Health Care

President Obama’s Choices

March 10, 2009

In recent days, several commentators, including some who are otherwise disposed to be supportive of the new president’s agenda, have been startled to find the administration’s budget plan has a strongly liberal tilt (see here, here, here, and here).

It seems the president’s moderate-sounding rhetoric during the campaign and early days in office had convinced many in the political class that he would abandon the political identity he had forged while serving as a legislator and govern from the center.

Now they know better, or at least they should.

Let’s hope the same awakening is occurring among those self-described pro-lifers who vociferously supported the Obama candidacy.

In very recent days, the president has:

  • proposed to rescind HHS’s regulation aimed at protecting the conscience rights of physicians and others, especially in the context of abortion;
  • permitted U.S. government funding of organizations sponsoring abortion provision around the world (i.e., rescission of the so-called Mexico City Policy);
  • nominated an aggressively pro-choice Catholic to the Secretary of Health and Human Services; and
  • opened the door to federal funding of embryo-destroying stem-cell research, claiming as he did so that the decision was carried out in the name of protecting science from politics.

Governing is choosing, as the saying goes, and no amount of words can obscure the priorities reflected in President Obama’s decisions. Less than two months into his term, it should be obvious to all concerned, including voters, that the president’s sympathies lie with a strongly liberal social-policy agenda which is completely at odds with any sensible understanding of traditional moral reasoning.

What does this mean for pro-lifers? Going forward, there should be little wasted energy on “common ground” efforts. What’s needed are tactics to minimize the damage while a thoughtful game plan is put in place to use the excesses of the Obama agenda to leverage electoral victories the next time voters go to the polls.

[Cross-posted at the Corner]

posted by James C. Capretta | 10:01 am
File As: Health Care

Brooks Was Right the First Time

March 9, 2009

David Brooks got it right the first time.

His New York Times column last Tuesday was a blistering critique of the Obama budget plan. He had been deceived, Brooks said. Candidate Obama spoke like a centrist, but his governing agenda, as reflected in his first budget submission to Congress, betrayed an aggressive liberalism that had to be confronted, even by moderates.

But by Friday, after some apparently very smooth talking from Team Obama, Brooks had changed his tone. The budget is trying to do too much, he maintained in Friday’s column, but the Obama administration isn’t necessarily on an ideological crusade. Moderates can work with them, he concluded.

Brooks cites four arguments used by Obama surrogates to convince him his Tuesday piece was an over-reaction.

#1: They are not on an ideological crusade, Team Obama says. They are just re-balancing policy after the excesses of the Bush years.

That may be how they view themselves, but that doesn’t make it so.

The Obama budget’s large policy shifts are focused on income redistribution, not economic growth. There is a $1 trillion tax increase on upper income households, which is used for new programs and refundable tax credits, not deficit reduction.

As Michael Boskin noted on Friday, the Obama budget would increase the number of households with no income tax liability from 38 percent to 50 percent, with the tax burden falling ever more heavily on a small sliver of the population with higher incomes. To paraphrase Margaret Thatcher, you can’t increase the tax on entrepreneurship and work and expect them to increase.

#2: Their budget is not a “big government” plan.

To bolster their case, they argue that discretionary spending on domestic programs will fall from an historical average of 3.7 percent of GDP to 3.1 percent of GDP. But that number can be manipulated in any number of ways. For instance, the budget moves Pell Grants from discretionary to mandatory funding, which makes the Obama discretionary number look smaller than it really is. And some of the biggest spending in the Obama budget is not even accounted for in the discretionary category, such as the health care plan.

It’s more accurate to look at overall spending. Over ten years, they plan to increase federal outlays by more than $3 trillion compared to a reasonable projection of current law. In 2008, before the full force of the financial crisis had hit, total federal spending was about $3 trillion. In 2013, the Obama budget would increase it to $4 trillion, a $1 trillion increase in the size of government in just five years.

#3: Republicans should like his entitlement cuts and health care ideas.

What entitlement cuts? What health care ideas? The budget includes only the most modest of changes. In 2008, spending on Medicare and Medicaid was $587 billion. In 2019, it will be $1.34 trillion.

The Obama team has talked incessantly about how they understand the problem of rising health-care costs. Where is their plan to do something about it? No one believes the president’s current suggestions—more information technology, better prevention, and even comparative effectiveness research—will come anywhere close to solving the problem.

Meanwhile, expectations are growing that the administration and Congress will pass a plan this year with a new subsidy program for millions of households to buy health insurance. There is ample historical evidence to suggest that the cost of this latest health care entitlement will grow equally as rapidly as the unaffordable ones already on the books.

