Three Ideas for Winning the Next Battle Over Entitlement Reform

by Paul Howard

The debt reduction deal, such as it is, is now in place, with the harder work of entitlement reform kicked a bit further down the road — really, into the 2012 election season. With that in mind, here are three ideas conservatives and moderates should consider for linking health-care reform, entitlement reform, and economic growth — because reforms that lower the cost of health care will make entitlement reform easier, and medical innovation will improve patient health and drive job creation. 

1. Find ways to pay Medicare recipients to use more cost-effective providers and services. The principle works relatively well in Medicare Part D and (until recently) the FEHBP. If seniors can share in the financial gain of choosing less expensive prescription-drug plans and health-insurance plans, Medicare should be able to find a way to similarly share the savings when seniors use more efficient providers and services. Peter Suderman talks about the perils and pitfalls of this approach in a recent article for Reason magazine, but Safeway and Whole Foods represent other good models to build on. Combined with House Budget chairman Paul Ryan’s premium-support model, this approach would not only reduce Medicare spending but force providers to compete by becoming more efficient. 

2. Incentivize innovations that lower costs, as well as create jobs in the biotech and medical-device sectors. America is a global leader in medical innovation, but regulators are throwing up more roadblocks to bringing new drugs and devices to market, while Obamacare’s Independent Payment Advisory Board threatens to slash reimbursements for innovative new therapies for diseases like Alzheimer’s and Parkinson’s. There’s bipartisan support for killing IPAB, but we should also focus on reforms that reduce the time and cost required to bring new products to market through the FDA, as well as rewarding companies that develop “disruptive medical innovations” — like giving patent or data exclusivity extensions to drug makers who bring new medicines to market with diagnostic tools that identify patients who are most likely to benefit. This will energize a productive U.S. industry, and pay dividends by making the health-care system more efficient. 

3. Deregulate, deregulate, deregulate. Health-care competition is strangled by a mass of regulations that create barriers to lower-cost innovative providers competing with expensive entrenched incumbents. Hospitals have blocked competition from physician-owned hospitals, while certificate of need regulations and other provider certification rules prevent other low cost providers (like nurse practitioners) or retail clinics from offering a wider range of low cost services to consumers. Some enterprising governor should work with providers and insurers to create a “health-care entrepreneurs zone” that would suspend as many of these regulations as possible in return for allowing innovative health-care business models and entrepreneurs to come online and succeed or fail on their own merits.  In return, they’d promise to provide transparency on prices and outcomes, creating a true laboratory for rapid experimentation and innovation in a system that is currently hamstrung with red tape. 

These are three ideas that seize the moral high ground in our national health-care debates by promoting patient-centered health-care reforms; accelerating the creation of life-saving medical innovations (and high-paying jobs); and encouraging competition that drives real delivery system reforms from the bottom up. 

Critical Condition

NRO’s health-care blog.