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Obama's Health Care Plan Just Expands Status Quo

President Obama discusses health-care reform at Children's National Health Center last month.
President Obama discusses health-care reform at Children's National Health Center last month. (By J. Scott Applewhite -- Associated Press)
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By Robert J. Samuelson
Monday, August 10, 2009

"The status quo is unsustainable for families, businesses and government." -- President Obama, June 13

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One of the bewildering ironies of the health-care debate is that President Obama claims to be attacking the status quo when he's actually embracing it. Ever since Congress created Medicare and Medicaid in 1965, health politics has followed a simple logic: Expand benefits and talk about controlling costs. That's the status quo, and Obama faithfully adheres to it. While denouncing skyrocketing health spending, he would increase it by extending government health insurance to millions more Americans.

Just why this approach is perennially popular is no secret. Health care is viewed as a "right." Promoting it seems "moral." Cost controls suggest dreaded "rationing." So there's a powerful bias toward expansion.

History is unambiguous. Originally, Medicare covered only those 65 and older. In 1972, Congress added the disabled, now about 15 percent of beneficiaries, notes Diane Rowland of the Kaiser Family Foundation. It also covered dialysis for kidney failure. In 2003, Congress created a drug benefit. Along the way, other services (hospice care, mammograms) were added.

Medicaid -- the federal-state program for the poor -- is the same story, says Rowland. Initially, it covered mainly people on welfare, as defined by states. Gradually, eligibility broadened. Now, children ages 6 to 18 in households under the poverty line ($22,050 for a family of four) get it. Congress also set higher limits (133 percent of the poverty line) for pregnant women and children under 6. In 1997, Congress created the State Children's Health Insurance Program (SCHIP) to expand coverage further.

Meanwhile, open-ended reimbursement by government and private insurance has ballooned health spending despite repeated pledges to "contain" costs. For example, health payments for individuals rose from less than 1 percent of federal spending in 1965 to 23 percent in 2008.

Obama would perpetuate this system. No president has spoken more forcefully about the need to control costs. Failure, he's argued, would expand federal budget deficits, raise out-of-pocket health costs and squeeze take-home pay (more compensation would go to insurance). All true. But Obama's program would do little to reduce costs and would increase spending by expanding subsidized insurance. The House legislation would cut the number of uninsured by 37 million by 2018, estimates the Congressional Budget Office. The uninsured get care now; with insurance they'd get more.

"You'd be adding a third medical entitlement on top of Medicare and Medicaid," says James Capretta, a top official at the Office of Management and Budget from 2001 to 2004.

Just imagine what the health-care debate would be like if it truly focused on controlling spending.

For starters, we wouldn't be arguing about how to "pay for" the $1 trillion or so of costs over a decade of Obama's "reform." Congress wouldn't create new benefits until it had disciplined the old. We'd be debating how to trim the $10 trillion, as estimated by the CBO, that Medicare and Medicaid will spend over the next decade, without impairing Americans' health. We'd use Medicare as a vehicle of change. Accounting for more than one-fifth of all health spending, its costs per beneficiary, now about $12,000, rose at an average annual rate of 8.5 percent a year from 1970 to 2007. (True, that's lower than the private insurers' rate of 9.7 percent. But the gap may partly reflect cost-shifting to private payers. When Medicare restrains reimbursement rates, hospitals and doctors raise charges to private insurers.)

Medicare is so big that shifts in its practices spread to the rest of the delivery system. But changing Medicare, and through it one-sixth of the U.S. economy, requires more than a few demonstration projects of "comparative outcomes" research or economic incentives. What's needed is a fundamental restructuring. Fee-for-service medicine -- Medicare's dominant form of payment -- is outmoded. The more doctors and hospitals do, the more they get paid. This promotes fragmentation and the overuse of services.

We should move toward coordinated care networks that take responsibility for their members' medical needs in return for fixed annual payments (called "capitation"). One approach is through vouchers; Medicare recipients would receive a fixed amount and shop for networks with the lowest cost and highest quality. Alternatively, government could shift its reimbursement of hospitals and doctors to "capitation" payments. Limited dollars would, in theory, force improvements in efficiency and effective care.

We're not having this debate. To engage it would require genuine presidential leadership, because, admittedly, these proposals would be hugely controversial. Medicare recipients -- present and future -- would feel threatened. Existing doctor-patient relationships might be disrupted. Spending limits would inspire fears of short-changed care. Hospitals, doctors and device manufacturers would object. Obama took a pass. He simply claims that his plan will do things it won't. What he's offering is an enlarged version of the status quo that, as he says, is already unsustainable.


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