In the budget plan, President Obama essentially said he will work with Congress to come up with a plan to address escalating costs. Does that give anyone confidence? If anything, this Congress will turn to Medicare-style price controls, not market mechanisms, to control costs.

#4: The budget will not produce a sea of red ink.

Between 2010 and 2019, the Obama budget would add $7 trillion to the nation’s public debt, and that’s before the entire baby boom generation has signed up for Social Security and Medicare. At the end of 2008, the debt that had been accumulated over two centuries stood at $5.8 trillion.

Last November, millions of Americans who had mainly pulled the lever for Republican candidates during their lifetimes voted for Barack Obama for president, despite the fact that he had compiled a strongly liberal record in the Illinois state legislature and U.S. Senate.

Well, now we have President Obama’s first budget. Its numbers are more important than its words. And the numbers show his governing philosophy has not changed since he was a legislator.

[Cross-posted at the Corner]

posted by James C. Capretta | 9:56 am
File As: Health Care

The “Summit” and Obama’s (TBD) Plan

March 6, 2009

Yesterday, just days after holding a “summit” on “fiscal responsibility,” President Obama hosted another hours-long confab with a cast of thousands (okay, one hundred and fifty), this time to talk about health care reform.

What’s all this summitry really about?

After all, it’s obvious that nothing of any real substance was discussed at yesterday’s sessions. Indeed, the entire day seems to have been devoted to talking in generalities (“we need more prevention, better quality care, and lower costs”) about a subject that depends entirely on its details.

Nonetheless, the meeting was clearly a success for the administration because they got what they wanted from a compliant media. Bipartisanship and openness on health care? Check. Learned lessons from the Clinton debacle? Check. Key Republicans signaling a willing to negotiate? Check. Business support instead of opposition? Check.

But here’s an interesting question: What is the Obama health care plan, exactly?

The Obama budget specified the “offsets” to pay for health care reform legislation, but, with regard to the actual plan, the budget said only “TBD.”

This is, of course, the favorite White House legislative strategy of every member of Congress: The president hands off a pot of money for Congress to spend as they see fit. Remember the “stimulus”?

This approach gives the president maximum flexibility. Whatever Congress produces, he will sign and declare victory.

The most difficult problem in health care is what to do about rapidly escalating costs. The president and his team keep talking tough on the subject. But when is the president going to come forward with his vision for how to address it? Don’t hold your breath.

With the summit behind them, the administration is signaling that all of the action will now take place in Congress. We probably will not see anything more on the Obama “plan” before the committees start marking up a bill this summer.

Medicare and Medicaid have been run by Congress for more than four decades. The favored approach to cost control has been heavy government regulation and price setting, which has only made the programs more inefficient. Nonetheless, many Democrats in Congress believe this is the way to go for the rest of the health care system. And the Obama administration has given them an open invitation to write a bill doing just that.

[Cross-posted at the Corner]

posted by James C. Capretta | 1:12 pm
File As: Health Care

The Health Picks and the Obama Health-Care Plan

March 3, 2009

Yesterday, President Obama tried again.

Some three months after first nominating former Senator Tom Daschle to be Secretary of HHS, the president announced he was nominating Kansas Governor Kathleen Sebelius for the slot. He also named Nancy-Ann DeParle, a competent veteran of the Clinton administration, to head the White House Office of Health Reform—a post that does not require Senate confirmation.

What’s noteworthy about both nominations is that they come after the administration sent its “plan” for reform to Congress.

That’s right—the Obama health-care plan has already been sent to Congress. Missed it?

The administration looks to be very consciously pursuing the favorite White House legislative strategy of every Congress: specify the offsets and let Congress spend it. And that’s essentially what the Obama administration is doing.

The budget submitted by the president to Congress last week specified the “pay fors” for the health-care plan—$634 billion from the cap on charitable and home mortgage interest deductions for high-earners, as well as some Medicare cuts. But, regarding how that money should be spent, there was nothing but a “TBD.” A vague list of “principles” was included in the budget narrative, but just about any plan written in Congress would meet them. I don’t expect the White House to send anything more specific on the plan to Congress before legislation starts to move in the various committees.

This is not to suggest that Sebelius and DeParle won’t be influential. In time, they probably will be. But that influence will be in working with the lead Congressional authors—likely Henry Waxman and Pete Stark, aides to House Speaker Nancy Pelosi, and Senator Max Baucus—not in writing the plan themselves.

