Editore"s Note
Tilting at Windmills

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March 10, 2010

CUTTING COSTS.... Arguably the most frequently cited concern raised by opponents of health care reform is that the Democratic proposal doesn't do enough to cut costs. These critics rarely have much to offer in the way of substantive alternatives, but it's nevertheless cited -- politicians and pundits -- as a key problem.

The truth, of course, is that this is the most difficult aspect of shaping the policy. In some instances, such as the public option, there's a reasonable expectation that the measure would cut costs, but is nevertheless rejected for ideological reasons. In other instances, there are credible ideas that may or may not work as intended.

But the ideas are clearly there. President Obama reminded Americans last week, "We have now incorporated most of the serious ideas from across the political spectrum about how to contain the rising cost of health care." Is that true? Actually, it is. Harvard economist David Cutler had an important op-ed in the Wall Street Journal yesterday, insisting that the "Obama plan will cut costs."

Many people are worried that the health-care reform proposed by President Obama and congressional Democrats will fail to bend the "cost curve." A number of commentators are urging no votes because of this, and Republicans have asked the president to start health reform over, focusing squarely on the issue of cost reduction.

These calls overlook the actual legislation. Over the past year of debate, 10 broad ideas have been offered for bending the health-care cost curve. The Democrats' proposed legislation incorporates virtually every one of them.

Of the 10, the Democratic plan fully embraces six of the main ideas, partially incorporates three, and ignores one. That one? The public option, which was scuttled due to conservative opposition.

Cutler concluded, "What is on the table is the most significant action on medical spending ever proposed in the United States. Should we really walk away from that?"

He concedes that that no one can say with confidence "precisely" which ideas will be effective. That's certainly true. But what Democratic leaders have done is shape a proposal that includes the best ideas -- some of which may work better than others. If implemented, we'd have a chance to evaluate what's most effective, and adjust accordingly.

This has been apparent for quite some time. Jonathan Gruber, a leading health economist at MIT who is consulted by politicians in both parties, explained in November, "[I]t's really hard to figure out how to bend the cost curve, but I can't think of a thing to try that they didn't try. They really make the best effort anyone has ever made. Everything is in here....I can't think of anything I'd do that they are not doing in the bill. You couldn't have done better than they are doing."

Around that time, Ezra noted, "If this piece of the bill was passed on its own, it would be the most important cost control bill ever considered by the United States Congress." Kevin added that the reform package is the most "ambitious" attempt to "rein in both Medicare costs, and healthcare costs generally, than anything ever done. Nothing else even comes close." He added that the Senate bill may be the "best prospects for healthcare cost control we've ever seen."

I realize that some of the opponents of reform are just looking for an excuse, and citing cost concerns is just a rationalization. But for those who are serious about getting health costs under control, passing health care reform should be a no-brainer.

Steve Benen 11:20 AM Permalink | Trackbacks | Comments (13)

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it is a tragedy within a tragedy that obama and them keep re-arming the Repugnants' best weapons with the "cost cost cost" "deficit deficit deficit" blowjobs...

galbraith has a nice bit of clarity on the overall subject in this week's Nation.

deficits wont destroy this society...fear of deficits will bring about the disasters that will.

Posted by: neill on March 10, 2010 at 11:32 AM | PERMALINK

{sarcasm}Gosh Steve! I don't understand. If this health bill is just a "give away" to the insurance companies, how can it possibly reduce costs?{/sarcasm}

Posted by: MichMan on March 10, 2010 at 11:35 AM | PERMALINK

The obvious solution that you effete corporatist DINOs commit political suicide by ignoring is just give everyone socialized Funky Cold Medina.

Posted by: Toneloc on March 10, 2010 at 11:47 AM | PERMALINK

We need to cut costs by rationing medical care.

It is the only long term option, period.

