Len Nichols: Why Coverage Expansion Comes First
Some budget hawks argue that we must control health care costs before enacting coverage expansion. We can’t afford the latter without the former, they say. That sounds so sensible it should make anyone wonder why it isn’t. In a 24 February 2010 article in the New England Journal of Medicine, Len Nichols provides the answer (h/t Ezra Klein).
[T]he simple answer to the hawks … is that it is not feasible to tackle costs without tackling coverage. Our delivery system could not withstand the stress. Two thirds of hospitals lose money on Medicare now. Virtually all lose money because of Medicaid underpayment. To impose serious delivery reform and incentive realignment while leaving hospitals on the hook for the mounting billions of dollars in uncompensated care would bankrupt many and strain most to the breaking point. With expanded coverage, we’ll get absolutely essential hospital cooperation. Without expanded coverage, hospitals will have to protect themselves from change, and their local communities will want them to.
… Within a decade, we will face draconian health care price controls, massive benefit cuts in Medicare, Medicaid, and the private sector, or both. This credible threat of cost slashing without coverage expansion is one reason the powerful provider lobbies, such as the American Hospital Association, the American Medical Association, and PhRMA (Pharmaceutical Research and Manufacturers of America), have embraced comprehensive reform.
Backing up to the first sentence in that quote, in what sense is it “not feasible” to implement more severe cost controls without first expanding coverage? The answer includes some dire predictions about hospital bankruptcies. But the real answer, as Nichols makes plain at the end of the quote, is political. The powerful interest groups Nichols lists would resist cost control without coverage expansion. Like it or not, those interest groups must be on board for anything substantial in health policy to occur. That’s just reality.
Hence, proposed health reform is heavy on coverage expansion and light on cost control in the near term. If there is to be any real cost control it will come later, and gradually. To think it can be done first is fantasy.
Does Bart Stupak Want A Bill?
Congressman Bart Stupak (D-Michigan) leads a group of about a dozen Democratic representatives who demanded that restrictions on public funding for abortion services be included in the House health reform bill last fall. He is now insisting that he and his group will not vote for the Senate bill, currently before the House, unless some way is found to tighten the Senate bill’s restrictions on abortion. However, because the Senate no longer has the 60 votes needed to overcome Republican filibusters, the only way for the House to amend the bill is through a parallel “sidecar” budget bill that would be passed in the Senate via budget reconciliation rules. Abortion is not a budget issue so Stupak’s concerns probably cannot be addressed in the sidecar bill.
Is Stupak trying to kill health reform? He says he isn’t and he is continuing to negotiate with House leaders. Stupak’s statements closely parallel those coming from the US Conference of Catholic Bishops, which strongly supports the larger reform but insists on tighter abortion restrictions. The question for Stupak and the bishops is: Are you willing to risk losing your preferred abortion language to ensure passage of health reform? If so, the abortion issue could be split off into a third bill that would get a vote on its own. Such a deal would probably guarantee success for health reform. So far, Stupak and the bishops have not embraced this approach. Instead, they are demanding that their language be included in the sidecar bill. The bishops would then work to get 60 votes in the Senate to overrule the Parliamentarian and allow the abortion provision to pass via reconciliation. I don’t see how pro-choice Democrats and anti-reform Republicans could be convinced to vote with the bishops, so this strategy doesn’t appear to lead anywhere.
With victory on abortion unattainable for the bishops, the question remains: Do they want a bill? If so, face-saving votes can be arranged that demonstrate their commitment without killing the bill. If not, they will kill the bill. My personal guess is that they want a bill, but we probably won’t know for sure for about two weeks.
Creeping Fraud
Uwe Reinhardt may be right to doubt, based on his own experience as a board member of both for-profit and non-profit hospitals, “that any hospital board or any hospital executive in the country would even dream of knowingly defrauding the United States government.” But that’s not how Medicare and Medicaid billing fraud and overpayment generally happens. Rather, as the the massive Columbia/HCA fraud of the 1990s illustrates, the role of hospital boards and executives in cultivating fraud is more likely to be the application of relentless and unrealistic pressure to increase profits, combined with lax oversight and indifference to how results are achieved. Under these conditions, fraud (and its systematic rationalization) is something that grows organically within a company.
