Potomac Fever is the blog of the Hamilton College Semester in Washington Program.
It’s clearly a sign of desperation that the fallback conservative position is “Yeah, well Obama cuts Medicare too!” As if anyone could forget- Republicans talked about the issue for months. Conservative health policy experts like Betsy McCaughey took to the pages of the WSJ and like-minded platforms and lied (potentially inadvertently- because some of their writing suggests they were just misinformed and incapable of reading). And they all did so in very substantive terms- focusing on death panels and the like. Let’s actually talk about the issues.“ObamaCare” (a label that is a great example of how important substance is to conservatives on these issues) is characterized as including “planned brute-force cuts in Medicare spending.” The cuts the authors are referring to are a change in the payment update formula Medicare uses. PPACA changed the formula to subtract for economy-wide increases in productivity. The potential problem is that the health care sector has never achieved productivity increases at the level of the general economy. PPACA is based on the idea that the delivery system reforms PPACA includes will improve the incentives of health care providers that will enable them to achieve sufficient productivity increases. Medicare will uses its market leverage to restructure payment methods and delivery processes so that providers will be financially compensated for providing value, as opposed to the current health care system where public and private payers compensate providers for simply doing “stuff.” This leaves the possibility (or more accurately- likelihood if PPACA is successful at leveraging Medicare this way), that private insurers and providers will also form these kinds of business models which would in turn lower system-wide health care costs (by slowing the rate of growth, i.e. “bending the cost-curve.”) Conservatives love to cite the reports of Rick Foster, the Medicare Actuary, yet they consistently fail to accurately and fully explain the thinking here. I have actually read some of the Actuary Office’s reports and attended events where Foster has spoken, so here I will more fully explain what Foster and the Actuary Office have said. While Foster is optimistic about many elements of PPACA, he doesn’t think the health care sector will be able to achieve the productivity increases PPACA depends on for long (10, 15 years- maybe. They are less certain that it is sustainable for 50 or 75 years). It’s uncertain that Medicare could achieve those savings for that long (without damaging relative care quality/access/etc. compared to private alternatives, which would make the changes politically unviable). It’s also impossible to predict if private insurance would be able to match savings of this level even if Medicare got them, in which case Medicare would cost far less and look very different than private health insurance. This last outcome is unlikely to be allowed to occur, so all of these uncertainties- which Foster and the Actuary’s Office have been more conservative on than other analysts like the CBO- lead Foster & Co. to question PPACA’s long-term savings impact.
So PPACA is based on the idea that significant cost savings could be achieved in health care costs without harming quality or access. It’s certainly theoretically possible, as evidenced by nearly all other developed nations who get similar health care outcomes- even when researchers do their best to control for confounding factors- while spending far less. All of these systems look far different than the current U.S. model (generally they have more government intervention), and the question is whether PPACA is sufficient to achieve enough transformational change to achieve this level of savings without harming care quality or patient access. Some say yes, some say more likely than not (CBO), some say maybe (Foster and the Actuary’s Office), and some say no. Health policy experts by ideological leaning vary on their opinion (some conservatives for are at the “more likely than not” or “maybe” position, while some liberals are at the “maybe” and “no” positions- though many liberals at the no position say so because it doesn’t have a single-payer option or nationalize the system.) There is certainly room here for some valid analytical differences here, and some more credible conservatives have put good questions and concerns about PPACA- largely that it’s kind of approach a) may not work, or b) doesn’t go far enough down this kind-of approach. Many liberals, centrists, moderates, nonpartisan, independents also get to those kinds of positions.Here’s the thing- there is much less room for hope that Ryan’s savings will be achievable. A) They are far more severe than Obama’s level, and B) more importantly- Ryan’s approach is theoretically limited in multiple ways and has gaping weaknesses made clear in past empirical research. I’ve discussed these problems in the past, but for now I’ll just point out the biggest one. Health care costs, including Medicare’s costs, are incredibly concentrated. In any given year, the top 5% percent most costly Medicare beneficiaries account for roughly 40% of Medicare’s costs; while the top 25% account for 85% of the program’s costs. Put simply, health care is so expensive and concentrated that the vast majority of the program’s costs will never be subject to the behavioral effects of the increased cost-sharing Paul Ryan’s approach creates. (Hamilton flashback in case Megan reads this- we discussed this in our health policy class, which is why we as a group agreed with the past literature that while increased cost-sharing might be helpful, it would be woefully insufficient to achieve the necessary cost savings).
