Health Care Legislation: Only Half a Reform

Posted by & filed under CGR Staff, Rochester Business Journal.

Jim FatulaKent GardnerCongress is edging closer to passing legislation that restructures health insurance. The Senate and the House are debating compromise bills within their houses, after which a conference committee will seek to reconcile differences between them. With these details still under debate, we conclude our six part series on health reform with a few observations.

Public Option. If private insurance plans are part of the problem, then one solution may be to offer another option, a health insurance plan that is run by the government. At this writing, a “public option” seems likely to survive and become part of the final legislation. The debate over the public option has highlighted a fundamental social tension between those who fear too much government and those who fear too little (discussed in the first column in this series). Like Goldilocks, each of us wants the balance to be “just right.”

The public option began as an expansion of Medicare to the nonelderly, an approach that would broadly challenge insurers and providers. National in scope and open to all comers, the federal government would manage the program and dictate provider prices. What seems to have survived will be limited to individuals without employer plans, allows states to “opt out,” and negotiates provider rates like private insurers. Where monopoly insurers keep rates high, the public option may provide a competitive alternative. Where monopoly providers control pricing, however, the negotiated rates are likely to be the same as those paid by private insurers.

The Congressional Budget Office assumes that this version of a public option will attract a less-healthy subscriber. Like Medicare, CBO expects that the public option plan will spend less on administration than private insurers, but that it will have fewer controls on health care service demand among subscribers. The administrative cost savings are offset by the cost of higher utilization. On balance, CBO expects that premiums for the public plan would be higher than for private plans offered through the exchange.

Whether implementing a less-robust version of a public option is a good outcome depends on your perspective. Those who believe that FEMA’s performance after Hurricane Katrina is typical of government will find no public option to their liking. Fans of Michael Moore, suspicious of private enterprise and less concerned about overreaching government, find a weak public option bitterly disappointing.

Coverage does not equal access. The recent debate focused on access to health insurance, not access to health care services. Harvard Medical School professor Marcia Angell (former editor of the New England Journal of Medicine) worries that we may have “coverage without care.” In the wake of its insurance reform, Massachusetts has experienced a shortage of primary care providers. The ability to pay the bill is meaningless if you can’t find a doctor who will see you when you are sick.

Nor does improving access assure improved health status. Our goal in health care reform should be to make us a healthier nation. Individuals and providers alike should have an incentive to improve health outcomes, not simply the quantity (or even quality) of active health care.

Bend the cost curve—next time. Making health insurance affordable is not the same as slowing the rate of health care spending growth. In pending legislation, affordability is achieved through subsidies and new market rules granting individuals access to group rates (through the health exchanges). There is a promise of lower costs—and this will be true for some individuals. But in the aggregate, health care spending will continue its steady rise.

Even the forecasters don’t trust the forecasts. If Medicare and Medicaid have taught us anything, it is that entitlement benefits expand over time and cost projections nearly always fall short. Much attention has been focused on the cost estimate “scoring” of the Congressional Budget Office. The CBO itself notes that these estimates are rough and based on assumptions that are somewhat unrealistic, assumptions it is bound to honor according to the rules governing its work.

Consider that the CBO’s net cost estimate for the House plan assumes cuts in provider payments in Medicare of $229 billion and cuts to Medicare Advantage of an additional $170 billion. Congress has a habit of announcing, then withdrawing, Medicare cuts. In fact, a 21% reduction in Medicare fees (worth a quarter of a trillion dollars annually) is still scheduled for 2010, yet seems likely to be rescinded yet again. Moreover, payment provisions in the House bill require the CBO to assume that Medicare cost per beneficiary will grow at 4% per year, well below the 7% we’ve experienced in the past two decades (excluding Part D, coverage for prescription drugs).[1]

The CBO is skeptical about its own estimates, which it notes are based on assumptions that cost savings initially enacted remain unchanged over the long term, something the Office notes wryly “is often not the case for major legislation.” We, too, should be skeptical.

They’ll be back. Most health care experts believe we can improve the quality of health care, achieve better health outcomes AND truly bend that cost curve. The health insurance overhaul likely to pass in the next few weeks leaves this task largely untouched. With expanded coverage adding fuel to the fire, Congress will one day be forced to return to the task of health care reform. The sooner lawmakers create incentives for consumers and providers to seek high quality, cost-effective solutions, the better.


[1] Congressional Budget Office, http://cbo.gov/ftpdocs/106xx/doc10688/hr3962Rangel.pdf

Kent Gardner, Ph.D., President & Chief Economist with Guest Columnist James Fatula, Ph.D., Chair & Assoc. Prof., Dept. of Public Administration, SUNY Brockport

Published in the Rochester (NY) Business Journal November 6, 2009

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