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The Political Economy of Cost Controls

Some of my conservative friends argue that if cost control is the most important part of health-care reform, we should just do that, and do it first. There's something to that argument. But where are the votes going to come from?

There are basically two types of people in the health-care reform debate: People who want a universal health-care system and will cut whatever deals are necessary to make that happen, and people who don't want a major health-care reform bill and will adopt whatever attacks make sense in the moment. As both Jon Chait and Matt Yglesias point out today, and as others have pointed out before, sometimes that means attacking the cost control measures of a bill because they're unpopular and sometimes that means attacking the bill for costing too much. The point of attack politics, of course, is not the empirical coherence of the assaults.

Not convinced? We can test this premise: Between 2003 and 2006, Republicans held the White House and enjoyed a substantial majority in the Congress. Did anyone notice an aggressive effort at cutting costs in the health-care reform system? No? Me neither. In fact, I remember the passage of Medicare Part D, which most independent analyses concluded was needlessly expensive because it relied on private insurers rather than Medicare.

People don't like to cut costs in the health-care system. It's painful. Politicians do not voluntarily do painful things. But a lot of people want to achieve universal health care. And they're willing to make a lot of concessions to do so. The coverage expansion, in other words, can serve as leverage for the cost controls. If Republicans wanted them to.

This is not an idle theory. White House officials have signaled their desire to go a lot further in cutting costs than Congress seems comfortable with. The first time they aggressively weighed in on specific legislation, in fact, came earlier this week, when Peter Orszag sent a letter to the House Democrats scolding them for early proposals that "would perpetuate a system in which best practices are far from universal and costs are too high.” Max Baucus would like to cut costs. The Blue Dogs say they would like to cut costs. But Republican opposition is forcing these parties to cut cost-savers from the legislation.

I'm not just talking about the public plan. Republicans have gone after comparative effectiveness review and Medicare reform. They've attacked cuts in reimbursements to Medicare Advantage plans and rejected efforts to bargain down drug pieces. They have demagogued the Federal Health Board and shown no enthusiasm for empowering MedPAC. The Healthy Americans Act, which actually would cut costs, has a handful of Republican sponsors but very few Republicans who have committed to vote for it. Nor have conservatives come forward with a menu of cost-cutting options that Democrats could adopt in return for Republican votes.

In response, Democrats are doing exactly what you'd imagine: They are abandoning cost controls because they recognize that they can't survive the attacks that Republicans will mount against them. That's what happened to the employer tax exclusion this week. But there are many in the Democratic caucus who would far prefer a bill with serious cost-cutting measures and a hefty set of Republican votes. The deficit hawks, in fact, are a bit desperate for such a deal, because they know this is their best chance to cut costs in the health-care system, and they know they can't do it without Republican cover. But no Republicans are offering them that deal, because most of the Republicans think their first priority is killing this bill, not using it as an opportunity to control costs.

By Ezra Klein  |  July 10, 2009; 4:08 PM ET
Categories:  Health of Nations  
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Next: The CBO Tells People to Calm Down About the Public Plan


Ezra, it comes back to that appalling memo from Bill Kristol. Republicans are going to a scorched earth policy to keep the middle class from gaining any of the ground they have lost. They will not stop at killing health care reform. They want the entire country to fail under Obama so they can ride to the rescue, to pour more gasoline on the fire they started?

Horrible, man, absolute cynicism.

Posted by: PoliticalPragmatist | July 10, 2009 4:38 PM | Report abuse

I think in some sense too, it's not just the Bill Kristol memo, though I think that is in play. I think it's also part of a larger plan to sort of attack the whole welfare state as we know it, and "make the government so small that you can drown it in a bathtub."

The larger plan seems to cause the government to grow so large that there has to be horrific cuts at some point in time. Meanwhile we dismantle our tax system on both progressivity and its basic function of revenue raising. The interest grows, and we have no choice but to just eliminate Medicare, Medicaid, Social Security, and the larger welfare state aparatus. It's sort of Michael Graetz and Ian Shapiro's drip by drip that appeared in the estate tax debate.

I just worry that we have become locked into our environment. We argue against tax. We have a sense that government and regulators are all bad (a cultural thing, but that affects the outward situation that often moves us more than we move ourselves). As such we form reactance towards government, and think nothing could be right.

Posted by: blpanda | July 10, 2009 4:48 PM | Report abuse

We began talking about health care reform this year because the fast-rising costs of health care put our companies at a disadvantage in the global economy - and in the long run are unsustainable.

If politicians feel that cost containment is not to their liking - then in all honesty, it's time to cut off the debate. Reform is not happening. So stop the inept discussion of it.

Stop talking about taking money out of paychecks and adding the uninsured to an unsustainable system. It is foolish and far too costly to implement these things, when cost containment is a key issue that is being ignored completely.

Posted by: anne3 | July 10, 2009 5:00 PM | Report abuse

Why don't they just extend the tax preference to individually purchased insurance plans? That would immediately reduce the cost of insurance premiums and thus make insurance more affordable.

Posted by: fallsmeadjc | July 10, 2009 9:09 PM | Report abuse

Ezra, you're a fascist, you know it, and your fellow Journolist nazi's know it too. You're an elitist, hypocritical scumbag, who demands that working poor and middle class citizenry, be subjected to economic genocide, and the elderly as well. All so pigs like you can demand government subsidize your cheap foreign help, and your corporate friends (who subsidize you) get to subvert wage standards, eliminate workplace protections, and decimate food, product, drug and environmental protections.

Posted by: jenn3 | July 14, 2009 8:17 PM | Report abuse

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