The Way Health Care Can Die

The news that the White House will push for a public insurance option for health care is welcome, and I believe a direct result of the line in the sand from the Progressive Caucus, conditioning their vote on a robust public plan. That completely changed the debate and allowed activists to engage. All well and good.

But there was quite a bit more in that Obama letter to Senate Democratic leaders on his vision for health care. Here's the key bit, for me.

At this historic juncture, we share the goal of quality, affordable health care for all Americans. But I want to stress that reform cannot mean focusing on expanded coverage alone. Indeed, without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach. So we must attack the root causes of the inflation in health care. That means promoting the best practices, not simply the most expensive. We should ask why places like the Mayo Clinic in Minnesota, the Cleveland Clinic in Ohio, and other institutions can offer the highest quality care at costs well below the national norm. We need to learn from their successes and replicate those best practices across our country. That's how we can achieve reform that preserves and strengthens what's best about our health care system, while fixing what is broken [...]

I understand the Committees are moving towards a principle of shared responsibility -- making every American responsible for having health insurance coverage, and asking that employers share in the cost. I share the goal of ending lapses and gaps in coverage that make us less healthy and drive up everyone's costs, and I am open to your ideas on shared responsibility. But I believe if we are going to make people responsible for owning health insurance, we must make health care affordable. If we do end up with a system where people are responsible for their own insurance, we need to provide a hardship waiver to exempt Americans who cannot afford it. In addition, while I believe that employers have a responsibility to support health insurance for their employees, small businesses face a number of special challenges in affording health benefits and should be exempted.

Health care reform must not add to our deficits over the next 10 years -- it must be at least deficit neutral and put America on a path to reducing its deficit over time. To fulfill this promise, I have set aside $635 billion in a health reserve fund as a down payment on reform. This reserve fund includes a number of proposals to cut spending by $309 billion over 10 years --reducing overpayments to Medicare Advantage private insurers; strengthening Medicare and Medicaid payment accuracy by cutting waste, fraud and abuse; improving care for Medicare patients after hospitalizations; and encouraging physicians to form "accountable care organizations" to improve the quality of care for Medicare patients. The reserve fund also includes a proposal to limit the tax rate at which high-income taxpayers can take itemized deductions to 28 percent, which, together with other steps to close loopholes, would raise $326 billion over 10 years.

I am committed to working with the Congress to fully offset the cost of health care reform by reducing Medicare and Medicaid spending by another $200 to $300 billion over the next 10 years, and by enacting appropriate proposals to generate additional revenues. These savings will come not only by adopting new technologies and addressing the vastly different costs of care, but from going after the key drivers of skyrocketing health care costs, including unmanaged chronic diseases, duplicated tests, and unnecessary hospital readmissions.

To identify and achieve additional savings, I am also open to your ideas about giving special consideration to the recommendations of the Medicare Payment Advisory Commission (MedPAC), a commission created by a Republican Congress. Under this approach, MedPAC's recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress. This is similar to a process that has been used effectively by a commission charged with closing military bases, and could be a valuable tool to help achieve health care reform in a fiscally responsible way.

Let's take a look at all of this. First of all, on the individual mandate, I'm glad he said that makes no sense if individuals cannot afford the coverage, and that he'd provide a hardship exemption. Hopefully this will spur Congress to devise the most affordable plans possible.

Obama and his team have foregrounded the importance of cost control, arguing that the long-term health care budget projections are unsustainable without reform, and that we must bend the cost curve while providing greater access (the whole "entitlement reform is health reform" thing). I'm all for efficiency and putting our dollars to the best use and comparing medical effectiveness so that we don't pay more money for a less effective treatment and all of that. But Obama also seeks fiscal austerity in this package in the short-term in addition to reining in costs over the long-term. He wants the package to be deficit neutral, in other words paid for, over the next ten years. That means the money has to come from somewhere. It didn't for two wars, TARP, and a whole host of other things, but for health care, you have to pay up front.

The $635 billion he's talking about includes the capping of charitable deductions that was DOA as soon as it reached Congress. And $635 billion is not all of what's needed. Senate leaders have talked about limiting the employer deduction on health benefits, and while Peter Orszag took it off the table, Obama seemed to be open to it, even though he campaigned hard against John McCain when he proposed eliminating the employer deduction. Obviously, there's a difference between McCain's plan, eliminating the deduction while offering a meager tax credit to individuals to fend for themselves, and this plan, limiting the deduction to raise money for providing subsidies and building a public option, etc. So there is a difference. But it may not be enough to convince Congress, and you can see the "he's taxing your health benefits" commercials now.

