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Some thoughts on how the health-care law will evolve

The Internet is alive with the sound of health-care reform scenarios. See Douthat, Cowen, Yglesias, etc. It's difficult, of course, to predict what the system will look like in 20 years. About the only confident prediction is that there will be laws passed and decisions made between now and then that will alter the trajectory of the system. The experience of other countries suggests reforming the health-care system is a bit like eating Pringles: Once you start, you just can't stop. But here are some notes for thinking of this.

(1) When you're talking about the system, you're talking about what will happen with the exchanges. The worst-case scenario is that they become a ghetto for low-income, high-risk customers. In that world, you have a tiered health-care system: Medicaid serving the poor, exchanges serving the near-poor who don't work for large employers, and the employer market serving everyone else.

The best-case scenario is that the exchanges become the de facto health-care system as the employer market continues to deteriorate and as the exchanges prove themselves good for consumers. In this world, large employers begin entering the exchanges in 2017, as the law suggests. After a few big employers make the jump and find themselves freed from having to administrate their health-care systems and find their workers pleased with the choices (this assumes they are empowered to let their workers choose, rather than choosing for them), more follow them. This would make the system look a lot like the Wyden-Bennett proposal, and would lend itself to some conservative reforms, including the eventual abolition of Medicaid. In this world, our health-care system eventually looks like the Dutch system.

(2) Although the coverage structure of this bill might be the seed from which our next system grows, a lot more will need to be done on cost control. Of the ideas present in the bill, I'm more optimistic about implementation of the excise tax than many of my conservative friends. I'd say it's 75 percent likely to trigger in 2018, though I think there's a significant chance that it's indexed to inflation plus a percentage point or two rather than just inflation. I just don't think that the deficit politics between now and then are going to change such that you can find 60 votes to remove it entirely without finding an offset for its revenue.

I'm somewhat more skeptical than many health-care experts that flooding the system with evidence will make a big difference in spending. I think it's a good bet to increase the value of our health-care dollars -- the care we get will be likelier to work -- but it's a toss-up whether that really makes the system cheaper. Conversely, I'm more optimistic than some that the long-awaited IT revolution could save a lot of money. I'd recommend this Phil Longman article on that subject.

All that said, we're eventually going to have to face up to the elephant in the room: prices. We can't keep paying twice as much as other countries pay for each unit of care and get our costs under control. I think there's virtually no chance that this system evolves toward single-payer. But I think there's some chance that the government eventually begins setting payment rates for private payers, much as happens (successfully!) in Maryland.

(3) All that said, I have two other strong beliefs about this bill: First, in 20 years, we will be happy we passed it. It will be near to a consensus program, though like any other program, it will need continual reform and repair. Second, in and of itself, it will be much less noticeable in the system than most people think. This bill could be made very important by accelerated deterioration of the employer health-care market, but most Americans will find this reform pretty quiet once it's up-and-running -- a far cry from the debate that got it there.

By Ezra Klein  |  March 24, 2010; 12:07 PM ET
Categories:  Health Reform  
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Comments

Many large employers self insure. Will the motivations for them change with the exchanges?

Posted by: philash | March 24, 2010 12:20 PM | Report abuse

"First, in 20 years, we will be happy we passed it. It will be near to a consensus program"

You're not going to have to wait 20 years for it to be a consensus program. Maybe 8. The anti-HCR/HCR-is-communism energy will be directed to other things, it will become clear that the world didn't end because America passed another entitlement program (just as it doesn't end when a well-to-do fella gets a tax cut), and the consensus will be that nobody wants to repeal it anymore. There may be one or two earnest efforts at repeal, but then that will be it.

One possibility, if we get a clear Republican majority and a Republican president--a "repeal" of Obamacare that involves replacing it with an almost identical piece of legislation, only with tax cuts.

Posted by: Kevin_Willis | March 24, 2010 12:24 PM | Report abuse

I personally think you're underselling MedPAC reforms. If Medicare can find ways to save big money, guaranteed the health insurers follow suit and then we're talking huge savings. And removing the need for Congressional approval will help make that reality.

Posted by: consid24 | March 24, 2010 12:36 PM | Report abuse

The elephant in the room is volume, not prices-- which almost every health economist agrees with as the problem. The data simply isn't there supporting the price problem, whereas data such as Dartmouth's suggest the problem is more about volume/procedural disparity NOT prices.

Medicare pays 15-20% less on average, and reasonably that is considered a little too cheap relative to costs. Medicaid is 30-40% cheaper than average, and that is widely seen as under costs. So its frankly inaccurate to claim our prices are twice what they should be- and suspect you're looking at 1) U.S. charge data which aren't real prices, but more like MSRP 2) non adjusted country comparisons, rather than using PPP dollars. Put those in place, and the assumptions at the top are more in line-- you can see that our prices are 15% or so higher than "should be" due to inadequate negotiating leverage with providers. That's not the big problem.