Nor are such dynamics a thing of the past. Take, for example, the practice of “upcoding” — a form of diagnosis inflation in which procedures and patients are systematically assigned higher standardized Medicare reimbursement codes than they really warrant. To give an example that figured prominently in the HCA fraud, a hospital can double its reimbursement for a simple pneumonia patient by classifying the patient’s condition as a complicated respiratory infection. Silverman and Skinner (2004) identified a starkly greater incidence of such upcoding among for-profit hospitals compared to non-profits during the heyday of upcoding in the 1990s. And the Center for Budget and Policy Priorities cites Centers for Medicare and Medicaid Services findings that upcoding persisted in the last decade:
In reviewing data from 2000-2003, CMS found an increase in patients being categorized as needing higher levels of care, but did not find a corresponding change in patients’ underlying health status or in the average amount of home health care resources used to treat them. CMS concluded that some of the changes in how patients were categorized likely reflected upcoding. Further analyses revealed that since 2000, the observed case mix — an indicator of the characteristics of the beneficiaries being served by home health agencies, such as age, gender, and health status — increased by roughly 13 percent. However, more than 90 percent of this increase was a result of changes in documentation and coding practices rather than changes in patients’ medical needs.
In light of these findings, its easy to see how measures designed to maximize legitimate reimbursements can drift into systematic overcharging without any conscious decision by management or directors to cross the line. The internal controls that Reinhardt decries as burdensome and unnecessary cost centers are in fact a necessary immune system in economic organisms that are metabolically inclined toward fraud. While these costs (and those of Senator Coburn’s absurd secret inspector corps that the President has sadly embraced) can’t reasonably be avoided in the existing fee-for-service Medicare regime, perhaps further progress toward outcome-based reimbursement in the direction set by the Senate health care bill can move us in that direction.
Small Businesses and the Excise Tax
Kaiser Health News and National Public Radio have a jointly-produced story today on small businesses and the excise (Cadillac) tax. It’s reported by Jenny Gold who writes
Higher-cost plans, dubbed “Cadillac” policies by some, often have generous benefits with low deductibles and co-payments, but this is not always the case. Premiums may also be high because customers are charged more because of their age, gender, geographic area or heath status.
Small businesses are at a particular disadvantage. A study published in 2006 in the journal Health Affairs found that the smallest employers pay an average of 18 percent more than large businesses for the same health plan, because they don’t benefit from pooled risk the way a large business does, and administrative costs tend to be higher.
I think there’s more to the story than what was included in the piece. First of all, small businesses will have access to the exchanges. So they won’t be subject to the high loading fees they experience today. Second of all, the risk pool of exchange-based plans will be the entire population in those plans, not the specific population of an employer. Finally, it is my understanding that the excise tax will be modified to accommodate variations in age of risk groups and geographic variation in health care costs.
Putting those reform features together, it doesn’t seem that a small employer has much to be concerned about. In fact, on the whole, I would expect small employers to be better off under health reform. I think the excise tax is only something to fear if one views it in isolation, without consideration of the other reforms that benefit small businesses. But nobody is proposing to pass just the excise tax. So, analysis of it apart from the full package makes little sense and leads to incorrect conclusions.
The Sound of One Man Compromising
More on unilateral bipartisanship from Ezra Klein:
The White House just released a letter (pdf) pledging to move forward with health-care reform and include some of the Republican proposals offered at the Blair House Summit.
… [I]f we were dealing with an actual negotiation in which both sides agreed that we should have a bill ensuring near-universal coverage at no cost to the deficit, it might be enough. But that’s not the negotiation we’re in. Instead, as Lamar Alexander said, Republicans have “come to the conclusion that we don’t do comprehensive well.” And the president is compromising on that point.
And for this the president can count on exactly how many more Republican votes than he’d get without compromise?
