Liberals and conservatives disagree about how best to control costs in the health-care system. Conservatives believe health care can be a market like any other, in which competition leads to innovation, and innovation leads to higher quality and lower costs. The problem, they say, is that government, mainly through Medicare and subsidies for employer-based health insurance, is interfering in this market. Remove the government interference, and we could finally control costs.
Liberals believe that health care is not a market like any other. If you don’t like the price Best Buy is offering on a 42-inch Sony plasma TV, you walk out. You can’t do that when you collapse on the street and wake up in the ICU. And even in calmer circumstances, health care is devilishly complex, and the stakes are as high as they can possibly get. That’s why we listen to experts with many, many years of medical training. And as the insurance industry found out when HMOs began trying to deny care in the mid-1990s, woe be unto the bureaucrat who stands between a patient and her doctor.
So health care is unique because it’s a sector in which consumers can’t say no. Other countries have tried to solve this problem by putting the government between patients and drug companies — and they’ve largely succeeded. The main reason health-care costs in America are far higher than health-care costs in any other industrialized country is that in other countries, the government negotiates prices. So Pfizer has to make a decision: Do they want access to the 34 million potential customers who live in Canada? If so, then they have to charge a price the Canadian government considers reasonable.
Liberals argue that Medicare has already hosted a test of these two theories: The main Medicare program bargains down prices. There are private insurers both in Medicare and outside Medicare, so Medicare doesn’t have nearly the bargaining power of, say, Canada, where the government sets prices systemwide, and drug and device companies can take them or leave them. Even so, Medicare’s costs come in about 11 percent (pdf, page 21) below those of private insurers.
Meanwhile, the Medicare Advantage program, which set up a system where private insurers could compete with the Medicare program, has continuously come in above budget, and currently costs far more than traditional Medicare.
Conservatives counter that the Medicare Prescription Drug Benefit has cost less than expected, but liberals note that a) a drug plan run through traditional Medicare might have cost even less and b) the cost savings have been the unexpected byproduct of a slowdown in drug innovation, which isn’t something either side wants.
But this is the core disagreement between liberals and conservatives. Conservatives think that the government stands between us and cost control. Liberals think that the government is the only force capable of cost control.
As you can see, there’s not an obvious midway point between those two positions. So in recent years, conservatives and liberals began discussing an asymmetric compromise. Liberals want cost control, but they really want universal coverage. The deal they offered conservatives was a system that had a) universal coverage but b) a competition-based approach to cost control. Wyden’s Healthy Americans Act was, perhaps, the purest incarnation of this deal.
But Republicans never took that deal. Funnily enough, it turned out they didn’t need to. When Democrats amassed enough political power to muscle a health-care bill through on their own, the party’s conservatives demanded a private, choice-based structure anyway. Republicans loathed the final product, but the reality is that it looked quite similar to proposals they had been friendly to throughout the years.
The Wyden-Ryan reforms don’t enshrine any compromise at all. There’s no compromise on cost control. Quite the opposite, actually. The reforms would reduce Medicare’s bargaining power by diverting beneficiaries into private plans, which would in turn mean Medicare has less market power. Nor is there an access-for-cost trade. Paul Ryan and the Republicans continue to work to repeal the Affordable Care Act, and they have not proposed an alternative approach to achieving universal coverage.
So it’s not clear to me exactly what Ron Wyden is getting in this trade. When we spoke last night, Wyden argued that this proposal represents a substantial concession on Ryan’s part when compared to the Medicare reforms in the GOP budget. But a compromise with an extreme-right proposal that will never pass is no compromise at all.
The real genesis of this proposal, I suspect, is that Wyden just believes this is the right direction for Medicare. Wyden believes in choice and competition. This isn’t a trade. It’s not a compromise policy. It’s just a policy that both Ryan and Wyden support as a next step for Medicare.
That leaves open the question, of course, of whether Wyden-Ryan is good policy. I want to spend more time with the proposal before rendering a judgment on that. But we have tried competition-based structures before — the Federal Employee Health Benefits Program, Medicare Advantage, Massachusetts, etc — and they’ve never lived up to the high hopes of advocates. I hope that we just haven’t cracked the code yet, as I think there are important reasons to prefer a competition-based system to one in which the government simply sets prices. But I’m not optimistic.