RSS Feed MenuIn Tuesday’s Wall Street Journal, Harvard economist David Cutler argues for the cost-cutting merits of Obamacare. Cutler emphasizes 10 strategies for cutting costs, most of which he expects to appear in Obama’s forthcoming compromise legislation. Some of them, like tort reform, are smart but may not combat skyrocketing costs substantially. I’m skeptical of others.
Cutler thinks that by taxing the most generous, so-called “Cadillac” insurance plans, the bill provides a disincentive to excessive care. Theoretically, this works, but the Democrats’ actual proposal may not. First, any bill will likely delay the onset of the tax, and considering the willpower of Congress, that delay may become indefinite. Second, though the language of any compromise is unknown, it’s likely that it won’t affect the plans of union members.
Beyond the moral problem of taxing only those citizens who aren’t part of a Democratic special interest, exemptions defeat the tax’s purpose. By penalizing overgenerous health insurance, the bill encourages more basic coverage, thus discouraging unnecessary procedures. By this logic, each individual Cadillac plan that doesn’t face the tax is another person with little reason to conserve, and there are a lot of unionized individuals with Cadillac insurance. More importantly, millions of aging boomers will jettison their Cadillac plans as they age into Medicare, so the tax will becomes less useful over time. That’s assuming, of course, that Congress will have the discipline to enforce the tax at all.
Cutler also praises the bill’s emphasis on prevention and preventative care. Others have pointed out that preventative care will have little effect on costs. Nevertheless, give credit where it’s due: a successful public health initiative might lower healthcare spending over the long term. Then again, it might not. While the chronically ill use more medical resources during their lifetime, their lifespan is considerably shorter than those of the healthy. Some studies suggest that in the end, it all balances out. Prevention is undoubtedly a noble goal, but it’s not the budgetary panacea that many suppose.
The compromise will also include some version of an insurance exchange. If properly administered, this would allow individuals to shop for cheaper insurance plans in other states. This begs the question: why are plans in some states cheaper? The answer: regulation. Some states require health insurers to offer more coverage; this drives up costs. So the exchange is a good idea, but Democratic proposals force participating private plans to meet criteria set by a federal regulator. So unless we assume lax regulation (yeah, right!), the same mechanism that drives cost increases in some states will go nationwide. That’s not an open market; it’s a formula for an even more regulated healthcare industry.
Cutler considers others of the “10 broad ideas” that have been proposed, and ultimately concludes that the bill will save approximately $600 billion over the next decade. As he admits, that number is far higher than anything projected by the Congressional Budget Office, but his main problem isn’t clerical.
Like others, he fixates on the already proposed. Perhaps invested political capital prevents Democrats and their supporters from considering anything else, but shouldn’t we at least discuss scrapping the employer-based model of insurance that many believe is the root cause of inflated medical bills? And while bringing modern technology to healthcare administration will help, I highly doubt that PDFing medical records will substantially cut the $400 billion we unnecessarily spend on administrative overhead. There are just too many problems on which this bill is silent, and many other problems for which its solutions don’t work.
So let’s scrap this whole thing and start over. If nothing else, a fresh beginning might renew the debate and spur some new ideas. Many criticize the incremental, patchwork approach suggested by Congressional Republicans, but steady, incremental reform is better than bad reform. And a package of small entitlement cuts, deferred taxes and increased regulation is very bad reform indeed.
sinz54 // Mar 11, 2010 at 9:07 pm
Here’s a good rule of thumb: You can safely assume that any future tax increases (such as the tax on “Cadillac” plans set to go into effect in 2018) will never go into effect. Congress has 8 years to repeal the tax increase. In American politics, 8 years is an eon.
Preventive medicine, fully paid for by insurance, actually increases health care costs. Because no matter how much preventive medicine you pay for, in the end you are going to die of something–nobody lives forever. And the cost of giving you a hundred different screening tests to screen you for 1,000 different diseases is much higher than just waiting to see what your Achilles’ heel will turn out to be–and then treating that.
This is a classic “Tragedy of the commons” fallacy. Each individual wants to live as long and healthy a life as possible. And so he’s willing to be screened for every known disease, no matter the cost. But in the end, his average life expectancy is still 78 years; nobody lives forever. And in the meantime, the cost to society of all those screening tests, 95% of which will be negative, is enormous.
If you want preventive medicine to pay off, you must insist that patients have “skin in the game.” You want a full-body CT scan, like some neurotic yuppie? Pay 30% of the cost out of pocket–the insurer will only pay the other 70%. Then maybe they’ll think twice about whether they really, really want to go ahead with it.