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What the Affordable Care Act is already doing

Demonstrating epic econo-wonk convergence, both Steve Pearlstein and David Leonhardt have columns today comparing America's fiscal condition to Greece's, and arguing for a cocktail of tax increases and spending cuts to balance the books.

The main thing to say about our yawning long-term deficit -- which is distinct from our necessary, manageable and stimulative short-term deficit -- is that this is about the most predictable debt crisis you can ask for. No one will be able to say they didn't see it coming.

Nor will they be able to say we didn't know how to solve it: The main question is how to get health-care spending under control. And both Pearlstein and Leonhardt offer solutions that would get us closer. David suggests extending the excise tax's attack on the tax exclusion for employer-provided health-care insurance. Steve wants to take the model of the Independent Payment Advisory Board that the Affordable Care Act applied to Medicare and make it bigger:

Hold federal health spending increases (Medicare, Medicaid, premium subsidies) to GDP growth plus 1 percentage point a year, rather than the GDP-plus-2.5 percent that has been the norm. That's easy to say but hard to do, requiring huge changes in the way health care is paid for and delivered. Details would be left to an independent commission set up by the health care reform law to recommend ways to contain spending. Congress can either approve the commission's recommendations or come up with its own path to staying within spending caps.

In some ways, though, this is like saying we need to pass the Affordable Care Act -- again. Both these ideas are present in its pages. It may not take them as far as econo-wonks would like to see them go, but that's because more radical versions couldn't pass. Still, one of the answers to the deficit question is that we need to see how health-care reform works out. If it proves effective, we can push its ideas further. If it doesn't, then it's back to the drawing board.

By Ezra Klein  |  May 12, 2010; 10:43 AM ET
 
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Comments

how can it be made clearer.

CAPITATION.

you can gnaw at the edges like both of them suggest but how far does that get you?

Posted by: visionbrkr | May 12, 2010 10:58 AM | Report abuse

With regard to subsidy growth, this idea isn't that far in principle from Paul Ryan's voucher idea (though his idea is for Medicare). With regard to Medicare it is tougher, but a compromise seems possible.

Posted by: jduptonma | May 12, 2010 11:01 AM | Report abuse

Back on the subject of the Affordable Care Act, I wish you would interject into some of the current discussion that has been going around concerning certain policy points and supposedly problematic consequences.

I'm thinking of (1) the adjusted CBO score, (2) the 1099 change in rules, and (3) the reports that some employers may indeed find it cheaper to pay penalties than continue to provide health benefits.

Posted by: JPhils | May 12, 2010 11:21 AM | Report abuse

Gee, that's funny, I remember your writing post after post after post raving about the wo-o-o-o-o-onderful cost control measures contained in the ironically named Affordable Care Act, and condemning those who disagreed with you as heartless wretches, but now that the bill has been enacted ...

Next time, try to be honest in advance. More wonk, less partisan, please.

Posted by: ostap666 | May 12, 2010 11:28 AM | Report abuse

I have a question: Who is causing the growth in health care costs? Insurance companies? (No, their profit margins are approximately the same.) Malpractice insurers? (No. Insignificant part of costs.) Big Pharma? (No. Ditto.) Who then? The only plausible group I can think of is medical providers. To hold federal health spending increases to GDP growth plus 1 percentage point a year would result in lower amounts going to providers. Politically, how will that be able to happen?

Posted by: Chaz1961 | May 12, 2010 11:36 AM | Report abuse

Yesterday's USA Today story on taxes had an incredible graphic:

http://www.usatoday.com/news/washington/tax-rates-spending.htm

If you plug in incomes of $1,000,000; $100,000; and $20,000 it's amazing to see that the tax rates on the lower two have remained virtually unchanged since the 50's and 60's, while for the millionaire, the tax burden has plummeted.

It's just amazing that in all this talk about unsustainable spending, nobody really looks at what's happened on the revenue side of the ledger.

And it's also amazing that the Republican party claims to have all sorts of priorities around shrinking government, reducing debt, lowering taxes for all, encouraging competition, spurring economic growth, spending less, cracking down on fraud and waste...but they've achieved NONE of these things.

Their one unambiguous achievement--policies that help rich people get and keep more money--has gone almost un-recognized. They don't talk about it. And nobody else does.

Posted by: theorajones1 | May 12, 2010 11:43 AM | Report abuse

Chaz1961, you forgot the medical consumers. Older people require more health care spending, so as the demographics shift to an older population the percentage of GDP going to health care increases. Viewed that way, the excess growth of health care over GDP will stop, when (if?) the demographics stabilize.

Posted by: KenInIL | May 12, 2010 11:51 AM | Report abuse

KenInIL,

Well, then, it's you and I that are the problem!

I may be talking out of my ass here, but isn't one solution to increase the supply of doctors to meet the increased demand of patients? Simple economics.

Let's double the number of medical schools. (I suppose the AMA will have a problem with that.)

Posted by: Chaz1961 | May 12, 2010 11:59 AM | Report abuse

Chaz1961 is making sense. We have an under-supply of doctors and nurses right now, particularly primary care physicians, and that undersupply can only worsen when the ACA extends coverage to millions of new people.

