfathered plan” will be viable, or at least not for long. Understandably, many people would want to leave them to get the government’s money, and the pool for spreading insurance risk would become less stable as people exit for a host of reasons (like when they switch jobs or get married) but cannot be replaced with a new entrant.

Regarding “affordability,” the committee is apparently looking at providing new premium subsidies to everyone below 400 percent of poverty. For a family of four, that’s about $88,000 per year. A very large segment of the working-age population falls below that threshold. If enacted, it would be a massive new health-care entitlement piled on top of the unaffordable ones already on the books.

And then there’s the government-run insurance plan. The committee outline suggests four options: a Medicare-like plan; a plan which looks like Medicare but pays higher rates to doctors and hospitals; a plan that tries to create some distance from the government with “third-party” administration; and a state-based public plan. (The committee also notes that it is possible the legislation would not include a new government-run option at all.)

These alternative design options for the “government option” are really a distraction because it really doesn’t matter what such a plan looks like at enactment. What matters is what it will become over time. Safeguards today can be easily overridden later. When the government micro-manages health insurance, it is inevitable that arbitrary price-setting will become the favored method of trying to control total costs because it creates the illusion that beneficiaries are protected. It’s only the doctors and hospitals who are getting paid less for each service rendered, politicians claim. Of course, that’s the first step down the slippery slope to waiting lists.

[Cross-posted at the Corner]

posted by James C. Capretta | 6:17 pm
File As: Health Care

Universal Coverage Coming Down the Pike

May 14, 2009 • Today, Senate Finance Committe Chairman Max Baucus is meeting privately with the other members of the committee to begin considering options for universal coverage. The slides they are using to guide their discussion (available here in PDF format) contain many worrisome ideas which would make our problems worse, not better. I will more to say on some of these items shortly.

posted by James C. Capretta | 3:05 pm
File As: Health Care

The Cost of ObamaCare

May 11, 2009

In the latest issue of the Weekly Standard, I have a new piece on ObamaCare, coauthored with my New Atlantis and EPPC colleague Yuval Levin. We first point out the general failings of the president's plan:

But the Obama plan, whatever its tactical cleverness, will suffer from the key drawbacks of all government-financed and managed health insurance. It would make the government the gatekeeper—the controller of prices and the provider of coverage. Health care decisions would increasingly be made in Washington and subject to political pressures that take into account neither patient needs nor economic realities. The cost of the program would be such that the effort to pay for it would become the central concern of American politics—rendering essentially untenable any effort to roll back government spending or reform federal tax law. As we see around the world, health care is the key to public enmeshment in ballooning welfare states, and passage of ObamaCare would deal a heavy blow to the conservative enterprise in American politics.

We then discuss aspects of the plan in a little more detail, including how it will displace many millions of Americans who are currently happy with their health insurance arrangements, as well as the immense costs for the government. And speaking of the price tag, Yuval has a Corner post today pointing out that the administration's announcement that it has found a way, working with interest groups, to save trillions is not to be taken seriously, to say the least.

UPDATE: Another very good post on today's news can be found here, this one by Keith Hennessy.

posted by James C. Capretta | 4:46 pm
File As: Health Care

Senator Baucus Works the Budget Refs

May 5, 2009

At a hearing last week, Senate Finance Committee chairman Max Baucus tried to turn up the heat on the Congressional Budget Office (CBO) when he said the whole health care reform effort might be in jeopardy if CBO remains skeptical about his cost-cutting efforts.

It’s telling that Senator Baucus has taken to working the budgetary referee so early in the game, so to speak. All along, the biggest challenge Democrats were going to face in the health care debate was how to pay for their ambitious plans. It’s pretty easy to promise “universal coverage” with affordable premiums for every household. It’s another matter entirely to put together a credible and politically viable way to pay for the expensive new government subsidies such a plan implies.

