The Big Problem with Health Care Is Cost, Not Access

Advocates for the passage of some variation of a comprehensive health care reform package -- whether the House Bill, the Senate bill, or the recently offered White House proposal -- like to argue that such a comprehensive bill is needed to make progress on a bunch of important needs, and that all the pieces are required for this to be done.

As Jonathan Cohn of the New Republic describes it:

However opaque the campaign for health care reform has seemed, it really does come down to those three goals: Making sure that everybody has insurance, making sure the coverage is good, and making sure, over time, that health care costs less. The fallback options, Democrat or Republican, don't accomplish those goals. Only comprehensive reform does.

The problem for the advocates of comprehensive reform is that the expansion of access to some but not all of the uninsured, through either employer or individual mandates (a bit less than two-thirds in the Senate and Obama versions of the bill), comes with a big price tag -- close to $2.5 trillion over the first ten years the program would be in effect. With annual federal deficits averaging  $1.5 trillion a year for the fiscal years 2009, 2010, and 2011 -- caused both by a drop in tax revenue and (to a much larger extent) enormous increases in federal spending -- it should not be surprising that many Americans are wary of  enacting a major new entitlement spending program. There is much greater concern among the public with creating new employment opportunities for the 10% who are unemployed, and the 17% unemployed or underemployed, than in "finishing" the health care reform effort.  

The year the administration and Congress have spent on health care reform -- with all the backroom deals and bribes, the lack of transparency, and the 2,000-plus-page bills drafted by lobbyists and unread by House and Senate members -- have attached an unsavory smell to the process that has soured it for many former supporters of the reform effort. Now the decision to try a "jam it through" final push using the budget reconciliation process seems to demonstrate to the public a heightened arrogance by those in power, who seem to be ignoring the public's wish for a smaller, less partisan reform effort at this point.

Since 85% of the population is insured, the primary concern for most of the currently insured is cost control, not expansion of access. The great majority of the population do not believe that the various reform bills are "paid for" (with Medicare cuts, tax increases, and new fees), regardless of what the OMB says and what the bills' advocates claim.

The so-called "doctors fix" on Medicare physician payment rates will cost $250 billion over ten years, and double that in the following decade. This cost was excluded from the bill, to allow Democrats to claim the bill cut the overall deficit in the first ten years. Many are properly skeptical that a Congress which loves to spend will in fact allow half a trillion to be cut from Medicare in the next ten years, particularly since some of the savings are expected to come from the "waste, fraud, and abuse" category. 

If there were hundreds of billions in low-hanging fruit in these categories, then it would be criminal for the administration and the Congress not to have spotted it and done something about it by now. After all, Medicare is facing a $38-trillion unfunded liability, assuming one is foolish enough to believe that there really is a Medicare trust fund, as opposed to the reality: a pay-as-you-go system, much like what exists with Social Security. Both of the entitlement programs for older Americans, along with the Medicaid program, are absorbing rapidly increasing percentages of the federal budget and GDP.

It is noteworthy that Obama-supporter Warren Buffet argued Monday that the administration and Democrats in Congress should scrap the current reform effort and focus on the cost issue. While The New Republic's Jonathan Cohn pays lip service to caring about bending the cost curve, it is not this goal that drives his passion for comprehensive reform. And Cohn is knowledgeable enough about the bills on the table to know that the cost control effort in these bills consists of little more than some new expert studies and funding for some experimentation on local or state levels, but nothing structural.

Buffet is right that the expansion of health care costs threatens both the financial future of the federal and state governments and the competitiveness of American business. In my opinion, real structural reform is needed to bring down the cost of health care. If this can be accomplished, it would be easier and less irresponsible to argue for access expansion. But expansion of access without structural reform on the spending side will only further overheat an already-raging fire.

