Health Care

Who’s Credible on Health Care?

April 20, 2009

Yesterday, White House Chief of Staff Rahm Emanuel said on This Week that Republicans have become the party of “no,” “never,” and “no new ideas.” And he challenged GOP leaders in Congress to come to the table with proposals and be constructive in negotiations.

Emanuel seems to be under the impression that the Obama administration has met the credibility test by offering serious plans of their own, full of new ideas and fresh thinking.

They haven’t — at least not in health care.

The president has stated repeatedly that both health care and entitlement reform are dependent on finding ways to “bend the curve” and slow the rapid escalation of health care costs.

In fact, the White House has already held two full-day summits, filled with talk, to demonstrate how serious they are about the issue of rising costs.

But they have offered no plan to actually do anything about it, and there is no prospect of one emerging in Congress either.

When the topic is raised, administration officials, including Emanuel, always fall back on their efforts to promote more health information technology and so-called “comparative effectiveness research.”

First, these aren’t new ideas. Second, they won’t come close to “bending the cost curve.” But that doesn’t stop the New York Times from dutifully reporting on the “president’s plans to make health care affordable” for more Americans.

What is clear is that Congress and the president would like to stand up an expensive new health care entitlement program. Credible estimates put the cost at $150 billion per year. How will the president pay for it? After a lot of bobbing and weaving, Mr. Emanuel’s answer yesterday was, essentially, “We’ll work with Congress on that.” Not exactly “The buck stops here.” It will be interesting to see if Democrats in Congress are willing to take on tax increases and spending cuts that the president himself was unwilling to embrace in his budget. Don’t bet on it.

Meanwhile, today in Politico, several Republican strategists worry that party leaders are late in coalescing around a plan for countering whatever plan emerges in Congress.

There is certainly reason to be concerned. Democrats have long enjoyed a substantial advantage with voters on the issue. Republicans cannot close the gap without a more coherent message that they are willing to repeat as often as necessary.

But Republicans should not despair. The gap can be narrowed — with a lot of effort.

Fundamentally, the health care debate is about how to allocate resources in the health sector. And there are only two choices: It’s either the government, or consumers and suppliers of services in a marketplace.

The Democrats want the federal government in charge (although they won’t admit so this year). Always and everywhere, that leads to government-driven rationing of care, which the public rightly fears. To compete more effectively on this issue, Republicans must first hammer the message home to voters that the Democratic plan would give the government too much power over who gets care, and when.

When enough people become concerned about a government takeover, there will be a short window of opportunity to present an alternative vision. Republicans will need to be ready with a compelling vision of their own.

It won’t be easy building a consensus position, though. Many voters are skeptical about the virtues of a health care marketplace. A GOP plan will need to include effective government oversight to give the public confidence that they will have good options to choose from in a reformed marketplace. But it can be done. And it’s not too late to pull such a plan together — not yet anyway.

[Cross-posted at the Corner]

posted by James C. Capretta | 3:18 pm
File As: Health Care

Who’s for Irrational Rationing?

April 15, 2009

Ramesh Ponnuru’s piece in the New York Times last week generated a fair amount of commentary from critics, and able responses from Ramesh himself, of course, as well as Michael Cannon over at Cato.

There’s no real need to go over the substance of those exchanges again here.

But one issue that did come up in the back and forth that would seem to warrant some additional comment is rationing. More specifically, who in this debate can rightly be accused of supporting irrational rationing of medical care?

Ezra Klein thinks it’s the conservatives. He asserts that easing up on state benefit mandate laws would lead to scary, profit-driven rationing by insurance companies. For instance, he says, a carrier might exclude bone marrow transplants for cancer victims.

Klein’s right, of course—at least in theory. If there is no regulatory requirement enforcing inclusion of a covered benefit, insurers could try to exclude it.

But this is really a straw man argument. It assumes that consumers would not be able to rationally select products that provide the financial protection they would really need.

More importantly, providing more benefit flexibility does not mean the government would provide no mechanism for socializing the costs of pre-existing conditions. It is well within our reach to have a competitive market for insurance which provides strong incentives for insurance carriers to cover the sick as well as the healthy without overly onerous governmental regulation (notice I am not saying no regulation). Many conservatives are perfectly willing to accept backroom risk adjustment among participating insurers as a protection against excessive market segmentation by health risk. With risk adjustment, funds would move among insurers based on the relative-risk profiles of their covered populations using pre-arranged data collection methods and formulae (it works best if it is handled entirely by the insurers, not the government). Alternatively, the government could establish an enlarged program for high-risk insurance enrollees, which would mean socializing their added costs through taxes and transfers, not premiums. Either way, the risk of large numbers of Americans going without coverage for mainstream cancer treatment would be virtually non-existent.

Unfortunately, the same cannot be said for the reform program many Democrats want to push through Congress this year.

