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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The First Step



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Among conservatives, it is a commonplace to argue that the president’s health reform proposal is a first step towards a more centralized, government-directed health system. This was the source of opposition from many conservatives and centrists to the public option, the effort to include a public insurance plan to individuals and households on the exchanges. There were a number of public option proposals, ranging from a strong public option tied to Medicare rates to a weak public option to various ideas for encouraging co-ops, etc.

My view has always been that the public option wasn’t the problem so much as the decision to create a new health entitlement that would prove very expensive over time. Regardless, many saw the public option as a stepping stone to something like a single-payer health system, including the architects and advocates of the proposal, as Mark Schmitt of The American Prospect explained last year

One key player was Roger Hickey of the Campaign for America’s Future. Hickey took UC Berkley health care expert Jacob Hacker’s idea for “a new public insurance pool modeled after Medicare” and went around to the community of single-payer advocates, making the case that this limited “public option” was the best they could hope for. Ideally, it would someday magically turn into single-payer. And then Hickey went to all the presidential candidates, acknowledging that politically, they couldn’t support single-payer, but that the “public option” would attract a real progressive constituency.

As Stolberg and Pear report, the “public option” isn’t dead.

The president spent the afternoon in back-to-back private sessions with two separate groups of House Democrats: liberals and members of the various minority caucuses, many of whom are uncomfortable with the bill because it lacks a “public option,” or government-backed insurance plan; and leaders of the centrist New Democrat Coalition.

He told the liberals that a public option would never pass the Senate, but said he would be “personally committed” to pursuing it once the current bill became law, said Representative Raúl Grijalva, Democrat of Arizona and co-chairman of the Congressional Progressive Caucus. He asked centrists for support.

Indeed, one can imagine a strong form of the “public option” passing via reconciliation at some point in the future, assuming it clears the parliamentary hurdle. If not, Medicare buy-in for workers who haven’t reached retirement age is another distinct possibility that has been touted by progressives. 

In the end, this strikes me as entirely predictable. The administrative complexities involved in implementing the president’s proposal are considerable, as Eugene Steurle has explained. As Orszag and DeParle note, cost estimates in the second decade are far more favorable than in the first decade.

To take one recent example, some skeptics have claimed that the $100 billion in deficit reduction the president’s plan would achieve over the next decade is mere gimmickry because the legislation would pay for only six years of coverage expansions with 10 years of budgetary offsets.

Now, it’s certainly a time-honored Washington budget gimmick to pay for just a few years of costs with many years of savings. But if that were the course being taken, we would expect to see a large hole at the end of the first decade and ever-larger deficits in the second. Instead, the savings in the president’s plan grow faster than the costs over time, generating greater deficit reduction with each passing year — roughly $1 trillion, all told, in the second decade.

Yet it should go without saying that estimates concerning the impact of legislation in its second decade aren’t necessarily very reliable. Indeed, Orszag and DeParle go on to suggest precisely that later in the op-ed. 

Moreover, since health care is so dynamic, even if we thought we had the answer for containing costs and improving quality today, that would quickly change as health care evolved. With the additions of investments in health information technology, research into what works and what doesn’t, and an Independent Payment Advisory Board of doctors and other medical experts making recommendations to improve the Medicare system, the legislation under consideration would create a virtuous circle in which more information becomes available, different delivery system reforms are tested and successful reforms are scaled up quickly as we learn more.

It is also possible, as David Cutler, who served as one of many advisors to the Obama campaign on health reform during the campaign, has suggested that we will actually see administrative expenditures increase as we pursue payment reforms aimed at paying for quality. More broadly, Cutler believes (correctly, in my view) that overall health expenditures will increase as our population grows older and more affluent, and he anticipates that we will have to impose a VAT to meet the new, higher level of public expenditures.But all that we have a decent — I wouldn’t call it good — sense of is what is likely to happen in the first ten years. And as Orszag and DeParle acknowledge, the cost estimates during the first ten years are not very helpful. (I won’t say misleading.)

One wonders if this op-ed was properly vetted. 

Basically, the health reform will have to be reformed to improve cost containment. But because we’ll have created a new health entitlement, efforts to improve cost containment that involve, say, shifting from a defined-benefit to a defined-contribution approach will prove difficult if not impossible. Cost containment efforts involving a strong public option and cost controls, as employed in Maryland, will prove more politically attractive, as they won’t involve benefit cuts. 

The goal of this legislation, as a friend explained, was not to address the problem of covering the poor and the sick. Rather, it was to create a universal structure that can be built on in an iterative process. An approach that combined Medicare buy-in, federalizing and expanding access to Medicaid, expanding access to state-based high-risk pools by funding them adequately, and capping the tax exclusion could have gone a long way towards solving the problems facing the poor and the sick. This approach might also have passed via budget reconciliation, thus obviating the need for 60 votes. It would not, however, have created a universal structure. 

To be sure, this could be a paranoid view. But even the president is explicitly telling progressive House Democrats that he doesn’t see this legislation as a last step — of course he doesn’t — which is why it seems entirely fair for conservatives to raise pointed questions about the likely trajectory of reform. 



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