A reader kindly passed along a fascinating interview in the latest issue of Dividend, the alumni magazine of the University of Michigan’s Ross School of Business, with Professor Tom Buchmueller, who until recently served on President Obama’s Council of Economic Advisors.
Dividend: Now that the Supreme Court upheld the Affordable Care Act, what should we be thinking about, aside from the ongoing political arguments?
Buchmueller: For the government, much work remains to be done by 2014, when the health insurance exchanges must be up and running and the expansion of Medicaid goes into effect. Over the longer term, both the government and the private sector must figure out how to control the growth in health spending. Healthcare, as a percentage of the economy, has been growing steadily. eventually that growth will be unsustainable. Increased health spending brings real benefits, in terms of better health and longer lives. But if we don’t bend the cost curve, that growth will crowd out other important priorities.
Divided: Was it the right policy call to expand coverage before designing a plan to control costs?
Buchmueller: Yes. We know more about how to expand coverage than how to control costs. Cost control will take a long time to craft and even longer to implement before we see any effect. To say we’re going to control costs before expanding coverage is effectively saying we’ll never expand coverage. Also, when you have wider coverage and costs rise, you’re forced to be more serious about taking action. Massachusetts is having a more serious discussion about cost control because it enacted a similar system to the Affordable Care Act. [Emphasis added]
What is remarkable about Buchmueller’s remarks is that they are incredibly frank. He seems to acknowledge that the cost control measures in the law are relatively insignificant, and the main way ACA will contribute to cost control efforts is that the federal government will be forced to take action as coverage expands. That is, things will have to get “worse” — the costs associated with publicly-sponsored coverage will have to get much higher — before they can get “better” — that is, before the federal government will have the political leverage necessary to engage in more aggressive cost control efforts.
I’m reminded of one of the critiques of Mitt Romney’s tax proposal, which is perhaps my least favorite aspect of his campaign: by specifying rate reductions before identifying base-broadeners, he effectively took a “dessert-first” approach to tax reform. Now, there is a context for this decision, but I think the “dessert-first” critique is fair. ACA is definitely not “dessert-first” legislation, in that it entailed deep reductions in the planned growth of Medicare expenditures, a step that has proven politically unpopular. Yet there is good reason to believe, as we’ve discussed, that ACA will necessitate politically (and substantively) problematic cost control mechanisms, including all-payer rate-setting, that were never really discussed during the initial legislative debate.