Ezra Klein follows up on why Rivlin-Ryan fans should be PPACA fans:
Ryan-Rivlin only survives if it holds cost growth to the rate of GDP growth plus one percentage point. If it doesn’t, then the subsidies offered by Ryan-Rivlin quickly become inadequate — and no one is going to allow Medicare to stop paying for the health-care costs of seniors.
The idea behind Rivlin-Ryan, as I understand it, is to give the cost controls bite. Consumers will turn to plans that limit cost growth by embracing new payment systems and other business model innovations that planners can’t anticipate. This is the virtue of relying on a decentralized trial-and-error discovery process. If no one allows Medicare to stop paying for 100 percent of the health-care costs of seniors, the system will fail. The prospect of paying out-of-pocket for the most generous, extensive coverage, the kind of coverage that often results on overtreatment, is the spur to the creation and embrace of more sustainable health systems.
So the question isn’t whether Ryan-Rivlin is more appealing to conservatives than Medicare. It’s whether Ryan-Rivlin will control costs. And as Alice Rivlin says, the theory behind Ryan-Rivlin’s cost controls is the same theory behind the Affordable Care Act’s exchanges — they even work the same way. So if you believe that the exchange model will holds costs down to GDP+1% in Medicare, why not in the under-65 market? And if it can do that in the under-65 market, then the Affordable Care Act is going to be a wild success.
This is to suggest that PPACA is Emanuel-Fuchs or the Wyden-Bennett Health Americans Act, i.e., that PPACA is the exchange model. It is not. Rather, it is a hybrid structure that promised to preserve ESI and existing tax subsidies while creating a parallel system of subsidized exchanges. And this hybrid structure is a big part of why it will likely prove far more expensive than advertised.
If Ezra is arguing that pro-Rivlin-Ryan conservatives should back Emanuel-Fuchs or Wyden-Bennett, well, we’d be having an entirely different conversation. For one thing, we’d have a much better sense of the impact on taxpayers. But we’re not. We’re debating whether or not pro-Rivlin-Ryan conservatives should have embraced PPACA.
It’s worth noting that conservative health policy scholars like James Capretta and Thomas Miller have explicitly backed transitioning our current tax subsidies for ESI into a universal, fixed-dollar tax credit:
In a real sense, moving toward a universal, fixed-dollar tax credit would represent a “universal coverage” alternative to the new health law’s menuof mandates, heavy regulation, and government coercion. Conversion of today’s tax preference for employer-paid premiums into a refundable, universal credit for the under-sixty-five population wouldmean that every American household—whetherworking or not—would have access to a tax credit that could only be used for the purchase of health insurance. The value of the credit might approximate the current average tax subsidy for job-based coverage—in the range of about $5,000 to $6,000 per family. Any household that chose to forgo insurance would lose the entire value of the credit. It is far more likely that most households would use the credit to get the best coverage available to meet their needs, given the size of the creditand whatever additional resources they would bewilling to provide for coverage. And there would undoubtedly be a large supply response from insurers, offering all manner of options to meet theneeds of millions of cost-conscious consumers.
This approach has much in common with Rivlin-Ryan, yet it’s fairly clear that it’s pretty darn different from PPACA and even from Emanuel-Fuchs and Wyden-Bennett, which leave far less room for consumer choice.
Ezra continues:
Reihan also says Medicare has “exacerbated cost growth” throughout the system. I’d say it’s been the opposite: The private health-insurance market has exacerbated cost growth in Medicare. Medicare’s costs have grown more slowly than private health insurance and Medicare’s premiums are about 20 percent lower than private health-care insurance. But Medicare can’t really use its massive bargaining power to hold down costs — which is what’s done in other countries — because doctors can flee to the private system and stop taking Medicare. It gives them a veto over how much cost control Medicare can impose, and they’ve used that veto quite effectively over the years.
I prefer Ezra’s formulation from December of last year, which reminded me of how James Capretta has explained the role Medicare plays in exacerbating cost growth in the broader U.S. health system. After noting how single-payer can restrain cost growth in a system than bans private providers, he wrote:
There’s another side of this, too: Just as private insurance handicaps Medicare’s potential advantages, so too does Medicare handicap private insurance. Medicare is such a giant payer that it’s easier for everyone involved to just do things pretty much as Medicare does them. Medicaid and private insurers frequently base their payment rates on Medicare’s, and the same goes for things such as the way they deal with medical errors and pay doctors. Dealing with dozens of different payers is hard enough for hospitals as it is. They’re really not interested in dealing with dozens of payers who do things in dozens of different ways.
The result is a destructive form of institutional isomorphism, or tendency of all insurers and providers to structure themselves and to behave in the same ways, that hobbles innovation.
Ezra closes with an appeal to conservatives:
We have basically no examples where something like a free-market insurance system both covers people and holds down costs. That’s why I think conservatives would be smart to embrace the Affordable Care Act structure and try to port it over to Medicare and Medicaid, giving private insurance a central role in those markets and leaving us with a health system that looks more like Switzerland than like Canada. I’d be fine with that — but then, like Rivlin, I support the Affordable Care Act, too. Conservatives, however, are making huge claims for the Affordable Care Act structure in Medicare while simultaneously attacking the Affordable Care Act itself, which just ends up being incoherent.
I have an appeal to our friends on the left: if you want to propose repealing PPACA and replacing it with legislation that would create a universal, fixed-dollar tax credit towards the purchase of insurance, I think we can achieve a durable bipartisan settlement that will have many of the virtues of the Rivlin-Ryan plan for Medicare and that can put our health safety net on a more sustainable fiscal footing.
I’d also suggest that it is important to separate out the exchange model from PPACA, which, lest we forget, achieves about as much of its coverage expansions through a very messy Medicaid expansion as it does through the subsidized exchanges. That would help bring some clarity to the debate.