The Hearing: Health-Care Coverage vs. Costs

By James Kwak
Monday, August 17, 2009; 9:21 PM

What began as an attempt to provide decent health care to all Americans has metamorphosed into a battle over health-care costs. As Lori Montgomery reported in this newspaper, both Republicans and some Democrats are saying that the top priority for health-care reform, and a prerequisite for passage, will be "bending the curve" -- reducing the long-term growth rate of health-care costs.

Health-care inflation is a serious issue. The Congressional Budget Office projects that spending on Medicare and Medicaid will double as a percentage of GDP by 2035, while private-sector employers will have to absorb increased costs or cut health benefits. But while there is a comfortable majority behind the key reforms necessary to expand coverage -- no medical underwriting, subsidies for the poor -- the focus on costs is vastly complicating the prospects of achieving any reform at all.

The basic dynamic is simple. Any plan to significantly reduce health care spending is attacked as reducing people's access to health care. Both House and Senate bills seek reductions in the growth of Medicare spending; according to House Republican Leader John Boehner, this is tantamount to "fewer choices and lower health-care quality for our nation's seniors."

On the other hand, any plan that provides coverage to 40 million uninsured people yet does not significantly reduce health-care spending will be attacked as a budget-buster. Olympia Snowe of the Senate Finance Committee's "Group of Six" insists that any bill must reduce deficits, saying: "At this precarious time in our nation's history, frankly, we have to be rigorous in our fiscal approach. There's just no latitude."

The result is that health-care reform, despite its basic popularity -- according to a recent New York Times poll, 82 percent of Americans think the health care system needs fundamental changes or must be completely rebuilt and 55 percent think the government should guarantee health insurance for all people - now must perform a difficult balancing act. It must increase coverage, which costs money; it must reduce costs, to avoid increasing the deficit; and it must do so without being perceived as threatening people's current health care.

Fortunately, there are sensible reforms that can reduce health-care costs without reducing people's access to care or the quality of that care. For one, there is the Independent Medicare Advisory Council, which would have the power to adjust Medicare payment rates and thereby to change the incentives that currently lead to widespread overtreatment, at least in some areas of medicine.

In a recent article, physicians Atul Gawande, Donald Berwick, Elliott Fisher and Mark McClellan draw some lessons from communities all across the country that are succeeding in providing high-quality care at relatively low cost. Some use collaborative, team-based approaches; some track data on health-care utilization and quality; in some, competition led to greater efficiency.

There is the health insurance exchange, which should lead to greater efficiency and price competition by aggregating buyers and sellers of health insurance. And there is the public plan (or the nonprofit cooperatives, if you prefer), which has the potential to put pressure on for-profit insurers to reduce administrative and marketing costs.

Unfortunately, though, we're not sure which of these reforms will have the most impact, and it's extremely difficult to come up with concrete estimates of their savings. For example, as Ezra Klein describes, the CBO and Peter Orszag (its former director) have fought over the fiscal impact of the IMAC. And it's especially hard to put a dollar value on measures that try to promote community-based health-care delivery, or on electronic medical records. In short, it's easy to estimate the cost of subsidies and hard to estimate the savings from smarter, more efficient health care.

Which leads us back to square one: it's hard to find the savings to achieve "deficit-neutral" status without opening up political cans of worms like Medicare. And without those savings, universal coverage starts to slip away, as the Senate Finance Committee cuts back on subsidies in its insistence on "fiscal responsibility."

There are two possible ways out of this predicament. The first is raising taxes on rich people, as proposed by the House bills. (A variant of this approach would be to use tax increases as a safety valve; if projected savings from other measures do not materialize, then taxes would increase to make up the difference.) However, this is an issue on which the Senate seems to be considerably to the right of the electorate -- 65 percent of whom favor a tax on the rich to pay for reform -- and the Finance Committee is considering only smaller increases in other taxes that will raise less money.

The second is to back away from the cost issue and put the emphasis back on coverage. As Ezra Klein (again) points out, this was the tenor of President Obama's remarks Friday. Politically, if the administration can make the case based on coverage -- some combination of "every member of a decent society should have access to basic health care" and "health insurance reform is your protection against losing your job or your employer dropping your plan" -- it may even be able to get some long-term cost reduction into the bill.

Looking further down the road, though, perhaps a bill that provides universal coverage but falls short of "bending the curve" would still be a major achievement for the American people. Not only would it address one of the most embarrassing features of our society, but it would only increase the pressure to do something about costs. Today our health-care system adapts to rising costs by shifting the pain onto the unemployed and the poor. Universal coverage would make rising costs a shared national problem.

No matter what, we are not going to see a perfect solution to all of our health-care problems in 2009. This year will at most be only a first step. Let's hope that we at least take that step.

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