What a waste

Oct 15th 2009
From The Economist print edition

Barack Obama’s reforms should avoid squandering a rare opportunity, but probably won’t.

LAST year, when he was still the head of the independent Congressional Budget Office, Peter Orszag used to warn bleakly that the rising costs of health care would, if not subjected to radical reform, one day bankrupt the government. Over the past few decades, these costs have risen at a consistent 2.5 percentage points above the growth rate of the economy. Projected out to 2050, he reckoned, Medicare and Medicaid (the government schemes that insure the elderly and the poor) would together consume some 20% of America’s GDP, almost as much as the entire federal budget of today.

Perhaps Mr Orszag, now the budget director in Barack Obama’s White House, is about to storm out of his grand new office. For the health bill that this week moved a big step closer to Mr Obama’s desk (see article) fails—not completely, but very largely—to address the government-exploding problem of cost inflation. Instead, its focus rests squarely on the long-cherished Democratic Party goal of making sure that virtually everyone in America has some form of health coverage; at the moment, over 46m people have none. Even on this score, the plan that finally emerged from the Senate Finance Committee on October 13th looks incomplete (by 2019, 25m people are expected to remain uninsured), is likely to cost much more than has been claimed, and is paid for with hypothetical savings that are sure to be found wanting.

Mr Obama and his team will naturally declare victory if any health bill at all makes it out of Congress, as it now looks rather more likely that one will. They have some grounds for doing so. Anything that mitigates the obscenity of so rich a country leaving so many people without coverage will be a change for the better. But the bill also looks likely to represent a terribly wasted opportunity. Perverse incentives constantly drive up the costs of American health care, and the legislation will do little to remove them. Mr Obama and his Democratic colleagues on Capitol Hill are in grave danger of throwing away a rare chance. Health-care entitlements are by far the biggest chunk of America’s out-of-control budget, and it will probably be another decade, perhaps two, before anyone again dares to tackle them. A president with a big personal mandate, solid majorities in both chambers of Congress and a silver tongue ought to have been much braver.

Courage, Mr President

That braver president could have demanded far more. The worst flaw in the Finance Committee’s bill is its failure to address the way that providers of health care are paid. Most payments to doctors and hospitals are made on a “fee-for-service” basis—which means that, unconstrained either by medical necessity or value for money, the industry’s revenues rise with every test it does, procedure it carries out and prescription it writes. Yes, the bill provides funds for research into electronic record-keeping, comparative effectiveness research and other good things. But it should mandate these practices, not just encourage study of them. None of the five different bills that have been passed by various House and Senate committees and are now on the way to being melded into a single compromise version includes anything like the sort of root-and-branch overhaul that would see health care paid for by results.

Nor do any of the bills do anything much to tackle the other big distortion in health-provision—tax exemption for employer-provided private health-insurance. By subsidising the health plans of those lucky enough to have them, this encourages over-consumption and amounts to a distorting taxpayer-funded subsidy for the well-off. The latest bill merely sets a very high cap (of $8,000 per person, or $21,000 for a family) on this exemption, and the House of Representatives will try to water down even this feeble effort at the behest of the unions whose members enjoy some of the most lavish policies. It may also dilute the administration’s only really good proposal, for a committee of experts empowered to order changes to the way Medicare payments are made. Finally, the bills make no attempt to address the matter of greedy lawyers forcing doctors to practise expensive “defensive medicine” for fear of being sued to kingdom come.

What was produced this week was not the final outcome; the legislation will change as the work of reconciling the different versions of the bill continues. There is no shortage of good ideas that might yet find their way into the final one. Payments by the government could, for instance, be tied to best national practice, and Mr Obama has already said that he is open to the idea of medical tort reform. But time is running out.

Comment

Can you mandate that a doctor make his records electronic? doctors order a lot of tests because, if they don't, and something untoward happens, they can be sued. There ARE some lousy doctors out there, and those should be weeded out. There are also predatory lawyers out there, who will sue for any reason, legitimate or not. Incentives should be given to hospitals to switch to electronic record keeping. The VA has had electronic record keeping for well over a decade and would provide the database for research into its effectiveness. Perhaps a 3 year window to switch over would work, like the digital TV requirement.