Healthcare reform

Alain Enthoven, pioneer of “managed competition” and esteemed authority on health-care economics, has an excellent column on Ryan’s premium support plan (What Paul Ryan’s critics don’t know about health economics). Echoing arguments made by Alice Rivlin and Henry Aaron, he argues that the premium support approach would encourage the spread of accountable care organisations, and that these could make a big contribution to improving efficiency and lowering costs. Ryan’s indexation formula is too severe, Enthoven says, but the basic idea is sound.

At the root of the waste and excess is Medicare’s open-ended fee-for-service system, which pays health-care providers for doing more and more costly services, whether or not they’re in the patients’ best interests. Last year’s health-care reform legislation acknowledged that fundamental change is needed from the traditional fee-for-service model to a system in which doctors and hospitals team up to offer coordinated care and are held accountable for per-capita cost and quality. Hospitals and suppliers may participate in this Shared Savings Program by creating or joining an Accountable Care Organization (ACO).

Unfortunately, the incentives to form ACOs and to dramatically cut costs are far too weak and the regulations far too complicated…

A better way to encourage accountable care is the “premium-support” model proposed by House Budget Committee Chairman Paul Ryan, among others. This is a managed competition model in which government would make a defined contribution and beneficiaries would have a choice from a variety of health plans with no discrimination based on health status. Standard coverage contracts would make comparisons possible for ordinary people. Competition would drive health plans to innovate in ways that cut waste and improve quality. And the use of exchanges would drastically reduce marketing costs, so insurance companies would not be taking 20% off the top, as is currently the norm.

This is not “the end of Medicare,” as some would have you believe.

One thing I don’t understand is why Enthoven, like Ryan, takes such exception to the use of the term “voucher” in describing the premium support approach. Premium support is, to all intents and purposes, a voucher. What’s wrong with calling it that?

 

Democrats are reading a lot into their unexpected win in the New York special election. The election was about Medicare reform, they say: voters roundly rejected the House Republican plan. Republicans are dismissing the defeat, citing special factors such as the split in their vote caused by a phony Tea Party candidate. After allowing for special factors, argues Michael Barone, the GOP still did worse than it should have, and the Medicare issue was one reason why. The GOP started this fight, but is not winning it. See also Dan Balz:

Democrats should not read too much into Tuesday’s results. But it is the Republicans who have the most to learn from what happened there.

Republican leaders believe in their agenda and are not likely to back away from it just because they lost one House seat, particularly one that they could very well win back in 2012. But they have not yet won the argument over how best to deal with the country’s fiscal problems. They have accepted the responsibility to propose. Now they will need to learn how to persuade.

Newt Gingrich got his campaign for the Republican presidential nomination off to a bold, if perplexing, start by attacking Paul Ryan’s budget plan as “right-wing social engineering” and affirming his support for the individual mandate in health care reform. In subsequent clarifications, he said he was opposed to the Obama mandate on constitutional grounds–the same rationale Mitt Romney offers in defence of his Massachusetts plan–and said he was not in a fight with Paul Ryan even though they disagree about how to reform Medicare. Ryan said, “With allies like that, who needs the left?”

Gingrich has backed some form of mandate in health care for years. Give him some credit for sticking to this line (which also happens to be correct). But still one wonders how he expects to get the nomination from a party so bitterly opposed to that view. Republicans in Congress and on the airwaves queued up to stamp on him. It’s not good to be entirely occupied with damage control on day one of your campaign.

It was a close-to-impossible assignment: explain why the Massachusetts health care reform was good policy and President Obama’s health care reform, so strikingly similar, wasn’t. In his speech at Ann Arbor last week, Romney did advance the only principled defence of this position–which is that states can properly do things that the federal government cannot. Let the states experiment; don’t impose one top-down solution. Moreover, you can argue, the Constitution denies the federal government power to make people buy health insurance; nobody, so far as I know, denies that this power is available to the states.

Ron Brownstein at National Journal reviews the recent history of efforts to restructure entitlements such as Medicare and Social Security. With bipartisan consensus, he argues, it can be done; without, especially if the purpose is to limit rather than expand entitlement spending, the record is poor.

Some people celebrate good fortune by visiting Disneyland or Las Vegas. Republicans often commemorate success by beating themselves bloody against the foundations of America’s social safety net.

