Health Care

Avoiding the Medicare Trigger

January 7, 2009

The 111th Congress convened yesterday, and the Democratic majority in the House of Representatives wasted no time before laying down an inauspicious marker on health care.

As usual, the first order of business in the House was to update the chamber’s internal rules, covering everything from who has access to the members’ exercise facilities to certain procedural matters governing consideration of legislation.

The biennial rules package is not normally a vehicle for making significant policy changes, in health care or otherwise. But this year, House Democrats couldn’t resist the temptation to use it to settle a score. They placed deep within the larger measure they passed a suspension of the so-called Medicare “trigger” in the House for the next two years.

The Medicare trigger would seem to be an unlikely target for partisan scorn, aimed as it is at one of the nation’s most serious economic threats. In coming decades, Medicare spending is expected to rise very rapidly, putting tremendous pressure on the nation’s fiscal position.

Medicare has two sources of revenue—payroll taxes and premiums—but the program also relies heavily on general taxpayer support. In 2003, Congress decided to use the program’s reliance on general revenue funding as a proxy for assessing the program’s fiscal burden. If that reliance is projected to exceed a certain “trigger,” it sets in motion a process allowing Members of the House and the Senate to bring up corrective legislation under special rules. But these procedures in no way guarantee reform legislation will pass or even come to a vote. In fact, it is quite easy for the House to meet its obligations under the trigger provisions without Members ever having to take a tough vote. And, importantly, there is no enforcement provision to prevent perpetual inaction.

Given the stakes for the country, one might think that something much tougher is warranted to force action sooner rather than later.

But that’s not how many powerful House Democrats see it. They have no interest in reforming Medicare and reject the notion that Medicare’s reliance on general revenue financing is an appropriate measure at all. Hence their urgency in suspending provisions which force the issue into the public debate every year, however briefly.

In recent days, some Democrats, including Senator Kent Conrad, have begun suggesting that the time has come for a bipartisan effort on entitlement reform. Indeed, it is possible that the large stimulus package now being drafted in Congress will include a provision establishing a bipartisan task force focused on the long-term fiscal outlook.

Such an effort is surely needed and long overdue.

But it would certainly be tempting for Republicans to say, “Thanks, but no thanks.” They are in the minority. Why should they shoulder any of the political risks now?

Leaders of the Democratic Party in recent years have not put forward a credible plan on entitlements, even as they have fought every effort by Republicans to reform the programs (remember Social Security in 2005 and Medicare in 2003?). Indeed, most Democratic elected officials have sworn off any cuts in benefits in Social Security and Medicare. And only a very few have been willing to voice support for payroll tax increases. So what is their plan?

Before getting enmeshed in a bipartisan quagmire on entitlement reform, Republicans should consider requiring, as a condition for their participation, a credible plan from President-elect Obama. What would he do to make Social Security and Medicare permanently solvent and affordable? That would demonstrate appropriate presidential leadership and provide a starting point for a bipartisan discussion.

posted by James C. Capretta | 5:32 pm
File As: Health Care

Who Is Taking the Long View?

Short-Term Rewards vs. Long-Term Policy
January 5, 2009

It is becoming increasingly clear that one of the main reasons for the current financial crisis is the collective short-sightedness of our national political leaders. Politicians want to get re-elected, and so they are mainly concerned with how they are perceived by voters in the run-up to the next election, not what their policies will mean for the country in a decade or two.

Piggy BankUnfortunately, the effects of bad public policy do have long-term consequences, and the long term eventually arrives. The primary causes of the housing credit bubble were known and understood for many years, but most policymakers reflexively avoided a discussion of the remedies because of the inevitable short-term economic sacrifices such steps would have required. Confronting the effects of an artificially weak Chinese currency would have made it more expensive to buy flat-screen TVs and many other consumer products, and driven up interest rates for U.S. borrowing as well. Reworking U.S. housing policy to limit the tax subsidy for mortgage-based financing to modestly-priced homes would have made it more expensive to buy big houses with inflated mortgages, and slowed housing construction as a consequence. Reining in Fannie and Freddie would have made securing a mortgage more difficult for some marginal households, and reduced the equity holdings for investors in those companies. Thus the remedies were never seriously considered, and the problems were allowed to fester and grow worse until calamity struck.