The other noteworthy aspect of the Sebelius nomination is that it would seem to cement for good a strongly antagonistic relationship between pro-lifers and the administration. President Obama has made noises off and on about finding common ground with the pro-life community, although he was never very specific about how he would go about doing that. That was always a remote possibility, but now it is even more unlikely now that Sebelius has been nominated—especially so soon after the administration announced its plan to gut HHS’s conscience protection regulations.

[Cross-posted at the Corner]

posted by James C. Capretta | 2:32 pm
File As: Health Care

A $2.1 Trillion Spending Increase

February 27, 2009

Here’s the bottom line on President Obama’s budget: It’s a massive spending increase when what the country desperately needs is a plan for fiscal discipline.

According to the administration’s own projections, the federal budget deficit will fall no lower than $533 billion over the next ten years and the country will add an astounding $7 trillion to the national debt. And that’s not because the economy is expected to sputter indefinitely. Their estimates assume robust growth resumes in 2010 for good.

The reason the government will continue to run massive deficits under this budget plan is because President Obama is a world-class spender.

Forget the phony straw-man “baseline” they present (according to their accounting, they “cut” spending by nearly $1 trillion over ten years).

Let’s start with the baseline before they cook the books. It shows a ten-year (2010 to 2019) deficit of $1.6 trillion, with taxes of $37.6 trillion, spending of $35.8 trillion, and net interest costs of $3.4 trillion over that period (these numbers can be calculated—with some effort—from the bridge tables the administration provided).

The Obama budget, however, spends $37.7 trillion over ten years, or $1.8 trillion more than the real baseline. And that doesn’t even count the health-care plan, which would add another $0.3 trillion (some of the $0.6 trillion in added health-care costs are offset with spending cuts).

All totaled, then, the Obama budget increases spending by about $2.1 trillion. Throw interest costs for all the new debt in and total outlays will go up by nearly $3.3 trillion over the coming decade.

Just as disturbing as the numbers are the policies. On health care, the administration is calling essentially the same play as they did on the “stimulus”: providing general principles which mean very little and handing off to  Congress a pot of money to spend—in this case $634 billion over ten years. This is not a recipe for financial discipline or for using sound economic theory to inform program design.

In his speech before Congress, the president implied that he had a plan to root out waste and inefficiency in health care which would solve our budgetary problems. Where is that plan? There are several cuts proposed in health care, mostly for insurers and drug companies, but spending on Medicare and Medicaid will still double from 2009 to 2019 in the Obama budget, and that’s before the inevitable spending increases associated with expanding insurance coverage. There is nothing offered that would come close to solving either our entitlement or health-care cost problem. Where does the administration think this plan will come from? Congress?

The president has repeatedly said he plans to stop kicking the can down the road. Now is the time for making tough choices, he scolds. But his budget makes no such choices, and Congress certainly won’t either.

[Cross-posted at the Corner]

posted by James C. Capretta | 9:40 am
File As: Health Care

The Obama Baseline

February 26, 2009

It’s one of the oldest tricks in the book.

Politicians like to say they are “cutting the budget.” But budget cutting can only be understood in context. In budget-speak, there is a “baseline” against which budget decisions are measured. Normally, the “baseline” assumes current law and policy. But if you want to look like you are cutting the budget without really doing so, the answer is to inflate the “baseline” so that the cut is measured against an artificially high target.

President Bill Clinton did exactly that in 1993. In 1990, President George H. W. Bush had negotiated hard caps on appropriations spending that lasted through 1995. The “baseline” Congress used in 1992 assumed these caps held because a breach would trigger across-the-board cuts. In the first year of his presidency, Clinton wanted to look like he was cutting one dollar in spending for every dollar of taxes he was increasing, even though he wasn’t willing to take the heat for real cuts. The solution? He redefined the baseline to assume the caps were no longer operative, announced his support for keeping what was already the law of the land, and claimed a sizeable spending “cut” as his own.

President Barack Obama may be about to do the same thing.

Recently, House Speaker Nancy Pelosi and House Budget Committee Chairman John Spratt asked the Congressional Budget Office (CBO) to provide estimate of the federal budget deficit for the coming decade using assumptions not normally included in the baseline, including continuation of several laws that are set to expire.

CBO’s response is startling, to say the least.

Under the pre-stimulus baseline, CBO projected that the federal budget deficit would total $4.3 trillion between 2009 and 2019.

However, using assumptions specified by Pelosi and Spratt, CBO provided an alternative projection scenario in which the deficit would total $12.9 trillion over the same period—a whopping $8.6 trillion difference.

