November 23, 2009
The Quote of the Day for November 18 (www.pnhp.org) was a letter to President Obama from twenty-three prominent economists urging that four specified elements to control costs be included in the health reform legislation. Following is my original response to the letter, discussing each of the four elements. Princeton economist Uwe Reinhardt, one of the signers of the letter, has responded to my comments.
Comment on economists’ letter by Don McCanne, MD with response by Uwe E. Reinhardt, PhD (highlighted in red):
For socially conscious health care reform advocates, the primary goal of reform is to see that every individual receives the health care that he or she needs. But what has really driven the reform process has been the concern over the very high costs of health care that have challenged individuals, employers and the stewards of our government health programs.
In this late phase of the reform process many have expressed doubts over the adequacy of the various policies in the reform proposal that allegedly are designed to control health care costs well into the future. In response, twenty-three of the nation’s most distinguished economists have signed on to this letter addressed to President Obama expressing support for four elements that they believe are of critical importance and should be included in the reform legislation. Let’s look closer at these four elements.
Deficit neutrality
The economists call for budget neutrality initially, to be followed by deficit reduction. Of course they are referring only to the federal government budget and not to private sector spending. The great risk of limiting consideration to public spending is that, in the absence of effectively controlling actual health care costs, the government budget can be controlled only by shifting the costs to the private sector. Individuals and businesses certainly do not want to see an increase in their health care spending, especially while the government is reducing its spending in the later phase, that of deficit reduction.
UER responds: Economists have trouble with the cost-shift argument. It assumes, implicitly, that health care costs are dictated by God and not subject to management by humans. If that were so, then, yes, whatever God-given cost is not paid by government will have to be paid by the private sector.
Economists do not share that religion. We believe that health-care costs are not God-given, but determined by the behavior of humans. There is no law in either the Bible or in economics according to which the private sector must pick up whatever health-care costs government does not pay. If the private sector were able and willing to say no to the alleged cost shift, then the providers of health care would have no choice but to manage their costs against whatever revenue they manage to extract from the rest of society.
Of course, if the private insurance sector tells us that it is powerless to resist the cost shift, then they are telling us that they cannot resist any cost increase shoved their way by providers for whatever reason. In that case, costs will keep going up in the private sector until it collapses of its own weight.
The next decade will tell.
Isolating health care spending for budget neutrality while continuing with deficits in other government programs (war, financial institution bailouts, interest on the debt, expanding our prison population, etc.) does not seem just. Appropriate use of debt is fundamental to any business, and there is no reason that reasonable debt should not be a part of the government’s management of its financial obligations to health care.
Current operations should be financed out of tax revenues. Longer-term investments (e.g., in infrastructure) can and should be debt financed. A part of health care, especially if rendered to young people, can be viewed as an investment. Conducting war may or may not be investment. WWII certainly was a highly productive investment. One has to debate fiscal policy along these lines.
That said, our total government debt is the result of prior devious efforts to reduce revenues (i.e., taxes) in order to force the reduction in funding of government programs. With inadequate revenues and with exploding debt, deficit hawks in Congress can be relied upon to underfund crucial programs such as health care, but theirs is a pathological process since they only look at spending and refuse to consider revenues.
Agreed. Republicans collectively have lost the moral ground on deficit financing. They have been promiscuous and utterly shameless on this score, starting, alas, with Ronald Reagan.
Those who argue that taxes collected for government health care spending remove money from the economy are flat out wrong. Health care is one of the most important and beneficial components of our economy, constituting over 17 percent of our GDP (Gross Domestic Product). Those taxes are moved back into our economy.
That, too, is a valid point. I have written a NYT blog post on it. It is ludicrous to say that producing another SUV is good job creation but giving health care to the hitherto uninsured is not.
Those who scream that we are being taxed to death need another dose of reality. The average total tax revenues of OECD nations (Organization for Economic Cooperation and Development) was 35.9 percent of GDP in 2006. For the United States, the total tax revenue was 28.0 percent of GDP, placing us near the bottom of OECD nations. (OECD Tax Database)
Suppose we increased our tax revenues to the average of OECD nations, which would still be far, far short of those nations with more highly socialized systems. At 7.9 percent (35.9 average minus 28.0 U.S.) of our GDP of about $13.8 trillion, that would increase government revenues by about $1.1 trillion in a single year, ten times the amount they are considering for health care reform. Our entire federal spending is about $3 trillion. We could eliminate entirely the deficits and provide surpluses while keeping tax revenues at well below the OECD average, if only the deficit hawks would look at the revenue side of the ledger.
