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Posted at 4:13 PM ET, 11/19/2010

What makes this cost control different from all other cost controls?

By Ezra Klein

One of the difficulties conservatives had opposing the Affordable Care Act was that the program was projected to cut the deficit. They got around this by denying the projections: The cuts might pass CBO's muster, they said, but they'd never be implemented. Congress would roll them back the moment an angry senior sent an intemperate letter. And they weren't starting till 2018, which is proof that Democrats never intended to implement them.

On the bright side, conservatives have now found a better way: "If the left embraces the Domenici-Rivlin approach to Medicare, I'll dance in the streets," Reihan Salam writes. For those who don't know, Reihan is an excellent dancer (not to mention freestyle lyricist), and so this is an attractive prospect. But if you look hard at Domenici-Rivlin, it's hard to see what makes him so happy.

In the short term, it lifts Medicare Part B premiums from 25 percent of the program's costs to 35 percent of the program's costs. In the longer-term -- which is to say, uh, 2018 -- Medicare's spending gets a modified cap: If it grows by more than GDP+1 percent, beneficiaries have to pay the difference or move into a private plan. The only way a private plan would be cheaper, however, is if it covered much less,* as Medicare is about 20 percent cheaper than private insurance because of its massive bargaining power. So seniors will be faced with the option to pay a lot more or get a lot less.

That's a credible way to cut costs. But it's vastly more aggressive than anything in the Affordable Care Act. So here's my question: What's the theory of American politics by which Domenici-Rivlin can be implemented, but the much milder cost controls in PPACA cannot be?


*It's also possible that the exchanges will drive down the costs of insurance so aggressively that we'll get much more care for much less money. As the Domenici-Rivlin plan says, "The expectation is that increased competition among plans fostered by the
Medicare Exchange, and increased beneficiary interest in these plans, will keep costs from rising rapidly and result in higher quality, more cost-effective health care." But if conservatives believe that, they should also believe that PPACA is vastly understating its projected savings.

By Ezra Klein  | November 19, 2010; 4:13 PM ET
 
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Comments

I don't see anything strange here. First of all, Reihan Salam called attention to McConnell's hypocrisy on agreeing to a Congressional deficit commission, and so Salam hardly speaks for elected "conservatives". Secondly, Republicans are not universally opposed to healthcare reform. Remember Wyden's Healthy Americans Act? It was backed by Bob Bennett, Lamar Alexander, Mike Crapo, and other Republicans. McCain proposed healthcare reform as well. An element of these plans that the GOP supported was elimination of the tax break for employer-provided health benefits. That elimination appears in the Rivlin plan. Why shouldn't the GOP be OK with this sort of cost control when it is the sort of cost control they've long been in favour of?

Posted by: bdell555 | November 19, 2010 4:57 PM | Report abuse

"One of the difficulties conservatives had opposing the Affordable Care Act was that the program was projected to cut the deficit. They got around this by denying the projections: The cuts might pass CBO's muster, they said, but they'd never be implemented."


Actually that's only a small part of the complaints. They also dont' mention the doc-fix when factoring in medicare's true costs (its like making a salad and leaving out the lettuce) AND it uses its funds from a new entitlement program (CLASS ACT) to fund this entitlement program (PPACA) and in turn in 20-30 years from now people will be screaming that the long term care part of the Class act is not funded.

Posted by: visionbrkr | November 19, 2010 5:03 PM | Report abuse

*It's also possible that the exchanges will drive down the costs of insurance so aggressively that we'll get much more care for much less money. As the Domenici-Rivlin plan says, "The expectation is that increased competition among plans fostered by the
Medicare Exchange, and increased beneficiary interest in these plans, will keep costs from rising rapidly and result in higher quality, more cost-effective health care."


I always try to ground my posts in the real world with statistics or relevant authorities. This one is pure speculation however.

The increased number of competitors keeping costs down rule only works in pizza parlors, landscaping, and other businesses with small barriers to entry. The major insurance business has few competitors and huge barriers to entry, and the LAST thing they want to do is compete.

In the future we will look back and wonder how we could have been so stupid as to think these health care markets would lower costs. Energy trading didn't lower the cost of energy as it was forecast to do, and we can't even speak of exchanges in CDO's and commodities.

The same thing will hold true for health care. 50 states with regulators making $75,000 a year versus an industry where billions are made means that this will be a license to steal money. Some will be paid off, some will be ignored and the good ones will be hired away at 5 times their salary.

The attorneys general will need full-time staffers to watch over the industry, which they of course won't hire. Insurance firms will "Mozillo" the regulatory agencies, agreeing to pay comparatively small fines in exchange for keeping big money.

It's not a pretty picture, but that is my expectation.

Posted by: 54465446 | November 19, 2010 5:10 PM | Report abuse

Ezra writes:
"the program was projected to cut the deficit. They got around this by denying the projections: The cuts might pass CBO's muster, they said, but they'd never be implemented."

You can deny the projections without saying anything about whether or not future cuts would be implemented. The entirety of the "deficit reduction" comes from two components of the bill: the early duration premiums from the CLASS Act and the additional SS taxes received as employers shift money from insurance to salary. Every penny of the "surplus" from those two things brings with it an equivalent future obligation. That money is not available to be spent elsewhere. Cash accounting is completely ludicrous in this case, and so the skepticism of deficit reduction in PPACA is not at all reliant on assumptions about future congressional action.

