Wednesday, October 8, 2008

Obama’s Glass House 

Of late, Senators Barack Obama and Joe Biden have been throwing rocks at Senator John McCain’s health-care plan. They have called it “risky,” claiming it would destabilize insurance for those workers who have coverage through their jobs. They have also suggested workers would end up paying more under McCain’s plan.

Both of these claims are not true of the McCain plan. But, ironically, they are true of Obama’s. That the theme of this piece, posted yesterday at National Review Online.

posted by James C. Capretta | 11:50 am
File As: Health Care

Wednesday, October 8, 2008

What’s the Real Difference Between the Obama and McCain Plans? 

In Tuesday’s Washington Post, Ruth Marcus joined a chorus of columnists offering their views in recent days on the health-care plans of the two presidential candidates.

It may surprise some supporters of John McCain to find out her piece was not entirely one-sided. She offered some faint praise for the potential of Senator McCain’s tax credit plan to do some good. But she did make it clear she favored the plan put forward by Senator Obama:

Overall, Barack Obama’s health-care plan is preferable to John McCain’s. Obama’s approach—which would require employers to provide insurance or pay into a fund, subsidize those unable to afford coverage on their own and set up new purchasing pools—would cover more people and would help those who have the hardest time obtaining insurance.

But Ms. Marcus, as well as many others, is focusing on the wrong criteria in judging the plans.

The real question for the candidates is this: what is your theory of health-care cost control?

Rising health-care costs already threaten to overwhelm the federal budget—and family budgets too. If premiums continue to rise at a rate 2 to 3 percentage points above wage growth, there is no way Senator Obama will be able to sustain all of the new subsidies he is promising in his plan. And without the subsidies, enrollment in insurance coverage will decline.

Senator McCain, to his credit, has a vision for what needs to be done. He wants to convert today’s tax preference for employer-paid health insurance into a refundable tax credit in part because a reform of this kind is crucial to building a more effective marketplace for insurance and health care services. Even Jason Furman, a top health-care advisor to Senator Obama, agreed that is the case—at least up until he joined the campaign staff.

So what’s Senator Obama’s vision for cost control? He really doesn’t have one. His plan includes new public investments in information technology, effectiveness research, prevention measures, and disease management. All of these may be helpful, but no credible analyst believes these steps would materially slow cost growth absent a fundamental re-alignment of financial incentives. And the Obama plan offers no such changes.

The Obama health-care plan would never work as drawn up. Cost escalation would overwhelm it. Ms. Marcus and others shouldn’t be so easily swayed by illusory promises of expanded insurance coverage.

posted by James C. Capretta | 11:06 am
File As: Health Care

Friday, October 3, 2008

Biden’s Phony Health Care Argument 

Joe Biden: Distorting the facts.

My EPPC colleague Yuval Levin has already written an excellent piece for National Review Online detailing the numerous deceptions.

But it’s worth repeating the basic accusation and why it is so patently untrue.

Biden and Obama want to leave voters with the impression that they are going to get a $5,000 tax credit from McCain even though health insurance costs $12,000 per family, on average. Where’s the additional $7,000 going to come from?

Here’s how it would really work.

Suppose a worker gets $50,000 in cash wages and $12,000 in health insurance.

Right now, he pays federal income taxes on the wages but not the health insurance. Let’s assume, for reasons of simplicity, that the tax rate he is paying is a flat 25% on his wages. He therefore pays $12,500 in federal income taxes. His after-tax, after-health-care income is $37,500.

Now, under the McCain plan, his employer keeps paying the premium, which is now counted as income to the worker. He therefore pays federal income taxes on $62,000, or $15,500.

But he also gets a tax credit of $5,000 for health insurance, which means that, all in all, he owes $10,500 in federal taxes, or $2,000 less than he does today. His after-tax, after-health-care income is $39,500.

If the worker decides to buy his insurance in the open market instead of through the employer, the result will be the same. His employer is indifferent to how he pays his worker as long as total costs are the same. So instead of paying premiums, the employer pays his worker $62,000 in cash wages and does not pay anything toward insurance. The worker again owes $15,500 in taxes on this compensation, and he also must buy health insurance costing $12,000. So, his pre-tax income is $62,000, he owes $12,000 in health insurance premiums, and he owes $10,500 in federal taxes (after claiming his credit). His after-tax, after-health-care income is the same: $39,500 ($62,000 – $12,000 – $10,500), or $2,000 more than today.

posted by James C. Capretta | 5:41 pm
File As: Health Care

Friday, September 26, 2008

Well Worth a Read 

Last week, the White House Writers Group, among others, sponsored a health care “summit” in Orlando, Florida. Among the presenters at the meeting was Verizon CEO Ivan Seidenberg, who spoke in his capacity as the Business Roundtable’s lead executive on consumer health and retirement issues (Verizon’s General Counsel, Bill Barr, sits on the Ethics and Public Policy Center’s Board). Seidenberg’s complete remarks are well worth a careful read.

Mr. Seidenberg comes to the health care debate with strong credentials. Like other large employers, Verizon has no choice but to care deeply about the future of health care policy in this country. After all, the company spends $4 billion annually on medical care for its 900,000 employees and their dependents. Verizon is thus one of the largest purchasers of medical services in the country, giving its top executives a perspective few others have on what’s working and what isn’t in today’s system.

Mr. Seidenberg made several interesting observations and proposals in his remarks.

The information technology revolution has transformed the rest of the American economy–but not health care. That must change. Health IT is one of the most important steps needed to bring about greater efficiency, innovation, and consumer satisfaction.

The insurance system would improve with uniform national rules and larger, regional markets instead of today’s reliance on fifty different regulatory regimes run by each of the states.

Medicare must move from paying for volume and activity to buying better health outcomes. That means “paying for performance.”

There are numerous subpopulations of the uninsured that might need solutions tailored to them. Four to five million are college students. More than 10 million are non-citizens. A large number are already eligible for public insurance. And there are a surprisingly large number of uninsured Americans with seemingly sufficient incomes to pay for insurance without additional assistance.

But Mr. Seidenberg’s most important point was this: Health care reform in the U.S. “must emerge from the uniquely American principles that drive our economy: competition, innovation, and choice.”  

He called on policymakers to build a functioning marketplace where vigorous competition and consumer choice can do for health care what they have done for every other sector of the American economy: improve quality and drive down costs at the same time. That’s a message many more people in Washington need to hear.

posted by James C. Capretta | 3:05 pm
File As: Health Care

Friday, September 12, 2008

Reform Medicare First 

Robert Samuelson’s September 10th column in the Washington Post should be read by every health care analyst in Washington.

