Headed Toward a Dead End for Cost Control?
March 2nd, 2010 . by economistmomOK — we’re a little worried at the Concord Coalition that the harder the politicians work at finding agreement on health care reform, the more likely we’ll end up with a reform that doesn’t actually “bend the health cost curve.” From a “Tabulation” blog post by Concord Executive Director Bob Bixby:
If we learned anything from last week’s health care summit, it is that the final end game negotiations will not take place between Democrats and Republicans but among various factions of Democrats…
One casualty of the situation may be cost containment. Democrats are mostly united around coverage expansion. That’s the easy part. Their biggest difference is on the more difficult question of aggressive cost containment. The two most promising cost-containment strategies still on the table are the tax on high-cost health care plans and the Independent Payment Advisory Board (IPAB). Both were adopted by the Senate but not by the House, where they remain deeply unpopular.
If the price for securing 218 votes in the House is eliminating or neutering these provisions, the result will be a bill that expands coverage with very little prospect of controlling costs…
President Obama has already given ground on the high-cost tax. In his latest summary of proposals to bridge the gap between House and Senate Democrats, he proposes that implementation of the tax be delayed until 2018. However, while some phase-in period may be appropriate, the same forces fighting the tax now will not simply melt away over the next eight years. The projected cost savings from this provision are thus looking increasingly speculative.
The assumed cost savings from IPAB may also be in danger. The President proposed this idea last summer as an ongoing method of reviewing Medicare expenditures and proposing ways to keep costs under control. While it has been watered down, the President remains committed to the concept. However, many influential House members view it as an intrusion on their ability to set Medicare payment rates and have opposed it from the outset.
Wait — remind me: why was it we were pursuing health care reform?
Wait — remind me: why was it we were pursuing health care reform?
That was all explained quite clearly by the “Democratic Health Reform Parrot” in the interview at http://economistmom.com/2010/02/let-the-elephant-save-the-parrot/#comment-7067
The primary objective of the Democrats’ version of health care reform is to have the government guarantee availability of all needed health care to all people at zero to minimal marginal cost. Cost control is much less important than price control, keeping that marginal cost as low as possible so that it looks “free” to everyone. If this were actually workable, it’d be pretty great.
I’m with AMT on this one. The vast majority of the Dem caucus is concerned with coverage expansion and with having the costs looks small to the Federal government. Hence, the way it is accomplish is through Medicaid (some of the costs borne by the states ) and the individual mandate (some of the costs borne by the insured or the voluntarily uninsured). So it’s actually worse than just pure coverage expansion. It’s pure coverage expansion that masks the actual costs because of the way the CBO works.
Germany could teach America how to control health care costs, but neither Democrats nor Republicans will listen. Germany forces insurance funds, doctors and hospitals to compete for patients by allowing supply to exceed demand. Germany has 3.5 physicians per 1,000 people. So, why does the US have only 2.3 physicians per 1000 people? The US has 33% less doctors per capita than Germany even though the US spends more than double that of Germany on health care per capita. (The US has the 59th highest number of doctors per capita among countries in the world and yet the US spends the most on health care per capita by more than double that of virtually every country in the world.) The US government requires medical schools to reject tens of thousands of qualified American students every year, thus denying them high quality jobs for life. WHY? The US suppresses the supply of doctors relative to demand, because it operates under the either ignorant or corrupt assumption that doctor supply creates its own demand. But any economist knows that restricting supply, while demand is increasing, will cause price inflation. Then, the US creates even more inflation by monopolizing the US health care industry at virtually every other level: the number of hospitals are limited by certificate of need, drug companies are given monopoly patents and import restrictions, big buyer companies are allowed to form large HMO monopolies to shift costs onto smaller purchasers, these HMOs with help from government encourage the consolidation of health care networks (clinics) and insurance restrictions limit each state to a few companies per state. Then, after Americans have rejected free markets, the laws of supply and demand, and even the very basic concept of competition, they all sit around wondering why their health care costs are skyrocketing and bankrupting the country. WHY? Because Republicans want to monopolize (for their wealthy supporters) and Democrats want to nationalize.
The purpose of Obamacare (healthcare) is not health. It’s about the control of the United States subversely rather than by force.
AMT and Steve,
I’d say it may be that bad or equally bad (or worse) in a different way.
It sounds like you guys are saying that they want to expand coverage, establish price controls (and thus non-market-based rationing — i.e., reduction, ceteris paribus — of quantity and/or quality), and a shift of cost from the federal government to states and individuals, all without focusing on costs themselves.
I think it may be even worse than that, because it may be some of that but also the federal government (i.e., taxpayers nationally) picking up much of the tab for uncontrolled costs (to a greater degree than you may be implying), thus leaving individuals (and providers) with the very little incentive to consume healthcare cost-effectively and leaving taxpayers with the least ability to influence this policy.
