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Obama on the Politics of Cost Control

For all that last night's press conference brought the wonk, it had nothing on Obama's chat with Fred Hiatt. That was like wonk heaven (though wonks, of course, don't believe in heaven, as there's very little empirical evidence of an afterlife). There are a couple of moments from that transcript that I want to highlight today, and the first came when Hiatt asked Obama, "Would you consider phasing in access and increasing access as you see the curve is bending, but slowing the growth in that entitlement if the curve is not being bent?"

I guess my thinking here, Fred, is to separate out two questions. One is, are we paying for the health reform package in a deficit-neutral way -- which, by the way, would stand in stark contrast to everything that's been done over the last eight years; certainly wasn't done with the Medicare prescription drug plan. So what I've said is I will not sign a bill that is not deficit-neutral.[...]

[C]onceivably, you could have a system that pays for itself, but doesn't bend the cost curve; it's going to cost you more and more money. Or, alternatively, you could bend the cost curve, but not expand coverage. I think that it's important to do both. I think it's important for us to make sure that 46 million people who don't have health insurance get it. And I think it's important for us to bend the cost curve, separate and apart from coverage issues, just because the system we have right now is unsustainable and hugely inefficient and uncompetitive.

I guess theoretically, you could just work on bending the cost curve without providing additional coverage. I actually think that you lose some of the benefits of getting universal coverage. For one thing, all the issues of uncompensated care would still be coming up. You potentially would lose the benefits of buy-in from insurance companies and drug companies and hospitals and others who feel that, okay, at least if we have an individual mandate and everybody has bought into the system, then we have more consumers, and we are more willing then to wring out inefficiencies in providing -- inefficiencies per patient, essentially.

So I actually think that not only is it the right thing to do to go ahead and cover people, but I think it becomes easier to build a consensus around making some of the changes that are necessary to bend the cost curve.

That last bit is actually important. I think the policy case for coverage expansions being essential to cost control is speculative at best. But the political case is very strong. Coverage is the easy part. If Congress can't pass that, why does anyone think it can make the hard decisions necessary for cost control? Obama made the point more explicitly a bit later in the chat:

If we are not able to get health care reform -- and, Fred, I just want to be frank with you at this point that this is why I think that if you're a deficit hawk like you, you should actually be -- you should be hard on sort of the product, but you should be encouraging on the process, because the fact of the matter is, is that if health care reform fails, there is no way that Congress is going to take up a serious effort to control health care inflation -- there's no way that we're going to pass the kinds of changes we've already talked about in Medicare, for example, in the absence of a more comprehensive reform package. And so what we're going to have is a situation in which it's just business as usual for, I think, the next four years at minimum, and maybe the next eight -- in which case, the problem is just going to keep on getting worse and worse.

So I think it is important to be jaundiced about the possibility that health care reform in the absence of these game-changers makes things worse, and I think that's entirely fair to talk about. But I think that -- Steve Pearlstein was exactly right in his article today, which is, here's what we know: If we do nothing, this thing is a nightmare, and we will not be able to, I think, just apply pain to the electorate either through mechanisms like simply cutting Medicare benefits at a time when seniors are already feeling very stressed, when we're not also providing the people some additional security.

There is some chance that amid health-care reform, we'll be able to get things like a stronger version of MedPAC and a serious comparative effectiveness review and even, if we're lucky, a beginning to the end of the employer tax exclusion. But absent health-care reform, there's no chance we'll get any of those things, because Ted Kennedy and Henry Waxman and Nancy Pelosi don't want those things. What they want is coverage. And if the deficit hawks decide to take the "pure" stance and oppose this process they'll have missed a significant opportunity to use coverage as a bargaining chip to make real strides on cost.

To put it another way, it's entirely conceivable that health-care reform will end with a tax on the rich, an expansion of coverage for the poor, and nothing on cost. Those things are relatively popular, and a longtime goal of Democrats. It's possible to imagine Blue Dogs and conservative Republicans and Senate centrists cutting a deal so that cost controls coming along with those things. But it's impossible to imagine health-care reform ending with no expansion of coverage to the poor, but an unelected authority making hard decisions about Medicare spending and a new tax regime reducing subsidies for employer-based insurance. Politicians do not fail at popular things and decide to try unpopular things instead.

By Ezra Klein  |  July 23, 2009; 12:35 PM ET
Categories:  Health Reform  
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"But absent health-care reform, there's no chance we'll get any of those things, because Ted Kennedy and Henry Waxman and Nancy Pelosi don't want those things. What they want is coverage. And if the deficit hawks decide to take the "pure" stance and oppose this process they'll have missed a significant opportunity to use coverage as a bargaining chip to make real strides on cost."

