Amend and Improve, 2016

The key to improving health-care reform lies outside Washington. A response to Jacob S. Hacker.

By David Kendall

Tagged Health CarePublic Policy

It’s 2016 and the race to succeed Barack Obama is in full swing. The Republican standard bearer trails by a narrow four points heading into Columbus Day weekend and the airing of the first presidential debate. With 90 million viewers watching, moderator Joe Scarborough asks the first question. “Hillary Clinton, you have made universal health care the cornerstone of your career; Scott Brown, in the primaries against Rand Paul, you called Obamacare ‘abominationcare.’ If either of you becomes president, what will you do with health-care reform?”

Brown knows that to win the race, he must both keep his conservative base and appeal to moderates and the middle class who have warmed up to the six-year-old health-care law. With a nod to Paul, whom Brown calls “the best vice-presidential nominee a person could have,” the Massachusetts Republican says he will focus on cost containment. Clinton agrees: “Cost containment will be my number one priority, and I have the record and toughness to do it.” With that, the six-year food fight over health-care reform mercifully ends. “Repeal and replace” has become “amend and improve” for both parties.

There is a certain inevitability to the war over health-care reform. Republicans may talk about “repeal and replace,” but they will have little opportunity to do so. Despite their control of the House, President Obama holds all the aces. He can and will veto anything he deems harmful to reform. Should a Republican win the White House in 2012, any major changes in the law would still need 60 votes–a steep standard, as Senate Democrats will tell you.

With public opposition also likely to fade as the benefits of reform kick in, the courts will be the one wild card. If the Supreme Court rules against any part of the Affordable Care Act (ACA), Congress would have to respond because the parts are interrelated. For example, if the court found the individual mandate to be unconstitutional, then Congress would have to return to the old insurance rules that let insurers discriminate against people with pre-existing conditions. Otherwise, people could wait until they got sick to buy insurance, which would be as unsustainable as letting people insure a burning house.

However remote, the possibility of an adverse court ruling adds a measure of urgency to an already critical mission: making the ACA a success by making it affordable. Under current projections, employers and employees will be spending $10,211 on average for each person’s health-care coverage by 2024, which is nearly double what it costs today in real dollars. Runaway health costs will continue to undermine middle-class wages, reduce U.S. competitiveness, stunt economic growth, drive up the deficit, make the social safety net burdensome, and squeeze out public investment in education, infrastructure, and research.

If the new law gets an “A-” on covering all Americans, it deserves a gentleman’s “C,” at best, on cost control. And a “C” is not good enough.

On the crucial need to tackle cost control, both Jacob Hacker and I agree. In his essay “Health-Care Reform, 2015”, Hacker sees plenty to like about health-care reform, but warns that the work has only begun. Cost control is at the top of his to-do list. “None of this will matter much…if costs aren’t contained,” Hacker writes about the ACA.

But if Hacker diagnoses the bill’s biggest problem correctly, his prescriptions won’t cure the disease. First, he wants to revive the public plan option or its cousin, all-payer rate setting. Both approaches would end up forcing doctors and hospitals to accept Medicare’s frequently lower prices for services, regardless of whether it is a public plan or private insurer paying for the care. The all-payer scheme is a straightforward mandate on providers, while the public plan would get that result indirectly–it would drive private insurers out of business by being the only health plan (other than Medicare) with the federal power to pay doctors and hospitals the lower Medicare rates.

Putting aside the obvious political hurdle of importing a Canadian-style health-care system, there is a more pernicious problem with U.S.-style price controls via Medicare: It undermines primary care, which is the foundation of cost control because it treats patients’ problems before they need expensive specialty care. The reason is that Medicare pays far less for primary-care services than for specialty services. That payment policy is driving the vast majority of medical students away from primary care and into higher-paying specialty fields. Without primary care, specialty care will continue to prosper in a self-reinforcing cycle of higher costs.

Hacker also expresses a preference for states to forgo running their own exchanges in favor of a national exchange. Bigger would be cheaper if economies of scale were all that mattered, but economies of scope matter, too. State-run exchanges will have the capability to address a wide variety of problems such as local obstacles to cost control and integration with state-run Medicaid program enrollment. Hacker also overstates the economies of scale argument because states could contract for administrative services through multi-state contracts, which the federal government should facilitate in any case.

Lastly, he proposes a federal tax on small businesses that do not provide coverage. Small employers–those with 50 or fewer employees–are currently exempt from the employer coverage requirement in the ACA. Hacker would have them provide coverage or pay a tax. The intent is to provide seamless coverage through the workplace and reduce the need for enforcing the individual mandate, but the cure may be worse than the disease. Most small businesses want to provide coverage, and the exchange will be an attractive solution for them if it is customer-friendly and affordable. Drawing them in voluntarily now is much more likely to succeed than having a nasty fight over the small number of employers who don’t want to pay anything to cover their employees.

