James Capretta recently wrote a very astute essay on why the health reform debate has proven so contentious. The president maintains that this is yet another episode of party politics run amok. In his telling, the White House has reached out to Republican legislators and embraced their best and most plausible ideas. Rather than cooperate with Democrats, the Republican minority in Congress has chosen to indulge in obstructionism in order to score political points. It’s easy to see why President Obama might find this narrative appealing, as it paints him in a very positive light. But as Capretta explains, there really are deep, legitimate differences behind what looks like a merely political dispute.
After explaining that conservatives and liberals in Congress don’t actually disagree on the goal of providing universal access to affordable coverage …
In 2008, presidential candidate John McCain proposed a plan which would have provided to every American household a tax credit which could only be used to purchase a health insurance policy. It was, in a very real sense, a “universal coverage” plan in that it sought to ensure that every American would have the financial wherewithal, provided by the federal government, to acquire some level of health insurance protection. The issue, then, is not over expanding coverage to all.
(One friend of mine objected to this characterization, arguing that the McCain proposal didn’t cover all Americans. But of course the Senate health bill only covers two-thirds of the uninsured, and no one disputes that it can be fairly characterized as a “universal coverage” bill, leaving aside generous assumptions regarding the effectiveness of a weak mandate.) Capretta goes on to explain the real dispute.
No, the real sticking point between the two sides is really about allocating resources in the health-care sector. Both sides agree that the status quo is unsustainable, largely because costs are rising much more rapidly than wages or governmental revenues. The crucial question is what to do about the problem. Put differently, the question health-care reform advocates must answer is this: what process will be put in place to bring about continual improvement in the productivity and quality of patient care? That might strike some as something of a technical question, not one of fundamental importance. But, in reality, it’s just another way of saying that resources are scarce and must be allocated in some fashion. The only way to slow rising costs without lowering the quality of care provided is to improve the efficiency of the interactions between doctors and hospitals and those they care for. The question before policymakers is what is most likely to lead to better care at less cost.
In short, the Obama administration favors a governmental process and the right favors a market-oriented process. The most lucid proponent of a market-oriented process is Rep. Paul Ryan, Republican from southern Wisconsin who proved most effective when parrying with the president in Baltimore last week.
Ezra Klein, a strong advocate of the president’s approach, has described the seriousness of the Ryan approach, and also it’s politically problematic implications.
As you all know by now, the long-term budget deficit is largely driven by health-care costs. To move us to surpluses, Ryan’s budget proposes reforms that are nothing short of violent. Medicare is privatized. Seniors get a voucher to buy private insurance, and the voucher’s growth is farslower than the expected growth of health-care costs. Medicaid is also privatized. The employer tax exclusion is fully eliminated, replaced by a tax credit that grows more slowly than medical costs. And beyond health care, Social Security gets guaranteed, private accounts that CBO says will actually cost more than the present arrangement, further underscoring how ancillary the program is to our budget problem.
I’m not sure it is fair to characterize an 11-year transition as a violent one. It is certainly true that Ryan is calling for a very different approach to financing health expenditures eleven years from now, which will presumably allow many institutions and individuals to adjust their expectations. And firm cost controls will reward business-model innovation that lowers the cost of medical care, including business-model innovations that a governmental process would either ban or render unnecessary by creating far weaker incentives to transition away from fee-for-service.
Being politically savvy, Ezra knows this the Ryan proposal is out-of-bounds in our current political discourse.
It’s hard, given the constraints of our current debate, to call something “rationing” without being accused of slurring it. But this is rationing, and that’s not a slur. This is the government capping its payments and moderating their growth in such a way that many seniors will not get the care they need. This is, in its simplest form, a way to limit the use of a finite resource: Money.
This is roughly right, though Ezra is glossing over some tough questions regarding what it means to need care. In Arnold Kling’s provocative Crisis of Abundance, he notes that a standard of care that would have been considered first-rate in the 1970s would now be considered woefully inadequate. Some of us think that a decentralized process for determining what constitutes necessary care is far more desirable than a centralized process, as a decentralized process allows for experimentation and cheap failure.
Ezra ends with the following:
I wouldn’t balance the budget in anything like the way Ryan proposes. His solution works by making care less affordable for seniors. I’d prefer to aggressively reform the system itself so the care becomes cheaper, even if that causes significant pain to providers. I also wouldn’t waste money by moving to a private system when the public system is cheaper. But his proposal is among the few I’ve seen that’s willing to propose solutions in proportion to the problem. Whether or not you like his answer, you have to give him credit for stepping up to the chalkboard.
With Capretta’s framework in mind, this statement makes a great deal of sense. Believers in the governmental process believe that “aggressively reforming the system itself” must take the form of Medicare payment reforms and pilot programs, and that business-model innovation has, at best, a marginal role to play. Many in this camp have a deep skepticism regarding the long-term role of the private provision of medical insurance, which is one reason why some have suggested that conservatives should hope that the individual mandate approach works — if it doesn’t, the argument goes, we’ll have to turn to Medicare-for-all.
Those who suspect that a governmental process isn’t the best way forward should read The Innovator’s Prescription, a book that draws on insights from business-model innovation in other domains to describe how we might promote lower prices and higher quality in the domain of medical care.
I actually do think that there is a hybrid view that bridges Capretta’s divide. But that’s another post.