For the record, Obama is being characteristically true to himself (as we’ve come to learn). His brand of post-partisan, community organizing jujitsu may deliver health reform. Any other rewards it promises likely won’t be delivered in this political life. It takes a special discipline to compromise with yourself. Isn’t it hard to know when to stop?
How The Health Summit Helps Pass Reform
I’ve been reading commentary about the President’s health summit last night and this morning and there seems to be confusion about what this was meant to achieve. Most everyone knows that bipartisanship was not going to suddenly break out yesterday, so what was the point? It seems clear to me that the summit was designed to help corral Democratic votes, first in the House for the Senate bill and then in the Senate for amendments through reconciliation.
Did it succeed? The biggest problem was that House Democrats from swing districts were too frightened by Republican opposition to vote. The summit did two things for them. First it redefined the debate from Democratic leadership against moderate Democrats to all Democrats against all Republicans. This appeals to moderate Democratic partisanship and helps motivate the Democratic base. Second it role played the Democratic-Republican issue debate at length, so individual members could see how it’s done. The President didn’t have to decisively win the debate, he just had to demonstrate that the issue is not a loser for Democrats. Given that no Republican votes are needed, that’s probably going to be enough to pass the bill.
Summetric Equilibrium
What do you call a negotiation game when neither side has any intention to negotiate?
The Health Reform Vampire
The seemingly endless debate among Democrats about whether or not to include a public plan in health care reform finally ended in December with the exclusion of a public plan from the Senate’s bill. Now, unfortunately, it seems that the public plan may be coming back from the dead. Twenty-two senators have signed a letter urging Majority Leader Reid to include a public plan in the Democrats’ health reform legislation, expected to pass the Senate via reconciliation if 50 votes can be found to support it.
Ezra Klein discusses the political advantages and disadvantages of adding a public plan to the bill. Very briefly, it could make the bill more popular, especially with the Democratic base, but it could confuse and slow down a process that has already taken way too long. Jonathan Cohn provides more detailed reporting here and draws essentially the same conclusion with more emphasis on the worry side. These political reads seem mostly right, but they both express ambivalence because they say a public plan would improve the bill on policy grounds while reducing the chances of success in the end. However, while the political benefits may be real, the policy value of a public plan is likely to be an illusion.
As I wrote in a column last May with Bryan Dowd and Roger Feldman, the real-world implementation of a public plan is unlikely to deliver the lower costs and improved efficiency imagined by its proponents. Drawing on years of experience with Medicare policy, we observed that public plans (like Medicare) are too subject to political meddling from Congress to be effective purchasers of services from well organized groups like doctors, hospitals, and equipment manufacturers. These providers, enthusiastically enabled by members of Congress, routinely overturn or block efforts by Medicare administrators to use sensible acquisition procedures like competitive bidding. There is no reason to think a new public plan would be any more successful against these forces than the old one has been. This is the most important reason why the Congressional Budget Office estimated almost no budget impact for the public plan included in the House bill.
As we begin the make or break push to pass health reform, resistance will be strong and the degree of difficulty is high. The public plan divides the Democratic caucus and alienates important interest groups including hospitals and physicians. It sucks the life out of the reform effort without holding any realistic prospect of worthwhile policy change. It may look attractive to some at first glance, but relationships with the undead never work out well in the end.
A Pass the Damn Bill Fund?
Something I’ve been pondering: if a voter becomes disenchanted with Democrats for failing to pass health reform and is disappointed with Republicans for opposing it what should he do with whatever energy and money he’d devote to issues or political campaigns?
Yesterday, a reader read my mind and e-mailed an idea:
If the Democrats don’t get it together to pass the bill I’m not going to feel like supporting them, but how can I demonstrate that to them before the fact? Why doesn’t someone organize a “Pass The Damn Bill Fund” that people could contribute to instead of contributing to their usual candidates and party committees? If they pass the bill, the fund disburses it’s balance to the party committees. If they don’t pass the bill, the money goes to charity care.
