An Exclusive Interview With Christina Romer
Yesterday, I wrote a couple of posts on the report issued by the White House's Council of Economic Advisers laying out "The Economic Case for Health Reform." It was, I thought, an important document, as it was the fullest description of the administration's central argument for their largest policy initiative. Last night, I spoke with Christina Romer, the chairwoman of the CEA, about the genesis of the report, what she learned and even what she's reading. A lightly edited transcript follows. -- Ezra.
How'd this report come about? Who worked on it?
It's actually a nice story. Nancy-Ann DeParle [head of the White House Office on Health Reform] asked if the CEA could do this. And one of the things that struck me was that she said you know, I actually want to know if it's true. If we're going to do this big hard thing, i want to know it's good for the economy. So that was definitely the spirit under which I took on the exercise and did the analysis. And it actually turned out it was good for the economy! We were actually trying to figure out truth, which I think is always a good thing.
How did you settle on the 1.5 percentage points baseline?
You have to be careful because in the report we actually consider three possibilities: 1.5, 1, and 0.5.
And 1.5 is the optimistic one.
Right, even though the industry group said we think we can slow it by 1.5 a year, that's a challenging thing. I was actually at a Brookings event and [health economist] David Cutler said I think you should have done 2. So there's at least someone on the other side.
That gets to my question: Folks seem to have settled on 1.5. The industry groups, you. But how have people settled around that number?
My read in talking to health economists is that 1.5 would be a tremendous accomplishment. Though it may sound like a small number, it's very hard. What moved me today was David Cutler saying that any one thing doesn't look very big because oftentimes you get the synergies when you put things together. They click together to get you something big. And that's why he might be more optimistic.
The analogy he gave was computers. We put them in, saw no productivity increase, then suddenly people figured out how to use them. Oftentimes 10, 15 years after the big change things come together and you see a large productivity increase. So that may be what's in the back of his mind.
Let me ask you the simple question that I think, in some ways, the report is responding to. If health-care reform is going to save us money, why are we talking about raising more than a trillion to pay for it?
There are two things. One is that the kind of things that our report looks at are the changes that slow the rate of growth over the long term. That's the 1.5 percentage points a year.
The trouble is there's a lot of uncertainty about these things. Experts will tell you it's good, but the CBO will say we're uncomfortable scoring it.
What we have done is to say that anything we want to do right now, like the expansion of coverage, we're going to pay for with things you can identify and score, so we know we're not damaging the budget. But we'll also make sure that in that process, we do all these other things to cut costs in the long term.
One of the things our report emphasizes is that the long-run problem is enormous. Even if we didn't expand coverage or do anything else right now, we are on a trajectory for disaster. Look at those projections for 30, 40 years out: A third of GDP is going to health care, the federal budget is in ruin.
Also, we do think the expansion of coverage has some costs now, but we do think it may be part of that slowing of cost growth in the long-term. If you get the wellness programs, more rational kinds of care -- getting people to go to primary physicians rather than emergency rooms -- all of that may help you slow costs. Maybe not immediately. But that's the basic logic.
Let me ask you to expand on that for a minute because you hear that argument occasionally, that coverage is related to cost. The two aren't on necessarily different tracks. That we'd be able to build a more efficient and rational health-care system because we have a universal system. Did you find much in the literature to support that, and if so, what did you find most convincing?
It's not really something we looked at in the report. The report asks "if we manage to attain cost savings, what will it do to the economy?" We didn't look so much at the mechanisms that would bring those savings about. It was more about what health reform can do. I didn't get too much into the literature of how coverage could control costs. That's another project for the CEA to take on!
I'll twist that question a bit then. Some people look at this and say the opposite thing: You're right. Health care costs are a massive problem. We should solve them. And then we can do coverage. We shouldn't pump more money into a system that's not working. If this is an economic problem, let's solve that problem, and then we can do coverage. How do you respond to that?
It makes sense in my mind to do these things at once. As the political process works out, at a time when you're designing a program to expand coverage to the people who don't have it, is a very natural time to be thinking about other reforms.
