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Does health-care reform do enough on cost control?

grubershot.jpgJon Gruber is a health economist at MIT. But that understates his influence in the field. He was one of the architects of the Massachusetts reforms. In 2005, he was elected a member of the Institute of Medicine. In 2006, he received the American Society of Health Economists Inaugural Medal for the best health economist in the nation aged 40 and under. He's unabashedly pro-reform, but he's from the camp of reformers that worry incessantly about the economics of the plan. So I asked him: Are the economics of the plan sound?

Does this bill bend the proverbial cost curve?

One confusion we've had is between lowering the level of costs and bending the curve. The difference is the following: Let's say I had a magic Newt Gingrich pill that got rid of all fraud and waste and abuse in health-care spending tomorrow. Let's say that dropped health-care costs by 12 percent. With health-care costs going up by 8 percent a year, we're back where we were in a year and a half. If health-care costs were going to bankrupt us in 100 years, now it's 101 years.

What we need to do is to have health-care costs stop growing at GDP plus three percentage points and move them to GDP or GDP plus one percent. We don't need to do it today or tomorrow or even in the next decade. But we need to do it. That doesn't mean the level stuff isn't incredibly important. Lowering health-care costs by 7 percent would be $150 billion in consumer's pockets. But for our ultimate fiscal burden, it's about getting the growth down.

And does it?

What we know for sure the bill will do is that it will lower the cost of buying non-group health insurance. We know the Senate bill will significantly reduce the amount of money employers spend on health-care insurance for so-called "Cadillac" plans and increase the amount they spend on wages. The Joint Committee on Taxation's numbers show that workers will make $300 billion more in wages due to the Cadillac Tax. By 2019, it's $1,000 per household.

If you think of the social cost of this bill it's well below $900 billion. If we could collect in tax revenues all the dollars in savings and new wages that people will get because of this bill, it would bring the cost well below $900 billion.

Is that enough long-term?

In terms of the curve, I think that here there is more uncertainty. We know we will be closer to bending the curve with this bill than without it. But we can't promise this bill alone will bend the curve. This bill moves us towards that. First is the Cadillac tax. Then comes more research on comparative effectiveness. We need to be able to stop paying for things that don't work. This bill doesn't do that, but it sets us up to have the information to do that. Then there's MedPAC on steroids. You need someone with the political ability to set rates to controls costs.

Finally, this bill has pilot programs for a lot of things that we think will control costs, but that haven't been proven. Things like accountable care organizations, bundling and all the rest. We're at the stage where we know in theory what to do. But we don't quite know how to set it up, so we're collecting that evidence.

I think this is as much as you can do politically. It's as much as you can do without sinking the whole bill, which is what happened to every other health-care reform. It's a lot more than what Massachusetts did.

One of the peculiarities of the bill is that it actually "does" coverage. If the bill succeeds, then pretty much every American will have insurance. But it really only starts cost control. Coverage is more of an event. Cost control seems more like a process.

That's exactly right. We know what happens if we don't do this. The science of coverage is ahead of the science of cost control. We know how to do coverage. But we don't know how to bend the curve with research yet. Are we going to hold 46 million uninsured Americans hostage to figuring that out?

My view is, even if the bill did no cost control it would be an incredible thing for this country. But politically, it sets the stage for cost control in two senses. First, it puts in place all the things we can do now. It does comparative effectiveness and pilots and all the rest. But second, once you get coverage off the table, the conversation gets more focused on cost control.

That's also because the people who mainly care about coverage now have something they need to protect from health-care costs, right? If costs aren't controlled, you can't keep the coverage.

The same thing happened in Massachusetts. We passed our bill. The lobbying group Health Care for All was incredibly important in that. But they were primarily about coverage. But then they realized that they would lose all this coverage they'd gained if it didn't control costs. So they got behind real cost-control measures. A global budget, even.

People say you can't do coverage without cost control. I think it's the opposite. You can't do cost control before coverage. We would do a huge amount for the cause of cost control just by covering people.

Are we doing the right cost control, though? For instance: America pays more than any other country for medical goods and services. And we're really not doing anything to equalize that.

