Throughout his presidential campaign, Barack Obama stressed two goals for health care reform: wider coverage and cost control. Of the two, he usually prioritized costs. Health insurance, he said, is becoming ever harder to afford and hurting even those American families with coverage they otherwise like. It is crippling the economy because of its effect on competitiveness. And it threatens the solvency of the government itself because of its awful fiscal consequences.
On coverage, you remember, Obama's pragmatism was to the fore. Unlike Hillary Rodham Clinton and John Edwards, he did not call for an individual mandate to buy insurance. Fully universal coverage was a postponable objective. Obama thought it better to settle for a big expansion, even if this fell short of guaranteeing coverage for all Americans.
To the surprise of many analysts, health reform has gained apparently unstoppable momentum. It looks as though something big is really going to happen. But the reform barreling toward us is not the one that Obama said he wanted, nor the one he is campaigning for even now.
His speeches on the issue continue to emphasize cost control, lately almost to the exclusion of other considerations. To listen to the president these days, you might think that controlling costs was all that mattered. Yet the legislation he is going to sign concerns itself almost exclusively with widening coverage, and it is certain to increase costs.
The cost-control provisions of the recent House and Senate drafts are thin to nonexistent. In effect, they amount to nothing more than hopes and exhortation. The reform will most likely broaden coverage with individual and employer mandates, restrictions on the ability of insurance firms to deny coverage, and creation of a new insurance exchange for individual purchasers -- all along the lines of Massachusetts' plan. But it will leave the structure and incentives that drive costs largely unaddressed. Overall, as in Massachusetts, health reform is going to substantially increase outlays, not cut them.
The administration's own budget mentions (but fails to pay for) extra spending of more than $1 trillion over the next 10 years. Yet the White House is pressing for this reform because, it keeps telling us, controlling health care costs is such an overriding national priority.
Maybe the politics of this is very shrewd -- assuming that the administration can continue to get away with the sleight of hand. Poll after poll shows that health reform is popular because voters are indeed worried mainly about rising costs. The problem of the uninsured comes farther down respondents' list of concerns because most Americans have insurance and are satisfied with the services they receive. A key theme in presenting the reform policy is that households happy with their insurance will see no change: For most Americans, things will carry on as before. But one of the things that won't change, if nothing changes, is the trend of rising costs.
The larger part of the financing problem -- which is going to get worse, not better -- will probably be kicked down the road.
You cannot retain the system that most Americans know and like and also "bend the curve" on costs. The system draws the curve. The strategy for broadening coverage and achieving reform is based on obscuring and even denying this obvious point. So far, it seems to be working.
Defenders of the draft bills might say two things in response. They might argue that the bills do have meaningful cost-control provisions; or they might admit that the bills leave a lot of heavy lifting to do on cost control but say this can come later. Down the road, when the costs are intolerable, there will be support in Congress for doing something. The same might not be true for broadening coverage: The window for getting that done, you might argue, is smaller. It requires Democratic control of Capitol Hill (and even then, the "budget reconciliation" maneuver to nullify a Senate filibuster). Therefore, broaden coverage now, deal with the financial consequences later.
I can see the sense in this, even though it takes an enormous risk with the fiscal consequences of reform. What I fail to see is much merit in the first argument: the idea that the cost-control provisions in the draft bills will be any use.
One great hope of the administration's reformers is "comparative effectiveness research." Reformers love a win-win proposal, and in health care this is their current favorite. The idea is that we do not know which medical treatments work best or are the most cost-effective -- two different things, by the way, but let that pass. If we did, and wasteful, ineffective treatments could be weeded out, we could save trillions of dollars and improve quality at the same time: better health care, and cheaper too. Wow.
Peter Orszag, Obama's budget chief, hammers away at this remorselessly, as he did when he headed the Congressional Budget Office. It is very impressive when Orszag points out the wide variation in use, and hence in cost, of treatments from region to region and state to state -- and the fact that these differences seem unrelated to outcomes. In other words, the most-expensive methods are not necessarily the best. These studies suggest that the scope for savings is indeed very large. But just as large is the gap between the scope for savings and savings actually realized, a subject about which neither Orszag nor the draft bills have much to say.
The recent economic stimulus act included a "down payment" of $1.1 billion to fund effectiveness research by the Agency for Healthcare Research and Quality and others. Good idea; I am all for it. But the real challenge is to convert information on what works best into medical decisions about which treatments to use. The stimulus act was careful to say that the results of effectiveness research should not be construed as recommendations for practice guidelines or insurance coverage. Patients and providers might not like it if bureaucrats told them what was good practice. So, spend $1 billion on gathering information -- then make sure you do nothing with it?
The CBO recently estimated that the savings in health care costs arising from effectiveness research would fail to cover the costs of gathering the information, let alone yield substantial savings in overall spending. For the research findings to make a difference, the system's incentives -- and above all the current fee-for-service model, which rewards providers for the treatments they supply regardless of their effectiveness -- will need to be redesigned. Neither the White House nor Congress has much appetite for this.
One obvious approach would be to confront health care consumers more directly with the costs. This might be done, in turn, by rolling back employer-provided health insurance, and the mighty tax break that sustains it. Taxing employer-provided health benefits is one option for recovering some of the cost of wider coverage in the proposed reform -- but not a popular one. Congress and the White House agree that employer-provided health insurance should remain the core of the system. So long as it is, do not expect the cost curve to bend very much.
How to pay for the expected extra outlays is a big remaining controversy. Most likely, some combination of slightly higher taxes on the rich, slightly higher levies on companies, and unreasonably high hopes for unspecified cuts in spending will be the temporary outcome. The larger part of the financing problem -- which, to repeat, is going to get worse, not better -- will probably be kicked down the road. One day, middle-class Americans will have to decide whether they are willing to pay higher taxes for guaranteed health care. That is one of the hard choices Obama is always talking about. For another time.
The other big immediate controversy is the role, if any, that a new public health plan might play. Obama and many Democrats want such a plan to be part of reform. Could this be the way to press down on costs -- either by force of example and competitive pressure, or perhaps (as many Democrats hope and many Republicans fear) by driving private plans out of business and over time transforming U.S health care into a Canadian-style single-payer system with rationing?
The answer is, it all depends. Whether there should be a public plan is a far less important question than exactly how that plan would work. Needless to say, discussion is focused on the unimportant question. Constrained to operate as an ordinary, unsubsidized competitor, a public option might make no difference. In which case, why bother? At the other extreme, with sufficient subsidy and use of political muscle, it could control the whole market. And the full range of possibilities in between is on the table.
If reform does include a public plan, I'm betting that it will leave this question, as well as the issue of financing, unresolved. How to pay for it, and where it will lead, both to be discussed another time. Calling the bill that Obama will sign unfinished business could be the understatement of the decade.
This article appeared in the Saturday, June 13, 2009 edition of National Journal.
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