We should have a program of some kind to expand the number of physicians and nurses, and since it will take years for any such program to bear fruit, that effort should begin as soon as possible.

The law of supply and demand plays a part, but I don't see increasing the supply of providers as the sole solution to containing costs, especially over the next decade. We need some hard controls on cost hikes, and innovative methods to achieve efficiencies.

Posted by: Patrick_M | May 12, 2010 2:05 PM | Report abuse

Ezra says, "Nor will they be able to say we didn't know how to solve it," but the column's only idea for solving it is to appoint a commission and hope that it works a miracle.

Posted by: tomtildrum | May 12, 2010 4:49 PM | Report abuse

KenInIL,

Excess cost growth is only driven in part by an older population. A lot of it is related to new procedures and technology - new tech is expensive when it begins, and even though cost per unit often falls over time for new tech, increased use tends to more than offset that decline. Given that patients don't face much of the cost of new technology directly, even new tech/procedures of low or questionable benefit can be quickly adopted.

Patrick,

Why are medical practicioners undersupplied? Is compensation too low, compensation too high in other fields (law, quantitative finance) too many barriers to entry (AMA, high cost of all the education)? How do we know medical practicioners are undersupplied?

In any case, I agree it won't do a lot to control costs - cost control via increased supply works best if you have a functioning price mechanism. That mechanism is dulled by third party payment.

Visionbrkr,

I agree captitation is probably the way to go. In any case you need a budget for the government portion of healthcare and you need to stick to it. Singapore does a very good job with public hospitals mixed with forced savings - do you think that approach could work here?

Posted by: justin84 | May 12, 2010 5:22 PM | Report abuse

justin84 -

Here is an older article that offers a reasonably detialed explantion of the doctor shortage in the USA, and the causal factors:

http://www.usatoday.com/news/health/2005-03-02-doctor-shortage_x.htm

In pertinent part:

"The country needs to train 3,000 to 10,000 more physicians a year — up from the current 25,000 — to meet the growing medical needs of an aging, wealthy nation, the studies say. Because it takes 10 years to train a doctor, the nation will have a shortage of 85,000 to 200,000 doctors in 2020 unless action is taken soon."

And bear in mind that this article was written in 2005, long before the introduction of the new ACA, which will certainly not reduce demand for medical providers.

Posted by: Patrick_M | May 12, 2010 5:55 PM | Report abuse

justin,


right now I don't think capitation will fly. Maybe some variation of capitation with incentives for positive outcomes that are fair.

I was waiting for what the State Senate President in MA had coming out but I haven't seen anything yet. Supposedly they were considering some innovative stuff up there. We'll see.

oh and while we do need many more doctors (especially ones accepting Medicaid patients with 15 million more on the way in 4 years) the laws of supply and demand don't work with healthcare. Not when FFS plans are still the norm. More docs just means more tests. Until the worst abusers of the system are told NO (and the payers of claims (insurers and Medicare) aren't harassed for doing the saying of NO then we'll still have skyrocketing costs.


oh and as to the title of this article do you know what PPACA is doing? Its confusing the heck out of people that's what its doing. What should have been the easiest simplest thing (dependents to age 26) is already being botched, misunderstood etc).

If you're a gov't employee its one rule, if your child is graduating college this May they get to stay on in June (for most insurers) but if they graduated last year they have to wait until September or later (when the employers' insurance plan renews) or if they are on a COBRA plan for over-aging then they wait until September but if they're in a state where dependents can be covered until age 31 (like mine in NJ) they have to wait until September or later.

And then in each of those scenarios you can have employers opt out of the "early" adoption of this rule so then its on an employer by employer basis.


And then throw the idea of pre-ex into each of those scenarios if you really want to confuse the heck out of people.


And this was an EASY ONE. Just wait until they botch the high risk pools, the pre-ex issue (most haven't heard that while pre-ex is ending on children shortly it won't end on their parents who are covered on the same plan although some insurers for ease of administration may opt for that anyway.

This is (as i've said before) going to be VERY UGLY.

Posted by: visionbrkr | May 12, 2010 8:59 PM | Report abuse

"This is (as i've said before) going to be VERY UGLY."

...and (as newer readers of Ezra would never guess) you also SUPPORTED THE BILL.

Posted by: Patrick_M | May 12, 2010 10:31 PM | Report abuse

Patrick,

Absolutely did. Still do. Just because I support it doesn't mean that I don't know for a FACT that the implementation will be a God awful mess.

As you've said you're a business owner. Got any idea how that one small piece (dependent to age 26) applies to your company? Just as a side note I forgot to throw in the fact that the size of the employer also impacts when its applied.

I've lived through COBRA, ARRA, HIPAA and other government forays into healthcare. They all have one over-riding theme. They're always a God awful mess.

Sure its necessary and needed but from my experience the government always botches it up.

did i ever relay the story to you as to how Rep Andrews subjected one of my clients to pre-existing conditions without I'd assume ever knowing it? Its a doozy.

Posted by: visionbrkr | May 12, 2010 11:43 PM | Report abuse

"Sure its necessary and needed but from my experience the government always botches it up."