So this is root driver of the whole point, and captures the fair criticism of Obama's approach. The whole post, and Obama's analysis, makes complete sense-- but ignores the fact that he's President of the United State and congressional majorities are in the same party.

Obama either agrees with Waxman et al.-- that coverage expansion immediately by taxing the rich (or whoever else) is so important that he's knowingly taxing them to provide inefficient care to the currently uninsured before the system is reformed on costs-- or he isn't leading his party, but following it. Hiatt's question, along with later ones on alternative uses for these proposed taxes are good ones. Obama is making an explicit choice to waste some taxpayer money (overly inefficient care for the newly covered) because he's deemed near-universal coverage as more important than fiscal prudence or alternative uses of tax payer money. He only gets the political capital to call for so many tax hikes, and he's decided to use a big one providing care for more people knowing some dollars will be wasted. That's Obama's call-- either by agreeing with Waxman et al. or not challenging them. But he's President, and if fiscal prudence were higher on his agenda, he'd make it so.

Posted by: wisewon | July 23, 2009 1:48 PM | Report abuse

You do realize that you just said that Kennedy, Pelosi, and Waxman don't want anything that would reduce healthcare costs right?

Posted by: spotatl | July 23, 2009 2:04 PM | Report abuse

This is an excellent article and is one of the reasons I have trepidation about my fandom for Obama and Democrats, at this point. I want health-care reform for all of the reasons that all the other advanced industrial powers have it: greater coverage and cost control. But it sounds like, with OUR left wing, the cost control i.e. the politically unpopular aspect, is going to be a pipe dream.

So, maybe it will be a 'generational game-changer' with respect to the electorate favoring Dems, but at a massive and nightmarish cost to our economic competitiveness.

Posted by: satrap | July 23, 2009 2:35 PM | Report abuse

"I think the policy case for coverage expansions being essential to cost control is speculative at best."

I agree but I think they should do some research on this. Connecting 47 million people to primary care who previously probably only got their care in the ER's (care that was then written off by the hospitals or billed to the Disproportionate Share Hospital program) will save the system money. The individual mandate will bring in a slew of healtier people to actuarial formulas which will - I hope - drive prices down. ER prices versus primary care prices are a vastly easier, less messy comparison than the previous swing at preventive prices versus chronic care prices.

Just because it's speculative doesn't mean someone shouldn't be crunching these numbers and throwing out some hypotheticals. The Blue Dogs need a bone and if there's some abstract model out there that gives it to them, that's win-win baby.

Posted by: ThomasEN | July 23, 2009 2:46 PM | Report abuse

You've exactly explained why I'm starting to back towards the door on supporting Obama in his healthcare refore: the large and growing fear that the Dems are going to pass something that let's them take credit for expanding coverage while not dealing with healthcare inflation.

I'm not gone yet, but the CBO scoring scared me. Obama's focus on deficit neutrality (rather than bending the curve) isn't helping either.

Posted by: blsdaniel | July 23, 2009 3:09 PM | Report abuse

I don't think that dems see how their complete and utter lack of interest in cost control on this is hurting them. You flatly admit that Waxman, Pelosi, and Kennedy don't want cost controls. Why on earth would we expect them not to weaken them in any way they can once they get their expanded coverage?

Posted by: spotatl | July 23, 2009 3:52 PM | Report abuse

What I took from it is that passing a huge expansion of coverage is politically popular. Passing cost controls is not because it means making differnet people angry, whether it's telling doctors, hospitals, and insurance companies to make slightly less profits, or patients that they don't need to have literally every test possible when the go to see the doctor.

I think what Ezra (and maybe Obama) is saying is that no political party is going to want to do politically unpopular things, even if it's the responsible thing to do, if the other party is going to refuse to participate in the process and then tar the majority party in the next election for doing the politically unpopular but responsible thing. Republicans right now are ginned up about the lack of cost controlling measures in the bill but are already criticizing Democrats for taking away your great grandmother's pacemaker procedure.

It's easy for a majority party to summon the political will to do the politically popular thing. It's a lot harder to convince them to do the politically unpopular thing without at least some bipartisan cover.