Here are, I think, the structural issues that need to be addressed:

  • 1. The fee-for-service system for paying providers creates an incentive for increased utilization. When Medicare or Medicaid squeezes providers on price per unit of service, providers can respond with increases in utilization. Those who try to argue that Medicare is efficient and that spending is better-controlled with this federal program than in the private market may want to read an Atul Gawande article from the New Yorker saying there is a problem here. But as Gawande points out, some of the highest-quality health care in America is delivered in settings that are less expensive -- with lower utilization, cooperative arrangements among providers, and greater attention by consumers to more healthy lifestyles. The models for improvement are out there, but the reform proponents are happy to kick the can down the road and study it some more while they provide very expensive comprehensive coverage to 30 million more Americans, including subsidies to purchase insurance for those earning as much as $90,000 a year.

  • 2. The system of providing a tax-free benefit to employees for employer-provided health insurance provides an incentive for employees to choose more health care instead of more salary. If an additional $1,000 of salary results in $750 after tax, but an additional $1,000 of company-paid health insurance nets a full $1,000 in untaxed benefits to the employee, it is not surprising that wage growth has been stagnant the last decade while health insurance costs for companies have risen rapidly. Part of that increase in cost is pure inflation, but part results from expanded, more comprehensive coverage. If employees were taxed for their health insurance in the same way that they are taxed for salary, it would create huge incentives for employees to be much more cost-conscious about the coverage they select. The comprehensive packages provided by some employers are the model for the House, Senate, and Obama versions of comprehensive reform. It should not be surprising that GM and Chrysler employees and retirees have insurance packages costing nearly $30,000 a year. Unions have negotiated these tax-free benefits and are loath to see them cut back. But is it wise to add tens of millions of Americans into the same system? All of the current reform  proposals call for comprehensive insurance packages, as opposed to much less expensive catastrophic insurance coverage, and would cover not only the big-ticket health care bills, but also provide coverage for a long list of mandated services that drive up the cost of insurance. Here, we see the ideological underpinnings of the reform effort: a redistributionist attempt to make sure that all who are newly covered get about the same coverage as those who already have coverage. 

  • 3. The voracious trial bar, an appendage of the Democratic Party (over a billion dollars in campaign contributions over the past few decades), has pumped up the cost of malpractice insurance and helped drive physicians in some specialty practices to abandon some states or locales. To protect themselves against the trial bar, physicians routinely practice defensive medicine, creating incentives for more tests and more procedures. No one has a good handle on the extent of the increment in utilization associated with defensive medicine, and estimates are all over the place. But when combined with the incentives which already exist in a fee-for-service system, it should not be surprising if the number runs annually over $100 billion.

  • 4. Individuals too often behave as if health care is a free good if it is provided to them through the current insurance system, whether government or private. Consumers will spend days visiting electronic stores and checking online prices and features before buying a new big-screen HD TV, but they behave like sheep in the health care system, refusing to compare and contrast prices and quality. If some third party is paying, why should it matter? It seems beyond obvious that putting more of the health care dollar in the hands of consumers would be a worthwhile thing to do. Laser eye surgery is not covered by health insurance policies. Since the service was introduced, prices have dropped by 90%, more practitioners have entered the field, and quality has improved. 

Democrats have fought the expansion of health savings accounts, which provide financial incentives for consumers to spend more wisely on health care services. But since this puts the individual, rather then the nanny state or insurers, in charge of determining what services are needed and should be paid for, it is anathema to the left. Again, the track record of companies that have offered such plans is that the rapid rise in health care costs has significantly slowed.

Bill Maher can call the public a bunch of morons (whenever they do not agree with him), but with regard to the current versions of health care reform, the public's skepticism is well-placed. The elephant in the room is rising costs. Bringing down the cost of health care and the cost of insurance (mainly through reduced utilization and more cost-conscious consumer behavior) makes expanding access a lot easier. Just as important, in many cases, it could make such access expansion voluntary -- with many of the uninsured making a different assessment on the cost/benefit of purchasing a health insurance policy than they do today.