Senator Baucus is hoping CBO will make his job easier by giving him credit for “bending the cost curve” with a series of reforms he released last week in a white paper. That would be a huge stretch.

Some of the ideas on Senator Baucus’s list have merit. Most have been pushed for years by various health care analysts, although the names of the initiatives have changed. Overall, they amount to a call for better bureaucratic engineering of Medicare’s payment systems, but there’s no real reason to expect such an effort to turn out any better in the future than it has in the past.

And even if it did, it wouldn’t change the fundamental financial incentives which CBO has already said, in a report and testimony, are the real keys to making progress on cost escalation. Of course, the kinds of changes that would make a real difference are also the ones that would that would ignite the most political controversy too.

Which is why Senator Baucus is starting to sound a little desperate. He knows that if CBO holds firm, his only option is to go back to his Democratic colleagues and ask them to support real spending cuts and tax increases to pay for his health care bill. And, despite all of the talk that now is the time to pass sweeping legislation, there’s no evidence that rank-and-file Democrats have agreed, or are ready, to walk that particular plank.

In the end, CBO is very likely to deliver the same message to Senator Baucus that they have delivered to many others at various times over the years: There’s no politically easy way to “bend the cost curve.” If there were, it would have been done already.

(For full disclosure, I am working on a project which is looking at how to improve cost-estimating for diabetes treatment. However, my recommendations in that project would not substantially alter the overall cost-estimates for a health care reform bill, nor do I believe CBO should do anything differently with regard to the vast majority of provisions under review in such measures.)

[Cross-posted at the Corner]

posted by James C. Capretta | 11:36 am
File As: Health Care

Can the Government Engineer Better Health Care?

May 1, 2009

Here’s the good news: Powerful Democrats, led by Senate Finance Committee Chairman Max Baucus, have essentially admitted that Medicare’s current structure is a big part of the health care problem. That’s a genuine breakthrough, with important consequences.

For years, many Democrats have argued that the way to fix health care in America is to make the whole system look more like Medicare. That’s the thinking behind the so-called “Medicare-for-all” plans and the effort to create a new government-run insurance plan for the working age population this year.

But, now, Senator Baucus has joined a growing number of analysts who say it’s really the other way around. The Medicare model is not the solution but the problem, or at least a big part of it.

Baucus held a public forum last week on the subject — which he calls “delivery-system reform.” At the forum, numerous health policy analysts argued that Medicare’s payment systems are creating all kinds of distortions in hospital and physician practice patterns — distortions that erode the quality of care provided for everyone, and are costly too. This week, Baucus released a white paper detailing the reforms he thinks are necessary to address the problem. Most would involve changing how Medicare buys services.

There are certainly some meritorious ideas on the Baucus list. Most are aimed at encouraging more care coordination among doctors, hospitals, nursing homes, and clinics. Hard to argue with that.

But the basic premise of the Baucus list is flawed.

Like Peter Orszag, the director of the Office of Management and Budget, Senator Baucus believes the federal government has the capacity to engineer more efficient health care practices, from Washington. All that’s needed is better analysis and smarter payment systems designed by the bureaucracy.

That’s a very questionable assumption.

Medicare looks and operates as it does for a reason — politics. Medicare can’t play favorites. All licensed health care providers get paid exactly the same. There’s no government-run PPO because that would mean steering patients to certain physicians and hospitals and not others. Moreover, politicians want to insulate their retired constituents from the financial consequences of their health care decisions. Put it all together and you have an insurance plan that can’t control volume. The only cost-cutting mechanisms available are price controls, which make matters worse.

Senator Baucus is right that fixing health care means fixing Medicare. But nothing on the Baucus list would get the government out of the business of micro-managing health insurance, which is the source of the problem. What’s really needed is a reform that shifts financial control from the government to Medicare's beneficiaries.

posted by James C. Capretta | 6:43 pm
File As: Health Care

Reconciliation and a Partisan Health Care Plan

April 23, 2009

The New York Times has a piece today on the growing sense among Democrats that they might be better off trying to pass their massive health-care plan on a partisan basis — without even making a show of seeking Republican support.

