Thursday, August 2, 2012

The Bad, The Ugly, and The Good of Liberal Entitlement Proposals

The New England Journal of Medicine yesterday published two new papers on entitlement reform and controlling health costs.  The first, by AEI’s Joe Antos and several co-authors, highlights several market-based mechanisms to slow the growth of costs.  The second, published by a group of liberal academics convened by the Center for American Progress, includes proposals that can be described as “The Bad, The Ugly, and The Good.”

First, the bad.  The CAP paper claims that “the only sustainable solution [to entitlements] is to control overall growth in costs.”  The problem is that, as we previously noted, over the next 25 years, demographics count for at least half – and as much as three-quarters – of projected increases in spending on Medicare, Medicaid, Social Security, and Obamacare insurance subsidies.  These demographic changes make existing entitlements untenable over the long term.  Yet by putting forth a half-solution focused solely on containing health costs, the CAP paper presumes a status quo of existing entitlement structures that is fundamentally unsustainable.

Next, the ugly.  In order to contain costs, the CAP paper proposes a system of supposed “self-regulation” that amounts to Obamacare’s Independent Payment Advisory Board on steroids:

Under a model of self-regulation, public and private payers would negotiate payment rates with providers, and these rates would be binding on all payers and providers in a state….The privately negotiated rates would have to adhere to a global spending target for both public and private payers in the state.  After a transition, this target should limit growth in health spending per capita to the average growth in wages, which would combat wage stagnation and resonate with the public.  We recommend that an independent council composed of providers, payers, businesses, consumers, and economists set and enforce the spending target.

In other words, CAP proposes that a board of “experts” can set spending levels for the entire health care system, and enforce this spending cap through “self-regulation.”  Many may believe that this system of “self-regulation” wouldn’t last long, because the fundamentally arrogant premise that a group of “experts” can micro-manage the health care decisions of the entire country (or even entire states) would soon be revealed for the folly it is.  The ultimate result would be a(nother) government takeover – this one of the supposed “voluntary” boards – and a federally-imposed system of “rationing with our eyes open” previously advanced by one of the paper’s authors, Donald Berwick.

Fortunately, however, even the CAP paper focuses on some good policy.  The discussion of competitive bidding features the rare admission from a group of liberals that market-based solutions can work in health care:

Instead of the government setting prices, market forces should be used to allow manufacturers and suppliers to compete to offer the lowest price.  In 2011, such competitive bidding reduced Medicare spending on medical equipment such as wheelchairs by more than 42%….We suggest that Medicare immediately expand the current program nationwide.  As soon as possible, Medicare should extend competitive bidding to medical devices, laboratory tests, radiologic diagnostic services, and all other commodities.

Given that strong endorsement of competitive bidding for some of Medicare, the real question is why the authors don’t believe in competitive bidding for all of Medicare.  CAP said as recently as this week that private insurance plans can’t price their coverage options below traditional Medicare – meaning traditional Medicare wouldn’t lose market share under a competitive bidding plan – so what are the authors of the paper afraid of?

Some may believe the reason why liberals are afraid to let traditional Medicare compete is the same reason why liberals won’t admit Medicare’s significant demographic problems: A desire to cling to the shibboleth that government-run Medicare represents the epitome of progressivism, and must remain unchanged and inviolate in perpetuity.  For all the demographic and other reasons we’ve outlined previously and above, that’s simply not going to happen, no matter how hard the left tries to (over-)regulate the health sector.  Stein’s Law guarantees that the demographic problems constituting more than half of Medicare’s increase in spending will not go unaddressed.

So the real question for the left is when liberals will admit that traditional Medicare cannot survive unchanged, or with mere tweaks at the margins, and needs fundamental structural reform.  Perhaps at that point the left will recognize that the competitive bidding structure they have promoted for parts of the Medicare program is best served to change the entire program.  Now THAT would be a change we could all believe in.