In this alternative scenario, defense spending is assumed to stay inflated at current war-time levels for the entire decade ($1.3 trillion); Medicare physicians fees are assumed to rise 1 percent every year instead of being cut ($0.3 trillion); and other spending is inflated based on Congress’s 2009 appropriations spending spree ($0.1 billion). The alternative scenario also assumes the 2001 and 2003 Bush tax cuts are permanent, as is the 2007 fix for the Alternative Minimum Tax.

Redefining the budget baseline in this manner would provide the Obama team with several advantages. Pulling out of Iraq would suddenly save much more than previously thought because the “baseline” would assume high levels of war funding well past the point anyone now thinks reasonably plausible. Obama’s Medicare reforms would appear to save more because they would be measured against an assumption of growing physician fee payments. And, if Obama is successful in returning to pre-Bush tax rates, he could use some of the revenue to pay for his initiatives instead of deficit reduction. Today’s baseline devotes all of that revenue to deficit cutting beyond 2010.

Tuesday night, the President used the language of tight-fisted management. His team, he said, is working to root out waste, eliminate efficiency, and ensure every dollar is spent wisely.

But he never really promised to get the deficit under control. All he promised was a cut to half of today’s level. But today’s level is a record, driven by a severe contraction. If the economy recovers, the deficit is going to fall rapidly in the normal course of events anyway, as CBO’s current baseline shows.

President Obama and his team are going to call all of these maneuvers honest budgeting. But what’s really going on is a sophisticated campaign to dress up the massive budget deficits they plan to run as fiscal conservatism.

[Cross-posted at the Corner]

posted by James C. Capretta | 10:17 am
File As: Health Care

Less There Than It Seemed

February 25, 2009

The Congressional Budget Office (CBO) says that the federal budget deficit in 2009 was going to be $1.2 trillion before passage of the “stimulus” bill. Now, it’s likely to be closer to $1.4 trillion. President Obama promised in his speech to cut it in half by the end of his term, which others have taken to mean fiscal year 2013 (which would start October 1, 2012). So he is promising a deficit of about $600 billion in 2013, it would seem.

Is this something to boast about? Many commentators have suggested that this will be an impossible goal. But the projections all assume restoration of economic growth and a fading of the financial crisis. If that indeed occurs, CBO sees the deficit falling all on its own to about $260 billion in 2013. (If the economy remains sour for that long, all bets are off, of course.)

In effect, the president is redefining what’s expected to happen in the public’s mind to make his task much easier. He is leaving more room than it appears to accommodate his spending plans.

On health care, there was much talk of eliminating inefficiency, rooting out waste in Medicare, and using “comprehensive reform” to cut costs in public programs. But how, exactly? No coherent vision was presented. The listener was left with the impression that the money is there for the taking if only the special interests can be conquered. What he really meant is that the government is going to develop new and clever ways to get at this kind of big savings. Implicit in everything he said is a tremendous faith in government to manage the entire health sector more competently than it has managed Medicare and Medicaid for four decades.

What the president clearly has no intention of doing this year is what’s actually needed: restructuring of health-care policy so that consumers and suppliers of services have strong financial incentives to drive out waste themselves.

[Cross-posted at the Corner]

posted by James C. Capretta | 9:29 am
File As: Health Care

The Individual Health Insurance Market

February 24, 2009

Last week, USA Today ran a front-page story on recent premium increases in the individual health insurance market that got some attention. We are told, among other things, that Anthem Blue Cross in California is passing on double-digit premium increases to 640,000 enrollees, and an insurer in Washington state is charging nearly 18 percent more this year for coverage compared to last year.

The piece leaves the reader with the clear impression that the average premium increase in the individual market was very high for 2009, even though the data in the story are entirely anecdotal. Some insurers in some markets are charging much more in 2009 than they did 2008—that is certainly true. And it could very well be the case that premiums, on average, went up more rapidly in the entire market this year than normal, but we don’t know that yet—not from this story anyway.

Still, this piece does tell us something about the individual market, which is that enrollees can be vulnerable to sudden premium spikes. The question is: Why?

The reason is that the individual market, as currently constituted, is small and somewhat idiosyncratic because it is essentially the refuge of that segment of the population that doesn’t have access to job-based plans, such as seasonal workers, early retirees not yet eligible for Medicare, and workers in small firms that don’t offer a plan. People almost always sign up with their job-based plans if they can because the premiums paid by employers are tax-free while the premiums paid by individuals who buy insurance on the open market are not. Nationwide, there were 165 million people under age 65 in employer-sponsored plans in 2007 and only 17 million in individually-purchased plans.

