What the Health-Care Debate Is Really All About

Published January 19, 2010

The Public Discourse

The choice the country faces in health-care reform is a stark one with profound ramifications: What process will best deliver affordable quality health-care to all Americans, a government-driven or market-driven one?

It’s not unusual for political and legislative battles in the nation’s capital to be sharply partisan. But even by Washington standards, the health-care debate has been exceptionally contentious and polarizing. The bills that have passed in the House and the Senate are supported almost exclusively by Democrats, and Congressional Republicans are nearly unanimous in the view that these bills merit their total and unyielding opposition (so far, only one House Republican has voted for the Democratic proposals). Both sides are waging the fight with such an extreme take-no-prisoners attitude that even long-time Washington observers have been taken aback by the intensity of the struggle.

All of this political fighting can be disconcerting to average citizens. Why, on an issue that is plainly so important, can’t our nation’s elected leaders check their politics at the door and work out an agreement that elicits broad-based support instead of war-room like campaigns to prevail over their opponents?

The answer is that the disagreement over what must be done to improve American health-care is profound and largely irreconcilable. This isn’t your usual, run-of-the-mill political fight. The two sides hold diametrically opposed views that simply do not easily allow for compromise. Moreover, the outcome of the battle will be highly consequential, not just for our system of financing and delivering health-care, but also for our economy and democratic processes. In short, the stakes are very, very high, and both sides know it.

Many people suppose that the heart of the disagreement is over whether or not to expand coverage to more people. It is, of course, a primary objective of the Democratic sponsors of the current initiative to ensure that every American, or nearly so, is enrolled in some kind of health insurance plan on a continuous basis.

But Republicans are not opposed to expanding coverage to the uninsured. In 2008, presidential candidate John McCain proposed a plan which would have provided to every American household a tax credit which could only be used to purchase a health insurance policy. It was, in a very real sense, a “universal coverage” plan in that it sought to ensure that every American would have the financial wherewithal, provided by the federal government, to acquire some level of health insurance protection. The issue, then, is not over expanding coverage to all.

No, the real sticking point between the two sides is over how to allocate resources in the health-care sector. Both sides agree that the status quo is unsustainable, largely because costs are rising much more rapidly than wages or governmental revenues. The crucial question is what to do about the problem. Put differently, the question health-care reform advocates must answer is this: what process will be put in place to bring about continual improvement in the productivity and quality of patient care? That might strike some as more of a technical question than one of fundamental importance.  But, in reality, it’s just another way of saying that resources are scarce and must be allocated in some fashion. The only way to slow rising costs without lowering the quality of care provided is to improve the efficiency of the interactions between doctors and hospitals and those they care for. The question before policymakers is what reforms are most likely to lead to better care at less cost.

The Obama administration believes a governmental process is the answer. There are a series of provisions in the House and Senate bills which try to use the leverage of Medicare payment policy to force doctors and hospitals to change how they practice medicine. For instance, there are penalties for hospitals that have too many of their patients readmitted for care, and for physicians who are outliers in terms of how many services they render for certain diagnoses.

Other reforms are introduced as pilot programs that might be expanded later. In addition, the Senate bill picks up on the idea pushed by the administration to set up an independent Medicare commission which would make ongoing recommendations for cost-cutting in the program through provider-payment reforms. Congress could not reject the commission’s proposals without substituting ideas that achieve similar levels of savings, but the commission couldn’t make any recommendations that alter any aspect of the program other than payment policies for providers of services.

Some of these reforms might actually work and marginally improve matters from the status quo. But would they fundamentally change Medicare, much less the rest of American health care? No, they wouldn’t.

The Congressional Budget Office (CBO) projects that relatively small savings will result from the Medicare commission idea, and even smaller amounts will be saved by the other reforms touted by the administration. In ten years’ time, even if all of the ideas were fully implemented, Medicare and the rest of American health-care would look and operate largely as it does today, which is to say as a fee-for-service insurance model that rewards volume and fragmentation, not integration and efficiency. Adding tens of millions of people to an unreformed system will only exacerbate rising costs, putting even more pressure on the federal budget as well as household incomes.

Proponents of a governmental process have an unbounded confidence in the ability of the federal government to centrally plan and control an extremely complex sector of the American economy. But there is nearly a half century of experience with the Medicare program indicating that this confidence is entirely misplaced.

There have been countless efforts over the years to measure quality and  set payments in the Medicare program accordingly to encourage patients to see the doctors and go to the hospitals that are the most efficient and provide the best care. Most of the ideas have been tested in demonstration programs, or floated as legislative initiatives. But virtually none of them have gone anywhere.

Why? The answer is simple: Politicians are incapable of building what amounts to a government-administered “preferred provider network.” They simply can’t pick one hospital over another, or one physician practice over another, because that implies that some physicians or hospitals in their districts are inferior. And that’s just not something an elected official ever wants to do.

So, instead, they prefer to hit spending targets with across-the-board payment-rate reductions which treat all licensed providers equally.Every hospital, doctor, and other service provider gets cut the same, without regard to any measure of how well or badly they treat patients. That’s been the history of the Medicare program, and, in fact, that’s how the current Congress plans to achieve most of the $500 billion in Medicare savings in the health-care bills.

But these kinds of arbitrary price controls are also very dangerous for the quality of American medicine. They drive out willing suppliers of services, after which the only way to balance supply and demand is with waiting lists and rationing of care. That’s why so many other countries have months-long waits for expensive care. They control costs by artificially holding down prices with government regulation. And they pay the price “off-budget” by making their citizens wait for care they would rather access much more quickly.

That’s the big danger of the health-care bills being drafted in Congress. They would put the federal government in the cost-control driver’s seat, and all experience indicates that will lead, in time, to arbi
trary price setting and rationing.

There is an alternative to this kind of governmental process. It involves building a real marketplace, one where cost-conscious consumers choose between competing insurers and delivery systems based on price and quality. The government can and should play an important oversight role in such a reformed system. But the difficult organizational changes and innovations necessary to provide better care at lower cost would come from those delivering the services, not Congress, or the Department of Health and Human Services, or even an independent commission.

The new Medicare prescription drug benefit was constructed just this way when it was enacted in 2003. Beneficiaries get a fixed dollar entitlement that they can use to buy coverage from a number of different competing plans. The insurers understand that they have to keep costs down to attract price-sensitive enrollees. And the government has no role in setting premiums or drug prices.

And how is it working? Costs have come in forty percent below original expectations.

Opponents of a market-based reform argue that it is impossible to reconcile price-based allocation of health services with equity. But that is not true. In the Medicare drug program, low-income seniors get additional help to pay for their prescriptions through a special funding stream. And all indications are that poor seniors are getting what they need from the program.

The country faces a choice here. We can choose to rely entirely on the federal government to allocate resources in the health-care sector, or we can choose to let consumers and suppliers make decisions in a decentralized marketplace with the government providing oversight and enforcing consumer protections. There is an irreversible aspect to this decision, whenever it is made, which perhaps explains why it has been delayed so long in our political processes. Once we finally decide, definitively, to head down one of these paths, it will be very difficult to change course later and go the other way. Which is why all concerned are bringing to the current fight in Congress every resource they can muster to prevail.

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

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