The sweeping budget blueprint that House Budget Committee Chairman Paul Ryan, R-Wis., released this week marked the fifth time since 1980 that Republicans have followed an electoral breakthrough by attempting to restructure Medicare or Social Security. Each of the previous efforts ended in tears, largely because the GOP’s approach failed to attract support beyond its core coalition. Ryan’s plan, by seeking to end Medicare as it now exists, reprises the same risk—at a time when the GOP is growingly increasingly reliant on votes from white seniors.

Brownstein’s piece should disturb Republicans, but one wonders whether it will.

A lexical clarification. Ryan’s plan to reform Medicare is based on converting the program to what most observers call a “premium support” model. Henry Aaron of the Brookings Institution (along with Robert Reischauer) coined that term, but meant something different by it–namely, cash payments indexed to health-care costs, rather than to a wider economic index, such as consumer prices, as Ryan proposes.

The defining attribute of the plans that Reischauer and I christened “premium support” was that the amount of support was to be indexed to average health care costs, not, as in voucher plans, to a price index or per person income.  If savings were to result from the exercise of consumer choice and market discipline, that would be well and good, we argued.  But savings should not come from erosion of the adequacy of support resulting from linking the payment to a slowly growing index.  This difference is crucial.  Voucher plans are virtually guaranteed to become increasingly inadequate; premium support plans will not.

Aaron wants his term of art returned. Ryan’s budget document adds insult to injury, I notice:

This is not a voucher program, but rather a premium-support model.

Says who? In future I will try to say “voucher”.

 

The Committee for a Responsible Federal Budget has done a quick analysis of Paul Ryan’s budget, and says the main things that need to be said about it. This article by Alan Simpson and Erskine Bowles is along similar lines.

First, give Ryan some credit for setting out concrete proposals. That was brave. He can hardly be accused–unlike the Obama administration–of evading the hard questions. And he has a suitably ambitious goal for long-term debt reduction, as well: his plan fails to get debt back below 70 per cent of GDP as quickly the Bowles-Simpson proposal, but it does achieve this goal before the end of the decade. Under Obama’s budget, the debt approaches 90 per cent of GDP by 2020 and is on track to keep rising.

Unfortunately, however, it is hard to see Ryan’s plan as a good-faith effort to come to terms with Democrats over what should be done. His proposal cuts spending to just under 20 per cent of GDP by the end of the decade–less than the historical average of around 21 percent, and much less than the 24 per cent in the White House plan. Revenues do rise under the Ryan proposal, from 16 per cent in 2012 to about their historic average of 18 per cent by 2020. (He cuts tax rates but aims to balance that by simplifying the system and narrowing exemptions, a good basic strategy.) So by 2020 Ryan is collecting 1 per cent of GDP less in revenue than Obama’s budget, and spending 4 per cent of GDP less. In the abstract, that does not look too wild, yet by tilting the adjustment so heavily toward lower spending, he has to do some things that Democrats–and, more important, most of the public–will be unable to accept.

In effect, Ryan not only repeals Obama’s health-care reform (by refusing to fund subsidies and other outlays), he also proposes to convert Medicare into a defined-contribution programme and Medicaid into a system of block grants to the states. From the point of view of guaranteeing universal access to health insurance, this goes beyond merely nullifying Obamacare, and further weakens the guarantees, such as they are, in the present system. In my book, that is two steps back.

I think it is fair to criticise Obamacare for failing to take cost control in health seriously. But Ryan’s plan has the same defect. It holds out no more hope of controlling costs than Obama’s. And under Ryan’s proposal, an ongoing failure to economise would simply be passed through to the retired as reduced coverage and/or higher premiums. This is not something that the retired–or people who one day expect to be retired–are likely to embrace. Politically, this plan to privatise Medicare, which is how it will be characterised, is surely suicidal.

The Ryan budget as a whole is a frontal assault on the administration’s priorities. You might say: Mission accomplished. A frontal assault is what the GOP promised. But what, exactly, does this achieve? What hope of compromise does a plan like this allow? The US system of government divides power between the parties, an obvious fact, but one that the contending forces on Capitol Hill lately find hard to take in. How do you get from unyielding, no-surrender proposals like this to workable commonsense reforms that actually confront the problem? In short, how do you get from a posture to a policy? The ongoing shambles over the continuing resolution and the immediate budget impasse suggests one rather disturbing answer. You don’t.

