Krugman on Health Care, the CBO and Success

Health care can be reformed along the lines that logic and compassion demand. Strange, but true.

HELP is on the Way
Paul Krugman
NYT, July 12

The Congressional Budget Office has looked at the future of American health insurance, and it works.

A few weeks ago there was a furor when the budget office “scored” two incomplete Senate health reform proposals — that is, estimated their costs and likely impacts over the next 10 years. One proposal came in more expensive than expected; the other didn’t cover enough people. Health reform, it seemed, was in trouble.

But last week the budget office scored the full proposed legislation from the Senate committee on Health, Education, Labor and Pensions (HELP). And the news — which got far less play in the media than the downbeat earlier analysis — was very, very good. Yes, we can reform health care. ...

[A] look at the U.S. numbers makes it clear that insuring the uninsured shouldn’t cost all that much, for two reasons.

First, the uninsured are disproportionately young adults, whose medical costs tend to be relatively low. The big spending is mainly on the elderly, who are already covered by Medicare.

Second, even now the uninsured receive a considerable (though inadequate) amount of “uncompensated” care, whose costs are passed on to the rest of the population. So the net cost of giving the uninsured explicit coverage is substantially less than it might seem.

Putting these observations together,... extending coverage to most or all of the 45 million people ... without health insurance ... should ... add only a few percent to our overall national health bill. And that’s exactly what the budget office found when scoring the HELP proposal.

Now, about those specifics: The HELP plan achieves near-universal coverage through a combination of regulation and subsidies. Insurance companies would be required to offer the same coverage to everyone, regardless of medical history; on the other side, everyone except the poor and near-poor would be obliged to buy insurance, with the aid of subsidies that would limit premiums as a share of income.

Employers would also have to chip in, with all firms employing more than 25 people required to offer their workers insurance or pay a penalty. ... And those who prefer not to buy insurance from the private sector would be able to choose a public plan instead. This would, among other things, bring some real competition to the health insurance market, which is currently a collection of local monopolies and cartels.

The budget office says that all this would cost $597 billion over the next decade. But that doesn’t include the cost of insuring the poor and near-poor... Add in the cost of this..., and we’re probably looking at between $1 trillion and $1.3 trillion..., less than 4 percent of the $33 trillion the U.S. government predicts we’ll spend on health care over the next decade. ...

So fundamental health reform — reform that would eliminate the insecurity about health coverage that looms so large for many Americans — is now within reach. The “centrist” senators, most of them Democrats, who have been holding up reform can no longer claim either that universal coverage is unaffordable or that it won’t work.

The only question now is whether a combination of persuasion from President Obama, pressure from health reform activists and, one hopes, senators’ own consciences will get the centrists on board — or at least get them to vote for cloture, so that diehard opponents of reform can’t block it with a filibuster.

This is a historic opportunity — arguably the best opportunity since 1947, when the A.M.A. killed Harry Truman’s health-care dreams. We’re right on the cusp. All it takes is a few more senators, and HELP will be on the way.

Peter Orzag on the Obama health care proposal

A plan to boost America’s fiscal health

By Peter Orszag

Published: June 15 2009 19:26 | Last updated: June 15 2009 19:26

As the healthcare debate picks up in the US, there has been much discussion about how to pay for it. Coinciding with this debate are vocal concerns about the country’s underlying fiscal position – which some have suggested as a reason to delay healthcare reform.

What this argument ignores is that healthcare is central to the long-term fiscal and economic prospects of the US. If costs per enrollee in Medicare and Medicaid grow at the same rate over the next four decades as they have over the past four, those two programmes will increase from 5 per cent of gross domestic product today to 20 per cent by 2050.

Healthcare cost growth dwarfs any of the other long-term fiscal challenges the US faces. Nothing else we do on the fiscal front will matter much if we fail to address rapidly rising healthcare costs.

The US spends almost 50 per cent more per person on healthcare than the next most costly nation, but our health outcomes lag those of most industrialised countries. For families, after adjusting for inflation, health insurance premiums have increased 58 per cent while wages have risen only 3 per cent since 2000. For states, rising healthcare costs are squeezing their budgets, leading to cuts in essential services and tax rises. And for the economy as a whole, if healthcare costs grow at the rate they are now, healthcare will consume one-fifth of GDP by 2017.

That is why Barack Obama is committed to undertaking healthcare reform this year. Based on estimates by Dartmouth College and others, the US spends about $700bn (£428bn, €505bn) a year on healthcare that does nothing to improve Americans’ health outcomes.