That sounds sensible to me. If political contributions are free speech then passing the hat for passing the bill is the American way.
Lessons From Massachusetts: Campaigning Beats Governing Into Submission, Again
This post is jointly authored by Steve Pizer and Austin Frakt. It originally appeared on 28 January 2009 as a Kaiser Health News column.
Politicians, as a group, are not well-known for their courage or responsibility. Instead, they like to give passionate speeches about broad, simple principles that are overwhelmingly popular in their districts. In other words, they like to campaign. This is to be expected, given that winning elections is both a necessary and sufficient condition for holding the job. But the desire to be popular can conflict with the need to address serious, long-run problems of the country.
We knew this to be true, yet we were shocked and dismayed by the epic collapse of health reform last week. With the loss of a single Senate seat as an excuse, the most liberal Democrats chose en masse to give up on critical reforms that were on the brink of passage. Their stated positions sounded principled, but made no policy sense. Meanwhile, President Barack Obama backed away from health care and changed the subject to banking. The desire to implement a real policy response to a major problem simply evaporated.
Why were we surprised? Perhaps we were drawn in by the rare display of responsibility on the part of Democratic leaders and Obama in 2009. Their attempt at comprehensive health care reform revealed knowledge and commitment to the issue. Our mistake was to believe that rank-and-file members of Congress shared their leaders’ interest in governing. Last week the truth was exposed. Was our earlier optimism foolish? Is health care reform simply too difficult for elected leaders to tackle?
Looking at other countries, we don’t think American politicians are less courageous, responsible, or knowledgeable about policy than politicians in other countries. We don’t believe that health care policy is fundamentally more complex or that interest groups are more entrenched in the U.S. than elsewhere. And yet every other advanced, industrialized nation has done a better job controlling health care costs while delivering more equitable access to care. Why can they do it and we can’t?
One reason could be that American politicians almost never have any power–they aren’t used to governing and they don’t want the responsibility. Tackling long-term problems like health care reform means extracting concessions from interest groups and that makes reelection more difficult.
Most other industrialized nations have parliamentary systems where the party that wins the majority in parliament forms the government and has the votes to govern. Responsibility is inescapable and it lasts until the government falls and a new election is called. Governing is routine, and elections are intermittent.
In the United States, the reverse is true. On the rare occasions when one party controls both branches of Congress and the presidency, major policy changes are possible, but only if the other party doesn’t dig in and use the filibuster. Obstruction is easy and profitable for the opposition and elections are frequent, reducing the likelihood that party control will last long enough to legislate. The rules of American political institutions were designed to keep government weak, and they work very well.
To be clear, we don’t think this is all bad. As economists, we generally prefer markets to bureaucracies. We believe that America’s weak government contributes to its dynamic and flexible economy. But the problems of our health care system will not simply take care of themselves.
Cost growth is steadily bankrupting the public treasury, and more than 45 million Americans lack insurance, and face poor quality care and financial ruin if they get sick. If policymakers fail to make constructive changes, the ranks of the uninsured will grow and the quality of public coverage through Medicare and Medicaid will be forced downward, threatening the financial viability of our hospitals. There will be a lot of angry, suffering people who can’t see a doctor when they need one.
So what can be done? Responsible people in government have to do the best they can. Even with all the structural impediments to governing created by our separation of powers and frequent elections, the alternative is just too frightening. Despite last week’s hysteria, health care reform might not yet be completely dead. Maybe Obama will return to the issue and start leading again. Maybe House Speaker Nancy Pelosi will succeed in getting the hyperventilating members of her caucus to start breathing again and to think about the long-run consequences of their failure to vote.
But if they don’t, we won’t be surprised. Our system of government is designed to produce an abundance of great speeches about sweeping reforms and a pittance of actual reform delivered. Except for frustratingly brief moments, we really have no government, just a collection of perpetual campaigners, focused on the next election and accepting no responsibility for the country’s long-term problems.
In 2009, it was comforting to believe that the leaders of the majority party would use their power to govern responsibly. They tried and failed. The campaigners have taken over, again.
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