You're asking two different questions. One is are we doing enough? Well, relative to what? Relative to a world where we can do whatever we want? No, we're not. Relative to what I thought was politically possible? We're doing more than we ever hoped. As for whether this is the right thing to do, I'm not a big price guy. I'm a guy who thinks the problem is we treat people too intensely. And this bill goes towards that approach.

One of my frustrations with the cost-control discussion is that people set this up like a choice between this bill and a bill with more cost control. In reality, it seems more like a choice between this bill and nothing. And this bill does a lot more cost control than nothing.

Here's how I think about this: Do you know Pascal's wager? Why not believe in God? I think of health-care reform similarly. We don't know if we'll really bend the cost curve. But if we do this and we don't do anything, we still go bankrupt in 100 years. We don't lose much. But if we do it and it works, then it's a savior.

It also moves the conversation on cost control in a way that's impossible without this bill. It does real things on cost control, and then it does real things to make cost control more politically viable. It lays the groundwork for doing more. To kill this bill for not doing enough on cost control would be like criticizing the Yankees for not winning the Super Bowl. They won the World Series! They did what they could do!

Photo credit: MIT

By Ezra Klein  |  November 12, 2009; 4:32 PM ET
Categories:  Health Reform , Interviews  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Reid looking at a new tax for health-care reform
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From the CBPP website:
"the excise tax will reduce spending on employer-sponsored insurance in 2019 by an estimated nearly $74 billion, or about 6 percent — an impressive amount that indicates the measure would be successful in helping to bend the curve — and lead to a commensurate increase of nearly $74 billion in wages and other fringe benefits.[12]"

Reference 12, incidentally, is Dr. Gruber. Would Dr. Gruber like to explain how he arrived at the idea that $1 cut in benefits will lead to $1 increase in wages?Because that seems far-fetched in an era of 10% unemployment. And when he gets done with that, maybe explain how a tax-free $1 is equal to a taxable $1?

What I see is a tax-increase on the middle class, one that hits union workers and the sick especially hard. And no matter how small it starts it eventually becomes huge. This is not progressive reform.

Posted by: bmull | November 12, 2009 5:40 PM | Report abuse

"We know the Senate bill will significantly reduce the amount of money employers spend on health-care insurance for so-called "Cadillac" plans and increase the amount they spend on wages."

Uh, no we don't, on both counts.

The excise tax on high-cost plans does nothing to reduce the amount of money employers spend for health coverage -- in other words, it does not lower the cost of coverage, just provides a penalty for rich plans. What it will do is to provide an incentive for employers (both on the fully-insured and self-funded sides of the equation) to switch to lower cost health plans (which usually have higher employee cost-sharing, BTW) and to cut valuable ancillary benefits (like dental and vision) which must be calculated into the total cost of the employer's benefits.

And what's to guarantee that, if the employer reduces what it spends on employee benefits, it will plow those savings back into employee wages? There are absolutely no assurances on whether that will occur. In this economy, I'm betting it won't.

Posted by: Policywonk14 | November 12, 2009 6:04 PM | Report abuse

Here you go again back to the land of ignoring what other countries have done to cut costs. It seems that standardized, government determined (in consultation with providers) rates cut costs enormously. Is there some kind of "Inside the Beltway" miasma that erases reality in favor of kosher vs. non-kosher data?

Just using TR Reid's "Sick Around the World" which re-aired on Frontline recently, in Japan they pay $99/MRI...we pay more than $1000/MRI.

Why is this not part of your interview?

Posted by: michaelterra | November 12, 2009 6:08 PM | Report abuse

Regarding your last point Ezra ("it seems more like a choice between this bill and nothing"), let's consider an analogy:

We have two wars going on. The military is overstretched. Obama has taken the idea of ending the wars "off the table." So, you might say, why not just reinstitute the draft? It solves the problem of not enough troops--at least for a while--and we can keep right on fighting these infidels.

A number of progressives--Bob Herbert for example--think that's exactly what we should do. He thinks it will bring the financial and human cost of the wars into sharp focus and end them faster.

But the draft makes the military even more bloated and inefficient, and it takes a terrible toll on middle class families. We know from experience the draft is not smart. And neither is health reform that is primarily a mandate to buy an unreformed insurance product.

Posted by: bmull | November 12, 2009 6:10 PM | Report abuse

Is "bend the curve" a new economic term being taught at MIT? Or is it just a way for Valley Girls to talk about stuff without having to, you know, like, say anything?