There is no reason to expect politicians to behave any differently if they are given full control over health care. Their incentive will be the same: to make decisions to keep voters as happy as possible in the short term without worrying about the long-term consequences.

Certainly, this kind of short-sighted stewardship is evident in many other countries with state-run health care systems. The governments in these countries tend to put their limited resources in primary care practices, where most voters interact with the health care system. But the hospitals and expensive cancer clinics for the very sick are neglected because they are too expensive and capital-intensive.

The U.S. enjoys some of the finest medical institutions in the world, and research has brought us many groundbreaking discoveries, and to the cusp of many more. It has taken us a long time to reach this point. Whatever happens, reform of U.S. health care must provide ample room and incentives for continued investment in facilities and potential breakthrough treatments that can provide payoffs over decades, not months.

[Photo courtesy Flickr user Carol Esther under a Creative Commons license]

posted by James C. Capretta | 5:49 pm
File As: Health Care

Mike Leavittís Warning

January 1, 2009

Mike LeavittAs Secretary Mike Leavitt prepares to leave office after four years at the helm of the Department of Health and Human Services, it is worth noting what he is worried about given his experience and perspective. In his column in today’s Washington Post, George Will gives us the answer: surging costs for Medicare and Medicaid.

Leavitt notes that the three most common hospital surgical procedures financed by Medicare today — hip and knee replacements and heart surgery to implant a stent — were not yet part of the medical arsenal when Medicare was established in 1965. The advances in medical care of the elderly have been impressive indeed, but the program’s structure is oriented toward ever increasing use of services over time, with weak incentives for commonsense steps toward improvements in the efficiency of how care is delivered.

Leavitt knows whereof he speaks. During his term, he tried to implement a small program to buy certain products for Medicare beneficiaries using competitive bidding based on price and service. The idea had already been tested and debated endlessly (for about a decade) and was going live when the product suppliers, especially those who were about to lose the competition, successfully lobbied Congress to stop the program. Medicare is now using an outdated price control regulation to pay for these services, with little prospect that competitive bidding will be revived by the incoming Obama administration.

It is a cautionary tale. The Obama health care vision rests on the ability of government to engineer a more productive and efficient health sector. That’s the only way they can afford to promise lavish new entitlements for coverage. But our political and regulatory processes have shown no competency to take on this immense task. If the federal government takes full control of health care resource allocation, the experience with Medicare shows the likely result would be arbitrary price controls and inefficient care arrangements, driven by the political power of incumbents who are able to manipulate payment policies to their advantage.

posted by James C. Capretta | 12:26 pm
File As: Health Care

Health Care Entitlements: Piling On

December 23, 2008

Last week, the Congressional Budget Office (CBO) issued two highly anticipated reports.

The first, Key Issues in Analyzing Major Health Insurance Proposals, provides something of a roadmap for how CBO thinks about far-reaching health reform proposals (available in PDF format here).

The second report, Budget Options Volume I: Health Care, provides a lengthy menu of health-related budgetary options (presumably, another budget options volume dedicated to non-health matters will be released soon). (The health-related budget options volume is available in PDF format here.)

Both reports are full of useful insights and could serve as primary texts for a graduate level economics course on U.S. health care arrangements.

CBO is a sober analytical institution, grounded in data rather than wishful thinking. Those characteristics will be more important than ever this year, as passions around health care can sometimes lead participants in the reform debate to come unhinged from reality.

An important theme of CBO’s new reports is that slowing the pace of rising health care costs will not easy. Some reform measures can help modestly to ease cost pressures, like more widespread adoption of health information technology and more intensive research scrutiny around what constitutes effective medical care (“comparative effectiveness research”).