He makes several important points that run counter to conventional wisdom. For starters, he argues that the urgent problem today is cost escalation, not coverage. Samuelson points to new data showing health care spending is already distributed uniformly across income groups. Why? Because health care spending is driven by a relatively small number of expensive conditions which are related mostly to age and genetics. And the poor apparently get care at nearly the same rate as everyone else when faced with these diseases because of existing government policy and entitlement programs.

Samuelson also notes that covering the uninsured would be expensive to taxpayers and would bring little or no improvement in health status.

Samuelson’s most important point, however, was this one: “Medicare is so large and influential that by altering how it operates, government can reshape the entire health care system.”

That’s exactly right. Medicare is a popular program, and understandably so. But the Medicare fee-for-service program rewards volume, not quality, and underwrites fragmentation, not coordination.

So what should be done? Here, Samuelson falls short by limiting his reforms to a familiar list: better electronic records, management of chronic illnesses, and more scrutiny of tests and procedures.

Though helpful, these reforms wouldn’t fix the problem, which is rooted in misaligned financial incentives for hospitals and physicians.

Market-based reform efforts in recent years have focused on “premium support” in Medicare as the answer. And it is still an important part of the answer. But it seems unlikely to be the full answer, given the resistance among providers to insurance-led pushes for more efficient arrangements.

But what if competition went beyond insurance to networks of hospitals and doctors? Medicare beneficiaries could be asked to select each year from among a number of competing “delivery systems,” not just insurance plans. A portion of the Medicare entitlement would go toward an insurance premium, but another portion would go toward paying an enrollment fee for a coordinated system of providing the kinds of non-catastrophic services most seniors need every year.

This kind of competition would finally put hospitals and doctors in charge of re-organizing themselves for efficiency. Successful delivery models would be those that found innovative ways to make their operations more cost-effective, thus allowing them to deliver a better product at a lower enrollment fee.

Obviously, this idea needs much more development and would raise many complex implementation issues. Still, there is no way around the fact that, to fix health care, we must fix Medicare. The reform suggested here would get the incentives right: hospitals and doctors would gain financially if they took the initiative to do their work better and more cheaply.

posted by James C. Capretta | 8:24 am
File As: Health Care

Thursday, September 11, 2008

The Future of Medicare Advantage 

The Heritage Foundation sponsored an event yesterday called “The Future of Medicare Advantage,” at which I was invited to make some remarks (video and slides below).

Medicare Advantage allows beneficiaries to get their health coverage through private insurance options, such as HMOs orPPOs, rather than through the traditional, government-administered fee-for-service program. It has grown rapidly in recent years -- about one-in-five Medicare beneficiaries are now enrolled in a Medicare Advantage plan.

But the program has many critics in Congress, especially among those who do not want to build Medicare reform on a model of competition and consumer choice.

My presentation focused on presenting important data relevant to the debate. For instance, few in Congress understand that there is an important spillover effect in markets with large percentages of Medicare beneficiaries enrolled in HMO-based coverage. In those markets, even fee-for-service costs are lower. According to a careful study of eight years worth of data, for every 1 percentage point increase the proportion of Medicare beneficiaries enrolled in an HMO in a market, there is a 0.9 percent decrease in annual spending for beneficiaries who have stayed in the traditional fee-for-service program.

You can watch video of the event below, courtesy of the Heritage Foundation. (You can also just get the audio here in MP3 format.) And the slides I used during my presentation are available in PDF here or in PowerPoint format here.

posted by James C. Capretta | 4:11 pm
File As: Health Care

Friday, September 5, 2008

Dr. Obama 

The Obama health care plan would not work as advertised, as I’ve noted before on this blog.

The Democratic presidential campaign likes to say the Obama plan would build on the employer-based health insurance system. But, in reality, key provisions would swell the ranks of public insurance enrollees and undermine the viability of private insurance. It wouldn’t be long before the federal government was setting prices for health care service provided by every doctor and hospital in the country.

That’s the theme of this article I have in the September 1 issue of National Review.

posted by James C. Capretta | 9:31 am
File As: Health Care

Wednesday, September 3, 2008

Governor Palin vs. Certificate of Need (CON) Laws 

It shouldn’t be surprising that Alaska Governor Sarah Palin, Senator John McCain’s pick to be his running mate, has built her reputation more on natural resource issues than health care. She’s from Alaska, after all.

But Gov. Palin hasn’t been completely silent on health policy either. In February, she wrote an interesting opinion piece for the Anchorage Daily News in which she advocated repeal of the state’s Certificate of Need (CON) law.

CON laws were put in place in the 1970s in a desperate attempt to control rapidly rising health care costs. Medicare and Medicaid were passed in 1965, unleashing much new demand for health services, which, in turn, prompted a building boom of hospitals and nursing homes.

In response, the federal government and the states tried to slow down the rapid increases in use of inpatient services by imposing CON requirements, which essentially forced would-be hospital owners and administrators to prove the need for any new inpatient beds.

The problem, of course, was that these laws put politics in the middle of service supply decisions. CON laws were used and manipulated by incumbents to limit competition and protect their market share.

CON advocates point to studies here and there showing modest cost savings, but it is nearly impossible to determine for sure what would have happened in some markets without such laws.

But the overall picture is quite clear: costs have been rising rapidly for three decades, and CON laws did nothing really to alter that picture. It is telling that no serious analyst believes aggressive CON enforcement would do much to solve our cost problem today.

There are really only two choices when it comes to health care cost escalation: governmentally-enforced budgets, which use price controls to limit the supply of services (and therefore ration care) or a more effective marketplace, in which consumers are able to use their purchasing power to reward efficiency and patient-centered care.

In this crucial debate over costs, Gov. Palin has shown the right instincts. Repealing CON laws will not solve the whole problem, but repeal is a necessary step in fostering more effective competition among suppliers of services. Price and quality transparency, and strong financial incentives for cost-conscious consumption, are also crucial.

posted by James C. Capretta | 4:07 pm
File As: Health Care

Wednesday, September 3, 2008

Still More on Those Census Numbers 

The National Institute for Health Care Management has issued two readable and extremely useful papers on the uninsured.

The first NIHCM paper, released in August 2006, is a primer on the alternative ways the uninsured are measured.

Most newspapers stories on the uninsured cite the measure put out by the Census Bureau every August, which is based on sample data collected as part of the Current Population Survey (CPS).