We should know very soon if that’s their game plan. House and Senate conferees are in the midst of negotiating a conference agreement on the budget resolution. The House version of the resolution included a provision which would allow Congress to pass a health care bill using the so-called reconciliation process. Reconciliation is a special procedure by which budgetary bills can be considered on an expedited basis. The Senate did not include such a provision in its version of the budget resolution.

The House is pushing to keep reconciliation as an option for health care in the conference agreement, but they are doing so really to make it easier to pass a partisan bill in the Senate. Reconciliation bills cannot be filibustered. That means that if Congress decides to make the health care bill a reconciliation measure, it could pass in the Senate with a simple majority instead of 60 votes (in fact, it could pass with just 50 votes, with the vice president breaking the tie — which is what happened with the Clinton tax increase in 1993). As matters stand, 58 Senators caucus with the Democrats, and that’s likely to be 59 before too long.

If Democratic leaders go down this path,Senate Republicans have already signaled that it would mean the end of bipartisan negotiations on health care.

Passing a partisan health care bill may not be as easy as some Democrats now think. The health care bill can’t be all giveaways, like the so-called stimulus bill. The Democrats want to create massive new health care entitlement, costing perhaps $1.5 trillion over the next decade. The options they are looking at to pay for it would all generate substantial political heat: costly and job-killing taxes and mandates on employers, in a recession at that; requirements that individuals pay premiums for coverage they don’t want; the taxation of employer-sponsored health benefits; more tax hikes on the successful; and Medicare cuts that will reduce benefits for retirees.

They may be able to pass such a bill on highly partisan basis. But maybe not.

President Obama has more or less told the public that all budgetary and economic problems can be solved by taxing the rich, and that his health care plan would reduce costs for households with insurance by $2,500 per year. The electorate might be more than a little surprised, and alarmed, when they find out the Democratic Congress is working on a health care plan which will stick them with a massive new bill instead.

[Cross-posted at the Corner]

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

The Implications for Employer-Sponsored Health Insurance

April 23, 2009 • I was glad to accept an invitation to make a presentation last week to the Cleveland Chapter of the Worldwide Employee Benefit Network (the folks who help make employer-sponsored health insurance work). The group was interested in learning more about the state of the health-care debate in Washington — understandable, since some of the ideas under consideration in Congress could profoundly change their business operations. The slides I used for my presentation are available here (in PowerPoint format).

posted by James C. Capretta | 10:48 am
File As: Health Care

Choosing Secretary Sebelius

April 22, 2009

President Obama certainly has the right to nominate whom he wants for political appointments in his administration. In general and within reason, some deference by the Senate to those selections is appropriate.

But Kathleen Sebelius is so clearly the wrong person to lead HHS that even the president should be able to see it. Indeed, if confirmed, she is sure to make it more difficult for him to achieve his primary objectives.

Sebelius’s record on abortion can only be described as radical. In fact, that record and her longtime associations with the abortion industry are more than enough to convince a large segment of the population that she does not share their values and cannot be trusted with overseeing anything important — much less matters that touch on life and death.

But President Obama also wants to expand the government’s reach into how medicine is practiced through a health-care reform bill. His nomination of Sebelius will complicate that effort considerably. The mere presence of Sebelius at the top of HHS will be enough to push millions of pro-life Americans into adamant opposition to the whole health-care reform enterprise. The president and his team may think it won’t matter — that they can pass their bill anyway. But passing a massive and expensive health-care bill was going to be complicated enough without a fight with social conservatives. The president didn’t need to alienate a sizeable portion of the electorate with a controversial selection for HHS — but he did. He has made his choice, and I think he will come to regret it.

[Cross-posted at the Corner]

posted by James C. Capretta | 5:37 pm
File As: Health Care

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