Posted by: MosBen | July 23, 2009 3:58 PM | Report abuse

MosBen- what Democrats want is to greatly expand coverage now with the promise that someday in the future we can talk about cost controls. This is absolutely ridiculous. Medicare covers 15% of the population and politicians are so afraid of controlling costs that by the democrats own admission it is going to bankrupt the country. Why on earth would this be better if 97% of the population is covered? If Democrats actually had any desire at all to control costs then it would be far easier for me to buy into universal healthcare- but in our political system I do not think there is any chance at all that costs will be contained. Any time a politician wants to control costs then the other side is going to attack them regardless of how reasonable the cost saving measure is. Our politicians are not capable of controlling costs long term on this.

Posted by: spotatl | July 23, 2009 4:23 PM | Report abuse

I agree with the basic point that Ezra makes and the strategy that Obama is following. However, what is unmentioned in all of this is the single biggest reason that we can't press too hard right now for system reforms that lower costs: the provider lobbies (physician and hospital), which are the 800 and 1,000 pound gorillas in the room.

The least-appreciated constraint on system reform is the fact that providers still have not gotten their heads around the need to reduce their incomes/revenue, and they are in a fantastic position to block any reform that will do so because they are more trusted than insurers, Democrats, or anyone else.

Nor have most providers understood the need for deep reforms to how they practice medicine. I'm glad Obama and others keep mentioning Geisinger, Mayo, Kaiser, etc., but we are a long way from being able to force providers into those models, or into new models of care which replicate the coordination and incentives without necessarily duplicating the integration within a single organization. Providers are softening slowly to the practice reforms, but the moment it becomes clear this is a vehicle to reduce their incomes (for some this is already clear) both the AMA and AHA will oppose it because the rank and file will demand opposition. And when that happens, reform will die because the Republicans will have all the allies they need to turn the public against it.

So it isn't just about what Pelosi, Waxman and Kennedy "want," it is also about what any reformer can get at this moment in time. And what we can get is close to universal coverage with modest cost control reforms that bring the cost growth down to maybe 3% from 6-7%.

There will be a second and third wave of reform that will have to do the hard work of not just getting cost growth under control, but really improving the value proposition of our health care system so that we can pay something closer to the 10% of GDP the rest of the world pays instead of 17% (my optimistic scenario is around 13%, but 15% is more realistic and would pay for the cost of universal coverage many times over).

Once Waxman, Kennedy, etc. have their universal coverage they will direct more of their attention to cost reforms (and not just bad mouth insurer admin and profit). Once universal coverage is in place, Republicans will also focus more energy on waste in the system as an attempt to score points. They won't be able to take away universal coverage, so they can only focus on less expensive ways of providing it. Now they actually to a large extent DEFEND the waste in our system because they associate it with private enterprise rather than government expenditure. They will become partial allies in reform whereas now they are not. Finally, the public won't have the fear of losing coverage, and the obsession with insurers as the cause of problems will diminish, leaving the public to focus more on waste and error in the provision of care.

Posted by: jdhalv | July 24, 2009 12:24 AM | Report abuse

Incidentally, this very newspaper just came out with an article quoting Pelosi as "wanting" cost controls as well as access expansion:

Posted by: jdhalv | July 24, 2009 1:02 AM | Report abuse


Surprised by a couple of things in your post.

For every Mayo, there is a Partners. Its really silly to see Obama call out a couple of systems, without really having a clear idea of why they're more successful in providing care at lower cost. Partners structurally is doing all of the same things as Mayo, but with some of the highest costs in the nation. The key difference? Physician density in the region. While you know we agree that physician lobbies are a significant hurdle, level of income is less the issue than physician supply (too many educated docs want to live in large cities in blue states), accountability (e.g. P4P), and quality transparency. Those are actually more difficult to change than income reduction, and are more important. The physician density question, in particular, is a clear driver of the differences seen in different regions of the country but that's not even on the radar screen with Orszag et al.

3% cost growth versus 6% would be a very good success. That would mean we'd be beating European countries on the cost growth question moving forward. That't not remotely on the table from this legislation.

This ability for our politics to focus on cost control/value after this legislation seems a little naive. Americans still won't feel "secure," as the safety nets will only go to 250 to 300% of poverty level, so Democrats will push for further subsidy-- remember that 500% actually made it to CBO as a proposal. Cost control for the left is still primarily embodied by putting single-payer in place. Republicans will want to go after a key donor source of Democrats, lawyers, so when they're back in power they'll have a better chance at tort reform (needed for cost control, but its not a panacea). All of those issues are much more likely to be "second wave" than a look at value in the system.

Posted by: wisewon | July 24, 2009 7:00 AM | Report abuse

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