Richard Baehr is chief political correspondent of American Thinker.
Advocates for the passage of some variation of a comprehensive health care reform package -- whether the House Bill, the Senate bill, or the recently offered White House proposal -- like to argue that such a comprehensive bill is needed to make progress on a bunch of important needs, and that all the pieces are required for this to be done.

As Jonathan Cohn of the New Republic describes it:

However opaque the campaign for health care reform has seemed, it really does come down to those three goals: Making sure that everybody has insurance, making sure the coverage is good, and making sure, over time, that health care costs less. The fallback options, Democrat or Republican, don't accomplish those goals. Only comprehensive reform does.

The problem for the advocates of comprehensive reform is that the expansion of access to some but not all of the uninsured, through either employer or individual mandates (a bit less than two-thirds in the Senate and Obama versions of the bill), comes with a big price tag -- close to $2.5 trillion over the first ten years the program would be in effect. With annual federal deficits averaging  $1.5 trillion a year for the fiscal years 2009, 2010, and 2011 -- caused both by a drop in tax revenue and (to a much larger extent) enormous increases in federal spending -- it should not be surprising that many Americans are wary of  enacting a major new entitlement spending program. There is much greater concern among the public with creating new employment opportunities for the 10% who are unemployed, and the 17% unemployed or underemployed, than in "finishing" the health care reform effort.  

The year the administration and Congress have spent on health care reform -- with all the backroom deals and bribes, the lack of transparency, and the 2,000-plus-page bills drafted by lobbyists and unread by House and Senate members -- have attached an unsavory smell to the process that has soured it for many former supporters of the reform effort. Now the decision to try a "jam it through" final push using the budget reconciliation process seems to demonstrate to the public a heightened arrogance by those in power, who seem to be ignoring the public's wish for a smaller, less partisan reform effort at this point.

Since 85% of the population is insured, the primary concern for most of the currently insured is cost control, not expansion of access. The great majority of the population do not believe that the various reform bills are "paid for" (with Medicare cuts, tax increases, and new fees), regardless of what the OMB says and what the bills' advocates claim.

The so-called "doctors fix" on Medicare physician payment rates will cost $250 billion over ten years, and double that in the following decade. This cost was excluded from the bill, to allow Democrats to claim the bill cut the overall deficit in the first ten years. Many are properly skeptical that a Congress which loves to spend will in fact allow half a trillion to be cut from Medicare in the next ten years, particularly since some of the savings are expected to come from the "waste, fraud, and abuse" category. 

If there were hundreds of billions in low-hanging fruit in these categories, then it would be criminal for the administration and the Congress not to have spotted it and done something about it by now. After all, Medicare is facing a $38-trillion unfunded liability, assuming one is foolish enough to believe that there really is a Medicare trust fund, as opposed to the reality: a pay-as-you-go system, much like what exists with Social Security. Both of the entitlement programs for older Americans, along with the Medicaid program, are absorbing rapidly increasing percentages of the federal budget and GDP.

It is noteworthy that Obama-supporter Warren Buffet argued Monday that the administration and Democrats in Congress should scrap the current reform effort and focus on the cost issue. While The New Republic's Jonathan Cohn pays lip service to caring about bending the cost curve, it is not this goal that drives his passion for comprehensive reform. And Cohn is knowledgeable enough about the bills on the table to know that the cost control effort in these bills consists of little more than some new expert studies and funding for some experimentation on local or state levels, but nothing structural.

Buffet is right that the expansion of health care costs threatens both the financial future of the federal and state governments and the competitiveness of American business. In my opinion, real structural reform is needed to bring down the cost of health care. If this can be accomplished, it would be easier and less irresponsible to argue for access expansion. But expansion of access without structural reform on the spending side will only further overheat an already-raging fire.