But, as the NIHCM primer notes, there are two important problems with this data.

First, the sample is collected every March, and respondents are asked essentially whether or not they were uninsured during the prior year. The question is supposed to elicit a “yes” only when someone went without coverage for the entire calendar year in question. But many people apparently answer “yes” based on an imperfect understanding of the question. Hence, many people who are uninsured at the time they are asked the question seem to answer yes, as well as those who were uninsured during a portion of the calendar year.

Other surveys, like the Survey of Income and Program Participation (SIPP), follow the same people for a number of years and collect data from them more frequently. This sampling approach allows better “point in time” versus “all year” determinations. And it is noteworthy that, based on SIPP data, the number of Americans uninsured all year in 2002 was only 23 million (compared to about 42 million using CPS data). The SIPP survey also found that about 43 million Americans were uninsured at any given point in time during 2002—fairly close to the CPS estimate of the full-year uninsured count.

The second NIHCM paper, issued in April of this year, looks at different subpopulations of the uninsured and the appropriate policy remedies to expand coverage to them. The paper sorts the uninsured into those eligible for public program coverage (about 12 million) and those who are not. Of those not eligible, the paper further estimates that about 40 percent live in households with incomes exceeding 400 percent of poverty.

The paper also notes that large numbers of the uninsured are in “transition” age groups: children leaving their parents’ coverage but not settled in stable job-based plans, and the near elderly who have left the workplace but are not yet eligible for Medicare. Public policy may need to target coverage options to the specific needs of these age groups.

The primer of CPS, SIPP, and other uninsured data is available here. The paper on uninsured subpopulations and possible policy responses is available here.

posted by James C. Capretta | 9:49 am
File As: Health Care

Friday, August 29, 2008

The Value of the Tax Subsidy 

The Joint Committee on Taxation (JCT), Congress’ scorekeeping agency for tax legislation, issued a useful summary of the current law tax treatment of health insurance last month. JCT produced the summary in anticipation of a hearing called by the Senate Finance Committee on July 31st.

JCT estimates that the exclusion of employer-paid health insurance premiums reduced federal revenue by $246 billion in calendar year 2007. The revenue value of the exclusion from income taxes totaled $145 billion; the value in terms of payroll taxes not paid was $101 billion.

Among the more useful pieces of information in the summary was a distribution table showing the value of the tax exclusion across income categories, as shown in the chart. The data provided in the table confirms what many analysts have stated over the years, which is that today’s tax treatment of job-based health insurance is worth more to upper income taxpayers than lower income taxpayers. One of the reasons, of course, is upper income households pay higher marginal tax rates, so excluding premiums paid by their employers from their taxable income is worth more than it would be for a person paying a lesser rate of tax.

The full JCT report is available here.

posted by James C. Capretta | 4:45 pm
File As: Health Care

Thursday, August 28, 2008

Those Census Numbers, contd. 

Devon Herrick of the National Center for Policy Analysis has written an interesting policy brief on the uninsured data, available here.

One of the points he makes is that the percentage of the population lacking coverage has actually fallen compared to a decade ago, which would probably surprise most Americans, given the way the media covers the issue.

As shown in the chart below, the total U.S. population increased by 30 million from 1997 to 2007. During that time, 26.7 million were added to the ranks of the insured, and 3.3 million to the uninsured. That translates into a drop in the uninsured rate from 15.7% to 15.3%.

The primary problem in health care is rapidly rising costs, which is putting financial pressure on low wage earners who struggle to pay premiums for coverage at work or elsewhere. Reform needs to focus on slowing cost escalation for everyone and making portable, affordable insurance available to low wage workers who switch jobs frequently. What’s not needed is a plan to move tens of millions of American with insurance out of what they have today in the name of universality.

posted by James C. Capretta | 3:28 pm
File As: Health Care

Thursday, August 28, 2008

Those Census Numbers 

On Tuesday, the Census Bureau released new data on incomes, poverty status, and health insurance coverage rates for 2007.

As has been widely reported (see here and here), the most noteworthy change was a surprising drop in the number of uninsured Americans, from 47 million in 2006 to 45.7 million in 2007.

Of course, many analysts have correctly noted that these numbers were collected just prior to the housing sector meltdown last fall. Since then, the economy has cooled, and unemployment has risen. It is likely that 2008 will show a large uptick in the uninsured rate.

Even so, the drop in 2007 is worth pondering. What seems to be at work is the accumulation of a large number of states using the resources available to them to expand coverage for children through public insurance and to pursue broader reform strategies for the general population, such as in Massachusetts.

Less noticed but always startling are some of the subtotals beneath the headline uninsured number. For instance, according to the census data, about 23% of the population are between the ages of 18 and 34, but 40% of the uninsured are in that age range.

Why? The answer is straightforward. These are people just entering the workforce, so their wages are low, but their premiums are high in the sense that their expected health costs are often far below the cost of community-rated premiums for expansive insurance coverage. Consequently, they often take the risk of going without insurance in order to save on premium costs.

Addressing this problem is very different from trying to secure coverage for a person afflicted with an expensive chronic illness, but our public policy debates rarely make the distinction.

posted by James C. Capretta | 11:22 am
File As: Health Care

Wednesday, August 27, 2008

The Uber-Regulator 

Former South Dakota Senator Tom Daschle is scheduled to speak today at the Democratic National Convention in Denver, no doubt in recognition of his early and vocal support for the presidential candidacy of Illinois Senator Barack Obama.

In recent months, Daschle has let it be known that he is interested in more than just helping the campaign:  he may want to lead the health care effort in an Obama administration.

That being the case, it’s worth asking: What is Daschle’s health care vision?

He is known in health care circles for his longtime support for establishing a new regulatory structure for health care, modeled on the Federal Reserve Board for banking. Daschle thinks such a board would be ideal in health care because it would be insulated from political pressure, thus protecting health decisions from political micro-management.  

But what is not reassuring is that such a board would have enormous power and little accountability. Political insulation means the board could decide that all insurance offered in the country will no longer cover a certain service or product, and the public would have little recourse to reverse the decision. That seems to be the worst of all worlds in terms of government-run health care.

All of this and more is covered in a piece posted today at National Review Online, available here.

posted by James C. Capretta | 4:25 pm
File As: Health Care

Friday, August 22, 2008

Realistic Options for the Uninsured 

Health care in the United States has many flaws.  Insurance coverage is too unstable, and the quality of care provided is all too often of low quality and insensitive to the needs of the patient. 