As I think you guys have essentially said previously, for those whose healthcare is being paid for by taxpayers, we need to turn patients more into consumers. See my second & third paragraphs at http://economistmom.com/2009/09/thinking-more-broadly-and-creatively-about-cost-effective-preventive-care/#comment-3543
I’m reminded of that line “If you think healthcare is expensive now, just wait until it’s free”.
Brooks,
I completely agree. It probably is worse as price signals in health care become even weaker than their already pathetically weak state.
I’ll tell you the new thought that it is occurring to me that makes me even more worried. Conceptually, post-passage, what happens if people start blaming the government for increases in health insurance premiums? That could lead to even more ridiculous price controls than might otherwise be the case, recognizing that insurance premiums in the individual market are already price controlled in most states by state regulators.
Finally, the “cost controls” that were in the bill were never that compelling to begin with since the IMAC/IPAB requires Congress to act (at least as I understand it). The Cadillac tax didn’t go nearly far enough. Why should only high priced plans be taxed? Now postponed for 8 years, it’s simply a joke.
Wait — remind me: why was it we were pursuing health care reform?
That’s an easy question to answer.
Why do politicians keep renewing “emergency, temporary” rent controls in place here in NYC 65 years after the emergency of WWII ended? To improve the housing market?
Who do politicians so routinely pursue tariffs, quotas, protectionist policies? To improve the efficiency of the economy?
Why was the “mohair subsidy” — after its exposure publicly shamed Congress into repealing it in the 1990s –brought back by Congress as soon as the public was no longer looking? For the national interest? (To pick just one among all the hundreds of billions of dollars worth of cash- and tax-expenditure subsidies.)
It’s no different with politicians and the purpose of health care legislation.
The purpose of political action always is the political gain of the political decision makers at the moment. That is all. The public good has precious little to do with it.
I’d hate to be taken as being cynical — but it’s not cynicism if it’s true.
Now, to the extent that the interests of the political decision makers squares with the interests of the public the result is good govt, and to the extent they don’t govt can get very bad.
That’s why, as Steny said, the *incentives* that the politicians operate under determine everything, and nothing will change until they do.
What is the political interest of those at the top pushing HCR today? To get it passed, nothing else.
How does “cost control” — i.e., spending less on both voters who want health care and on interest groups who get paid via it (Andy Stern to the AMA) — square with getting it passed? Not so well. So are we really surprised the cost controls are going overboard?
Hey, a good number of people predicted this right from the start!
When will cost controls finally actually begin to square with the politicians self-interests?
When the price for health care has been put by the politicians into the voters tax bill, *and* it is surging uncontrolled far up beyond what taxpayers are willing to pay. Tha’s when.
And then, because the “squaring” is only rough at best, cost controls will be imposed the way the politicians do it, not by increasing efficiency and cutting waste but by imposing *price controls*.
Lots of people have predicted that too.
Speaking of which, Obamacare is fundamentally based on Massachusettscare — and have we paid attention to how that is working out?
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So let’s all remember that the “public good” and “cost control” are not – and never were — the purpose of politician-enacted health care legalisation … any more than of politically-enacted rent control legislation, protectionist leglislation, subsidy legislation for mohair and everything else every organized lobbying group can get — or the legislation giving us $50 trillion of unfunded entitlement liabilities.
I hate to sound cynical — but it’s not cynicism if it’s true.
The result will be similar to K-12 schooling in Washington DC: Everybody will pay for a public system that is extremely expensive but almost completely worthless. Those who can afford to pay twice for the same service will use the private system.
Ironically, this may get us to a consumer-as-paying-customer version of health care faster than if we had planned such a transition. Rather, it WOULD get us there if the fiscal situation were not on track for a train wreck well before 2018.
Democrats have had a fantasy about government-provided medical care for 75 years. The fiscal train wreck will reveal just how much of a fantasy it was. Even Social Security and Medicare will be scaled back to serve only the poor, as the role of government resets itself to reality.
The welfare state was comfortable while it lasted, but it’s not sustainable at even the current level, even without adding health care. It looks feasible, but it cannot withstand periodic emergencies of all sorts and creeping deadweight loss from special interests like large corporations and state employee unions.
We are like the teenager in a rich family who makes plans to live the high life but who will need to adjust quickly to a far different reality when he leaves the nest.
Steve,
what happens if people start blaming the government for increases in health insurance premiums? That could lead to even more ridiculous price controls than might otherwise be the case
Another potential outcome of that political pressure could be a public option that ends up subsidized by taxpayers to keep premiums controlled and/or that uses the greater leverage of scale and other aspects of government power to “negotiate” lower provider fees or even total cost, which — if it didn’t lead to providers abandoning patients covered under the public option — would lead to market share gains and eventually a government monopoly as insurer (i.e., single payer), under which we’d have, in effect, government rationing (directly or indirectly, the latter via fixed compensation of providers) rather than “rationing” in the economic sense of people responding to price signals and deciding what level and types of healthcare (and what level and type of health coverage) is worth how much to them. I suppose such (non-market-based) rationing would be better than no cost containment at all, but I’d rather include market mechanisms and consumer choice to a substantial degree (again, going back to my “Barry” example at that link)