One of the things that struck me in the report is that the health-care discussion tends to be thought of in terms of insurance coverage. But this report located more of the key reforms specifically around providers and provider incentives. Want to say a word on that?
There are, as we document in the report, real market failures in the provision of insurance. We've been dealing with this for a long time. The problem of adverse selection is one of the main reasons we have Medicare. We were finding back in the 1950s that older people were having a really hard time getting insurance at an actuarially fair rate. And now, I have to confess, I've lost my train of thought. What was the question? [Laughs.]
Uh, now I have to go back and find it. Insurance versus providers!
Oh! One of the good developments is that people's minds have gotten focused on the slowing of the cost curve again. To say that we shouldn't forget that one of the main reasons we're doing this is so we don't go broke 20 years from now.
I think once you start thinking that way, you go beyond thinking how do we design the insurance exchange. How do we pay for quality and not for quantity? Every health economist will say payment systems are crucial. Right now we give providers incentives to do more of stuff. How do we give them incentives to do better stuff? Even on the idea of technological change, it's fantastic that we come up with new technology for treating things, but what we're not doing is finding new technologies that might be cheaper. A more sensible payment system might put effort into doing that, too. But we don't have a system that encourages that now.
On the question of technological growth, you have a wonderful graph in the report on Medicare and Medicaid cost growth if it were confined to demographics. And it's part of this whole idea that entitlement reform is health reform. I want to look at the counter-factual here. Is it possible to solve the entitlement problem without making changes to any part of the health care system other than Medicare and Medicaid?
No, I don't think it is realistic. In our health care system, the public and the private have gotten mixed together. One of the things that's encouraging, though, is that it can go the other way. If we think up smart ideas with Medicare it may go in the other direction.
You talked a lot in the report about the inefficiencies in the system. One of the sections -- the second, if I remember -- talks about price sensitivity and the way consumers don't see the true cost of health care, and thus don't have the full incentive to press down on the system. You also have a great graph on the fifth page showing the bite that health care takes out of compensation, but most workers don't know about that connection.
For all that you don't mention the employer tax exclusion anywhere, which most economists I've spoken with over the years to seem to think is the key driver behind consumer insulation. Any thoughts on that?
I have to tell you it's there in a crucial footnote! [Laughs] You can't say it's not in the report!
It is something that a lot of health-care economists say provides an incentive to do expensive things. We heard Senator Baucus say today he wants it on the table. It's not something the president has supported, and certainly the way it was done in the campaign, taking it off for everybody, that's a bad idea. But at the event I was at today, David Cutler and Mark McClellan made the point that there are things in-between. Cap it for a Cadillac plan, for instance.
Do you think there's openness to these midpoint compromises? Capping it for plans, or at a certain level of income?
I'm trying not to prejudge the legislative process.
In looking over the literature here, what possibilities for cost savings have really jumped out at you the most? What's been unexpected?
I come at this from macroeconomics. But as David Cutler pointed out today, no matter where you start out, if you come to Washington and do economic policy, you become a health economist, because that's the key issue.
One of the things that struck me was sitting down with the CBO budget options -- the 108 budget options to lower health care costs -- what really struck me was the incredible range of ideas that are out there. A pleasant surprise was how much good thinking there's been on this.
Another thing was that I was so aware of the international comparisons, but I didn't know about the tremendous variations across states or within a state. It made me believe this was possible because there really is what appears to be a lot of waste. There are wonderful things about the system, some things aren't making us healthier, just costing us money.
And to end, an easy question: What are you reading on this? Any books on the bedside table?
God, I've been reading so many. Your readers would think I'm a pathetic person if they heard that CBO's budget options were what I was reading before going to sleep.
No, my readers wouldn't, believe me.
When I first got here, I read Tom Daschle's book. It was actually the first book I bought after I got appointed to this position. That was part of my introduction, and I felt I needed to figure out that view. But right now, I'm definitely digging into the hard-core literature.
(Photo credit: Whitehouse.gov.)
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