The problem in the unnecessary waste, the use of technology without ANY good clinical effectiveness data, not even mentioning cost-effectiveness data.

And to reiterate, most importantly, most health care experts agree with everything I just said.

Posted by: wisewon | March 24, 2010 12:38 PM | Report abuse

Well, you and I disagree on this, and most health-care experts don't agree on everything you just said. McKinsey, Gerard Anderson, Uwe Reinhardt, and many others disagree strongly. Gruber, Cutler, and others do, of course, agree with you. And the McKinsey data, for the record, does use PPP-adjusted dollars.

Posted by: Ezra Klein | March 24, 2010 12:42 PM | Report abuse

"First, in 20 years, we will be happy we passed it. It will be near to a consensus program."

Unless the costs do end up being much greater than expected. Then it could end up being like AFDC, not only a program that was disliked, but also something that tarnished Dems as just big spending liberals. Now there's lots of reasons to say this law is different from AFDC, but also lots of reasons to say they're similar. I too have a belief that there will be general happiness and support for this 20 years from now. But I think any such belief should be restrained and tempered, not strong.

Posted by: JamesCody | March 24, 2010 12:51 PM | Report abuse

Many others don't, that's the point. You can't get that list to five, on the record.

PS McKinsey isn't a health economist.

Posted by: wisewon | March 24, 2010 12:52 PM | Report abuse

Huzzah -- more love for Maryland! Keep it up!

Posted by: AZProgressive | March 24, 2010 12:54 PM | Report abuse

We've got a good start with this bill on dealing with health insurance...Some of the price related issues that have been raised here will hopefully start the discussion of health care, which really hasn't been a big factor in this legislation. At the end of the day, it really comes down to what the doctors do - this is a point that Atul Gawande has made far more effectively and eloquently than I could do.

However, the piece that seems to always be missing (though Ezra has raised it from time to time here) is the discussion of Health. We always hear about how the US spends twice as much as the next closes country per capita, but has anyone tried to figure out what this is after controlling for differences in some baseline measures of overall health of a country?

It's possible that my assumption that we are a less healthy country could be incorrect, but I don't understand how we have a discussion of cost in our health care system without having a discussion of our agriculture policy for one. I'm sure there are those who would argue that this also ties into a discussion of our transportation policies. It seems like the question about Health is a major one that is (not surprisingly) influenced by a myriad of other policy choices we have made.

I know that Ezra has talked about some of these issues before - especially ideas about taxing junk food, but outside of these very small forums, no one ever discusses these issues.

Posted by: AnonymousInMA | March 24, 2010 1:02 PM | Report abuse

I could get that list to five by listing the co-authors on their various iterations of that paper. And Google Scholar lists almost 200 citations, most of them read as positive in a quick glance. Want me to list all those authors?

And if your argument here is that McKinsey's paper doesn't count as health economics, well, you're welcome to it. As I said, we disagree.

Posted by: Ezra Klein | March 24, 2010 1:17 PM | Report abuse

You talk about the "employer healthcare" market like it is a bad thing! Pushing people to "exchanges" will spread the risk, but I don't believe that will, necessarily, reduce costs. And, what about the quality of service. As enrollees grow and cost come down, there is a distinct possibility that the number of providers will shrink, too! This legislation is not all bad; but the open questions as to immigration, doctor fix, medicare reductions, and tax on the Cadillac plans may create a budget deficit like nothing we have imagined!

visit: http://eclecticramblings.wordpress.com

Posted by: my4653 | March 24, 2010 1:34 PM | Report abuse

"The experience of other countries suggests reforming the health-care system is a bit like eating Pringles: Once you start, you just can't stop..."

The same can be said about all government give-away programs. That's why the size and scope of the Federal Government has been, and will always continue to be, ever growing.

Posted by: MDLaxer | March 24, 2010 2:14 PM | Report abuse

Ezra, The Student Loan Portion of the HCR bill saves money by "taking out the middle man" (i.e. private lenders). Is that correct? But aren't all of these savings now going to pay down the HCR bill? If so, what-if any-benefit is there to the student? More loans available?

Posted by: MDLaxer | March 24, 2010 2:20 PM | Report abuse

Ezra,

Not sure what to say. You're using Google for your justification I guess, I've interacted with many of the top experts in the field. I've studied in depth with them when I was an undergrad and grad student years ago. So I don't know what research citations you're referring to from random University of X, I do know that most of the people considered to be actual experts in the field think that prices are the less significant problem. The best research on this also support volume, not prices. So you're free to disagree. But its not supported by most people that would headline any discussion on the topic.