Posted by: msoja | November 12, 2009 7:44 PM | Report abuse

First of all thanks for an informative interview.

Next, it sounds bit self serving because both of you are making arguments why ‘coverage first and cost control later’ line of argument is politically better. Self serving because at least for sure we know about you Ezra that you were anyways sold to ‘any reform is better than nothing’ from start and then of course your famous Op-Ed arguing about the ‘moral case of coverage’ a la Ted line.

Having said that, however no rational person can deny the logic in this line – coverage first and cost control later. The interview brings best on that front.

The question is will the lag between two would pull us further down the deficit spiral or not. Your argument is we are there otherwise also and without doing anything we are for sure going down the drain too. So why not ‘spend more for now’ as we can explore the possibility of putting breaks down the line? Why not ‘drink’ alcohol little bit in order to quit alcoholism? Well, not my argument, but I think that is how some other guys would understand.

Hence insistence that indeed there is a better alternative out there and it is only for ‘lack of spine’ and ‘lack of humility / honesty’ on behalf of our Congressional folks and their supporters (yes Ezra, you included); we are not adopting these better alternatives to start with. Do it right first time – that is what we always get whacked in Software Industry and I guess I may be biased towards that.

Posted by: umesh409 | November 12, 2009 8:06 PM | Report abuse

Why do economists and policy wonks think corporate savings on Cadillac plans (which I see no incentive for in a tax paid by insured workers) would be anything but a windfall profit provided under cover of "health care reform"? Seriously. This simply makes no sense. Why would any entity that had to pay less for worker insurance have any incentive to pass through the cash as wages when it could serve as management bonuses? Just asking.

Posted by: janinsanfran | November 12, 2009 8:21 PM | Report abuse

"We know the Senate bill will significantly reduce the amount of money employers spend on health-care insurance for so-called "Cadillac" plans...

"We" know no such thing. Researchers who were considering what policy actions could save money in Massachusetts calculated that "benefit design" would be the least effective out of the twelve they considered. In fact, the estimated effect ranged from saving less than one-half of one percent to raising costs by almost the same amount.

What we do know for certain is that the tax will put comprehensive coverage out of reach for middle-aged people in high cost areas who are now paying 100% of their own costs.

Posted by: Athena_news | November 12, 2009 9:23 PM | Report abuse

NOTE: I'm beginning to think we should demand full disclosure of the insurance coverage available to the people who write this stuff. We can all go to the FEHB site and see the details about the plans available to Congress. But what about the journalists and academics claim that $8000 premiums translate to policies that encourage overuse and that reducing coverage will result in lower costs?

I just checked the plans available to Jon Gruber. The Tufts EPO plan for MIT has a $10 doctor visit co-pay and $8 drug co-pay, $0 for inpatient hospital stays and no deductible. Among the plans offered to MIT employees, it's a medium cost plan.

The closest comparable coverage a 55-year old woman in Cambridge would be able to obtain from Tufts would indeed be labeled "gold". It offers $25 doctor co-pays,$15 drugs, and $500 hospital....and costs $9936/yr.

I'm fairly certain that no one at MIT will be taxed out of their TUFTS plan (after all it's only unreasonable union members who are abusing their insurance because it covers so much). And yet a woman who is paying her own way will not be able to buy anywhere near as comprehensive coverage.

I haven't seen any public info about the plans available to employees of the Washington Post, New York Times, or other media outlets. It wouldn't surprise me though, to find that the same inequities when comparing what they are offered to premium prices in the individual market.

These people have no problem with the excise tax idea because they honestly believe that their coverage is just "normal" and they deserve comprehensive coverage. And they are 100% in favor of extending the broken health care financing model by making those who are paying their own way sacrifice coverage to subsidize someone else's poorer coverage.

That by the way is exactly why it's nonsense to refer to any aspect of what is in these bills as "universal". Universal health care doesn't mean that everyone has some sort of insurance. What it means that everyone starts with the same *coverage*.

Posted by: Athena_news | November 12, 2009 9:37 PM | Report abuse

Ezra, with all due respect, do you ever interview anyone who doesn't agree with you?

Posted by: MikeR4 | November 12, 2009 10:15 PM | Report abuse

We know how to do coverage. But we don't know how to bend the curve with research yet.

