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Opponents of the health law sometimes like to suggest that cutting health costs would be easy, if only wed be willing to try common-sense ideas. But thats wishful thinking. The law does include most of the common-sense ideas supported by health economists ranging from Mark McClellan (the former Bush administration official) to David Cutler (a former Clinton and Obama adviser). Theres just no getting around the fact that reducing the growth rate of health costs will be difficult.
Several writers have done a nice job of explaining this idea in the last several days. Heres David Wessel, the economics columnist at The Wall Street Journal:
At the National Business Group on Health, a collection of nearly 300 big employers, President Helen Darling, a former corporate-benefit administrator and Republican Senate staffer, says about executives who call for repeal: If they really understood it, they wouldnt.
I dont think well get a better solution in the U.S. in our lifetime she said. If it gets repealed, or gutted, well have to start over and well be worse off.
If the government fails, then costs will rise inexorably. Nothing in the law guarantees success: The law embodies almost every idea anyone has offered and hopes a couple of them will work. No wonder executives are skeptical. But heres the question: Would repeal in the current political climate be followed by more muscular restraints on health-care costs? Or weaker ones?
Talking about repeal of the health law may be a winning political strategy for Republicans, a rare way to please both workers and business executives. As long as they dont actually succeed in doing it.
And Austin Frakt, a Boston University health economist writing at Kaiser Health News:
One way to get serious is to embrace the cost control provisions of the new law and to protect them from the likely efforts of future policymakers to undo them. In this, I agree with health economist Henry Aaron, who wrote about the health reform law:
[T]he bill contains, at least in embryonic form, virtually every idea for cost control that any analyst has come up with. The most practical cost-control strategy that is now available to Congress is to accelerate the implementation of these provisions, not to stymie them.
That is, the cost controls on the books should be strengthened, not repealed or demagogued. We need them to work, and to work even better than [projected now]. Changes to Medicare and Medicaid payment systems, the Cadillac tax and the creation of the Independent Payment Advisory Board can all be effective tools to reduce federal, state and private health care costs if used wisely and to their fullest.
Finally, Ezra Klein of The Washington Post:
The health-care legislation might save less money than CBO projects. But it also might save more. People like Harvards David Cutler and CAPs Judy Feder, people who have spent their lives studying health-care policy, think the CBO is far too conservative when it looks at the delivery-system reforms .
[F]ormer CBO director Robert Reischauer, best known for his unwillingness to bend to the White House during the Clinton reform effort, supports the legislation as a crucial first step in long-term cost containment, and so too does former CBO director Alice Rivlin .
If parts of it dont work, we can change them. If parts of it work even better than were expecting, we can double down on them. The real concern is not that the reality wont accord perfectly with the CBOs predictions, but that the political system wont be able to respond to reality.
David Leonhardt has a nice mini quote round-up today making the obvious (but important) point that long-term health care cost control is not going to be a cakewalk. Worth noting.
Wishful Thinking on Health Costs:
Opponents of the health law sometimes like to suggest that cutting health costs would be easy, if only wed be willing to try common-sense ideas. But thats wishful thinking. The law does include most of the common-sense ideas supported by health economists ranging from Mark McClellan (the former Bush administration official) to David Cutler (a former Clinton and Obama adviser). Theres just no getting around the fact that reducing the growth rate of health costs will be difficult.
Several writers have done a nice job of explaining this idea in the last several days. Heres David Wessel, the economics columnist at The Wall Street Journal:
At the National Business Group on Health, a collection of nearly 300 big employers, President Helen Darling, a former corporate-benefit administrator and Republican Senate staffer, says about executives who call for repeal: If they really understood it, they wouldnt.
I dont think well get a better solution in the U.S. in our lifetime she said. If it gets repealed, or gutted, well have to start over and well be worse off.
If the government fails, then costs will rise inexorably. Nothing in the law guarantees success: The law embodies almost every idea anyone has offered and hopes a couple of them will work. No wonder executives are skeptical. But heres the question: Would repeal in the current political climate be followed by more muscular restraints on health-care costs? Or weaker ones?
Talking about repeal of the health law may be a winning political strategy for Republicans, a rare way to please both workers and business executives. As long as they dont actually succeed in doing it.
And Austin Frakt, a Boston University health economist writing at Kaiser Health News:
One way to get serious is to embrace the cost control provisions of the new law and to protect them from the likely efforts of future policymakers to undo them. In this, I agree with health economist Henry Aaron, who wrote about the health reform law:
[T]he bill contains, at least in embryonic form, virtually every idea for cost control that any analyst has come up with. The most practical cost-control strategy that is now available to Congress is to accelerate the implementation of these provisions, not to stymie them.
That is, the cost controls on the books should be strengthened, not repealed or demagogued. We need them to work, and to work even better than [projected now]. Changes to Medicare and Medicaid payment systems, the Cadillac tax and the creation of the Independent Payment Advisory Board can all be effective tools to reduce federal, state and private health care costs if used wisely and to their fullest.
Finally, Ezra Klein of The Washington Post:
The health-care legislation might save less money than CBO projects. But it also might save more. People like Harvards David Cutler and CAPs Judy Feder, people who have spent their lives studying health-care policy, think the CBO is far too conservative when it looks at the delivery-system reforms .
