On Political Expediency and Health Care Reform

Published June 12, 2011

Kaiser Health News

Once upon a time, President Barack Obama and many others who championed his health care plan actually professed faith in the power of a functioning health care marketplace. That now seems like a distant memory, given the demonization campaign that the president and his allies have launched against House Budget Committee Chairman Paul Ryan’s plan to inject consumer choice and competition into Medicare. But there’s no doubt that while the health law was under consideration in Congress, the president and his team wanted to leave the impression with voters that the plan they were pushing would rely mainly on market signals, not heavy-handed government control.

Recall the basics of the Obama reform. “Premium credits” (vouchers!) are given to participants in the new state-based health care exchanges. These credits are set based on a reference plan offered in the exchanges, and they don’t vary based on the plans selected by participants (but do vary based on the household incomes of the participants). Does all this sound familiar?

Ironically, after a tortuous debate, Congress decided that the Obama premium credits could only be used by exchange participants to enroll in private health insurance plans (privatization!). There’s no “public option” available (at least not officially). Moreover, the law imposes a requirement on citizens and legal residents to enroll in qualified coverage of some sort. So, without an explicit public option, the new law has effectively created a guaranteed pool of captive customers for profit-hungry, investor-owned and patient-abusing private plans.

Finally, the credits that are given to exchange participants won’t keep up in future years with the expected increases in premium costs. That’s right. The Obama “vouchers” are indexed in a way that will gradually push more premium costs onto the low-income exchange enrollees. For some reason, in all of the heat and fury over the Ryan Medicare blueprint, this feature of the Obama plan has been almost entirely overlooked by the media, with the notable exception of Jed Graham at Investor’s Business Daily.

It doesn’t help that the Obama indexing provision was written extremely carelessly, which has led the Congressional Budget Office and Health and Human Services actuaries to different interpretations. But no matter the interpretation, it’s clear that, if health care costs don’t moderate, the new law will end up pushing higher premium costs onto low-income exchange participants. CBO recently issued a report on this subject that shows that the premium increases for low-income households could easily reach 10 to 12 percent every year.

Meanwhile, now that their plan is law, the tune has changed. The enthusiasm for premium credits, consumer choice of private health plans and decoupling of credits from health costs seems to have waned. Indeed, it’s waned to such an extent that these are now not just bad ideas but ideas that would destroy America as we know it!

Moreover, those who previously stressed that the new health law would have a strong component of consumer choice and competition are now saying that a functioning marketplace will never work.

For instance, Peter Orszag, who played a key role in the law’s passage as Obama’s first budget director, now says consumer choice—a fundamental component of the Ryan Medicare reform plan—won’t control costs at all. He mischaracterizes the Ryan plan as nothing more than a scheme to increase copayments and deductibles on seniors, which will actually add to overall costs.

What’s going on here?

First, it should be clear that the attacks on the Ryan plan have taken Washington political hypocrisy to a new level, which is saying something.

Second, it’s clear that the Obama administration and its congressional allies—despite what they said during the debate over the health law—actually don’t believe in a functioning marketplace. What they do believe in is the capacity of the federal government to impose cost control.

And that brings us to the fundamental disagreement at the heart of the Medicare debate.

Both sides agree that the key to slowing the pace of rising costs is continuous improvement in the productivity and efficiency of the health care delivery system. But what will bring that about?

Orszag argues that the new health law can improve health care delivery, by using the levers of Medicare to push concepts like bundled payments, accountable care organizations, and medical homes. But what evidence does he have that this will work? Medicare’s administrators have been trying for 40 years to build a higher value, lower cost network of care (remember “Centers of Excellence”?), without any success.

When push comes to shove, the program has been completely incapable of making real distinctions among providers of care based on quality and cost metrics. To hit budget targets, the solution has always been indiscriminate across-the-board payment-rate reductions that hit everyone equally, regardless of how well or badly they treat their patients. And the predictable consequence is a reduction in the willing suppliers of services.

Orszag says the Ryan plan won’t work because higher cost-sharing doesn’t change the delivery system. But that’s not an accurate description of the Ryan plan. Medicare beneficiaries will have strong financial incentives to sign up with plans that charge low premiums even as they deliver high value, and that means real delivery system reform. The fastest, surest way to get hospitals, physicians and clinics to re-organize their processes and achieve savings is by having engaged consumers in a position to reward market leaders who are the first to find ways to deliver more for less. That’s the Ryan plan.

When Ryan and his colleagues unveiled their budget plan in April, the president had a choice. He could work with his adversaries to find common ground on budget and health policy matters, or he could eschew bipartisan compromise and attempt to defeat them politically. He made his choice, and so the battle is on.

James C. Capretta is a fellow at the Ethics and Public Policy Center.

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