But no steps will change the trajectory of health care spending without a fundamental reorientation of financial incentives. In effect, rapidly rising costs are the predictable result of existing, heavily subsidized third party insurance payments. Slowing the pace of rising costs will require reworking those arrangements, which means disrupting existing employer-based insurance or Medicare.  Such measures would not be politically popular, to say the least.

CBO is also one of the few agencies in government that regularly reminds audiences that existing health care entitlements—namely Medicare and Medicaid—are on track to push the federal budget deficit to unsustainable levels in coming decades. Ironically, the health care agenda of the incoming administration would pile new entitlement spending (in the form of premium subsidies for low to middle income households) on top of the existing pile, with little prospect that any of it will be affordable in the future.

What’s needed most right now is a serious effort to improve the efficiency of how health care is delivered by doctors and hospitals. That would ease cost pressures and make insurance more affordable for everyone. 

Unfortunately, the Obama team and their allies in Congress seem to think the federal government can engineer a more productive health care sector. It can’t. Political pressures inevitably tilt regulatory efforts toward protecting incumbents and the status quo. 

But a well-structured marketplace can work and force real change. Cost-conscious consumers buying services in a competitive market, with transparent price and quality information, will provide strong incentives for innovation and patient-centered care. That’s the way to get more value for our money, and ensure resources are available to provide ready access for everyone as well.

posted by James C. Capretta | 4:37 pm
File As: Health Care

Obamacare: What We Know So Far

December 17, 2008

Earlier this month, the president-elect’s selection for Secretary of Health and Human Services, former Senator Tom Daschle, announced that the transition team was planning a series of “health care reform parties” during which the general public would have the opportunity to offer input on the shape and content of the reform plan.

Of course, holding these sessions now will also allow the Obama team to later say they solicited public input before moving to push a reform plan through Congress.

It should be obvious from this and other signals that the president-elect plans to move fast and hard to pass health care legislation as early as possible in 2009. In a certain sense, he and his team are doing their “listening” now so they won’t have to later.

It is also clear that a major battle will be fought over the so-called “public insurance option” in the Obama campaign plan. Many Democrats, including Senate Finance Committee Chairman Max Baucus, want to give workers the option to enroll in a public insurance plan modeled on Medicare. Proponents of this idea say they only want a fair competition with private insurance offerings, but the reality is that a public insurance plan would open a backdoor to a single-payer system. Public insurance plans always set fees for services well below market rates and thus shift costs to other payers who must negotiate, not dictate, rates with doctors and hospitals.

Recent news stories indicate that major insurers are now beginning to voice serious concerns about the idea, as they should.

Some more moderate advocates of Democratic-leaning reform try to downplay the significance of the public insurance option, suggesting it might be discarded to get a deal. Perhaps.

But the Obama framework really doesn’t work without it either because the Democratic approach to reform is entirely dependent on governmental price controls to hold spending in down. Jettisoning the public insurance option, absent a real marketplace, would drive the costs of Obamacare even higher.

posted by James C. Capretta | 3:38 pm
File As: Health Care

Obama's Health Care Czar

December 12, 2008It's official: former Democratic Senator Tom Daschle is President-elect Barack Obama's pick to be the next Secretary of Health and Human Services.

In an unusual step, Obama also said Sen. Daschle would head a new White House Office of Health Reform, with Jeanne Lambrew, the co-author of his recent book on health care, serving as Sen. Daschle's deputy. Presumably, the new White House office will spearhead the drive to get Obama's health care plan through Congress.

These days, discussions in Washington about health care have a surreal quality about them. There seems to be a sense that 2009 is different and might be the year when something really big does indeed pass Congress.

That could very well be the case.

But, before such a plan passes, there will necessarily be a return to reality.

Right now, some of the optimism about reform is due to a lack of understanding about financial reality. The public seems to think President-elect Obama can provide more health care for more people without anyone else paying anything more or getting anything less. 

He can't.

