Buy Now, Pay Later

The health care cost-control conundrum.


Listen to liberal advocates of health-care reform and you'll hear two constant refrains: We must expand coverage to everyone, and we must control costs. Democrats tend to sell this as a package deal, a sort of political version of the Billie Mays pitch—but that's not all! And while they've put forth a number of plans that would expand coverage by varying degrees, the tacked-on bonus—as is the case with most info-mercials—is essentially a scam: Claims that the Democrats' current proposals will rein in health-care spending are sketchy at best.

Nor is that surprising. Despite all the talk of cutting costs, the tacit plan, from the beginning, has been to pass reform by building a coalition that would collectively agree to give members whatever they wanted now, while cheerfully talking around the serious budgetary complications posed by universal coverage.

This strategy was sketched out in a March New York Times article on lessons learned by advocates of national reform during the recent overhaul of the Massachusetts health-care system, which expanded coverage but saw costs rise sharply. According to some who backed the Massachusetts overhaul, however, that was a necessary ingredient in the recipe for reform. As the Times notes:

Yet, even now, the lawmakers and strategists behind the Massachusetts plan strongly defend their incremental approach. Only by deferring the big decisions on cost containment, they said in recent interviews, was it possible to build a consensus among doctors, hospitals, insurers, consumers, employers and workers for the requirement that all residents have health insurance.

The piece quoted strategists and stakeholders agreeing that, as Washington attempted to implement reforms similar to those in Massachusetts, the key would be to focus on building the coalition—presumably through dealmaking and handouts—while carefully avoiding anything more than platitudes on the sensitive issue of spending. Defenders refer to it as an "incremental approach," but seedy salesmen have long used the same gimmick to unload get-it-out-the-door-now stinkers under a different name: Buy Now, Pay Later!

Subsequently, this year's health-care debate in Washington has featured a raft of insider deals and stakeholder handouts—to everyone from Wal-Mart to the drug industry—as well a lot of talk about cost-control without much substance to back it up. That's partly due to a string of sobering reports from the Congressional Budget Office that have made the fiscal aspect impossible to ignore. The independent office says that the current path for the country's health-care entitlements is "unsustainable," and, without major changes, will likely cause "substantial harm to the economy."

And those changes, the CBO says, are not to be found in the current legislation. Indeed, none of the bills the CBO has examined would sufficiently tamp down on health-care expenses. To the contrary, CBO chief Douglas Elmendorf told members of the Senate Budget Committee, the legislation would "significantly expand the federal responsibility for health-care costs." Specifically, the House bill would add $202 billion to the federal deficit by 2019.

Both Massachusetts and Obama have, in the past week, announced strategies they hope will deal with the problem of paying for health care. A Massachusetts health-care commission voted unanimously to end fee-for-service payments to doctors and other medical practitioners in favor of capitation, which means care providers are paid per patient rather than per service. Obama, meanwhile, came out in favor of a commission of his own, the Independent Medicare Advisory Commission (IMAC).

But the tricky politics of both ideas means that neither appears to be a likely solution. Capitated payments are deeply unpopular with both doctors and patients. Doctors stand to make less money, while patients find themselves in the hands of providers with the financial incentive to provide as little care as possible.

Details on IMAC are still somewhat vague, but according to Office of Management and Budget Director Peter Orszag, the commission—which is really just an expanded, more powerful version of the current Medicare advisory group, MedPAC—would "have the authority to make recommendations to the President on annual Medicare payment rates as well as other reforms." The idea is to keep politically motivated legislators out of the business of determining Medicare pay rates and reimbursements. But rather than insulating health care from legislative politics, it insulates legislators from the political backlash against rationing and restrictions on care. IMAC would essentially turn Medicare into a government-run HMO, leaving seniors stuck with the sort of micromanaged coverage much of the country rejected throughout the 90s—and perhaps exacerbating the potential for care shortages as doctors look to avoid treating those covered by low reimbursement rates.

The fact is, health-care costs are rising across the developed world, even in the most widely praised systems. Britain, for example, has kept total health-care spending as a percentage of GDP lower than many other Western countries through stingy, centrally rationed care, but its costs are on the rise, and its National Health Service is facing a severe financial crunch. And while advocates of liberal reform hold up countries like France and the Netherlands as models of high-quality care, even boosters must admit that these countries, too, face troublesome rising costs.

Health-reform advocates here in the states think savings may be found in a number of other measures—health IT, comparative-effectiveness review, various changes in provider payment structures—but all are untested. They also have important political constituencies invested in their defeat. That makes them tough issues for politicians who like to sell the public on the wonders of their plans while sweeping the costs and complications aside. In other words, like the dearly departed Billie Mays, politicians are pitchmen—always urgently, enthusiastically peddling something new and shiny in the desperate hope that you, their political constituents, are buying.

Peter Suderman is an associate editor of Reason magazine.