Posted by: wisewon | March 24, 2010 3:00 PM | Report abuse

On the debate about the relative importance on prices v volume/utlization, I found this excerpt from a piece from Joseph White of Case Western University interesting (FWIW, White is a poltical scientist, not a health economists).

"Some analysts may believe that price restraint is not effective because of behavioral response by physicians, namely that they increase the volume and intensity of services when prices are restrained. In fact, there is reason to doubt there is any “behavioral response” for many services. CBO reports that, “a decline in the amount that a provider is paid would generally be expected to result in fewer (my emphasis) services being delivered. That type of response has been observed in skilled nursing facilities and home health agencies, and there is some evidence that it occurs in hospitals” (CBO 2008: 109). (CBO 2008: 109). Physicians are different, and there is good evidence that in some cases they induce further demand. Nonetheless, studies of the behavioral response estimate the offset only at between 20 and 40 percent of a rate cut’s impact on payments. CBO’s own research estimates a 25% response (CBO 2008). The Medicare actuaries have estimated an average response of 30 percent, and that figure was endorsed by the 2000 Technical Review Panel on Medicare cost estimates (Medicare Actuaries 1998; Technical Review Panel 2000). In the case of other costs, such as pharmaceuticals, it is easy to see that the drug companies try to induce demand, but hard to see how they would induce demand in response to fee restrictions in particular.

Hence the vast majority of savings from price restraint are not offset. Moreover, theorists who emphasize “behavioral response” by raising volume also should realize that if only volume were controlled, not prices, the incentive to raise prices would be at least as great as any incentive to raise volume in the face of price restraint. But it is much, much easier to raise prices on insured patients than to get them to have extra procedures!"

Posted by: PeterH1 | March 24, 2010 3:05 PM | Report abuse

The Longman article is important, persuasive, and frightening. I've contacted my representative and senators and urged due consideration of Rockefeller's Health IT Public Utility Act, and I recommend others read the article and inform themselves about this important question.

Posted by: neversaylie | March 24, 2010 3:23 PM | Report abuse

P.S. Ezra, I hope you will do more to push the health IT issue--perhaps try to get a statement from our lawmakers about whether they understand these issues and will address them.

Posted by: neversaylie | March 24, 2010 3:24 PM | Report abuse

Here's a link to the Joseph White paper I mentioned:

http://www.ourfuture.org/files/JWhiteAllPayerCostControl.pdf

Posted by: PeterH1 | March 24, 2010 3:25 PM | Report abuse

"Is that correct? But aren't all of these savings now going to pay down the HCR bill? If so, what-if any-benefit is there to the student? More loans available?"

The savings from the student loan reforms all accrue to the students, mainly in the form of increased funding for Pell grants.

Posted by: Patrick_M | March 24, 2010 3:59 PM | Report abuse

Hey is it true you are are a "center-left wonk pundit" as your friend Jon Chait (blech!) recently alleged?

Anyway Mr. Wonk Pundit:
-I do not see Wyden-Bennett as the holy grail. The middle class gives up its largest tax break, and in turn where's the evidence that exchanges will control costs?
-Abolishing Medicaid would be stupid. Poor people cannot use private insurance because it doesn't pay for things like a ride to the clinic, or diapers for granny. The only thing wrong with Medicaid is it underpays.
-The Maryland system (as I understand it, I'm not an expert) needs infusions of cash to augment Medicare and Medicaid so the private insurers can pay less. And it only covers hospitals.
-The Dutch system is too new to make any judgments about it. Certainly their cost problem wasn't as bad as ours when they started, so they can get by with less radical medicine.

Posted by: bmull | March 24, 2010 4:07 PM | Report abuse

"The savings from the student loan reforms all accrue to the students, mainly in the form of increased funding for Pell grants."

So then am I mistaken in that the Student Loan Reform helped bring down the cost of the HCR bill?

Your explanation doesn't seem to show any real savings, just taking the savings from the loans and giving it away as grants.

That's fine, but then I don't see why the President and Dem's wanted it to be part of the HCR bill.

Thanks,

Posted by: MDLaxer | March 24, 2010 4:10 PM | Report abuse

"So then am I mistaken in that the Student Loan Reform helped bring down the cost of the HCR bill?

Your explanation doesn't seem to show any real savings, just taking the savings from the loans and giving it away as grants.

That's fine, but then I don't see why the President and Dem's wanted it to be part of the HCR bill."


Yes, you are mistaken.

