Economists Gang Up on House Health Care Bill, Praise BaucusCare

The New York Times Economix blog publishes an open letter to the president from 23 prominent economists about how to fix health care costs. In a nutshell, the message is: Pass BaucusCare. The economists' four priorities are already features of the bill that passed the Senate Finance Committee -- and got roundly slammed by Republicans, unions, liberal electeds, governors, medical device makers and more.

Here are the economists' four recommendations, unedited.

  • Deficit neutrality. Fiscally responsible health reform requires budget neutrality or deficit reduction over the coming years. The Congressional Budget Office (CBO) must project that the bill be at least deficit neutral over the 10-year budget window, and deficit reducing thereafter. Covering tens of millions of currently uninsured people will increase spending, but the draft health reform legislation contains offsetting savings sufficient to cover those costs and the seeds of further reforms that will lower the growth of spending. Deficit neutrality over the first decade means that, even during the start-up period, the legislation will not add to our deficits. After the first decade, the legislation should reduce deficits.
  • Excise tax on high-cost insurance plans. The Senate Finance Committee's bill includes an excise tax on high-cost health insurance plans. Like any tax, the excise tax will raise federal revenues, but it has additional advantages for the health care system that are essential. The excise tax will help curtail the growth of private health insurance premiums by creating incentives to limit the costs of plans to a tax-free amount. In addition, as employers and health plans redesign their benefits to reduce health care premiums, cash wages will increase. Analysis of the Senate Finance Committee's proposal suggests that the excise tax on high-cost insurance plans would increase workers' take-home pay by more than $300 billion over the next decade. This provision offers the most promising approach to reducing private-sector health care costs while also giving a much needed raise to the tens of millions of Americans who receive insurance through their employers.
  • Medicare Commission. Rising Medicare expenditures pose one of the most difficult fiscal challenges facing the federal government. Medicare is technically complex and the benefits it underwrites are of critical importance to tens of millions of seniors and Americans with disabilities. We believe that a commission of medical experts should be empowered to suggest changes in Medicare to improve the quality and value of services. In particular, such a commission should be charged with developing and suggesting to Congress plans to extend the solvency of the Medicare program and improve the quality of care delivered to Medicare beneficiaries. Creating such a commission will make sure that reforming the health care system does not end with this legislation, but continues in future decades, with new efforts to improve quality and contain costs.
  • Delivery system reforms. Successful reform should improve the care that individual patients receive by rewarding health care professionals for providing better care, not just more care. Studies have shown that hundreds of billions of dollars are spent on care that does nothing to improve health outcomes. This is largely a consequence of the distorted incentives associated with paying for volume rather than quality. Health care reform must take steps to change the way providers care for patients, to reward care that is better coordinated and meets the needs of each patient. In particular, the legislation should include additional funding for research into what tests and treatments work and which ones do not. It must also provide incentives for physicians and hospitals to focus on quality, such as bundled payments and accountable care organizations, as well as penalties for unnecessary re-admissions and health-facility acquired infections. Aggressive pilot projects should be rapidly introduced and evaluated, with the best strategies adopted quickly throughout the health care system.

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What the economists are really saying is: Don't let the House health care bill pass. It fails on delivery system reforms. It uses a surtax to soak the rich rather than an excise to move compensation into wages. Public option, schmublic schmoption. 

As regular readers of this blog know, I support health care reform but also worry that it cannot save as much as it promises. (That's one reason I spend so much time writing about other creative ways to raise revenue for the government.) Today's news about waste and fraud rising in Medicare and Medicaid highlights the intractable difficulty of cutting waste and fraudulent payments when payments are rising quickly. The excise tax is an elegant policy move that could force employers to buy cheaper insurance coverage, but it's hard to know how much money employers are going to shift from benefits to taxable wages. The Medicare Commission sounds like a smart idea, but if (when?) it calls for service reforms or further reimbursement cuts for rural doctors, the AARP and AMA are going saddle up and ride into Washington asking for the commission chief's head on a silver plate. All of which is to say that there is good and sound economic thinking behind much of the Senate health care bill, but that still might not be enough to make health care deficit neutral in the next 10 years or pull down health inflation in the 10 years after that. One way or another, further spending cuts and taxes will be essential.