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Politicians set out to reform the U.S. health care system with two primary objectives: to "bend the cost curve", and to expand health insurance coverage to as many uninsured Americans as possible. The House bill just announced by Nancy Pelosi is expected to do a good job on the second objective, but the more I read, the more I realize that:
1) They constantly confuse "price" with "cost", which leads to rationing of services, and subsidization of government-insured patients by privately-insured ones. This might help the cost curve for people insured by the government, but probably increases costs to overall U.S. health care, and
2) They have almost no credibility when it comes to keeping promises regarding spending restraint, and voters have little reason to believe the bill will really be "deficit neutral", although Obama will make a big point of it at the signing ceremony.
To the first point, various members of Congress say they are controlling "cost" of medical services, when all they are really doing is cutting the "price" they are going to pay for them. For example, if Congress wants to make surgery cheaper, they propose cutting the amount Medicare reimburses for anesthesiologists, surgeons, and equipment (the "price"). However, the "cost" of everything needed to perform the surgery stays the same. The hospital's rent, utilities, salaries, and everything else does not move. Medicare and other government programs often reimburse health care providers less than their costs. For this reason, many hospitals and doctors lose money on Medicare patients, and make it up with their profits from privately-insured patients. For doctors and hospitals practicing in areas with a high percentage of Medicare/Medicaid patients, this becomes an even bigger problem, as they have less profitable patients subsidizing the profitable ones. If Congress continues to cut "cost", while leaving "price" alone, they are forcing many doctors or hospitals to operate at a financial loss, refuse to see Medicare patients (which many doctors do), or simply go out of business. Also, cuts in government insurance contribute to rising premiums for those with private insurance due to the implicit subsidy.
On the second point, Medicare is subject to a "sustainable growth rate" (SGR) according to budget rules which, according to the Wall Street Journal's Health Blog, "says essentially that the amount Medicare pays doctors for an average Medicare patient can’t grow faster than the economy as a whole." This restriction is supposed to keep Medicare spending relatively under control. The various reform bills in Congress rely on the SGR to keep the bills "deficit neutral". However, Congress repeatedly overrides the SGR. Ted Kennedy even showed up to vote to override the cuts after being diagnosed with brain cancer, and they even broke into applause after voting to ignore the SGR. Believing this bill will really be "deficit neutral" requires you ignore all the evidence that a group of people with a 22% approval rating will change their ways overnight.
Also, Obama's proposal to spend $14 billion to pay $250 to seniors because the law on the books would give them no Social Security cost-of-living adjustment this year makes me even more nervous. This New York Times article quotes University of Michigan economist Joel Slemrod as saying: “If the long-term issue is entitlement reform, the fact that the political system cannot say no to $250 checks to elderly people is a bad sign.”
The U.S. is already heavily burdened by growing entitlement programs. Medicare is projected to run out of money in 8 years. If Congress is really concerned about reforming entitlement programs, they have to reduce eligibilty or reduce benefits. This health care "reform" bill does the opposite of both, and kicks all of the existing problems down the road to a future Congress and President.
While the ink is still drying on this round of "reform", Congress will need to get to work tackling the real problems. Or, they can just keep waiting for someone else to take the political hit.
1) They constantly confuse "price" with "cost", which leads to rationing of services, and subsidization of government-insured patients by privately-insured ones. This might help the cost curve for people insured by the government, but probably increases costs to overall U.S. health care, and
2) They have almost no credibility when it comes to keeping promises regarding spending restraint, and voters have little reason to believe the bill will really be "deficit neutral", although Obama will make a big point of it at the signing ceremony.
To the first point, various members of Congress say they are controlling "cost" of medical services, when all they are really doing is cutting the "price" they are going to pay for them. For example, if Congress wants to make surgery cheaper, they propose cutting the amount Medicare reimburses for anesthesiologists, surgeons, and equipment (the "price"). However, the "cost" of everything needed to perform the surgery stays the same. The hospital's rent, utilities, salaries, and everything else does not move. Medicare and other government programs often reimburse health care providers less than their costs. For this reason, many hospitals and doctors lose money on Medicare patients, and make it up with their profits from privately-insured patients. For doctors and hospitals practicing in areas with a high percentage of Medicare/Medicaid patients, this becomes an even bigger problem, as they have less profitable patients subsidizing the profitable ones. If Congress continues to cut "cost", while leaving "price" alone, they are forcing many doctors or hospitals to operate at a financial loss, refuse to see Medicare patients (which many doctors do), or simply go out of business. Also, cuts in government insurance contribute to rising premiums for those with private insurance due to the implicit subsidy.
On the second point, Medicare is subject to a "sustainable growth rate" (SGR) according to budget rules which, according to the Wall Street Journal's Health Blog, "says essentially that the amount Medicare pays doctors for an average Medicare patient can’t grow faster than the economy as a whole." This restriction is supposed to keep Medicare spending relatively under control. The various reform bills in Congress rely on the SGR to keep the bills "deficit neutral". However, Congress repeatedly overrides the SGR. Ted Kennedy even showed up to vote to override the cuts after being diagnosed with brain cancer, and they even broke into applause after voting to ignore the SGR. Believing this bill will really be "deficit neutral" requires you ignore all the evidence that a group of people with a 22% approval rating will change their ways overnight.
Also, Obama's proposal to spend $14 billion to pay $250 to seniors because the law on the books would give them no Social Security cost-of-living adjustment this year makes me even more nervous. This New York Times article quotes University of Michigan economist Joel Slemrod as saying: “If the long-term issue is entitlement reform, the fact that the political system cannot say no to $250 checks to elderly people is a bad sign.”
The U.S. is already heavily burdened by growing entitlement programs. Medicare is projected to run out of money in 8 years. If Congress is really concerned about reforming entitlement programs, they have to reduce eligibilty or reduce benefits. This health care "reform" bill does the opposite of both, and kicks all of the existing problems down the road to a future Congress and President.
While the ink is still drying on this round of "reform", Congress will need to get to work tackling the real problems. Or, they can just keep waiting for someone else to take the political hit.
