About the Author

James C. Capretta

James C. Capretta

New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@aei.org.


James C. Capretta’s Latest New Atlantis Articles

 Health Care with a Conscience” (Fall 2008) 

 Health Care 2008: A Political Primer” (Spring 2008) 

 The Clipboard of the Future” (Winter 2008)


 More on James C. Capretta

Text Patterns - by Alan JacobsFuturisms - Critiquing the project to reengineer humanity

Thursday, June 11, 2009

Joint Tax Committee Letter to Senator Baucus 

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

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

Friday, June 5, 2009

There’s No Doubt Now  

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

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

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

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

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

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

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

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

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

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

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

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

[Cross-posted at the Corner]

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

Saturday, May 30, 2009

Wishful Thinking, Not a Plan 

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

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

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

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

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

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

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

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

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

[Cross-posted at the Corner] 

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

Wednesday, May 27, 2009

Not ObamaCare 

Ezra Klein's Confusion

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

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

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

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

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

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

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

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

Friday, May 22, 2009

Reasons to Be Skeptical 

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

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

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

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

Friday, May 22, 2009


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

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

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

Thursday, May 21, 2009

Cost-Curve Confusion 

So much confusion, so little time.

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

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

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

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

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

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

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

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

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

Thursday, May 21, 2009

An Ugly Menu 

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

Tuesday, May 19, 2009

Medicare Under Pressure: The 2009 Medicare Trustees' Report 

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

Thursday, May 14, 2009

As Bad As Imagined 

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

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