[F]ormer CBO director Robert Reischauer, best known for his unwillingness to bend to the White House during the Clinton reform effort, supports the legislation as a crucial first step in long-term cost containment, and so too does former CBO director Alice Rivlin .
If parts of it dont work, we can change them. If parts of it work even better than were expecting, we can double down on them. The real concern is not that the reality wont accord perfectly with the CBOs predictions, but that the political system wont be able to respond to reality.
Any third party payer system, be it government or private, is doomed to have no downward pressure on prices, since they're negotiated by non-market participants.
It needs to be scrapped. Every one of those quotes admits its flawed.
Entitlements don't get better with age.
David Leonhardt has a nice mini quote round-up today making the obvious (but important) point that long-term health care cost control is not going to be a cakewalk. Worth noting.
Wishful Thinking on Health Costs:
Opponents of the health law sometimes like to suggest that cutting health costs would be easy, if only wed be willing to try common-sense ideas. But thats wishful thinking. The law does include most of the common-sense ideas supported by health economists ranging from Mark McClellan (the former Bush administration official) to David Cutler (a former Clinton and Obama adviser). Theres just no getting around the fact that reducing the growth rate of health costs will be difficult.
Several writers have done a nice job of explaining this idea in the last several days. Heres David Wessel, the economics columnist at The Wall Street Journal:
At the National Business Group on Health, a collection of nearly 300 big employers, President Helen Darling, a former corporate-benefit administrator and Republican Senate staffer, says about executives who call for repeal: If they really understood it, they wouldnt.
I dont think well get a better solution in the U.S. in our lifetime she said. If it gets repealed, or gutted, well have to start over and well be worse off.
If the government fails, then costs will rise inexorably. Nothing in the law guarantees success: The law embodies almost every idea anyone has offered and hopes a couple of them will work. No wonder executives are skeptical. But heres the question: Would repeal in the current political climate be followed by more muscular restraints on health-care costs? Or weaker ones?
Talking about repeal of the health law may be a winning political strategy for Republicans, a rare way to please both workers and business executives. As long as they dont actually succeed in doing it.
And Austin Frakt, a Boston University health economist writing at Kaiser Health News:
One way to get serious is to embrace the cost control provisions of the new law and to protect them from the likely efforts of future policymakers to undo them. In this, I agree with health economist Henry Aaron, who wrote about the health reform law:
[T]he bill contains, at least in embryonic form, virtually every idea for cost control that any analyst has come up with. The most practical cost-control strategy that is now available to Congress is to accelerate the implementation of these provisions, not to stymie them.
That is, the cost controls on the books should be strengthened, not repealed or demagogued. We need them to work, and to work even better than [projected now]. Changes to Medicare and Medicaid payment systems, the Cadillac tax and the creation of the Independent Payment Advisory Board can all be effective tools to reduce federal, state and private health care costs if used wisely and to their fullest.
Finally, Ezra Klein of The Washington Post:
The health-care legislation might save less money than CBO projects. But it also might save more. People like Harvards David Cutler and CAPs Judy Feder, people who have spent their lives studying health-care policy, think the CBO is far too conservative when it looks at the delivery-system reforms .
[F]ormer CBO director Robert Reischauer, best known for his unwillingness to bend to the White House during the Clinton reform effort, supports the legislation as a crucial first step in long-term cost containment, and so too does former CBO director Alice Rivlin .
If parts of it dont work, we can change them. If parts of it work even better than were expecting, we can double down on them. The real concern is not that the reality wont accord perfectly with the CBOs predictions, but that the political system wont be able to respond to reality.
The following is an easy to understand explanation of he healthcare problem vis-à-vis costs, from Broke, by Beck and Balfe, found on page 313.
If you substitute something we all buy every day, like food, for health care, it becomes easier to understand why costs are rising so rapidly.
Imagine your employer were to take $12,000 per year out of your paycheck and then sign you up for a food plan. Your options are limited: a few assorted restaurants and one large grocery store that you are covered at. Any time you go to those places, you pay only a small co-pay, something around $10 or $20, no matter what you actually buy.
A few things would happen under a system like this:
a. You would be robbed of choice. Heard great things about the new Mexican place down the street? Sorry, youre not covered there. Want vegetarian-only options and youre willing to pay more? Sorry, we have only one plan choice.
b. You would buy more food than you need, since the vast majority of what youll pay is set at the beginning of the year and the food co-pays are tiny. Not sure if you really want the apples? Just grab them anyway and throw them out if they go bad. Who cares, theyre free.
c. Most of the restaurants you eat in and the stores you shop at wont even display prices. The cost is irrelevant to you. Its like being on a cruise ship- all the food is included, so eat up.
d. Since you dont care about individual prices, stores and restaurants jack them up. A bag of lettuce for $34? Sure, why not! The people who run the food plan might argue, but how can they ever figure out what the market price should be if the market itself lacks any competitive pricing?
In summary, fixed-price, noncompetitive plans result in lack of choice, higher prices, and overconsumption. Thats exactly how our health system works with third-party payers, and its exactly why its collapsing.
If parts of it don’t work, we can change them. If parts of it work even better than we’re expecting, we can double down on them. The real concern is not that the reality won’t accord perfectly with the CBO’s predictions, but that the political system won’t be able to respond to reality.