But that does not mean we need to start from scratch.  Most Americans, especially those working for larger employers, still have good insurance protection which provides them with ready access to some of the finest medical institutions in the world.

In a rush to solve every problem with more centralized government control, we could make matters much worse.

Gary Andres and I published a piece recently in the Washington Times in which we argue legislating should be like practicing medicine, with the first rule being “do no harm.”

In the piece, we offer up one idea for covering more of the uninsured without reinventing the wheel.  A sizeable portion of the uninsured population is composed of workers and their families experiencing a temporary break in coverage based on job switching.  What’s needed for these workers and their families is not a massive new government entitlement but sensible and reliable bridge insurance to cover breaks in coverage that naturally occur in a flexible labor market.  The full article is available here. 

posted by James C. Capretta | 9:08 am
File As: Health Care

Monday, August 11, 2008

Who Are the Uninsured? 

Too often, discussions of health care reform center on vague assumptions about who the uninsured are, which leads to distorted policy solutions.

Many people counted among the uninsured ranks are recent immigrants, as documented in this Employee Benefits Research Institute study.

Also, a large percentage of the uninsured are young adults, ages 19 to 30, who are often in good health and would gain far less in health benefits than they would pay in premiums (see this study from the Commonwealth Fund for the numbers -- but not necessarily the remedy!). Others are low-income people who are eligible for Medicaid and SCHIP but who don’t sign up for these programs. And then there are those who can afford coverage but choose to self-insure.

This is not to suggest that there aren’t many uninsured families who want, and need, insurance but go without because they are not eligible to enroll in anything affordable. These families often work for smaller businesses that either don’t offer coverage or offer plans with premiums that are too expensive for low wage workers.

The health care reform debate frequently occurs without regard to these elementary facts. That kind of factual vacuum can lead to flawed policy.

posted by James C. Capretta | 10:25 am
File As: Health Care

Thursday, July 31, 2008

Making the Case 

In June, the President’s Council on Bioethics held a meeting in Chicago to explore questions related to reform of American health care provision. I was asked to present the case for a tax-based reform approach, which I took to mean a reform plan built on consumer choice and market competition.

It was a lively discussion which went beyond the usual policy-intensive focus of most discussion of health care reform. The full transcript is available here, and the slides I used for my presentation are available here.

posted by James C. Capretta | 11:44 am
File As: Health Care

Monday, July 28, 2008

Something to Write Home About 

“Medical Homes” and Reforming How Health Care Is Delivered

Last week, the New York Times had a piece on the latest policy fad in health care: the “medical home” -- “a base where doctors, staff and patients pull together as one big health-care family. Or at least that is the ideal.”

It may not be a bad idea. The article reports on an effort in Philadelphia to pay primary care doctors to oversee, in a comprehensive fashion, the health needs of their patients. It is now widely understood that today’s dominant fee-for-service insurance, especially in the Medicare context, shortchanges the time that doctors spend making sure their patients are following appropriate prevention strategies. The fee-for-service system rewards volume, not time. Consequently, there is an emphasis on diagnostic testing and procedures, not the labor-intensive task of ensuring patients stay on course with a treatment plan.

The idea of the medical home is that the solution is to pay doctors more for the time and effort needed to provide appropriate oversight of the health needs of their patients. And with more quality time from primary care physicians, there is a hope that complications from chronic illnesses will decline -- as will the demand for tests and procedures. Medicare is set to begin testing the medical home concept in coming years, too.

The medical home may very well produce some positive results. But it is far from clear that the pressure for more testing and procedures will decline. Medical homes would indeed reward more primary care, but they would not necessarily alter the strong incentive for volume. Specialists and hospitals would still gain if they were able to provide more services to more patients.

A more promising approach to reforming how health care is delivered would get at the underlying financial incentives faced by doctors and hospitals by allowing them to reap the gains from more efficient arrangements.

For instance, in Medicare, beneficiaries could be given a choice of delivery systems for their health care. Each delivery system would have to include physicians, hospital care, and other services, and the presumption would be that the beneficiary would get all of their care through their chosen network. Payments would be reformed so that a large portion of the Medicare entitlement would be managed by the network on behalf of the beneficiary. The idea would be to give physicians and hospitals the incentive to reorganize themselves to be more efficient. If more beneficiaries selected such a network based on their attention to prevention and wellness, they would gain from associated drop in use of other services.

It is certainly worth testing the medical home idea. But it is unlikely to solve the underlying problem. For that, a more sweeping and difficult reform is needed, one in which consumer choice is harnessed to incent sweeping, provider-led delivery reform.

posted by James C. Capretta | 4:23 pm
File As: Health Care

Tuesday, July 1, 2008

Employer-Based Health Coverage Threatened 

Obama’s plan would undermine the job-based insurance system

It is becoming a standard line in news stories on the presidential contest -- including this one from Congressional Quarterly -- that, if elected president, Senator Barack Obama would “build on” the employer-based system.

But is it true? No, not by a long shot.

The Obama plan has three features that would work in concert to rapidly undermine all private health insurance, including employer-sponsored plans:

1. A new public insurance option for the working age population, modeled on Medicare.
    
2. The requirement that all but the smallest employers “pay or play” -- meaning they must offer acceptable coverage or pay a tax to finance coverage through the government.
    
3. Price controls for services in the new public option.

The “pay or play” tax -- 4 percent of payroll in California’s abandoned plan, and 7 percent in this proposal from Commonwealth Fund researchers -- would, by itself, provide a strong incentive for just about every employer to get out of the health insurance business. The tax, tied to wages, would provide certain costs, whereas health premiums have risen above wage growth consistently for three decades. Why would an employer, especially small–to–mid-size firms, continue to take the risks associated with running a plan when they could fulfill their obligation to workers by paying a tax instead (which, incidentally, would come out of wages)?

The new public insurance option would only increase the incentive for employers to drop their company-run plans. How would such a plan determine what to pay doctors and hospitals? It seems obvious that it would use Medicare’s price controls, flawed as they are. These payments systems, as can be seen in the current fight over physician fees, are well below market rates because the government can effectively offer them on a “take-it-or-leave-it” basis. In so doing, the government could set premiums for the new public option at an artificially low rate. Price controls do not provide real cost control; they simply frustrate demand by limiting supply. But, no matter. Especially in the short term, employers would quickly make the decision that investing in real efficiency gains would no longer pay off, given the strong pull of a low-cost option run by the government.