 

 

A year ago this week Congress passed and President Obama signed the Patient Protection and Affordable Care Act. Michael Cannon of the Cato Institute organized a conference on Monday to take stock. As a libertarian, Cannon opposes the reform, but the meeting brought supporters as well as sceptics together. It was a good event and you might want to watch it on the think-tank’s website. It seems to be in two pieces, here and here.

The future of the reform, as you know, is uncertain.

Judge Roger Vinson’s ruling that the individual health insurance mandate is unconstitutional seems to have surprised a lot of commentators. I’m surprised they’re surprised. The ruling may be wrong–ie, it may in due course be overturned by the Supreme Court–but it is perfectly intelligible, and oral argument had already suggested he was leaning this way. The only unexpected part of the ruling was his finding that the whole law is void, on the grounds that the mandate cannot be removed from the legislation without making the entire thing unworkable. But, as the ruling says, the legal non-severability of the mandate is something that the White House and Congress had previously insisted on, so you could say it was they who demanded the ruling’s all-or-nothing character.

I want the reformers to succeed, but they made things harder for themselves in another way too. Even before the law was passed and the legal challenges began, it was understood that the distinction between “tax” and “penalty” was constitutionally significant. The law could have levied a tax to cover the costs of insurance subsidies in such a way that only people who chose to be uninsured would be burdened by it. The effect would have been similar to the mandate’s, but without the constitutional problem (the power to tax and spend is pretty well established). Why didn’t the reformers do it that way? Partly because it would have broken Obama’s promise not to raise taxes.

Message confusion has thus arisen on both sides. For legal purposes, it would be convenient for liberals to say that Obama lied: the penalty is really just a tax. Unless they are careful, conservatives may find themselves calling the president a man of his word. It’s awkward.

Once you see the penalty as a penalty and not a tax, the main question that Vinson poses–if the government can force you to buy health insurance, what can’t it force you to buy?–is a good one. The Supreme Court, when it gets the case, will want to find an answer–some principle that lets health reform stand while appropriately limiting the federal government’s freedom of action. Voiding the law, I’m sure, is not something a majority will want to do, even if public opinion remains (moderately) opposed to the reform. Too bold. Too disruptive, especially if they take their time getting around to it. But they will want to come up with a rationale for letting the law stand that does not give the feds carte blanche. And that may not be straightforward.

(Note to puzzled Europeans. In the US, the federal government’s powers, unlike the states’, do not take the form of a general “police power”. The powers are enumerated in the Constitution. The ability to punish people for not buying something is not, at first sight, among them.)

Greg Sargent and EJ Dionne separately hope that Obama’s State of the Union address will be less about moving his presidency to the centre than about moving the centre to where he is already standing. Good point, though it needn’t be one or the other, of course. It could be some of both. Obama and the centre could, you know, meet in the middle.

Like Sargent and Dionne, I would like to see the US centre moved far enough to embrace the principle of universal health insurance. But I would not want to see it moved so far as to make long-term deficit reduction along Bowles-Simpson lines impossible–an outcome that Sargent and Dionne appear to favour. Sargent quotes David Dayen approvingly:

I’d say that the President calling for new investments and staying silent on the Bowles-Simpson cat food recommendations is pretty darn good, all things considered.

Good for whom? Without those cat-food recommendations, or something quite like them, the ceiling might fall in on the US economy and whoever occupies the White House sooner than Obama would like. And though Obama, if he tried, might convince the middle of the country that universal health insurance is worth the cost, I’d guess his chances of persuading it that public borrowing is not a problem are pretty slim. It isn’t good politics for Democrats to seem unserious about long-term deficit reduction.

Absolutely, move the centre. That should be part of Obama’s ambition. But if he fails to take the fiscal problem seriously, he will be getting policy wrong and the politics wrong as well.

Greg Mankiw mocks the muddled thinking of health-reform advocates.

I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

His point seems to be that if the healthcare law can be called fiscal reform, as advocates claim, then this ridiculous handout plan can also be called fiscal reform–which would be absurd, or so he asks us to believe.

This is not up to Mankiw’s usual standards.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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