President Obama's health care reform plan does two basic things on the spending side: it extends subsidies to help lower-income Americans purchase health care (paid for with taxes and Medicare spending cuts) and it establishes a foundation for cost reduction in the future. That first part gets almost all of the attention (especially those eight words I put in parentheses), but the second part is glossed over with surprising regularity. That's a shame because for many economists and health care experts, the efforts to bring down cost growth inside the health care system is a major reason to support reform. As former CBO Director Bob Reischauer told me in a conversation I posted on Sunday, this bill "creates a platform off of which further measures to reduce cost growth can be built."
Health care inflation is a hydra and there's no single axe we know of that can cut off all the heads at once. There are only smaller hatchets we can use to hack away at the beast. David Cutler, a Harvard economist writing in the Wall Street Journal, has a good step-back-and-breathe column about all the various hatchets in the current health care bill. Here they are:
1. Form insurance exchanges
2. Reduce excessive prices
3. Moving to value-based payment in Medicare
4. Tax generous insurance plans
5. Empower an independent Medicare advisory board
6. Combat Medicare fraud and abuse
7. Malpractice reform
8. Invest in information technology
Reischauer would say, and I would agree, that there's no guarantee these reform hatchets work. "Combating Medicare fraud and abuse" is a fine ambition, but it's hard to know how well the administration would execute the promise after acknowledging last year that improper payments in Medicare rose almost 40 percent year-over-year to $98 billion. An independent Medicare panel could make tough, valuable choices that help us move to value-based payment in Medicare; but any significant reforms could unleash a backlash from doctors or patients groups who will find it easy to rail against an occult agency of unelected egg heads with stethoscopes telling them what medicine they can and cannot take.
At the end of the day, there's nothing Cutler, Reischauer or I can say that will convince a conservative to accept a hundred-billion-dollar-a-year health care government program. I get that. But I still think this bill offers a host of prudent and plausible attempts to cut down health care costs. It is easy, and also important, to point out all the ways these hatchets can fail. We should swing them anyway.
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