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Rahm Emanuel vs. Obamacare



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Obamacare is predicated on the assumption that the federal government has the knowledge, capacity, and will to drive greater efficiency in American health care. Inadvertently, White House Chief of Staff Rahm Emanuel has become an articulate spokesman for why that assumption is dead wrong.

For months, the president and his team argued that stepped-up investments in health information technology, comparative effectiveness research, and prevention and wellness programs could “bend the cost-curve,” thus making an expansion of coverage affordable for taxpayers. But the Congressional Budget Office, along with a chorus of independent skeptics, said those steps would never be up to the task of reliable cost control without more fundamental changes in the financial incentives facing consumers and providers of services.

Unfazed, the administration argued that it had other ways to control costs waiting in the wings. The conversation turned to “delivery-system reform,” with the administration and its allies in Congress suggesting that new ways of paying health-care providers in Medicare could spur a wholesale shift in how doctors and hospitals cared for patients. As White House Budget Director Peter Orszag put it, “Medicare and Medicaid are big enough to change the way medicine is practiced.” The implication was that the new team was working on ways to painlessly root out wasteful spending by compensating providers for their services differently than they are paid today.

But no such proposals were ever forthcoming (except for relatively minor adjustments related to payments for hospitals with high readmission rates, and some baby steps toward more “bundling” of payments for a full episode of care). What the White House did eventually propose was a commission that would have the authority to change the way Medicare pays for services without further approval by Congress. So instead of offering a serious plan to “bend the cost-curve,” the administration offered a commission that would come up with a serious plan to “bend the cost-curve.” Quite predictably, many in Congress have not been so keen on this idea, as it would hand off to an unelected commission the power to rewrite Medicare’s provider-payment regulations. The administration’s commission idea is not in the House-passed bill.

Not to worry! The administration has another favorite cost-cutting tool. The idea is to tax so-called “Cadillac” health-insurance plans, thus forcing both the insurers and the plan enrollees to find ways to economize to avoid the tax. But there’s a little problem with this idea too. President Obama was against it before he was for it. Recall that Republican presidential candidate John McCain proposed to convert today’s preferential tax treatment of employer-paid insurance premiums into a refundable credit. In October 2008, the Obama-Biden campaign excoriated this idea in scores of ads because it would tax health benefits “for the first time ever.” Now, the president wants to do just that — but, again not surprisingly, the populist revolt he stoked against it in 2008 was still smoldering when he endorsed it in 2009. It turns out that taxing high-cost insurance plans will actually hit many middle-class households, especially those with union members enrolled in collectively-bargained plans. House Democrats wouldn’t go near the idea, and reports indicate that the version of the high-cost insurance tax in the Senate Finance Committee bill is getting watered down by the day. If some version of it survives at all, it is highly unlikely to pinch enough to generate meaningful cost control.

Reviewing this legislative landscape, it’s suddenly dawning on all concerned that the bills moving in Congress won’t come close to “bending the curve” after all. That’s the thrust of a piece today in the New York Times, as well as one from last week in the Washington Post. Of course, even as House members and senators shy away from tough decisions, they are not nearly as reticent about extending new health entitlement commitments. Thus, it is now abundantly clear that if anything is produced by this legislative process, it will be a bill that piles more unaffordable entitlement commitments on top of the unreformed ones already on the books.

And so what’s the White House response to this alarming state of fiscal affairs? As recounted in the Times piece, Emanuel blames the limits of politics. “Let’s be honest,” Emanuel apparently stated in a recent interview. “The goal isn’t to see whether I can pass this through the executive board of the Brookings Institution. I’m passing it through the United State Congress with people who represent constituents.”

That’s exactly right, of course. But it’s also an indictment of the entire Obamacare enterprise. The health-care bills under consideration would hand over to the federal government nearly all power for organizing American health care. And yet there is not a shred of evidence that Congress or the administration can handle these tasks well. Indeed, there is abundant evidence that, in a crunch to control costs, politicians will do what they always do, which is impose across-the-board payment-rate cuts. That’s certainly how the House-passed bill reduces Medicare spending. There’s no delivery system reform. It’s not “pay for performance.” There’s no calibrating of reimbursement levels based on the quality of care provided. It’s cuts for all providers, no matter how well or badly they treat patients.

Ultimately, the question in health reform is this: What process has the best chance to bring about continual improvement in the efficiency and quality of patient care? The only way to provide better care at less cost is with higher productivity in the health sector. What can make that happen, year in and year out?

Rahm Emanuel has given us the answer. The federal government, subject as it is to the constraints of politics, can’t do it. The only way to slow the pace of rising costs without sacrificing quality is by building a functioning marketplace, with cost-conscious consumers driving the allocation of resources. The government must play an important oversight role in such a marketplace. But if we rely on politicians, or even commissions that answer to them, for cost control, what we will get is lower quality, not more efficiency.



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