Excise tax on high-cost insurance plans
Why would any health insurance plans have very high premiums? One reason is that insurers use medical underwriting to assess high premiums for individuals with preexisting disorders. It would be unfair to tax those premiums for an individual with other burdens, but with adequate regulatory reform medical underwriting should be eliminated anyway.
The more common reason for high premiums is that the plan covers other services and products such as dental care, eye care, maternity benefits, mental health services, and pharmaceuticals. Applying an excise tax to these premiums would result in eliminating such benefits from the plans and shifting these expenses to the individual in the form of greater out-of-pocket spending. The proposals under consideration place a cap on out-of-pocket expenses for covered services, but that cap is unaffordable for many, and these expenses would not apply to the cap. Thus they would impose an even greater financial burden.
Since the excise tax would discourage access to these important health care services, it should be rejected as the flawed policy concept that it is.
Valid points. A better approach would have been to say: Up until an income of $75,000 we do not add employer-paid health insurance to your W-2. From $75,000 to $150,000, we add 50% to your W-2, etc. But that is not in the cards. Besides, in implementation, the act
uarial adjustments Don calls for most probably will be made.
Medicare Commission
Although the Medicare Commission purportedly would be to improve quality and value, its primary purpose would be to limit spending within the Medicare program. Medicare has already served as a leader in innovations to reduce health care spending, with the private insurance industry following. In fact, many providers believe that Medicare has been too aggressive, often resulting in lower reimbursement rates than in the private sector. Granting the Commission more power to use newer innovations to further reduce spending will inevitably increase the animosity held towards Medicare by the providers. A decline in willingness to accept Medicare beneficiaries could further impair access.
This is not to say that the concept of a commission is a bad idea. If the commission worked with the entire health care delivery system in applying potentially beneficial innovations, higher quality and greater value are possible. If the commission became too aggressive, the push-back by providers and their patients would moderate their excesses.
If the power of the Medicare Commission were limited only to Medicare, then there is a potential that cost-cutting aggressiveness might threaten to convert Medicare into a quasi-welfare program not unlike Medicaid, a transformation that would not please our Medicare beneficiaries. It is more likely that the Commission simply would be enmeshed in studies of relatively ineffectual measures that would have little net impact on costs.
We would need a universal Medicare for all program for the Commission to have a real impact that would be both beneficial and cost saving.
The idea here is not to shoot for the unattainable best, but for the attainable second best. If the choice is between letting Congress be in charge of Medicare spending or a Commission, I’d opt for the latter.
Delivery system reforms
These economists recommend that we reward health professionals for providing better care. The problem is that we don’t know how to do that. They recommend funding research into what tests and treatments work and which ones do not, as if that isn’t what research has been all about anyway. Maybe it would be helpful to directly compare expensive patent drugs to generics, but the overall spending impact will be modest since this year’s patented drugs are next year’s generics.
They also recommend bundled payments, accountable care organizations, plus penalties for re-admissions, hospital acquired infections and other PACs (potentially avoidable costs). In my message two days ago (November 16) I already discussed the reasons why these measures cannot be relied upon to reduce health care costs.
Is this really the best that these noted economists can come up with? They have made the same mistake as the politicians. Their perception of reform is to build on our existing dysfunctional financing system (an egregiously flawed concept that you would think our leading economists would understand).
If we had an improved Medicare for all we could have 1) deficit neutrality through global budgeting, 2) rational tax policies that are equitable, 3) public administration using the guidance of commissions as appropriate, and 4) our own beneficent monopsony that can realign incentives to promote the delivery system reform that we need. And, oh yes, every single person would be included. It doesn’t take an economist to understand that.
Economists do understand this: Until yesterday (November 20), three Democrats in the Senate have been able to toy shamelessly with the prestige of their President and of the Senate leadership on the decision whether or not even to allow an admittedly limited health-reform bill to be debated on the Senate floor. That is the reality of America.
And in the great wisdom Americans claim uniquely for themselves, they are likely to punish the legislators who gave them at least this much—the previous Administration and Congress having given them nothing.
Don is a Mensch, but a dreamer. Let’s face it, this very limited bill, should it pass into law, is the very best Americans can hope for. This country will never have a sensible, efficient health-care system, and perhaps not even a totally humane one. For better or for worse, we must get used to it.
The trouble with economists is that we understand America – one reason, perhaps, why they call ours a “dismal science.”
Comment:
By Don McCanne, MD
Are we going to accept this… proud to be Menschen while supporting only a dream?
We can have a sensible, efficient, and humane health care system for all, but the current process is not going to bring it to us. We need to change the process, but we’re not going to do that by sitting around and dreaming of what could be.