Also, by increasing the cost-sharing through privatizing Medicare, Ryan adds to the costs of providing health care because insurance companies have higher administrative costs and less market leverage that can be used for lowering costs. Even though Ryan likes to talk about empowering consumers to force providers to compete, that’s tacky misdirection from the fact that privatizing Medicare means that beneficiaries will be shopping around for health insurers- not health providers. Health insurers will in turn bear most of the burden of pressuring providers and lowering costs- which is harder to do when you have a smaller population pool, unlike say…Medicare. Private insurers who have proven woefully inadequate at controlling costs for decades now. Those facts largely explain why the CBO projected that Paul Ryan’s approach would only reduce the government’s cost per typical 65-year-old beneficiary in 2022 (compared to the traditional Medicare system’s projected costs then) by about 7%, but double the out-of-pocket contribution from the beneficiary and so actually end up increasing total health spending on a beneficiary by nearly 40%. Ryan’s approach bends the cost-curve up! It’s just a poorly though out-approach which has no hope of working, largely because it doesn’t understand the facts of the health care system (cost-concentration, demand-driven supply/physicians make the decisions because they are the knowledgeable experts, much health care spending is on necessary or non-marginal care decisions, etc.) or past-literature on cost-sharing in health care. Namely, that it only has modest effects and also leads to people to cut back on necessary and unnecessary medical care. Thus, Ryan’s level of savings is completely implausible. The only thing it does is massively shift costs to beneficiaries, in the process likely increasing total costs. I would be interested in someone explaining to me how even if this cost-shifting was politically allowable, where would the many elderly beneficiaries who often have incomes just above the poverty-line, find the money to pay their expected contribution that likely doubles under the Ryan approach. The Ryan proposal’s failings reinforce the lesson PPACA takes to heart- there’s no way to make cost-shifting around the system because health care costs are rising so fast and becoming such a large share of our economy that they are burdening the private sector’s competitiveness, the public sector’s fiscal sustainability, our nation’s health, and sense of fairness that people should be able to afford health care. You can quibble with PPACA and think it won’t succeed, but you can’t claim that it doesn’t actually attempt to tackle the problem and has the potential, or chance, to succeed at sufficiently lowering health care costs. It’s uncertain and there’s no strong evidence saying it will work- but unlike Ryan’s approach, PPACA doesn’t have clear evidence showing that it won’t work. Ryan’s approach is just a bad approach. If somehow the cost-shifting was allowed, then his proposal’s inability to significantly reduce health care costs, means that the elderly would have to pay far more for health care- which means they’d have to begin self-rationing medical care because they couldn’t afford it. The past empirical evidence is explicit that they not only cut back on unnecessary or discretionary care, they also cut back on necessary and medically-helpful care. This means that people’s health will deteriorate. It’s quite simple. There is no demagoging here. PPACA has the potential to lower costs and achieve sufficient savings to mean that funding cuts to the program won’t affect care quality or access. Ryan’s approach does not have that level of potential. It is quite clear that his approach- even if only trying to achieve PPACA’s level of savings, let alone the ridiculous and more extreme level he shoots for- will harm access and care quality.