The Obama campaign plan was built around the notion that the federal government could find ways to engineer a more cost-effective health system, thus providing the savings which could be used to subsidize coverage for millions of households.

There is simply no evidence that the government has the capacity to do this. Quite the contrary. What the government can do is impose artificial cost constraints, as other countries do today. But such artificial restraints come at the expense of quality and lead to rationing, not more efficiency.

At some point, reality will set in. The Obama plan cannot deliver all things to all people. The Obama team will, by necessity, have to turn to unpopular taxes or price controls to finance their program. When they do so, the debate will return to planet earth and become more interesting.

posted by James C. Capretta | 5:56 pm
File As: Health Care

A Cost-Free Medicare Buy-In? Donít Count On It

December 11, 2008

The idea of letting early retirees buy into Medicare has been around for a long time. The last time it was seriously considered was in the late 1990s when it was proposed by President Bill Clinton. It didn’t pass then, in part, because it was impossible to structure such a program in a way that wasn’t prohibitively expensive to the federal government. Hence it was surprising to see Senate Finance Committee Chairman Max Baucus suggest in his recently released white paper on health care reform that a “budget neutral” buy-in, financed entirely from enrollee premiums, was possible.

There is no data offered in Sen. Baucus’ white paper which supports the contention that such an outcome is achievable, whereas common sense and plenty of independent research indicate that it is not. The problem with the buy-in option is that, because it is voluntary, it is vulnerable to serious adverse selection. If the premiums are set to cover full costs, the only people who will want to sign up are those with chronic and expensive health problems who can’t get affordable coverage anywhere else. Covering costs for a high-risk population would require very high premiums. The relatively healthy would find it less expensive to get coverage elsewhere and so would not jump in.

If, on the other hand, the buy-in were subsidized to make it less expensive for those who have expensive health needs, there would be a stampede of people leaving private coverage to take advantage of a new public insurance subsidy. The Census Bureau reports that there were 33 million people age 55 to 64 in 2007. Providing subsidized coverage for this pre-Medicare population would be very expensive indeed. The difficulty of designing a workable, inexpensive buy-in has been well documented by others, including Urban Institute researchers in this analysis from 2002.

Of course, it may be that Sen. Baucus wants to start with the proposition that such an option will be budget-neutral and then get dragged by interest group pressure toward the more expensive alternative. Certainly, there are many businesses which would like nothing more than to dump their early retiree health care obligations onto the federal government. A Medicare buy-in, if subsidized and therefore attractive to the healthy as well as the sick, would provide them with the opportunity to do so.

Taxpayers beware.

posted by James C. Capretta | 5:42 pm
File As: Health Care

The States, Gov. Bobby Jindal, and Surviving the Obama Years

December 10, 2008

Where should conservatives turn for new leadership on health care issues during the Obama years?

Certainly one place should be the executive mansions in the states. Gov. Bobby Jindal of Louisiana and other like-minded reformers in the states are working to implement practical reform programs based on markets and consumer choice. That’s the subject matter for this piece, posted yesterday at National Review Online:

[Jindal] recently released an ambitious plan to reshape his state’s Medicaid program and expand coverage to a large segment of the state’s uninsured. The details of Jindal’s plan reveal a rare understanding of a central failing of today’s arrangements: Government-run fee-for-service-style insurance, as practiced in current Medicare and Medicaid, is the primary cause of low quality, fragmented, and inefficient care — in Louisiana and everywhere else.

Jindal wants to tackle this problem head-on. He would restructure Medicaid by moving toward fixed-dollar entitlement and consumer choice. Medicaid recipients in Louisiana would be given the power to select from among a number of competing networks of doctors and hospitals. The state would pay these networks a monthly fee intended to cover the costs of all necessary care, instead of a fee every time a beneficiary used a service. The expectation is that health-care practitioners would be forced to rethink how they do business to find innovative ways to keep people healthy and well — and out of the hospital. Physicians and hospital administrators who believe they can provide better care at less cost would have a strong financial incentive to jump into the reformed Medicaid program, because they would share in the savings from improved productivity.