The Lewin Group estimates that some 40 million people would be in the new public insurance option in the first year of the plan proposed by the Commonwealth Fund authors -- a plan that closely tracks the Obama outline. That’s not building on the employment-based system. It would be the first step in what would become the very rapid demise of job-based health insurance.

posted by James C. Capretta | 6:54 pm
File As: Health Care

Friday, June 20, 2008

CMS-Driven Delivery Reform? 

No -- Build a Marketplace Instead

The Medicare Payment Advisory Commission (Medpac) issued its annual June report (available here in PDF) to Congress last week. This year’s report has as its main theme reform of the delivery system -- which is to say, reform of those arrangements which govern how and where patients get care. What can be done to make this “system” more efficient, patient-focused, and of higher quality?

This is how Medpac’s commissioners describe the reason reform is necessary:

In previous reports, the Commission has recommended that Medicare adopt tools for increasing efficiency and improving quality within the current Medicare payment systems.... However, in the current Medicare FFS [fee-for-service] payment system environment, the benefit of these tools is limited for two reasons. First, they may not be able to overcome the strong incentives inherent in any FFS system to increase volume. Second, paying for each individual service and staying within the current payment systems (e.g., the physician fee schedule or the inpatient PPS [prospective payment system]) inhibit changes in the delivery system that might result in better coordination across services and lead to efficiencies or better quality across the system.

This commentary from Medpac marks an important shift in the tenor of health policy discussions. In effect, Medpac is arguing that we need a fundamental shift in how Medicare pays for services in order to provide the incentives needed for a restructuring of existing provider arrangements for everyone. Beneath Medpac’s recommendations is the admission that Medicare’s current design is the most important reason health care provision today is so fragmented, uncoordinated, often of poor quality, and highly inefficient.

So what would Medpac have Congress do? The series of recommendations put forward in the report -- including testing a new bundled payment system covering both hospital and physician fees for certain expensive admissions -- amount to a request that Congress legislate new, government-run payment systems to replace the old, government-run payment systems.

But this is a prescription for delay and failure. Congress and CMS (the Centers for Medicare and Medicaid Services) are utterly incapable of rapidly designing and implementing any type of payment reform which entails losers -- which any sensible reform will. The political pressures are simply too intense.

One need only watch what’s happening in Congress this month to see why. For the better part of a decade, CMS has been working to test and implement a competitive bidding approach to selecting durable medical equipment suppliers for beneficiaries. But, just as the reform is about to be implemented, opponents of the reform have convinced many in Congress that it is unfair and will harm beneficiaries. Nothing is certain, but it seems more likely than not that the CMS effort will be postponed into next year by Congress.

Medpac is right that Medicare needs to move in an entirely new direction. But a much more promising approach to delivery system reform would be to build a marketplace in which providers would have strong incentives to reorganize on their own based on competitive pressures, not government regulation.

For instance, if Medicare moved more in the direction of a defined contribution program, beneficiaries could be given two choices each year: one for their preferred insurance arrangement, and one for their preferred provider arrangement. The provider arrangements would be integrated delivery networks, with hospitals, physicians, labs, surgical centers, labs, and hospices combined into some form of organizational unit. Some might look more like staff model HMOs, other more like loosely affiliated PPOs. Either way, they would be required to provide beneficiaries with some level of coordination so that patient records would be electronic and accessible and billing would be streamlined. These provider arrangements would not act as insurers, but they would have in place contracts with each of the private Medicare insurers in the marketplace. Beneficiaries would therefore have the ability to find the combination of insurance and provider network most to their liking.

No reform is without complications, this one included. But it would fundamentally shift power from the CMS bureaucracy and political system of allocating resources to the patient. Most importantly, with patients given the power to make their preferences known, providers would have strong incentives to organize themselves for convenience, quality, and efficiency.

posted by James C. Capretta | 5:45 pm
File As: Health Care

Wednesday, June 11, 2008

Medicare Reform and Health Care Reform 

Medicare’s stark financial problems are well known but worth repeating often. Promised benefits are expected to exceed dedicated financing for the program by $36 trillion over the next seventy-five years (measured in present value terms). Between 1975 and 2005, annual program spending growth per beneficiary outpaced per capita GDP growth by an average of 2.4 percentage points annually.

In the latest Weekly Standard, I discuss Medicare’s immense financing challenge, covering fairly familiar ground for those familiar with the program. But I also argue that a central assumption of conventional health policy thinking in Washington is wrong. That is, most analysts argue that Medicare cost escalation is simply a function of system-wide cost pressures, and that Medicare spending growth will slow only with effective health care reform covering all payers.

This kind of thinking ignores Medicare’s dominant role in today’s marketplace. Medicare fee-for-service insurance is the number one reason today’s delivery system is fragmented, disorganized, and inefficient. Reforming Medicare, therefore, is central to encouraging more efficient hospital and physician arrangements. In other words, to slow health care costs down for everyone, a crucial first step is reforming how Medicare buys health care services.

The full article can be found here.

posted by James C. Capretta | 9:33 am
File As: Health Care

Friday, June 6, 2008

Obama’s Tax on Work 

The centerpiece of Senator Barack Obama’s health care plan is a so-called “play or pay” mandate on American employers. This idea has been a staple of Democratic health care reform plans for a quarter century -- going back to Michael Dukakis and Senator Ted Kennedy in the 1980s -- and it’s one of the main reasons these plans never pass.

The basic idea is to give employers a choice. They can either “play” (that is, offer coverage to their workers and pay a portion of the premium) or “pay” (that is, pay a tax to help offset the cost of subsidizing the premiums for coverage offered to their workers by the government). Proponents of play or pay often argue that the current system, which lets some employers provide no health benefits while employers do, is unfair.

Senator Obama does not specify the rate of tax employers would have to pay if they did not offer coverage, but a similarly constructed plan offered by health policy researchers at the Commonwealth Fund proposed a 7 percent payroll tax.

The problem with this idea is that it would hurt the very workers it is supposed to be helping because it ignores fundamental economic reality.

Workers, not employers, pay for health insurance premiums. If the government imposes a health insurance mandate on businesses, the additional cost will be absorbed by workers in the form of lower cash wages.

But for workers near the minimum wage, employers can’t pass on the costs of health insurance because the law won’t permit cash wages to fall below the minimum wage line. Thus, in these instances, many employers will choose to cut back on employment rather than pay more for labor than they think it is worth to their firm.

Katherine Baicker of Harvard and Helen Levy of the University of Michigan estimate that about 224,000 Americans would lose their jobs under one formulation of an employer health insurance mandate. Those job losses would be disproportionately concentrated among non-whites, high school dropouts, and women.