Posted by: ab_13 | November 19, 2010 5:15 PM | Report abuse

A very simple question for Ezra (if he happens to read comments):

Were the CLASS Act a standalone program rather than part of PPACA, would you claim that it reduced the deficit by $70B?

Posted by: ab_13 | November 19, 2010 5:17 PM | Report abuse

yes, these savings will actually go towards paying down the deficit, not towards a new entitlement program. that's the big difference.

Posted by: jfcarro | November 19, 2010 5:59 PM | Report abuse

Projections. What a joke.

We saw what happened when Lyndon Johnson made projections about Medicare. No thanks.

Posted by: krazen1211 | November 19, 2010 6:26 PM | Report abuse

It appears to me that the cuts under D-R come mainly from the hide of the beneficiaries, while the cuts under ACA come from the hide of the providers. It's not hard to envision a theory of American politics under which the doctors and corporations prevail over the rest of us.

Posted by: jtmiller42 | November 19, 2010 6:34 PM | Report abuse

--*One of the difficulties conservatives had opposing the Affordable Care Act was that the program was projected to cut the deficit. They got around this by denying the projections*--

Denying the projections is a darn good bet, but, as usual, Klein is working the tried and true bait and switch. While he's waving his little wand around, magically making doves fly out of the government's deficit hat, he's extracting your wallet, your fillings, your jewelry, and making it harder to find a doctor. The doves were purchased with the loot stolen during the afternoon matinee, and more will have to be purchased for tomorrow, because political doves always fly away.

Go home, rube, and earn more money. The deficit hat will be on show again tomorrow.

Posted by: msoja | November 19, 2010 8:36 PM | Report abuse

"The only way a private plan would be cheaper, however, is if it covered much less,* as Medicare is about 20 percent cheaper than private insurance because of its massive bargaining power."

That's wrong. Doctor's simply make up the difference on Medicare by inducing more unnecessary care.

If there is one thing that Ezra Klein misleads on more than anything else is that the cost of insurance drives the high prices of care. It is the cost of *providers* that drives the high cost of care. It is enabled by insurance schemes like Medicare that impose absolutely no review of whether care is medically necessary. It is enabled by insurance schemes that insulate consumers from the cost of care, encouraging them to seek the most expensive care they can get for their fixed price, rather than seeking the best value.

The consumer has the power to reign in the pricing of the providers and to use their own discretion to ration their budget, rather than have others decide for us that we must pay for annual physical and other costly preventative care, but I can't use that money to pay for the decongestant I need because it is over the counter- despite the need to register my ID every time I purchase it because the government thinks I'm running a meth lab.

Posted by: staticvars | November 19, 2010 11:46 PM | Report abuse

"The consumer has the power to reign in the pricing of the providers and to use their own discretion to ration their budget, " - staticvars

People whose tab is being picked up by someone else don’t want low cost, quality healthcare; they just want to pay less for what they have. Relying on the consumer to fix our doomed health financing model is a pipe dream.

Consumers have little power to control provider pricing where it really counts and in situations where they might, they should, they consistently ignore information sources and mistakenly use price as an indicator of quality. No one goes to the Internet to check out hospital prices when a loved one is in the midst of a cardiac event and everyone believes that the cost differences in providers must be justified. The situation in Northern California, where Sutter Health, the dominant hospital group, is responsible for some of the highest hospital charges in the country has been a long time in the making. Employers in the area are obligated to provide higher cost insurance plans because employees insist on using Sutter facilities. There’s a similar situation on the east coast; indeed it’s a tale replicated all across the country,

Forty Seven years ago, Nobel Economics prize winner Kenneth Arrow demonstrated why healthcare is so impervious to market forces. For some reason, economists seem to be the only people in the country who realize that; legislators and journalists on both sides of the current discussions persist in talking about using the market and ill-conceived ideas of competition to solve a national problem. It’s not going to happen

Posted by: Athena_news | November 20, 2010 11:59 PM | Report abuse

athena:

You make a lot of sense. You should hang out here more often.

Posted by: 54465446 | November 21, 2010 10:22 AM | Report abuse

"So here's my question: What's the theory of American politics by which Domenici-Rivlin can be implemented, but the much milder cost controls in PPACA cannot be?"

I believe the theory you are looking for is the "Obama didn't propose it so it's good" theory. Of course, if Obama says he thinks it's a good idea, the Republicans will say it's a socialist plan to take over America.

Posted by: arealsenator | November 21, 2010 12:14 PM | Report abuse

We should squeeze providers AFTER we eliminate the insurance middle man who provides absolutely zero value to the system.

Step 1: Eliminate the health insurance industry. That automatically reduces health care costs by 20%.

Step 2: Make doctors employees of the federal government on a fixed salary. No more of this billing per procedure bullshit. That will eliminate the entire "billing" industry, getting rid of another 10% of wasted money in the system. Pay doctors a flat salary of 120k-250k will reduce healthcare costs by at least another 30-50%.

Posted by: platon201 | November 21, 2010 10:49 PM | Report abuse

--*Pay doctors a flat salary of 120k-250k will reduce healthcare costs by at least another 30-50%.*--

And why would exceptional doctors, who could expect to earn much more, be interested in working for the government?

Posted by: msoja | November 23, 2010 11:24 AM | Report abuse

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