Student loan reform was added to the HCR reconciliation package because it is a wise part of the Obama agenda that had not made it to final passage in '09, and its addition makes the package of fixes to the Senate HCR bill even more appealing.

The savings in student loan appropriations were never set aside to be offset against health care costs; the savings all flows back to direct student financial aid via Pell grants.

Posted by: Patrick_M | March 24, 2010 4:33 PM | Report abuse

Ezra,

I think your first scenario is very likely. You increase the demand for services without a parallel increase in the supply which will put upward pressure on prices. The equilibrium price for premiums will rise, I believe dramatically, in the exchanges primarily because of a week mandate. Price controls will cause many providers to begin to deny services for Medicaid and other patients at the low end of the spectrum. This will especially be true of primary caregivers who already have the lowest return on their human capital investment.

The end result will be long wait times. There will be strong political pressure to increase expenditures to deal with these issues. The CBO has estimated that current tax rates will have to double in order to deal with the current liabilities associated with Medicare, Medicaid and SS. Where will the money come from? How high are taxes going to have to rise? Economists do not believe that we can meet our obligations without broad, across the board tax increases that will hit the middle class hard.

Ultimately, I wonder if we end up with a system like Great Britain where the private health insurance market is served by the top physicians and the public market is largely supplied through foreign born physicians.

Speaking of which, has their been any discussions about setting up a program to let foreign trained medical doctors immigrate to the United States? It seems to me this would be a relatively easy way to deal with the supply side issues?

Steve

Posted by: FatTriplet3 | March 24, 2010 6:26 PM | Report abuse

Ezra, there you go again with the "bill" talk. Say it loud, say it proud: "law".

Posted by: CatfishHunter | March 24, 2010 6:27 PM | Report abuse

I agree. In less than 20 years it will be a popular bill. I hope that by that time Republicans still insist on calling it 'Obamacare'.

Posted by: jamayacastro | March 24, 2010 7:05 PM | Report abuse

I agree. In less than 20 years it will be a popular law. I hope that by that time Republicans still insist on calling it 'Obamacare'.

Posted by: jamayacastro | March 24, 2010 7:06 PM | Report abuse

The savings in student loan appropriations were never set aside to be offset against health care costs; the savings all flows back to direct student financial aid via Pell grants.

Posted by: Patrick_M | March 24, 2010 4:33 PM | Report abuse

Kind of like how the savings in Medicare flows back to Medicare?

How the CLASS act pays for actual long term care for future generations?

A Democratic Senator recently admitted that the CLASS act is ponzi scheme. it is yet another 'throw in' to show reduced costs now and require funding later to make it feasible.

Dems are great lately at 'correctly' blaming Republicans for Medicare Part D's being unfunded but they only make the problem worse with this bill.

Sad but true.

Posted by: visionbrkr | March 25, 2010 8:16 AM | Report abuse

and those large employers that self insure will stay out of the exchange. One word, ERISA.

ERISA allows them to cover certain things and not others and logically the more you cover the more it costs. The exchange will not see any large employers except those ones that want to make it a PR stunt. I could see an APPLE do it, or GOOGLE or something but that's the only reason a large employer would go there.

Posted by: visionbrkr | March 25, 2010 11:17 AM | Report abuse

"Kind of like how the savings in Medicare flows back to Medicare?

How the CLASS act pays for actual long term care for future generations?"


No, not like either, visionbrkr. The Medicare savings are designed in the language of the HCR statute to be just that: savings, i.e. money that will no longer be spent.

The language in the student loan reforms clearly dictates that the money saved on discontinuing the current corporate welfare scheme for the banks will enlarge the available funding of Pell grants.

I won't pretend to be an expert on the CLASS Act, but at the same time I don't see what THAT has to do with the content of the HC legislation. I just answered the lady's question about how the student loan changes are crafted to enlarge the pool of student aid, that's all.

Posted by: Patrick_M | March 25, 2010 2:34 PM | Report abuse

The Longman article is interesting, Ezra though I disagree a bit with its main point about open source software. I think what is more important are open *formats* and *protocols* by which systems communicate.

By way of analogy, there are a handful of good web browsers out there now. They range from a completely open model (Firefox, Chrome) to proprietary (Internet Explorer, Opera). The competition is fierce and we all benefit from it regardless of which browser we use. The reason we all benefit is because I can use any browser to view any web page (for the most part). This is because they all understand HTML (an open page format) and talk to the network via HTTP (an open protocol).

We need to get to a similar place with electronic medical records. Let the proprietary companies compete with VistA, but none of these systems should be able to lock in their users via proprietary formats.

Posted by: stand | March 25, 2010 4:21 PM | Report abuse

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