Here are, I think, the structural issues that need to be addressed:

  • 1. The fee-for-service system for paying providers creates an incentive for increased utilization. When Medicare or Medicaid squeezes providers on price per unit of service, providers can respond with increases in utilization. Those who try to argue that Medicare is efficient and that spending is better-controlled with this federal program than in the private market may want to read an Atul Gawande article from the New Yorker saying there is a problem here. But as Gawande points out, some of the highest-quality health care in America is delivered in settings that are less expensive -- with lower utilization, cooperative arrangements among providers, and greater attention by consumers to more healthy lifestyles. The models for improvement are out there, but the reform proponents are happy to kick the can down the road and study it some more while they provide very expensive comprehensive coverage to 30 million more Americans, including subsidies to purchase insurance for those earning as much as $90,000 a year.

  • 2. The system of providing a tax-free benefit to employees for employer-provided health insurance provides an incentive for employees to choose more health care instead of more salary. If an additional $1,000 of salary results in $750 after tax, but an additional $1,000 of company-paid health insurance nets a full $1,000 in untaxed benefits to the employee, it is not surprising that wage growth has been stagnant the last decade while health insurance costs for companies have risen rapidly. Part of that increase in cost is pure inflation, but part results from expanded, more comprehensive coverage. If employees were taxed for their health insurance in the same way that they are taxed for salary, it would create huge incentives for employees to be much more cost-conscious about the coverage they select. The comprehensive packages provided by some employers are the model for the House, Senate, and Obama versions of comprehensive reform. It should not be surprising that GM and Chrysler employees and retirees have insurance packages costing nearly $30,000 a year. Unions have negotiated these tax-free benefits and are loath to see them cut back. But is it wise to add tens of millions of Americans into the same system? All of the current reform  proposals call for comprehensive insurance packages, as opposed to much less expensive catastrophic insurance coverage, and would cover not only the big-ticket health care bills, but also provide coverage for a long list of mandated services that drive up the cost of insurance. Here, we see the ideological underpinnings of the reform effort: a redistributionist attempt to make sure that all who are newly covered get about the same coverage as those who already have coverage. 

  • 3. The voracious trial bar, an appendage of the Democratic Party (over a billion dollars in campaign contributions over the past few decades), has pumped up the cost of malpractice insurance and helped drive physicians in some specialty practices to abandon some states or locales. To protect themselves against the trial bar, physicians routinely practice defensive medicine, creating incentives for more tests and more procedures. No one has a good handle on the extent of the increment in utilization associated with defensive medicine, and estimates are all over the place. But when combined with the incentives which already exist in a fee-for-service system, it should not be surprising if the number runs annually over $100 billion.

  • 4. Individuals too often behave as if health care is a free good if it is provided to them through the current insurance system, whether government or private. Consumers will spend days visiting electronic stores and checking online prices and features before buying a new big-screen HD TV, but they behave like sheep in the health care system, refusing to compare and contrast prices and quality. If some third party is paying, why should it matter? It seems beyond obvious that putting more of the health care dollar in the hands of consumers would be a worthwhile thing to do. Laser eye surgery is not covered by health insurance policies. Since the service was introduced, prices have dropped by 90%, more practitioners have entered the field, and quality has improved. 

Democrats have fought the expansion of health savings accounts, which provide financial incentives for consumers to spend more wisely on health care services. But since this puts the individual, rather then the nanny state or insurers, in charge of determining what services are needed and should be paid for, it is anathema to the left. Again, the track record of companies that have offered such plans is that the rapid rise in health care costs has significantly slowed.

Bill Maher can call the public a bunch of morons (whenever they do not agree with him), but with regard to the current versions of health care reform, the public's skepticism is well-placed. The elephant in the room is rising costs. Bringing down the cost of health care and the cost of insurance (mainly through reduced utilization and more cost-conscious consumer behavior) makes expanding access a lot easier. Just as important, in many cases, it could make such access expansion voluntary -- with many of the uninsured making a different assessment on the cost/benefit of purchasing a health insurance policy than they do today.

Richard Baehr is chief political correspondent of American Thinker.

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