In another new study, Richard V, Burkhauser and Kosali I. Simon of Cornell University show “play or pay” to be poorly targeted. They estimate that there would be 11 jobs lost among the working poor for every 100 newly insured. Moreover, because most pay or play proposals exempt the smallest businesses, some 1.2 million low wage workers would still not have health coverage through the workplace, necessitating some other governmental policy to provide them with insurance options.

For now, some voters find Senator Obama appealing because he is a fresh new face on the national scene. But many of his ideas are just recycled versions of proposals that were rejected -- for good reason -- in the past. Play or pay is certainly one of them.

posted by James C. Capretta | 3:19 pm
File As: Health Care

Wednesday, May 28, 2008

Destroying Private Health Insurance 

A Closer Look at the Obama Health Plan

News stories continue to suggest that Senator Barack Obama’s health care plan would build on today’s employer-based system of private insurance. In a new National Review Online article, I argue that Obama’s plan would actually lead to the demise of private health insurance, including coverage provided by employers.

The reason is simple: the public insurance option Obama calls for in his plan would use price controls to keep premiums low, which would completely undercut the ability of private plans to compete and gain market share. Estimates from the Lewin Group confirm that the vast majority of new insurance enrollment for a plan like Obama’s would go with the public insurance option because of the premium differential associated with such price controls.

Details in the NRO article.

posted by James C. Capretta | 10:39 pm
File As: Health Care

Tuesday, May 20, 2008

Google Health and Your Health 

This week, Google unveiled Google Health, its long-awaited portal for storing patient medical records. This is another promising development in the long, slow movement to better use of information technology (IT) in health care. As matters stand, most patient records are stored on paper and housed inaccessibly in physicians’ offices, despite the revolution in IT which has transformed most other sectors of the American economy (see my New Atlantis article “The Clipboard of the Future” for more on the health IT conundrum).

The new Google portal is free to users. Data must be entered into the system by participating medical providers or the patients themselves. So far, Google has signed up a handful of high-profile participating providers, including the highly respected Cleveland Clinic. Patients getting care with these providers can have their medical information automatically uploaded into their Google Health account. But, most physicians and hospitals do not yet have the ability to easily place patient data onto the Internet, so Google Health users will have to rely on themselves to keep their patient information complete and up-to-date.

Google’s new health venture will compete directly with Microsoft’s Health Vault, launched in 2007. Both companies have invested heavily in privacy protection to give users confidence that their online patient records are secure.

posted by James C. Capretta | 11:09 am
File As: Health Care, Internet, Privacy

Wednesday, May 14, 2008

Taking Sides 

CBO’s misguided Medicare advice

Here is a key but subtle question in the health care debate: Is Medicare a passive victim of rapid health care cost inflation, or a primary cause of it?

To some, Medicare is just one car among many attached to the runaway cost train. From this perspective, slowing Medicare spending will require slowing down the engine which is pulling all of the cars too quickly down the tracks. And what is this engine? Most often, those sympathetic to this point of view suggest the problem is lack of discernment in the adoption of expensive new medical technologies. The implication is that what is needed most is not Medicare reform but health care reform which puts up more governmental barriers to innovative products and new technology on behalf of all payers, public and private.

But there is an alternative view. Medicare’s design — fee-for-service insurance, with virtually no cost-sharing at the point of service for most beneficiaries — is the most important source of financing for today’s fragmented and uncoordinated delivery system. In most markets, Medicare is the dominant insurer, and other private payers follow the program’s lead. As currently run, Medicare beneficiaries have strong incentives to use emerging technology more intensively with each passing year. Moreover, Medicare’s payment rules are set so that providers — hospitals, physician practices, labs, and others — can remain financially viable without effective integration or coordination. The resulting fragmentation in health care delivery makes it nearly impossible to reward efforts at improved efficiency and cost-effective care.

Looked at from this perspective, what is needed most desperately is a Medicare reform which changes the financial incentives so that insurers and providers themselves are rewarded for weeding out low value or ineffective use of services, including unnecessary use of high-tech medicine.

Normally, the Congressional Budget Office (CBO) is not supposed to take sides in these kinds of debates. But in recent months, there has been an unmistakable shift in emphasis in the agency’s health care work. This was particularly evident in a recent publication on the role of new technology in rising health care costs (available in PDF format here), in which CBO said the following:

Straightforward changes to the Medicare and Medicaid programs, such as more stringent eligibility criteria, greater cost-sharing, or changes in provider payments, could reduce federal spending in part by shifting costs from the federal government to households. Ultimately, however, such cost-shifting approaches are unlikely to be sustainable, and controlling federal spending on health care while maintaining broad access to care under these programs will therefore almost certainly need to be associated with slower cost growth in the health care sector as a whole.

The implication is clear: CBO is siding with those who say Medicare reform won’t solve the problem; what is really needed is a broader effort to impose more governmental control over the use of health care services, system-wide.

CBO based this conclusion on its finding that technological change accounted for about half of the real spending increase in health care over the last four decades, for public and private payers. This was anything but a straightforward calculation. CBO assigned cost inflation to other factors first, and then assumed that any unexplained residual was due to technological advances. But, although mentioned in passing, CBO underplayed the potential dynamic role of the various factors. For instance, CBO suggested that only about 10 percent of the real cost increase was due to the spread of expansive third-party payments, such as Medicare. But disentangling the effect of insurance coverage from new technology is not so easy. Indeed, other researchers have argued persuasively that it was the spread of third-party insurance that essentially paved the way for rapid technological advancement.

Medicare reform, properly understood and constructed, should be thought of as the indispensable first step of an effective approach to health care reform, necessary to get the financial incentives right for providers to pursue on their own new arrangements oriented toward high quality and cost-effective care. Introducing more governmental control over health care delivery is just as likely to lead to bad bureaucratic decision-making as to more efficient care.

CBO’s professional staff is highly productive and professional. But the agency’s mission is to provide objective analysis, not policy advice. And for good reason.

posted by James C. Capretta | 4:34 pm
File As: Health Care

Wednesday, April 30, 2008

McCain's Confidence 

Republicans have been on the defensive on health care for many years. Public opinion polls show more voters trust Democratic candidates on health issues than trust Republicans. On the campaign trail, that generally means Democratic candidates look for opportunities to bring up health care, while Republicans tend to avoid the subject unless pressed. When it comes to health care, think of Republicans as the visiting team in a sport that rewards home field advantage.

