No Illusions

We are closer than ever before to passing fiscally responsible health reform legislation. So it’s not a surprise that the most reflexively and ideologically partisan commentators are lashing out.  Today, it’s the editorial board of the Wall Street Journal.
For an economist, the irony is rich.  The editorial board that did more to bring supply-side economics – or in George H.W. Bush’s immortal words, "voodoo economics" – to Washington is raising the specter of a fiscally irresponsible health reform bill in which efforts to rein in health care cost growth are an "illusion."  But the ironies run richer, since an editorial that hurls accusations of overselling cost containment itself displays more impressive rhetoric than substantive content. 
The Journal makes three fundamental claims. The first is that health reform represents a huge risk to the federal budget, and will end up exploding the deficit, because it relies on an array of speculative policies to control costs.
What the Journal misses is the crucial difference between this health reform effort and the flawed supply-side economics that drove the country into the deep deficits of the 1980s: we are insisting that the legislation be deficit neutral as scored by the Congressional Budget Office (CBO) in addition to including a variety of delivery system reform and other cost-containment measures for the long term.  In other words, unlike supply-siders, we are not waiting for magic savings to appear. Instead, we are relying on hard, scoreable savings – not the long-term cost-control measures – to pay for the expansion of health care coverage.  This "belt and suspenders" approach provides a crucial fiscal backstop, and it's the prudent, realistic, and wise thing to do.  (Note to the Journal ed board: here's the link to the CBO score of the Senate legislation, in case you'd like to read it.)
With regard to the delivery system reform and cost-containment component of this belt-and-suspenders approach, we have always been clear that we do not know with absolute certainty the changes that will most effectively improve quality and restrain health care cost growth over the long term. But research does suggest the most auspicious approaches, and we are pursuing those.  
Indeed, economists have agreed upon the pillars of a fiscally responsible health reform.  In a recent letter, 23 of America's leading health economists (including former CBO Directors Alice Rivlin and Robert Reischauer, and a Director of CMS during the Bush Administration, Mark McClellan, as well as other Republicans) identified those four pillars.  The list includes:
  • Deficit neutrality, using hard, scoreable savings as analyzed by the non-partisan CBO;
  • An excise tax on the highest-cost insurance plans;
  • An independent Medicare commission; and
  • An array of delivery system reforms.
All of these components are in the health reform legislation being considered on the Senate floor (even if some of them are not quite as strong as the signers of the letter would like).
Which brings us to the Journal’s second argument: that Congress lacks the stomach for serious cost control or always undoes the savings later. This is an interesting argument for a newspaper like the Journal to make, when its closest allies on Capitol Hill spent the better part of last week opposing hundreds of billions of dollars in Medicare savings.  Moreover, it is fundamentally an argument for hopelessness and inaction in the face of our nation’s most serious long-term fiscal challenge: If Congress is institutionally incapable of ever reducing the rate of health cost growth because projected savings are always undone by future Congresses, why even try in the first place? Thankfully, the Journal’s fiscal nihilism is belied by the facts – Congress has both enacted and carried out substantial health expenditure reductions several times in the past.  For example, according to a new report by two former CBO officials now working at the Center on Budget and Policy Priorities, "virtually all of the Medicare cuts enacted in 1990 and 1993, which accounted for a significant portion of the savings in those large deficit-reduction packages, were implemented, and nearly four-fifths of the savings enacted in 1997 other than the SGR cuts were implemented as well."
This brings us to the Journal’s third argument, which can be summed up in their warning, "Technocracy rarely, if ever, works as intended." Too often, ideological partisans wish to see the world as they want, not as it is. Recognizing the limits of what government can and cannot do is actually at the foundation of the health reform approach embodied in the legislation, a foundation which reflects a significant amount of policymaking humility.
We are not setting out a plan with every detail laid out for what the health care system of the future should look like.  Thinking that we could lay out in full detail a perfect system today would show a foolish disregard for the dynamism of the health care sector – and of the American economy in general.  Instead, we are putting in place processes by which what works and what doesn’t can be rigorously tested, and then scaled up over time as they are reflected in the decisions of thousands upon thousands of hospitals, physicians, and other providers.  Does the Journal have a better suggestion about how to approach policymaking in a dynamic world?
So what about the savings in the bill being considered by the Senate?  The President’s Council of Economic Advisers is releasing a new report today on that legislation.  Based on CBO’s own estimates and other evidence, CEA concludes that the health reform bill being considered in the Senate could reduce the growth of health care costs by 1 percentage point per year in Medicare and Medicaid and, also, in the private sector.   Although one percentage point may sound small, it would represent a boon both to the federal budget and to Americans more generally.  As a point of comparison, slowing the rate of cost growth in Medicare and Medicaid by just 0.15 percentage points per year would be the fiscal equivalent, over the long term, of eliminating the entire Social Security shortfall. 
Can more work be done on health reform? Sure. And that is what is occurring through the legislative process as I write. Moreover, even after passage, we will need a continuous assessment of what works and what doesn’t and rapid adjustments to a changing market – all of which can be done with the mechanisms laid out in this bill.
The bottom line is that continuing on the road we are on will overwhelm our economy and our federal budget. The health care plan being considered in the Senate now is built on the best available knowledge and most promising ideas from across the political spectrum. Critics may fear this change, but what we should fear more is doing nothing.

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