Ramesh did not stress this in his piece, but the great virtue of moving toward a fixed, refundable tax credit for health insurance is that it would create millions of cost-conscious consumers. They would want to get the most for their money because if they bought expensive insurance the balance would come out of their own pocket (today, in job-based plans, much of the additional cost for expensive insurance is implicitly financed by the federal treasury). That desire to keep costs down would create pressure on insurers, and the networks of hospitals and doctors they pay for services, to provide better coverage and better health care for the premiums they charge to enrollees. The dismal science is all about the allocation of scarce resources—rationing, in a sense—but this kind of market-based rationing is rational, with consumers and suppliers finding the best ways to improve productivity and provide the highest value possible for the prices people are willing to pay.

The only alternative to building such a marketplace is centralized governmental control. Instead of consumers, insurers, and service suppliers figuring out the best way to stretch the health-care dollar, the government would try to do it. The Democratic majority in Congress won’t admit it, but that’s their plan. For now, they say they want to improve the efficiency of health care with information technology and research into what works and doesn’t in medical practice. But these steps won’t come close to “bending the cost curve,” as the president says he wants to do. In time, the Obama administration and their allies in Congress will be forced to put on the table the kinds of arbitrary cost-control mechanisms used by other countries—price setting, premium limits, and fixed capital budgets for facilities.

And that’s a sure-fire recipe to get exactly what Klein says he does not want—irrational rationing of care. Whenever a distant national government imposes cost constraints, it leads to a reduction in the number of willing suppliers of services, waiting lists, and government-driven rationing of care. Indeed, quite frequently, it is cancer victims who have the hardest time getting access to the services they need on a timely basis.

Klein is absolutely right that the public should be fearful of opening the door to arbitrary rationing of health care in the United States. That’s why they should reject the kind of reform program Klein and others advocate.

[Cross-posted at the Corner]

posted by James C. Capretta | 3:27 pm
File As: Health Care

Obamacare: It’s Not Inevitable

April 7, 2009

The drumbeat is getting louder.

Last week, the New York Times reported that the broad outline of a health-care reform bill is starting to come into focus in Congress. Yesterday, E. J. Dionne Jr. argued in his Washington Post column that the political stars are lined up for a successful health-care push this year.

Expect more of the same in coming days and weeks. The train is leaving the station, we will hear. Get on board or be left behind, interested parties will be warned.

It’s a smart tactic. If passage of an Obama-style bill is all but inevitable, then those in a position to contest it are more likely to get out of the way. Why make what’s going to happen anyway more painful and costly than necessary?

But, of course, Obamacare is not at all inevitable. Indeed, at this point, it’s hard to see how Democrats, on their own, can pass what they have promised.

Health-care policy isn’t hard if the only concern is handing out new subsidies for coverage. The Congressional majority certainly could coalesce around creation of some kind of plan to provide premium discounts for tens of millions of additional households. That’s the easy part.

What’s not so easy is paying for the added cost to the government—which is likely to be about $150 billion per year initially, and much more as the years go by.

Where will the Congressional majority find the money to pay for such an expensive program? The Obama budget plan targeted upper-income households, private health insurers, and drug companies, and suggested some modest Medicare payment reforms as well. But those offsets only totaled $634 billion over ten years, and Congress has already signaled that the suggested limit on the deductibility of home-mortgage interest and charitable contributions for upper-income households, a $300+ billion tax hike, is all but dead. The Medicare payment reforms seem likely to undergo a downsizing too when they are put under the political microscope.

Senate Finance Committee Chairman Max Baucus has signaled an interest in taxing employer-paid premiums, but that is no slam dunk either. It’s hard to see rank-and-file Democrats taking on the political risk of taxing job-based health benefits “for the first time in history” in the face of vehement union opposition.

Fundamentally, the health-care bill the Congressional majority would like to pass would redistribute wealth from one segment of the population to another. The amount in question is likely to be $1.5 trillion or more over the coming decade. Presidential candidate Obama promised Americans with insurance his health-care plan would cut their costs by $2,500 per year. That’s what they are expecting still, as the president hasn’t told them otherwise since taking office. It does not seem inevitable that the public will readily go along with paying a hefty bill instead.

[Cross-posted at the Corner]

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

Flawed Prescriptions for Radical Change

April 1, 2009

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

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

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

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

The full statement is available here in PDF format.

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

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

March 31, 2009

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

But is it true?

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

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

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

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

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

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

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

[Cross-posted at the Corner]

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

The Public Plan Option

March 31, 2009

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

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

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

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

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

March 27, 2009

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

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

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

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

These statements are completely disconnected from reality.

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

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

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

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

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

[Cross-posted at the Corner]

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

CBO’s Bucket of Cold Water

March 19, 2009

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

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

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

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

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

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

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

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

[Cross-posted at the Corner]

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

No Miracle in Massachusetts

March 16, 2009

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

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

This should surprise no one.

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

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

There are lessons here for the unfolding debate in Washington.

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

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

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

[Cross-posted at the Corner]

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

The Hypocrisy of the Obama-Baucus Two-Step

March 16, 2009

Remember this devastating political ad from last year?

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

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

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

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

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

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

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

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

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

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

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

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

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

[Cross-posted at the Corner]

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

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