Over the next few days, I’ll be exchanging questions and answers with Peter Orszag, the director of the Office of Management and Budget on the issue of health care.
1.Let’s say I’m talking to my neighbor at the market who is skeptical about health care reform. He knows the system is a mess, but he also thinks government involvement never makes anything better. Medicare, I suggest, is a government program that’s worked pretty well. He quotes you, saying the program overspends by 30 percent—more proof government is inefficient. Help, Peter—what’s the most powerful argument he needs to hear before he gets distracted by the sale on doughnuts?
Let me first thank you, John, and the folks at Slate for inviting me to participate in this back-and-forth. As a longtime blogger, I believe that it’s important that those of us who serve the public get online and make ourselves accessible.
I’d first remind your neighbor who likes doughnuts and is skeptical about government that the president is not interested in establishing a single-payer, government-run system. The president wants to build on what works in our system now and fix what doesn’t. Under any reform he will sign into law, if you like your doctor or health care plan, you can keep them.
Now, the key argument your neighbor needs to remember is that we can’t afford the status quo. We cannot afford, from either a family or an economywide perspective, to keep paying more for health care and keep getting less. If health care costs grow at the same rate over the next four decades as they did over the previous four, Medicare and Medicaid spending will rise from about 5 percent of GDP now to about 20 percent by 2050. Health care costs are imposing costs on state and local governments—and crowding out, for example, support for higher education, thereby raising tuitions as public universities struggle to offset the relative decline in state government support—and on families. Something has to change.
Reducing the growth rate of health care spending by just 0.15 percentage points per year does as much to cut the nation’s 75-year fiscal gap as restoring long-run solvency to Social Security and cutting it by 1.5 percentage points—which an unprecedented coalition of health care providers has agreed to do—would increase the income of a typical family by $2,500 in just 10 years’ time.
Partly because of the high costs of health care, too many people lack insurance or go underinsured. So part of moving toward an improved health care system means expanding coverage in a way that is deficit neutral; that is, addressing the moral imperative of expanding coverage while not adding one dollar to our deficits over the next 10 years. To that end, the president has put down approximately $950 billion in savings and revenue options that can be used to fund health care reform. For example, he has proposed that we save $177 billion by reducing overpayments to private insurance companies that cover Medicare beneficiaries under the Medicare Advantage program—and plow that money back into meeting the costs of expanding coverage.
But even if you pay for it, you can’t just put more people in a system that doesn’t work. (If we did, that surely would make your neighbor even more skeptical—and in no time at all, we would still be facing the high cost growth that has put the current health system on an unsustainable path.) What we need to do is transform health care so that it delivers higher-quality, lower-cost health care to Americans all across the country—through a series of steps we see as “game-changers.” But more on that later.
Finally, John, I will leave it up to you to decide whether to suggest to your neighbor that he skip the doughnuts and grab an apple instead!
2.According to a recent CBS/New York Times poll, 60 percent of Americans don’t think the president has a plan for dealing with the deficit. Sixty-five percent of independent voters don’t think he has a plan. You’ve worked hard in numerous briefingsand television appearances to prove that President Obama does have a plan. First, are you hurt? Second, what happened? Are people not listening? Have they lost faith in government numbers? Do they just require cold, hard proof (i.e., smaller deficits)? I ask because I wonder: Does the public response to the administration’s plan for deficit reduction tell you anything about the challenges you’ll face making the case for health care reform? Especially since the argument is that only through health care reform can the government achieve real deficit reduction?
John, I’m not hurt—and indeed I welcome the attention that people are paying to the deficit. In fact, when I was the head of the Congressional Budget Office (CBO), it was pointed out to me that my job was to be the skunk at the garden party—so I am used to giving people news they may not want to hear.
It’s important to step back and remember the situation we faced on Jan. 20. We faced twin trillion-dollar deficits: One was the gap between what our economy can produce and what it was actually producing. The other was the budget deficit—or the gap between what the government was taking in and what it was spending. Both are important, but the former—the meltdown in the economy—was more urgent. With two quarters of annualized GDP losses of 6 percent, millions losing their jobs, and the financial sector in freefall, we had to act immediately to get the economy off the mat.
That’s why—following the advice of economists from across the spectrum—we passed the Recovery Act, a massive addition to aggregate demand designed to help get the economy moving again. It’s still early, but there are signs that the crisis may be attenuating, and—at the very least—the rate of GDP decline is now much smaller.
The irony is that to address the GDP deficit, we exacerbated the other deficit—the budget deficit. Of the $1.8 trillion deficit projected for this year, $1.3 trillion reflects the economic downturn or the policy efforts intended to mitigate it. This kind of temporary increase in the deficit is desirable during an economic downturn.