Hacker’s Beltway-centered ideas would undermine the ACA in ways that not even conservatives can, splitting the coalition of employers, unions, doctors, insurers, hospitals, consumers, and governors that got reform enacted. Any serious prospect of enacting the public option would transform many reform defenders into its victims: the doctors, hospitals, pharmaceutical companies, and device manufacturers who would become subject to Medicare’s price controls. The limited number of small-business owners who defend the ACA’s employer requirements would lose all support from their peers if the promised small-business exemption were repealed. And a push for a national exchange would tamp down on the kind of state support for the ACA seen in California, which has pushed hard to become the first state to implement a state-based exchange.

A better way to approach cost control is local action to improve quality. Best practices developed at leading health organizations like the Mayo Clinic in Minnesota and Intermountain Health Care in Utah have also proven to be the most cost-effective. The reason is no different from what the manufacturing sector has learned from the science of quality improvement: higher quality means less waste. If the entire nation had the same quality and quantity of medical care as found in the most efficient areas of the United States, then we could save as much as 30 percent of every health-care dollar, according to the Congressional Budget Office and researchers at Dartmouth Medical School.

It is not yet clear how to bring such quality improvement to scale given a diverse population and a fragmented delivery system. But edicts from Washington to improve quality won’t work. It has to come from local physician leadership with the support of the patients, insurers, employers, and taxpayers.

The federal government has a role in facilitating–but not dictating–such reforms. For one thing, the new Center for Medicare and Medicaid Innovation established by the ACA should organize regional collaboration among public and private payers to pay for the quality of care instead of the quantity of care, as health-policy expert Lynn Etheredge has proposed.

Another idea is for Congress to create a health-insurance exchange for Medicare that would give seniors and disabled Americans the same choices and responsibilities for their coverage as workers and their families will have in the insurance exchanges. A Medicare exchange would start off being national as Hacker prefers, but states could get a waiver to run it locally.

In addition, the government should change Medicare payment rules to allow seniors to continue traditional care while they have end-of-life care such as hospice. As Atul Gawande wrote in The New Yorker, patients choose less aggressive, less expensive care when they can also have care for their comfort and well-being at the end of life. Meanwhile, Congress should create stronger incentives for savings in the private sector by modifying the so-called Cadillac plan tax. It should end tax subsidies for health plans with excessive medical inflation instead of just excessive benefits.

Progressives also need to be open to good conservative ideas that could garner bipartisan support, like medical malpractice reform. The current malpractice liability system is, in fact, highly regressive. Research conducted over decades at the Harvard School of Public Health has shown that most people injured by medical mistakes never receive compensation. Only 2 percent of injured patients even file a claim. The few “winners” will have waited years to see the money. More than half of the settlement or award goes to attorney fees and court costs.

At the behest of President Obama, the ACA provided funding to states to test alternative judicial models such as health courts, which would be a new way to adjudicate medical injuries, similar to how worker’s injuries, tax disputes, and bankruptcies are handled today. But funding for state demonstrations is unlikely to overcome the resistance from trial lawyers who oppose any change in the status quo. To boost the economic reward for experimenting with alternatives, states should have a claim on the substantial Medicare and Medicaid savings that will flow from reducing the practice of defensive medicine, which sees doctors ordering costly tests and procedures for the sole purpose of avoiding a lawsuit.

For all its shortcomings on the cost-control front, the ACA will likely enjoy growing popularity in the years to come. The theme of secure and stable coverage proved to be one of the few tools that increased the popularity of reform. When President Obama put his full oratorical power behind it in his September 2009 speech to Congress, support for reform rose dramatically despite the brutal town hall meetings during the August recess (though public opinion faltered again in the face of the sausage-making on Capitol Hill).

Yet a bumpy road still lies ahead. Hacker is rightly worried about conservative attacks on the subsidies for coverage of the uninsured. He calls this redistribution the “soft underbelly of reform.” But the view among some on the left that the uninsured are a federal charity project obscures the fact that the middle class are the primary beneficiaries of reform because it gives them stable coverage regardless of whether they get sick or the employer doesn’t provide it. That redistributive outlook also inadvertently reinforces reform’s negatives: waiting lines for health care as the previously uninsured flood medical offices, higher taxes going to help those who haven’t helped themselves, and rising premiums to take care of the uninsured. The public currently sees others, not themselves, as the beneficiaries of reform. Progressives have yet to make the case for reform as a middle-class benefit.

We can do that in the coming deficit debate, which offers a fresh opportunity for bipartisan cooperation in the fight against runaway health-care costs. It is critical that progressives seize that opportunity and not turn away from concerns about the deficit. Despite our differences over the means, Hacker got at the key to reform’s future when he wrote, “Cost control or bust.”

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David Kendall is senior fellow for health and fiscal policy at Third Way.

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