Posted by: neil wilson on March 10, 2010 at 11:52 AM | PERMALINK

The question is what costs are being contained. Because there is the cost of insurance (only tangentially related to actual healthcare) and the cost of actually getting healthcare (which is ridiculously expensive and rising constantly). The current proposals do make some effort to reduce the cost of health insurance but it does little to reduce the cost of healthcare itself.

The single best proposal to start controlling cost is to allow full scale comparative research between different treatment options and especially different drugs. The US in particular tends to equate newest and most high tech (ie most expensive) with 'best'. But there is almost no research to support many of these claims and some research which shows the opposite.

Unfortunately provisions which would fund such research were stripped from the bill. Other efforts to contain the actualy cost of getting healthcare were also stripped from the bill to get the AMA on board.

So yes, there are provisions to try and control insurance costs, but few provisions (and most of them weak) to control actual healthcare costs.

Posted by: thorin-1 on March 10, 2010 at 12:01 PM | PERMALINK

Obama's former health care advisor seems to have left a few items off his list:

1. Single payer.
2. Drug re-importation or price negotiation.
3. Public financing of drug research to eliminate monopoly patents.
4. A central negotiator for setting health care provider prices.
5. Restricting insurance providers to zero profit (as is done in some other countries).

If you want to eliminate several tested means for reducing costs from the debate entirely, you can make a weak bill look much more effective than it could (should) be.

Posted by: cnmne on March 10, 2010 at 12:04 PM | PERMALINK

Sorry can't read the article, but even in Ezra's piece I only see dealing with Medicare costs.

And otherwise I see the emphasis on insurance rates and little about health care COSTS.

Why are health care costs sky rocketing and what can be done about it?

Posted by: agave on March 10, 2010 at 12:06 PM | PERMALINK

Want to reduce the total health-care spend in this country? Get rid of ALL private and public health insurance of any type and let each individual pay for his/her own care. That is guaranteed to reduce the total health care spend.
Someone should make it clear to the public that this is the ultimate Republican goal.

Posted by: WaryTae on March 10, 2010 at 12:11 PM | PERMALINK

Oh, I forgot the other part. Republicans also want free health care for all loyal Republicans.

Posted by: WaryTale on March 10, 2010 at 12:13 PM | PERMALINK

"Arguably the most frequently cited concern raised by opponents of health care reform is that the Democratic proposal doesn't do anything to cut costs."


"These critics rarely have much to offer in the way of substantive alternatives..."

Your amnesia appears to be spreading. Yesterday you couldn't seem to remember the concept of passing narrow popular bills. Today the entire concept of single payer or public option has completely eluded you.

"Jonathan Gruber, a leading health economist at MIT who is consulted by politicians in both parties, explained in November, "[I]t's really hard to figure out how to bend the cost curve, but I can't think of a thing to try that they didn't try. They really make the best effort anyone has ever made. Everything is in here....I can't think of anything I'd do that they are not doing in the bill. You couldn't have done better than they are doing.""

That man is a fucking idiot of the first order. He really can't think of anything they didn't try? He's never heard of drug reimportation, gettng rid of the antitrust exemption, a public option, expanding medicare for all...There's about a hundred things that never made it to the bill. And just about all of them are better ideas than what actually did make it in.

Posted by: Tlaloc on March 10, 2010 at 1:01 PM | PERMALINK

Obama brought this problem on himself.

For Democrats the key issues were always focused on Access and Affordability. Many of us believe the universal coverage is close to a basic human right, that it should be a starting point, if the tradeoff is only maintaining 9 carrier task groups instead of 11 (when realistically aircraft carriers are vast overkill to start with) then maybe we don't build the two Gerald Ford class carriers scheduled.

Instead we got trapped in a model that not only held that we had to pay for 50 million uninsured within the same dollar pool we are already spending but that we should actually at the same time shrink the pool. This is to muddy the issue.

On Access the natural allies are Medical Care Providers and Insurance Companies.
On Cost the natural enemies are Medical Care Providers and Insurance Companies.
Solving both equations at the same time would have required some magical political arithmetic.

