Donald F. Kettl: It's All About the Regulation

By Donald F. Kettl
Tuesday, September 15, 2009; 12:16 PM

What fundamentally will decide the success or failure of health reform isn't who owns the insurance programs. It's how well we write and apply the ground rules under which they'll operate: No matter who provides the insurance, what matters is whether pre-existing conditions will exclude them from coverage, or whether they will lose their coverage if they lose their job, or whether running up a big bill will get them tossed out of the plan. The rules on these questions -- and many, many more -- will determine how well any stripe of health reform actually works.

For better or worse, American health care has evolved into an extraordinarily complicated public-private-nonprofit system, in which legions have a hand but where no one is really in charge. We rely now on a tiny number of feds to manage the huge chunk of the budget that is health care. We'll be relying on them even more with any version of health reform that will emerge from Capitol Hill. In fact, the number of employees at the Centers for Medicare and Medicaid Services, the federal agency responsible for these programs and which together account for 20 percent of the federal budget, is 4,069, just 0.2 percent of all federal civilian employees. (This is socialism?) There's a large army of invisible private contractors who assemble the bills, collect from the government, and distribute it to caregivers.

The huge difficulty in making this incredibly complex system work earned Medicare a charter membership (in 1990) on the Government Accountability Office's high-risk list of programs especially prone to fraud and abuse. Medicaid joined the list in 2003. GAO estimates that problems in managing Medicare's reimbursement process cost the government nearly $7 billion -- and another $33 billion in Medicaid. Everyone counts on paying for a big chunk of health reform by wringing out these problems, but it's not clear how we'll do in the next few months what has frustrated reformers for the last two decades -- unless we undertake fundamental surgery on the mixed public-private systems that drive the programs' costs.

Looking forward, the cost and quality of health care will be shaped much more by the feds' regulatory control over the hundreds of pages of details in the bills. It's not socialism -- it's public leverage over a privately operated system. It's how well the federal government works this leverage, not whether there is a public option -- that will ultimately determine how well health reform actually works.

Donald F. Kettl is dean of the School of Public Policy at the University of Maryland and author of "The Next Government of the United States."

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