Although 17 million is still a lot of people, they are spread across fifty states and many different state regulatory structures governing how risks are pooled. Insurers must charge premiums commensurate with the health claims they expect their enrollees to file, otherwise they would become insolvent. In a voluntary marketplace with relatively small numbers of enrollees, the risk profile of any given insurer can change rapidly, which may necessitate a large premium adjustment. Some small employers also face large premium spikes if a disproportionate number of enrollees suddenly find themselves with cancer, for instance.

Opponents of market-based reform plans like to cite stories like this one from USA Today to discredit the whole concept of ownership, consumer choice, and competition in health care. But, in reality, the article again points to the need for a systematic reform which would give individually-purchased insurance the same tax advantage as is now provided to employer-paid premiums. That change by itself would give the individual market the size and scale it needs for more stability. And then the competition which consumer choice provides would entice lower cost, higher quality products into the market as well. Over time, the financial advantages enjoyed by today’s dominant employer-based plans would give way to the security of owning stable insurance that can be kept even as job circumstances change.

[Cross-posted at the Corner]

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

OMB in the Health-Care Driver’s Seat, Cont.

February 20, 2009

Over at Politico, Ben Smith has written an interesting and revealing profile of the new Office of Management and Budget (OMB) Director, Peter Orszag. Among other things, Smith’s piece confirms what I had previously speculated, which is that Orszag and OMB are calling the health-care shots in the administration right now—and they may play a dominant role throughout Obama’s current term.

The piece also provides a fascinating look at Orszag’s thinking on health-care matters. Orszag lets it be known that the administration is readying an aggressive plan, to be at least partially unveiled in next week’s budget, which will leverage the purchasing and regulatory power of Medicare and Medicaid to—as he said—“change the practice of medicine.”

Let’s start with where many people would find agreement with Orszag. It is certainly true that much of today’s health-care dysfunction stems directly from the flawed financial incentives embedded in current Medicare and Medicaid payment rules. Far too often, care is delivered to patients in highly inefficient arrangements. Medicare and Medicaid’s reimbursement models have effectively underwritten the status quo.

So it is comforting to know that someone at the highest levels of the Obama administration realizes this is the problem, and that the first order of business in health-care policy should be reform of existing public programs, not a takeover of the private sector.

But, having said that, Orszag’s faith in the ability of federal government to competently manage the health sector and drive it to become more efficient is unnerving to say the least. We have four decades of experience with running payment systems in Medicare and Medicaid. If we have learned anything during that time, it should be that allowing Congress and HHS’s bureaucracy to micro-manage payment to health-care providers is a recipe for political manipulation, protection of incumbents from effective competition, and rapidly rising costs.

Orszag is right that we need to reform how Medicare and Medicaid purchase care. But the upshot of his policy prescription is to ask Congress and HHS to get better at what they have failed miserably at in the past. There is simply no evidence that the outcome will be any different this time.

What’s needed is more organized consumer choice, with government oversight, like the design of Medicare’s drug benefit. That’s the way to make health-care arrangements more efficient and patient-focused.

[Cross-posted at the Corner]

posted by James C. Capretta | 9:06 am
File As: Health Care

Audacity Indeed

February 19, 2009

President Barack Obama is holding a “fiscal responsibility summit” next week at the White House, on the heels of securing passage of the “stimulus” legislation. That’s the subject of a piece from me, up today at National Review Online.

Among other things, I observe that Republicans have taken on political risk in recent years to reform entitlements, only to be rebuffed by Democrats. For instance, President Bush tried to gain traction with a Social Security solvency plan in 2005, but Democrats chose to defend the status quo:

With this recent history, Republicans have every right to be wary about Obama’s real goals for the summit. To avoid a lot of wasted time, Republicans who are invited to participate [in the summit] could do everyone a favor by testing the president’s seriousness. If he really wants to work with them to solve the nation’s long-term budgetary challenge, he should be willing to reveal his plan to fix the problem, as certified by the actuaries who run the numbers. That means getting specific about the taxes he would raise and the benefits he would cut to keep the programs solvent for at least 75 years. If Obama showed the political courage necessary to put forward such a plan, he would certainly earn the right to mount the bully pulpit and push others to be “fiscally responsible.”

Until then, however, Republicans can reasonably assume that the president is unwilling to take on the political risks associated with getting the job done.

The full article can be read here.

posted by James C. Capretta | 11:15 am
File As: Health Care

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