Next quibble. (I’m reading the article and responding paragraph by paragraph with what pops up in my head). The writers say “Even though the CBO assumed premium support would increase with consumer prices (price indexing), the resolution that House Republicans actually voted for contains no specific escalation formula.” I’m not sure if the authors are deliberately trying to leave a false-impression here, but the CBO did not pick the number out-of-a-hat. The CBO projections were based on the Path to Prosperity proposal, which did propose that the premium support payments would increase with consumer prices. While the actual budget resolution- which is powerless to make this kind of change anyways even if passed by the Senate and signed by President Obama, so it doesn’t matter what it said on the Medicare front- may not explicitly set that level, that is the level Ryan has proposed and the House Republicans have supported. The original Rivlin-Ryan premium support proposal shot for GDP+1, a tough but potentially (unlikely in my opinion) achievable level that wouldn’t harm quality or access. The GDP+0 target the authors mention is twice the level of cutting that the original Ryan-Rivlin GDP+1 level or CBO’s estimate of PPACA- even that level, far above the current Ryan-proposed level- is unachievable without significant harm to care quality or access. Most health experts across the spectrum were nervous when Obama upped the ante to GDP+0.5, which is definitely pushing it. GDP+0 is not an acceptable compromise level, and it shouldn’t be thought of that way. Next quibble, people over 55 are hurt by the Ryan budget. It significantly increases the costs of drug coverage for seniors in Medicare, and will hurt the many seniors enrolled in Medicaid which Ryan cuts by over $700 billion over 10 years (not including repealing the ACA expansion coverage costs) and also block-grants the program which will likely lead to severe cutbacks in the program if the country goes through a recession again and states have to meet their balanced budget requirements. I don’t know why conservatives think it’s useful to cite the Medicare Advantage plans. After all, the government has to subsidize them and pay them more than it would cost for Medicare itself to provide that kind of health insurance. The private Medicare Advantage plans have proven worse than public Medicare, unsurprising since all private health insurance has had the same (limited) success of Medicare at controlling costs in recent years. There is no evidence out there that the mere act of privatizing traditional Medicare and giving seniors vouchers/premium supports that they can use to shop around is going to lower costs.
Thankfully, the conservative experts point out the need to control health care cost growth for everyone- not just the government’s tab for the elderly like Ryan proposes doing. Unfortunately, they laud the Ryan-Coburn proposal which has demonstrably less cost-saving potential than PPACA. Parts of it might help if combined with the PPACA framework, but altering the tax treatment they way they propose so everyone has the same tax preference means that people still have a tax preference so they still have inflated health care costs. Their approach also fails because it would dramatically increase the ranks of the uninsured by millions (and I’m talking about compared to the pre-PPACA baseline)- mostly low-income or sick people who can’t afford to pay the high costs of health care. In that sense, the approach might lower overall health care costs- largely by meaning that millions of more Americans would go without necessary medical care- or likely any medical care except for emergency care that either hospitals or government would have to cover. Their approach does not improve the fundamental incentives of the currently inoperable health care market- a system which has perverse incentives where improving patient quality and cutting costs actually causes providers to lose money for their profit margins. Decreasing the ranks of the uninsured even further would actually exacerbate the system’s problems and likely increase the rate of deterioration plaguing the system. In conclusion, honest conservatives (and some of them already have) just need to accept that Ryan’s proposal, like all of the current conservative proposals, are fundamentally flawed and incapable of reducing health care costs. All they can figure out how do to so far is move the costs off the government’s books and onto the backs of elderly, disabled, and lower-income Americans- a process which inevitably will lead to sharp declines in care quality, access, and patients getting sufficient medical care. The current conservative approaches will demonstrably not work. At least one can say that PPACA and other liberal approaches have some potential. Conservatives are welcome to develop a conservative-alternative, but the Ryan approach-like every conservative approach on the market- fails the very first test of controlling costs. That doesn’t even take us to the tests of improving health care quality or addressing the serious problem of the millions of Americans who go without the health insurance they desperately want and need.
someone else making the same argument:http://www.kaiserhealthnews.org/Columns/2011/May/052511cohn.aspx
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