OMB in the Health-Care Driver’s Seat, for Now

Published February 16, 2009

Natoinal Review

In this piece in today’s Washington Post, advocates for Obama-style health reform express anxiety that the withdrawal of former Sen. Tom Daschle’s nomination to be Secretary of the Health and Human Services (HHS) has set back the Administration’s health policy agenda for months.


But it’s seems just as likely that Obama’s health agenda is still moving forward, just with the Office of Management and Budget (OMB), not HHS, in the driver’s seat — at least for now.

OMB’s power tends to rise at the beginning of a new presidency anyway. Cabinet departments and agencies take months to get re-organized when their political leadership leaves en masse, as they did at HHS on January 20th. That leaves a power vacuum which OMB’s staff is eager to fill.

Meanwhile, the calendar dictates the need for speed. Obama is scheduled to deliver a state of the union-style address to Congress on February 24th and a budget document two days later, barely a month after taking office. There has been no time to run an elaborate consensus-building process, with full engagement from every office of government. With such tight deadlines, the only way to get the job done is to give OMB the authority to pull together the data and options for a decision-making process tightly controlled by a few key White House aides.

It also doesn’t hurt OMB’s relative power position that the new Director, Peter Orszag, is seen as a health policy expert in his own right. During his two-year tenure at the Congressional Budget Office (CBO), he devoted much of his time to researching and commenting on the reasons for rapidly rising health-care costs.

Conservatives shouldn’t take too much comfort in the strong role OMB is undoubtedly playing in setting Obama’s first-year agenda, though. True, there is an institutional culture in favor of spending restraint at OMB, but that impulse is always set aside if it conflicts with the president’s agenda, no matter who is sitting in the Oval Office.

Plus, Orszag is not going to be a champion of market-based reforms in health care. While at CBO, he pushed for “comparative effectiveness research” and a stronger role for the federal government in cost-control efforts. Consequently, what we are likely to see in Obama’s first budget are deep cuts in Medicare’s payment rates for private insurance plans, hospitals, and pharmaceutical manufacturers. The savings will be used to either cut the budget deficit or enroll more people in public insurance, or both.  These reforms will look good on paper, as price controls always do, but they won’t make health care provision any more efficient, which is the only way to control costs without rationing.

— James C. Capretta is a fellow at the Ethics and Public Policy Center.  He served as an Associate Director of the Office of Management and Budget from 2001 to 2004.

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