The Conflicting Goals of Health Reform
I lieu of a post, I am tempted to just tell people to read Steve Pearlstein's column in the Washington Post today. Those who read the actual paper may need to dig around a little to find it. For some inexplicable reason, the Post buries its best columnist in what's left of the dying business section instead of putting him on the op-ed page where he belongs.
There's much wisdom in Steve's analysis of why Barack Obama's health reform plan is on life-support. But I want to focus on one sentence:
"What makes reform such a difficult puzzle is that the fundamental policy goals of universal coverage and cost containment are inconsistent with the political instincts to assure Americans who already have health insurance that they will be able to keep everything they already have, to assure that nobody will get a tax or cost increase and to assure those in the health-care industry that there will be no reduction in their income."
This gets back to the point I was making yesterday about why tax reform worked in the 1980s and what lessons it may hold for health reform. In the tax debate it was pretty clear from the beginning that both Republicans and Democrats had something they wanted out of the process. The former basically wanted a reduction in the top tax rate and, ideally, a flat rate tax of 20% or so. The latter wanted greater progressivity and elimination of tax loopholes that only benefitted the rich. Both sides wanted simplification.
In principle, both sides could be accommodated by closing loopholes and using the revenue to lower rates. Each side had legislation broadly designed to accomplish this. The Republican bill was sponsored by Congressman Jack Kemp and Senator Bob Kasten. The Democratic bill was sponsored by Senator Bill Bradley and Congressman Dick Gephardt. In many ways, the proposal Ronald Reagan sent to Congress split the difference between the two approaches. His plan would have reduced the top rate to 35%.
It's not now remembered, but the tax reform bill had very rough going in Congress initially. It barely passed the House and was in danger of dying in the Senate. At this point, Republicans had to figure out what the essence of tax reform was from their point of view and what were they willing to give the Democrats to get on board. (Keep in mind that Republicans controlled the Senate in 1986.)
Republicans decided that if they could get the top rate down to 28% then they would be willing to treat capital gains as ordinary income-a long sought liberal goal. That would involve an increase in the capital gains tax rate from 20%, but with a top rate of 28% Republicans decided they could live with it. This was the critical deal that made tax reform possible.
Getting back to health reform, I think Democrats were not completely clear about what their ultimate goal was at the beginning of the process. Obama talked a lot about bending the curve and reducing health costs during the campaign. Had he proposed legislation that did only that he might well have gotten a bill with bipartisan support. But there would no payoff for liberals in such a bill. They want universal coverage.
This has led to the muddled mess we are in today that Pearlstein identifies. Obama has tried to achieve both universal coverage and reduce costs at the same time and that's not really possible without a total government takeover of the health system.
At the same time, it is unfortunately the case that Republicans have never had anything they hoped to get out of health reform, so there has never really been any possibility of making a deal with them. It's hard to think of anything Obama could offer Republicans that would induce them to support any health reform. Their only interest is in maintaining the status quo even if it means defending Medicare, a program most House Republicans actually voted to abolish in April. Republicans also perceive that causing Obama to fail on such a high-profile initiative will demoralize Democrats and energize grassroots Republicans.
At this point, I don't see how Obama can get anything close to universal coverage except at a cost too high for the Senate to swallow. In my opinion, it would be better to withdraw health reform, rethink the issue, come up with a better plan and have something he can campaign on in 2012. If Obama wins, he can claim a mandate and move a bill in 2013 that has a better chance of success. As Pete pointed out yesterday, Reagan's big win in 1984 was critical to the success of tax reform.
I don't expect my advice to be followed. The White House is too invested in winning the health care fight and at the end of the day just wants a bill to sign so that it can declare victory. But it likely will be a hollow one that will leave many important health issues unresolved to fester for another day.
Government Takeover Necessary?
I disagree that a government takeover is necessary to both contain costs and extend coverage. Taxing benefits as income (as suggested by both McCain and Jason Furman the Obama campaign's economic advisor) would go a long way towards containing costs as consumers would be more likely to consume less health care at the margins. With the proceeds from the revenues you could subsidize coverage at the lower end of the income spectrum. Ideally this would also be coupled with the creation of exchanges for people to buy insurance or allowing folks to buy across state lines (or let people pay the full premium price from FEHB as Sen. Kerry then presidential candidate proposed). Compared to the proposals being discussed, this would involve far less government intervention. It would also be a nice set up for future tax reform.
Better using the tax subsidy for benefits, & Wyden-Bennett.
"Taxing benefits as income ... would go a long way towards containing costs as consumers would be more likely to consume less health care at the margins. With the proceeds from the revenues you could subsidize coverage at the lower end of the income spectrum."