As the economy heals, the deficit will decline sharply—that $1.3 trillion temporary bump will gradually disappear. And as we look out further in time, the first crucial step to addressing our long-term deficits is bringing down the rate of health care cost growth. If we don’t slow cost growth in health care, we will be on an unsustainable fiscal course almost regardless of what else we do. So beginning the process of transforming our health system toward a higher-quality, lower-cost one has more potential to improve our long-term fiscal standing than anything else we can do. Once health care reform is passed, we will then turn to other steps we can take to help decrease our deficits—including addressing the deficit in Social Security.
I am confident that as we go through this process, the American people will understand our plans for our fiscal future, and support them.
3.You’ve offereda variety “game changer” health care reform measures—from research into what works and what doesn’t to greater integration of health care technology and changes in incentives—that will “bend the curve” of increasing long-term health care costs. You’ve arguedthese will help reduce the deficit. The Congressional Budget Office seemed to throw cold wateron your plans last week: “Many of the specific changes that might ultimately prove most important cannot be foreseen today and could be developed only over time through experimentation and learning.” There are studies that can help you make your case, but are people essentially just going to have to trust you that these long-term savings are going to materialize after this expansion of health care coverage takes place?
First, let me be clear: The administration is committed to paying in full for the costs of expanding health care coverage over the next decade with hard, scoreable savings—in other words, savings and revenue proposals that are not speculative, but rather have expressed dollar figures attached to them by CBO.
Just making sure that health reform does not add to our budget deficits over the next decade will not be enough to address our long-term fiscal challenge, however, nor will it prevent health care costs from eating up a larger and larger share of people’s pocketbooks. Without structural changes to the health system, we would be expanding coverage to millions of people in a fiscally unsustainable way, because we would be bringing them into a system in which we provide more care rather than better care. Then, in no time at all, we would still be facing the high cost growth that has put the current health system on an unsustainable path.
And we do not have to look far to see what a high-quality, lower-cost system looks like because in places all across the country, hospitals, doctors, and other providers are already providing this kind of care. Indeed, the wide variation in how medicine is practiced, how patients fare, and how much it all costs points to a huge opportunity—as much as $700 billion a year, according to some estimates—for reducing overall health care costs in the long run.
That’s why the administration has put forward a series of “game-changing” health care proposals to slow the rate of cost growth over time. And on those proposals, the administration has embraced almost all the ways CBO suggests we could reduce the growth rate of health care costs. For instance, CBO suggests:
- Creating “accountable care” organizations that will incentivize doctors to better coordinate the treatment their patients receive across different stages of care. We have that one (which we call bonus eligible organizations).
- Expanding bundled payments to hospitals and other providers that will encourage them to provide lower-cost, high-quality care by making them bear more of the cost of unnecessary medical services and complications. Yes, that one, too.
- Developing and disseminating greater information about which medical treatments work and which don’t, so that decision-makers at all levels of the health care system—patients, doctors, and insurers—are able to make better informed medical decisions. We have that one also.
And the list goes on.
Now, it’s true that CBO doesn’t “score” several of our game-changing proposals as generating substantial, hard cost savings within the decade. But we aren’t claiming that they do. Perhaps more importantly, the game changers represent just about everything that serious health care analysts—such as the Institute of Medicine—have suggested could change the underlying dynamics of the health care system and “bend the curve” of long-term health care costs.
For example, CBO doesn’t see electronic health records as producing significant budgetary savings in the near term. Even so, nobody—not IOM, not CBO, not me—thinks that we can achieve higher-quality, lower-cost health care without the widespread adoption of health information technology. (That is, health information technology may not be sufficient for moving us to a higher-quality lower-cost system, but it is necessary.) Trying to reform health care for the long term without expanding uptake of electronic medical records would be like trying to make a piece of buttered toast without plugging in the toaster. Health IT will not only improve the care individuals receive by reducing the need for repeat testing and lowering the risk of medical error. It will also provide the entire health care system with far better information about what it’s doing well and what not so well—and that’s absolutely essential to making the system work better.
I also completely agree with CBO that changing the path of health cost growth is not something that’s going to happen overnight—and we don’t know today everything that will reduce it over time. (I’ve said the process is more like a lifetime of healthy exercising, which requires continual effort, than studying for a single exam.) That’s precisely why we have embraced the idea of investing more authority in a body like MedPAC (the Medicare Payment Advisory Commission), so that it is easier to keep up with changes in the health system in the future. But just because this is going to be a long and challenging process rather than something that will be finished when the health legislation is signed into law doesn’t mean we should delay getting started.