The solution was apparent from the start. Obama and Reid should have agreed that the foundation of the Bill would be the Kennedy-Dodd HELP Bill and to tell Baucus that his job, and his only job was to find a way to pay for the coverage and to make whatever changes would be needed to Medicare to help make that happen. Instead they not only allowed Baucus to run all over the HELP language from Day One, effectively spitting in Kennedy's face, they allowed him to start from totally artificial cost limits.

This could have been pitched differently. Has anyone made the case that one way to cut Medicare costs long term is to deliver healthier workers to the system in the first place? What is the multiplier for universal heart and cancer screenings for workers between 35 and 55 on ultimate health cost outcomes for Medicare? This isn't the kind of thing a CBO score picks up. How much savings would there be long-term to the Social Security Disability Insurance Trust Fund (which is bleeding principal already) if we had better preventive services among non-elderly workers? How many people are forced out of the workforce and made to beg for eligibility under SS DI simply because they can't get treatment for their medical condition? And there are people who in fact too disabled to continue their previous work, and legitimately eligible for DI, but could function in other productivity sectors on a part time basis but run up against DI income limits. If we had universal coverage they might well have decided they could get by better by staying in the workforce, after all even a part time wage and health care probably nets out better than a DI check plus medicare.

Where were the studies that measured how much productivity would be released with each extra percentage point of health insurance coverage? Instead we just accepted a tradeoff of access for short term budget dollar savings, "oh well 94% is not as good as 97% but you take what you can" while ignoring that that is an extra 3 million potentially productive workers whose productivity is limited by not having access to health care.

Which is why I was dismayed when one of Obama's three initial econ hires was Cutler (along with Social Security privatizer Jeff Liebman and U Chi economist Goolsbee), any hopes of actually selling the progressive agenda on its own merits kind of flying out the window.

But even at that, and given low expectations, I was totally surprised that when push came to shove Obama would allow both Dingell and Kennedy to be cut off at the knees in the way they were. Hell of a tribute Barack! Heckuva job getting everyone to substitute green-visors for a vision of universal health care.

Posted by: Bruce Webb on March 10, 2010 at 1:37 PM | PERMALINK

Since I wouldn't give Murdoch one red cent of my money, I can't read the article, but, Steve. Not one cost containment method is listed in your post.

I'll go for the bill as a start, for we indeed need to start somewhere, but someone needs to explain any cost containment other than pulling back Bush's gift to the insurers called Medicare Advantage. And to that I say, woo hoo! Big whoop.

So...what am I missing?

Posted by: MsJoanne on March 10, 2010 at 2:19 PM | PERMALINK

The best way to control costs is to encourage a healthcare model in which most primary care is delivered through membership-based, flat-fee clinics (perhaps networked to include small hospitals), bypassing the insurance industry entirely.

Good examples are Dr. Muney's experiment in New York, and Qliance in Seattle. Muney says that avoiding the insurance system eliminates the 25% of hospital costs that result from insurance paperwork. Another advantage of a flat-fee system is that it would remove the incentive to pad bills with unnecessary CT scans, mutual logrolling between specialists, etc.

Basically, we need to tear down the old institutional culture of hospitals and start over.

Another contributing factor is the GAAP management accounting rules, which treat labor as the only direct/variable cost, and treat administrative costs and capital expenditures as fixed costs that just go to general overhead. The result is that while the MBAs are trying to shave the last minute off of labor from patient care staff, they're pouring money down ratholes on the kinds of irrational white elephant capital projects that were once prevalent in the Soviet economy, and supporting a burden of administrative overhead like that of the Ministry of Central Services in "Brazil."

It's a classic cost-plus culture, in which overhead doesn't matter because it's just passed on to the patient as a markup. It's the exact same culture that gave us the $600 toilet seat at Pentagon contractors, only in this case it's a $300 bag of saline solution and a $20 aspirin.

Posted by: Kevin Carson on March 11, 2010 at 2:23 AM | PERMALINK
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