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Issue #19, Winter 2011
Amend and Improve, 2016
The key to improving health-care reform lies outside Washington. A response to Jacob S. Hacker.
David Kendall
t’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.
ISSUE #19, WINTER 2011
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"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. "

Of course, that's not the only option. Another would be to add back in the public option. It would certainly be difficult, but it need not be impossible.

I don't think the possibility of such a court ruling is remote. If it comes about, better to push forward a true reform than to throw up our hands and give up health care reform for another x decades.

Dec 16, 2010, 2:25 PM
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David Kendall is senior fellow for health and fiscal policy at Third Way.
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