Reducing the number of tests, procedures and other medical costs that do not improve health presents an enormous opportunity. Our fiscal future is so dominated by healthcare that if the US can slow the rate of cost growth by just 15 basis points a year (0.15 percentage points), the savings for Medicare and Medicaid would equal the impact from eliminating Social Security’s entire 75-year shortfall. If we slow the rate of healthcare cost growth by 1.5 percentage points per year, by 2030 we could reduce the federal budget deficit by 2.5 per cent of GDP, which is about $350bn relative to today’s economy.

So what must be done? As he made clear in his speech to the American Medical Association on Monday, Mr Obama is firmly committed to making healthcare reform deficit neutral over the next decade, using real savings or revenue proposals that can be scored by the Congressional Budget Office. The offsets are not theoretical; they are specific proposals determined by outside, impartial arbiters such as the CBO to cut spending or raise revenue.

In particular, Mr Obama has put forward in his budget proposals to generate $635bn for healthcare reform with roughly half coming from Medicare and Medicaid efficiencies (such as reducing Medicare overpayments to private insurers) and half from tax provisions limiting the itemised deduction rate for the wealthiest Americans to what it was when Ronald Reagan was president. On Saturday, Mr Obama also proposed an extra $313bn in Medicare and Medicaid savings proposals including a proposal that will generate about $106bn in savings over 10 years by reducing payments that help hospitals with the cost of treating patients without insurance because as we expand coverage, the need for such payments is reduced. Taken together, these “pay-fors” total about $950bn over 10 years, an amount that puts us in a good position to fully fund health reform in a deficit neutral way.

We must also address the forces making the healthcare system unaffordable and inefficient. The system creates incentives for doctors and hospitals to provide more care, not the best care. A lack of information on what works leads to huge variations in the quality of care and its cost. As Atul Gawande has described in the New Yorker, there are cities such as McAllen, Texas, that spend close to twice the national average on healthcare and do not get better results than lower cost, high-quality cities even in their own state or region.

The US must move towards a higher-quality, lower-cost system in which best practices are universal – rather than concentrated only in some parts of the country. The administration has therefore put forward initiatives such as health IT, research into what works, prevention and wellness, and changes in provider incentives. We must also change the process of policymaking so that policy can keep pace with a dynamic health market, for example by expanding the role of bodies such as the Medicare Payment Advisory Commission.

It is partially because of the unnecessarily high costs of our system that too many Americans lack insurance and are exposed to big financial and health risks. Mr Obama has said that healthcare reform must reduce costs and expand coverage since doing the latter without the former is fiscally unsustainable.

This is not the end of our commitment to fiscal responsibility. Once healthcare reform is in place, the US can then focus on other aspects of fiscal sustainability, including Social Security reform. But the bottom line is that healthcare reform is a necessity both for millions of American families and the long-term fiscal and economic health of the nation.

This is the good stuff

The connection between Kitzhaber and Gregoire on evidence-based medicine was confirmed recently in a hearing before the House Appropriations Committee. John Kitzhaber is former governor of Oregon who is mounting a full-scale promotion of organized, sane health care. Chris Gregoire is the new Washington governor bent on making changes that make sense.

The podcast link to that hearing is here. The Appropriations Committee does it in other media too. It's great stuff. It is also leadership, figuring out where we need to go and setting about getting there.

I guess I'm behind the curve on this. I didn't realize drugs weren't measured against each other to gauge effectiveness. They're measured against a placebo. Part of evidence-based medicine ("evidence of effectiveness and benefit") is setting up comparisons between drugs and drugs or drugs and other procedures.

Surgical procedures are analyzed for effectiveness. The gastric bypass, for example, was determined to be effective, but only for the morbidly obese.

Providers are judged, too. If one clinic has a significantly higher success rate than another, why are we not funneling state business to that clinic?

What makes most sense is having independent analysts examine the material, the studies. People without a horse in the race judging providers, discounting biased trials and phony findings. They're doing this at the Oregon Health and Sciences University. John Santa from that school's Center for Evidence Based Policy was there to testify.

While Kitzhaber has said, "It's too late for incremental change," a good first step is getting state capacity in this area. State Health Care Authority administrator Steve Hill estimated 25 to 30 percent of the $4 billion spent on health care annually is wasted (compare to $350 million per year total budget for projects under the 9-cent gas tax). Only a fraction of this waste is in administration, the rest is "overuse, under use, and misuse in health care treatment."

Administrative savings in the health care field can be found aplenty, too. But don't look at government programs. That address is Private Corporate Health Care Insurance Company, Inc. For a good look at the enormous waste of private sector providers, see the folks at Health Care for All - Washington