Let's replay that other piece of the letter:

I am committed to working with the Congress to fully offset the cost of health care reform by reducing Medicare and Medicaid spending by another $200 to $300 billion over the next 10 years, and by enacting appropriate proposals to generate additional revenues. These savings will come not only by adopting new technologies and addressing the vastly different costs of care, but from going after the key drivers of skyrocketing health care costs, including unmanaged chronic diseases, duplicated tests, and unnecessary hospital readmissions.

To identify and achieve additional savings, I am also open to your ideas about giving special consideration to the recommendations of the Medicare Payment Advisory Commission (MedPAC), a commission created by a Republican Congress. Under this approach, MedPAC's recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress. This is similar to a process that has been used effectively by a commission charged with closing military bases, and could be a valuable tool to help achieve health care reform in a fiscally responsible way.

You can pretty reasonably read that and come up with the idea that Obama wants to pay for health care by cutting back on the enormously popular Medicare program. The truth is a little murkier, but only a little.

For example, Medicare Advantage truly sucks - the government overpays private insurers for the same treatment received inside Medicare. But what's all this about "reducing Medicare spending"? And what's MedPAC? Ezra Klein explains.

You probably haven't heard of MedPAC. Most people haven't. It stands for The Medicare Payment Advisory Commission and it's an independent congressional agency formed in 1997 to advise the Congress on matters relating to Medicare. The commission is staffed by experts who are appointed for three-year terms, and its existence is due to a simple insight: Medicare payment policy is too technical for the Congress. There aren't five senators with an informed opinion on the "equipment use standard" for imaging machines, much less 50, and much less 100.

Every year, MedPAC releases a "report to the Congress on Medicare payment policy." The report contains acres of analysis (this year's "assessing payment adequacy and updating payments in fee-for-service Medicare" was particularly thrilling) and a final chapter on recommendations. The recommendations tend to be smart, aggressive, reforms. The sort of reforms experts agree are needed, but interest groups effortlessly stymie. The recommendations don't, in other words, matter. None of it does, really. The report sits on a shelf.

But what if it didn't? What if MedPAC had power? [...]

The theory is that it would act as a Federal Reserve for Medicare. "Congress has proven itself to be inefficient and inconsistent in making decisions about provider reimbursement under Medicare," said Rockefeller. "Congress should leave the reimbursement rules to the independent health care experts.”

That's the plan Obama spoke of favorably in yesterday's meeting. But what hasn't been reported is that senior administration officials are also considering another variant: This plan would package MedPAC's yearly recommendation and fast track them through Congress for a simple, up-or-down vote. No filibuster. No changes to the package of recommendations. Health reform, under this scenario, would become a yearly legislative project.

The idea is that reforms to Medicare would spread across the industry and cut costs. The idea is that the people who understand health care can provide some order on the current chaos, and with added power can force changes in the system that will reverberate and cannot be subject to interest-group vetoes. Health care policy experts like it, lobbyists and conservatives don't. They will call it the dreaded rationing. They will say that Congress is coming to take your Medicare away.

But what has MedPAC hisotrically proposed? I've got past recommendations here and here. They're written in bureaucrat-ese, but they include raises in reimbursement rates along with reductions, and the vague "updates" in payment rates for certain services. Seeing that these are experts, and that trusted sources are calling their recommendations smart and sound, I'm willing to believe that for now.

Still, the politics of this stink on ice. Given the reality that health care must be paid for in the short term, I see lots of reasons for lawmakers of both parties to have problems with just about every kind of revenue-raiser imaginable. They'd knock down sin taxes. They'd knock down caps on charitable deductions. They'd knock down limiting the employer deduction. In the end, the pool of money needed becomes unattainable. And then we have this proposal to allow unspecified reductions to Medicare and Medicaid spending, with a board of experts empowered to do so, and I'm wondering if anyone passed that by anyone with political insight. Because it will get trounced in the court of public opinion.

In many respects, I'm more hopeful about the prospects for health care reform than ever. In other respects, I'm completely in despair. As we get further in this debate, we will find that nobody in Congress wants to pull the trigger on paying for this, and the Medicare cuts are so ripe for demagoguery that Harry and Louise will look like a Care Bears commercial by comparison. And I feel that progressives aren't even paying attention to the most important contours of this debate.