I've seen this guy quoted as an expert and he's gotta be smart to be a professor at MIT and all but really? COVERAGE?? My 5 year old could hand out people insurance cards. What he should have told you is that as Umesh says above they're doing this because politically they can't attack doctors first because they're too well liked. As they are doing now in Mass. they are going after the doctors with their commission to consider going back to capitation after they already emasculated the insurers there. That's the way to cut costs, cut it at WHO is getting the money. And who says you need research. You should have 3-5 years of research in Mass. right now.

"But then they realized that they would lose all this coverage they'd gained if it didn't control costs."

So he's basically saying healthcare consumers are stupid and irrational and we need to give them everything they want until the realize "whoops" we can't afford it and then cut back from there. At least be honest about it.

Posted by: visionbrkr | November 13, 2009 12:10 AM | Report abuse

MedPAC on steroids isn't going to do much good when the drug companies are committing scientific fraud:

This is worse than what Arthur Andersen did.

Posted by: bmull | November 13, 2009 1:28 AM | Report abuse

Keep digging, Ezra. You'll find a pony yet.

Posted by: member8 | November 13, 2009 2:11 AM | Report abuse

--"At least be honest about it."--

That's exactly what collectivists never can be, because at the back end of their cost cutting are death panels, with shiny "bend the curve" stickers on their scythes.

There are three death panels currently overseeing the distribution of swine flu vaccine.

The first one, by dint of making itself the single largest supplier of vaccines in the land, and by using its clout to demand minimum costs, destroyed the free market in vaccine production. From dozens of companies in the 70s and 80s, the U.S. is down to one based in the country, and about four internationally. Now it's *their* fault that production is less than optimal.

The second death panel is the FDA. It is expensive, exceedingly slow, arcane, ruled by idiots, buffeted by political considerations, incompetent, and always willing to absolve itself of all blame. Yer typical bureaucracy. It, too, has killed the vaccine industry (and lots of other innovation) in the U.S.A.

The third death panel is the CDC, overseeing distribution of vaccines. Check the priorities on who gets vaccinated for seeing a death panel in action. Imagine if the swine flu were a major killer, instead of a mediocre one. Imagine it killed a large number of those NOT deemed worthy of being vaccinated, i.e., strong, productive, healthy people. Consider who would be left to carry on after the flu had run its course. Pregnant women and children, and those with other complicating diseases. Government at work.

At the heart of Klein's dishonesty is utter ignorance.

Posted by: msoja | November 13, 2009 9:22 AM | Report abuse

I love how both Ezra and his interviewee skate very quickly by the unpleasant (for them) reality that other major industrialized countries provide universal coverage at much less cost than we do for less effective, partial coverage. How do they do that? Single payer or regulating very tightly the private health care market. Mr. Gruber slides by that very cleverly (or dishonestly, depending on how you look at it), saying that our "reform" isn't as good as we could do if we could do an unspecified "whatever we want" but that it's good compared to what's "politically possible." What he means is that there's a practically tried solution out there that would solve all the jargon-y "cost curve" problems that he and Ezra love to talk about, but neither he nor Ezra are going to discuss it. Because they accept the verdict of our ruling elites that it's not "possible" and they refuse to agitate for it or even talk about it. Remind me again - these are "liberals" who are on our side. As if.

Posted by: redscott | November 13, 2009 10:04 AM | Report abuse

Pascal's Wager is a huge philosophical fallacy. I get the guy's point, but he shouldn't analogize it to something that's so deeply incorrect.

Posted by: Chris_O | November 13, 2009 11:15 AM | Report abuse

--"Pascal's wager"--

The problem with liberal's religion (Government!) is that they insist that everyone else believe it with them, at the business end of a gun.

Posted by: msoja | November 13, 2009 12:09 PM | Report abuse

Maybe it makes sense to let the Massachuessetts experiment play out for a few more years. That would be a good test of "coverage before cost control." Their particular approach to cost control might also be a good source of ideas for a federal health reform plan. I understand that if Congress does not act now, the window of opportunity is likely closed for awhile. But I think what they came up with (at least in the House) is worse than the status quo. I, for one, am willing to wait for the next window of opportunity.

Posted by: mfreeman3377 | November 16, 2009 12:45 PM | Report abuse

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