That may begin to change this year, however. On the central public policy question in health care — what can be done to slow cost escalation? — Republicans are far more confident than Democrats that they have an answer that will work and that the public will support.

That was apparent in Senator John McCain’s important health care speech yesterday. The presumptive Republican nominee for president discussed his vision for American health care, and, once again, he came down strongly on the side of a market-based solution. His presentation was forceful and persuasive.

McCain’s core argument is that conversion of today’s tax preference for employer-paid premiums into a tax credit flowing to households and individuals would spark much more intensive price- and quality-competition in health care. That kind of competition would, in turn, force insurers and those delivering care to improve productivity and the quality of care they provide.

McCain is far from alone in holding this view; conservative economists have been saying effective health care reform requires a tax fix since the 1970s. But this is the first time a Republican presidential candidate has made a market-based reform one of the central themes in his campaign for the presidency.

The Democratic candidates, Senators Hillary Clinton and Barack Obama, still enjoy the advantages on health care. Voters are of course attracted to their promises of lavish new insurance subsidies.

But on cost control, the Democrats are on shaky ground. Their health care plans will only work if they embrace the kinds of government-imposed budgets employed by Canada and Europe — price-setting by the government, and other measures which limit the supply of services. But their health care talking points make no mention of these steps because the candidates know they would be attacked, accurately, for supporting government-enforced rationing of care, which would not be popular with voters.

Senator McCain’s confidence on health care is clearly increasing, as it should be. He has the better argument on what should be done to slow health care inflation, and he can at least neutralize the health care issue if he makes the case repeatedly in the coming months.

posted by James C. Capretta | 6:22 pm
File As: Health Care

Friday, April 25, 2008

“Sweeping Change Will Be Difficult” 

On Wednesday, The Hill ran this very interesting story on the prospects for health care reform if either Senator Hillary Clinton or Senator Barack Obama were to win the presidential election in November.

Both Democratic candidates, of course, have spent months telling voters they are just the leaders the country needs to swiftly pass a major health care overhaul. Both have offered somewhat sketchy proposals that nonetheless promise the moon to voters — new subsidies to buy insurance, a publicly-run insurance option, and a federally-administered “exchange” where people can get private insurance.

But, now, it seems some in Congress are beginning to realize — perhaps after reading the candidates’ plans — that it won’t be so easy to pass them.

They’re right. The Democratic proposals, as described to voters so far, could never pass because they will not stand up to the kind of analytic scrutiny needed for realistic legislation. They would completely disrupt employer-based insurance pools, which would mean forcing millions of people to switch out of coverage they generally like today. And neither Democratic candidate has described anything resembling a plausible cost-control strategy. Consequently, their new subsidy promises will be “scored” as escalating at well above the rate of economic growth, which means ever higher tax rates or deficits.

Senators Jay Rockefeller and Charles Schumer are quoted in the story, and they clearly want to throw some cold water on the over-heated expectations of Democratic activists. But it might be too late for that. The Democratic presidential candidates themselves have raised expectations, and they are unlikely to say anything before November to take air out of the health care balloon. That will have to wait until late this year or early next year (if they are elected), at which point they will run the risk of alienating many voters who took them at their word.

posted by James C. Capretta | 3:57 pm
File As: Health Care

Monday, April 21, 2008

Passing the Market Test 

The Medicare drug benefit

In the latest Weekly Standard, my EPPC colleague Pete Wehner and I have an article examining the success of the Medicare prescription drug benefit to date. As we point out:

Now in its third year, the drug benefit is working better than predicted. More than 1,800 private plans are competing for enrollment. More important, Medicare beneficiaries like the program. Recent independent surveys show 85 percent are satisfied with their coverage. And little wonder: In 2008, the average beneficiary premium is just $25 per month, well below the original estimate of $41.

The program's competitive design is holding down costs for the government as well. The Centers for Medicare and Medicaid Services announced earlier this year the new drug benefit's costs will be 40 percent--or $244 billion--less over ten years than originally projected. This is an unprecedented achievement in health care policy.

As we note in the article, the continued success of the drug benefit has important implications for the broader health care debate. Advocates for market-based reforms have long argued that the best way to improve the quality of services provided, and improve efficiency in health care too, is with public policies which promote strong price and quality competition. Now the drug benefit, even at this early stage, is beginning to demonstrate this argument has merit.

posted by James C. Capretta | 11:46 am
File As: Health Care

Wednesday, April 16, 2008

No One Ever Said Health Care Policy Would Be Easy 

Paying for Drugs; The Cost of Prevention

On Monday, the New York Times ran this front page story on private insurers moving more high cost prescriptions onto a “fourth tier” for purposes of insurance reimbursement. Insurers typically sort prescriptions into various tiers on a “formulary” to help steer patients toward lower cost and preferred (from the insurers’ perspective) medications. Tier 1 drugs tend to have very low patient cost-sharing requirements, while tier three drugs, often brand-name products, are more expensive for the patient to use. Now, some insurers have created a Tier 4 which requires patients to pay as much as 25 to 33 percent of the costs for drugs placed on it. That can translate into hundreds of dollars a month for some expensive therapies treating chronic conditions like multiple sclerosis. Importantly, while patients can use clinical alternatives for other brand-name drugs, most of the drugs moved into this new Tier 4 are so new and cutting-edge that no alternatives to them exist yet. These patients with incurable chronic illnesses are thus facing a lifetime of hundreds of dollars each month in drug costs, when they had been expecting to pay perhaps $20 or $30 a month.

And last week the Washington Post ran this story which suggests that many prevention efforts are not cost-savers. The article examines previous studies showing that prevention measures must frequently be administered to many more people at possible risk of a health problem than the number who would actually face the health problem many years down the road. Even if the prevention intervention is not very expensive, the cost of providing it to many more people who would never develop a problem adds up quickly.

These articles remind us that health care policy is indeed a complex undertaking. What’s needed is a framework that can help policymakers sort through competing and conflicting priorities. For instance, some may be tempted to impose price controls on high-priced therapies, but such controls would undermine the incentive for companies to find new breakthroughs. Finding a sensible balance of patient responsibility and socialization of costs for chronic illnesses will be difficult, but surely we are all better off when chronic conditions can be treated successfully with these new products, which many currently healthy people will develop as they age. It seems likely that private insurers and employers, facing competing pressures from their healthy and sick enrollees, are already working to find the right balance.