Say "Wyden-Bennett". It actually is bi-partisan ... does what you say above by redirecting the cost of the tax subsidy to provide universal coverage ... breaks the employment tie to insurance to make it portable ... opens up interstate competition in insurance sales while eliminating local mandates of exorbitant benefits -- thus breaking local insurance cartels, and slashing the cost of insurance further in places New York, where I am -- and has been scored by CBO as deficit neutral.
Alas, Wyden-Bennett and the lack of attention it is getting, for all the sense it makes, is another perfect example of how political interests drive policy more than sense does.
David Brooks wrote a column about economists from political left-to-right parading in front of the Senate Finance Commitee unanimously testifying about the need to get rid of the tax preference for benefits, for the whole range of reasons that exists -- while Baucus and the other committee and staff leaders looked "exasperated" at having their time wasted so.
Ain't going to happen. All the big unions loathe the idea of cutting the tax subisdy for their benefits -- while other big unions, like Dennis Rivera's hospital workers union, love driving up the cost of benefits with exorbitant mandates, as Denny has done so successfully in NY.
Reduced, redirected tax subsidy? Competition from across state lines? A uniform minimum benefit package? NO effin' way!
Have we noticed so far that the big unions have had the ear of the Dem leadership? (Say: "UAW".)
Point taken
I was too quick to say that a total government takeover was the only way of expanding coverage and lowering costs. I was thinking in terms of where the debate is today rather than where it might be had the option of taxing health benefits not been taken off the table at the beginning of the debate.
Pearlstein is far too
Pearlstein is far too intelligent to be a regular columnist for the WP. They prefer their beachfront property to be occupied by the likes of Will, Gerson, and Krauthammer.
How to cut costs and provide more and better care
I find it odd that intelligent people still think the only way to cut costs is too make insurance more expensive so people buy less. It's as if they spent no time studying who actually knows how to reduce costs and who does not. In Pearlstein's column it is subsumed in a vague reference to and independent board of experts who might give recommendation that Congress would vote up or down.
The problem of cost is primarily an issue of delivering health care inefficiently. It is closely related to quality of care. Better quality reduces costs. If you doubt it, ask Toyota.
We have data on who are the high quality low cost producers of health care. We know the common features of their operations. Most of them are dying to share what they do with others. We know the current payment systems reward doing more, not doing it better. It penalizes efficiency.
TO lower costs we need to propagate the ways of organizing and delivering care that are exemplified by places like the Mayo Clinic, Intermountain Health care and the Geisinger Clinic. There are many more scattered throughout communities in the US. Then we need to design a payment system under Medicare and Medicaid and under private insurers that rewards that kind of care delivery (that what the expert Board is supposed to recommend).
If you think this is pie in the sky, or you think the only way to cut costs is to put price controls in place, you need to think again.
One example. We waste several billion dollars a year and kill too many people because of central line infections. Here are two choices about how to solve that problem. (1) buy newly developed silver lined tubing that resists infections (2) Require (then verify) that all hospital staff to follow a simple 5 point checklist every time they insert a central line.
The first resorts to technology and is unquestionably more costly than the current system. The second has been empirically proven to cut infection rates practically to zero and save money.
Wanna cut costs? require every hospital to implement the checklist either as a condition of accreditation or make reimbursements contingent on compliance.
There are many example like this. Some are due to simply better engineering of clinical procedures. Some are related to perverse incentives in reimbursement policies such that more expensive care pays better then more efficient care that manages to avoid complications.
What a more interesting debate this would have been if most people understood how this works.
JFox, Certainly there is
JFox,
Certainly there is waste in the system and certainly some providers are more efficient (more cost-effective) than others, but if it's your contention that the federal government can provide all the proposed subsidies to achieve universal coverage, AND substantially lower federal spending, WITHOUT any reduction in the quality of healthcare for many people, consider me very skeptical, and if you have links to analyses supporting this contention, please share.
"It's hard to think of
"It's hard to think of anything Obama could offer Republicans that would induce them to support any health reform."
I don't see anything changing about this by 2013. This isn't the 1980s anymore. Today's Republicans aren't interested in *any* kind of reform, now or ever. The best that can be hoped for is some kind of incremental health care reform that leaves the remaining issues to be resolved later.
P.S. Welcome to Capital Gains and Games. Brad DeLong gave me the heads up.
Trying Again, Again
The President already won a mandate for health care reform. And four committees of five have completed their work. And, as Mark says above, since GOP motives - as you analyze them; as they are - on this are unlikely to change, why would the President not do 1) insurance reform, 2) expanded coverage, 3) setting up the exchanges, this year? These are worthwhile steps, and, as the Massachusetts experiment has shown, exacerbating any fiscal issues (quickly but in the worthy name of near universal coverage, as opposed to slowly in the name of waste-profit) will lead to serious "bending the curve" legislation.
Obama and healthcare
Health care or not, I’m partisan to a president that can lower my taxes and fix what the housing market “greed” created… Just get the job market back up and avoid more scams…including “communism”