Yet you STILL DO support the law, so presumably you agree that some inevitable government "botch factor" with the ACA reforms is preferable to what would have been the trajectory of the old status quo.

I mention this only because it may not always be crystal clear to anyone other than longtime readers of the blog and the associated reader comments.

Posted by: Patrick_M | May 13, 2010 12:09 AM | Report abuse

Patrick,

Yes, I still do support it. Heck if the government wasn't botching things up my clients might not need me, right ;-)

Onto my Rep Andrews story. So you know about the ARRA subsidy right? Enacted in Feb 2009 said that people that involuntarily lost coverage, didn't have access to other coverage and made less than 140k per year back as early as Oct 1 2008 could elect coverage (even if they didn't originally elect COBRA) and NOT be subjected to pre-existing conditions because of that lapse (normal allowed HIPAA lapse in group to group is +62 days).

So this employee got laid off in October, benefits ended the end of October. Her like many others couldn't afford the ridiculous COBRA costs. So she went without. Then the ARRA subsidy was signed around Feb 23rd if I remember, add in the 30 day comment period, state governments had to decide how to implement and the NJDOBI dragged its feet back and forth longer than normal as to who should "front" the money, insurers or employers. Well in the end under 20 employees in NJ the insurer had to front it and get reimbursed from the government on their 941 tax forms. This individual (like many others) because of the delays did not get offered the subsidy because the regs were delayed by government bureaucracy didn't get offered the subsidy until May and then got a bill in June for March, April May and June premiums. OOPS, unaffordable (even at just 35% of the cost). Well she turned to her local congressman whose aid wrote a letter to her insurance company's CEO (the one with the apple) demanding that she be reinstated with a more current effective date. Well anytime a congressman's office writes a health insurer nowadays they simply ask how high to jump. They did, reinstated her as of August (when it all got resolved) and under HIPAA law she was subjected to pre-ex. VOILA. government idiocy.

Posted by: visionbrkr | May 13, 2010 12:35 AM | Report abuse

and in addition the status quo was unacceptable back in 1994. It is/was even moreso now.

As I've always said I just would have required more cost controls but again I understand that President Obama absolutely threaded the needle of support for PPACA. He couldn't have done any more now but if they don't go back and SOON to fix the cost controls that are severly lacking we'll end with the US at prices like MA and MA can afford that somewhat. Alabama can't. The taxpayers can't afford subsidies indefinitely. In essence the taxpayers are subsidizing the insurers who are subsidizing the doctors WHO DON'T NEED A SUBSIDY. At least none of the doctors I know.

Good night.

Posted by: visionbrkr | May 13, 2010 12:40 AM | Report abuse

visionbrkr,

As longtime readers of the blog and its comments know, you and I agreed (while I watched you being attacked from both the left and the right) about the need for cost containment for the providers.

My only wish now is that your posts in the wake of passage of ACA would stress the same theme, and the next steps (as these posts did), rather than snark about predictable goverment botch-ing, That snark only serves to feed the "repeal" trolls, and does not advance the needed thoughtful policy dialog about the work that still needs to be done to bend down the inflationary curve.

A sincere good night to you too.

Posted by: Patrick_M | May 13, 2010 1:46 AM | Report abuse

Patrick,

Good morning!

Snark is too much fun though. Also Ezra I'm thinking has been burnt out on healthcare and there's not been as many posts on healthcare as before but I hope that will change after FinReg passes and the real implementation of healthcare starts. Sure I'll absolutely push for more cost containment as I always have. But if I don't call the government on the carpet for their inadequacies then I'm not being honest too. I try (although it may not seem that way) to be impartial and realize that Republicans are the obstructionists they have been lately and hope they'll realize the error of their ways in that regard and while I don't hold out much hope for it, I'd love the fiscal commission to actually be effective. We'll see.

Posted by: visionbrkr | May 13, 2010 7:37 AM | Report abuse

Patrick,

Thanks for the article.

This seems to be the money quote: "The marketplace doesn't determine how many doctors the nation has, as it does for engineers, pilots and other professions. The number of doctors is a political decision, heavily influenced by doctors themselves."

It's good to see that the AMA/Congress is realizing the error made in the late 1980s/1990s, although this doesn't suggest any confidence that AMA/Congress will get the eventual number correct. This needs to change

Posted by: justin84 | May 13, 2010 2:21 PM | Report abuse

justin84,

Yes. I think we probably need to have the capacity to train at least an adequate number of doctors to address the demand, and thereafter simply allow the market to self-adjust as it does in nearly all other professions. I understand that Canada went through a similar problem of miscalculating and then training too few physicians, and this is a part of the reason why there can be a wait for some surgical procedures in their system.

There has also been a lot written lately about the decline in the number of doctors who opt to be primary care physicians. General practitioners tend to earn less, work longer hours, and do not enjoy the same prestige within the profession as do the specialists. Since we have more people entering the system, and since we want a better emphasis on wellness, prevention, and early detection, that imbalance needs to change.

Posted by: Patrick_M | May 13, 2010 6:52 PM | Report abuse

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