Regarding prevention, the Post story is a good reminder that the landscape is not quite as simple as some suggest. The key to successfully promoting cost-effective prevention in public policy is better targeting the people who will likely benefit from those efforts. That should be the focus of much new research and data analysis.

posted by James C. Capretta | 1:28 pm
File As: Health Care

Thursday, April 10, 2008

Thinking About Cost Escalation 

The main question to answer in health care policy is what, if anything, should be done to slow cost escalation.

Of course, rising costs are not a problem per se. It should not be surprising that a wealthy country would want to devote an ever larger share of its resources to improved health. But it is widely recognized that much spending for health care in the United States is for low-quality and inefficiently-provided care. Moreover, we finance health care mainly with third-party insurance, and for the working age population, the premiums for this insurance are paid by households. Thus, cost growth in excess of wage gains puts great financial pressure on middle and low income families trying to maintain coverage and pay their other bills too.

The most common way to discuss cost escalation among health policy analysts is to blame the “system.” That is, health care costs are rising because we have inadequate health information technology, insufficient investment in prevention, feeble management of care for those with expensive chronic illnesses, too few primary care physicians, too much new technology, etc. When the cost problem is framed this way, the proposed policy solutions tend to be new government programs aimed at correcting these deficiencies and other “centralized” efforts to change the “system” uniformly for everyone.

But there is another, entirely different way to look at the issue. Current federal policy subsidizes health insurance in three important ways, all of which are “open-ended” in that the amount of the subsidy per person is driven by decisions made outside of the federal government. First, current federal tax law exempts employer-paid health insurance premiums from income and payroll taxation, no matter how costly the employer plan. Second, Medicare provides seniors with government-run and subsidized insurance, the cost of which is driven in large part by usage outside of the government’s control. And third, the federal government provides matching funds for Medicaid, which the states run.

The vast majority of Americans get health coverage that is subsidized by one of these three sources of taxpayer funds. On the margins, these subsidies encourage more expansive and expensive coverage. Why should consumers get less expensive insurance if the federal government is effectively paying for a third or more of the premium charged by more expensive plans?

The way to get started on slowing cost escalation is to reform health care entitlements and the tax law so that consumers have stronger incentives to enroll in less expensive coverage.

Would this kind of reform actually slow cost growth? A 2006 study by Amy Finkelstein at MIT may help answer the question. (It’s available in PDF format here.) She found that the enactment of Medicare had a dramatic impact on the supply of services in regions with low levels of insurance coverage pre-1966. When Medicare started paying the bills, hospitals were built and other providers opened up offices to provide services to the elderly. In effect, the Medicare program facilitated the development of a new and more robust infrastructure for health care. This was, of course, a good development in many ways. But it is also fair to note that, if health care delivery is fragmented and inefficient in the United States, it is allowed to remain so in part because Medicare continues to pay the bills, much as it has since 1966. Finkelstein offers the back-of-the-envelope estimate that about half of the real increase in health spending between 1950 and 1990 is due to the spread of third-party insurance, particularly employer-sponsored plans and Medicare.

Instead of new federal programs, policymakers in Washington should take a hard look at what’s already on the books. If they do so honestly, they will see that in order to slow cost escalation in health care, we will have to start with sensible reforms of our existing health entitlements and tax policy.

posted by James C. Capretta | 4:33 pm
File As: Health Care

Friday, April 4, 2008

Financial Incentives and Health Care 

Health care policy debates can be frustrating because they seem at times to assume the health sector operates without regard to financial incentives.

For instance, proponents of an expanded governmental role in cost control seldom acknowledge the obvious: economic theory, with abundant empirical evidence from around the world backing it up, indicates that such cost controls will invariably lead to waiting lists and reduced access to care — in other words, some form of rationing by the government. This should not be surprising. Price controls and other regulations aimed at holding down costs are effective only to the extent that they suppress supply. Consumer demand, which isn’t altered by such policies, cannot be fully satisfied because there aren’t enough willing suppliers. The predictable result is non-price rationing of services.

Financial incentives, driven by tax policy, play a particularly important role in the organization of private health insurance in today’s marketplace, as highlighted in a recent and interesting academic study. Today, when an employer pays health insurance premiums on behalf of a worker, the premiums are not counted as income to the employee, no matter how much the employer contributes. This open-ended exclusion applies both to income and payroll taxes.

Economists have long argued that this favorable tax treatment has important implications for private health insurance and health spending. First, current tax policy creates a bias toward employer-sponsored coverage, as opposed to individually-owned and -selected insurance. Second, it encourages compensation in the form of health insurance as opposed to cash wages. Employees tend to opt for low deductible and low cost-sharing health coverage because their employers pay the higher premiums associated with such plans, and the premiums are tax-free to them. Third, with expansive insurance, workers tend to over-consume health services, as each additional test or visit to a physician costs them very little.

A new study by economists John F. Cogan, R. Glenn Hubbard, and Daniel P. Kessler —available online here — makes it clear just how important this open-ended tax subsidy is in today’s marketplace.

The authors approached the question from a novel perspective. Employer-paid premiums are excluded from income and payroll taxes, but some workers earn above the maximum amount subject to the Social Security payroll tax. (In 2008, earnings above $102,000 are not subject to the payroll tax rate of 12.4 percent. See this press release from the Social Security Administration.) The authors tested the hypotheses that workers with incomes just above this threshold would consume less health insurance, and less health services, than those just below it because workers just above the threshold do not enjoy the tax break associated with the exclusion of health insurance from the payroll tax.

The data presented by the authors are striking. Households with incomes just below the Social Security tax threshold consumed, on average, $2,406 of health care per year, in constant 2004 dollars. All other things being equal, one would assume that health spending would rise with income. But, as the authors predicted, households with annual incomes of between 100% and 110% of the Social Security threshold spent only $1,836 per year in 2004 dollars, or 24% less than those with incomes just under the threshold. The conclusion here is simple: the exclusion of employer-paid premiums from taxes provides a powerful incentive for more expensive insurance and higher health care spending.

This study is just one more piece in a long line of evidence that fixing health care will require getting the financial incentives right. As matters stand, federal tax law is slowing the move toward more efficient systems for delivering health care services. That needs to change.

Of course, good health care policy needs to weigh more than financial considerations. Public policy must assure that services are widely accessible too, including by households unable to pay for coverage and services on their own. What’s needed is a policy framework within which financial incentives encourage high quality care, innovation, and medical breakthroughs, even as access to care is equitable and based on health need, not income.

posted by James C. Capretta | 3:21 pm
File As: Health Care