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

Senator Daschle Gets HHS

What does the selection mean for health care reform?
November 20, 2008

"Doc Daschle"Officials from the Obama transition team have let it be known that former Senate Democratic Leader Tom Daschle is the pick to be the next Secretary of Health and Human Services.

This does not come as a great surprise; Senator Daschle has been signaling for months now that he wanted HHS, as I pointed out back in August. Why did Daschle want the HHS job? As I write in a new article over at National Review Online:

Daschle is apparently eager to take the assignment not so much because he relishes the challenge of managing the vast HHS enterprise but because, like many of his former colleagues in Congress, he wants to cap his career by being closely associated with passage of a nationalized-health-care plan. And he senses, as others do, that the moment may have arrived.

And it very well may have. With 58 Democratic votes in the Senate (and counting), there will be a strong push from Democrats to seize the political momentum and pass something very big next year.

Just what kind of reforms are Daschle and his former Senate colleagues now contemplating? I lay out some details in the NRO piece.

posted by James C. Capretta | 11:30 am
File As: Health Care

Immigration and the Uninsured

November 6, 2008

With the election of Senator Barack Obama as the next president, a renewed and serious debate about covering the uninsured in the coming years seems certain.

There will be much to discuss, course: The merits of “pay or play.” Enforcement of individual mandates. Insurance market reforms. And much, much more.

But perhaps no issue is as potentially volatile as what to do about uninsured immigrants. It’s no small matter, as a recent analysis [PDF format] from the Employee Benefit Research Institute (EBRI) makes clear.

According EBRI, the number of uninsured residents in the United States under the age of 65 increased from 36.5 million in 1994 to 46.5 million in 2006, an increase of 10 million people. Of this increase, 55 percent, or about 5.4 million people, were immigrants -- that is, foreign-born persons (citizens and non-citizens) residing in the United States. An indeterminate number of the non-citizen uninsured are here illegally.

In 1994, there were 6.9 million people in the United States who were immigrants and uninsured. In 2006, the number of immigrants without health insurance had grown to 12.3 million people, an increase of 80 percent in a dozen years. By contrast, the number of native-born uninsured in the U.S. was 34.1 million in 2006 -- just 15 percent more than in 1994 (see the chart below).

The Uninsured by Immigration Status

Uninsured immigrants are highly concentrated in a handful of states. On average, there were about 11.7 million uninsured immigrants in the United States over the three-year period 2004 to 2006. Of that total, 60 percent lived in just four states: California, Texas, Florida, and New York.

The 1996 welfare reform law has had a major impact on the number of uninsured immigrants. The 1996 law placed new restrictions on enrollment in Medicaid by non-citizens. New immigrants are now required to wait five years before they can apply for public insurance coverage, and even then they may not qualify as easily as before because new rules assume an immigrant is getting income support from their sponsor. This change is reflected in the statistics: Between 1994 and 1998, immigrants accounted for 43 percent of the increase in the uninsured; between 1998 and 2003, they accounted for over 90 percent of the increase in the number of uninsured.

EBRI’s analysis shows that the probability that an immigrant will remain uninsured drops precipitously with time. For foreign-born non-citizens, the probability of being uninsured is nearly 50 percent if they arrived in the United States after 1999, but only 27 percent if they arrived before 1970.

Immigrants who become U.S. citizens are only slightly more likely to be uninsured than citizens. EBRI estimates that the uninsured rate among foreign-born citizens is about 20 percent for the under-65 population, compared to 15 percent for native citizens under age 65.

Health care reform -- already complex politically and substantively -- will become even more so when more Americans become aware (as they surely will) of the potential implications of some reform plans for immigration policy. When that time arrives, proponents of reform will need to be ready with a politically-defensible position -- or the entire effort could be in jeopardy.

The full EBRI analysis is available in their August 2008 edition of Notes, available here.

posted by James C. Capretta | 0:50 am
File As: Health Care

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