15 May 2009

Today's must-reads

In an unsual Wall Street Journal op-ed, White House OMB director and nerd celebrity Peter Orzag continues to push the point he's been making for the last several years: Health Costs Are the Real Deficit Threat
[H]ealth-care costs drive our long-term entitlement problem. An example illustrates the point: If costs per enrollee in Medicare and Medicaid grow at the same rate over the next four decades as they have over the past four, those two programs will increase from 5% of GDP today to 20% by 2050. Despite the attention often paid to Social Security, spending on that program rises much more modestly -- from 5% to 6% of GDP -- over the same time period. Over the long run, the deficit impact of every other fiscal policy variable is swamped by the impact of health-care costs. [...]

Health-care costs are already so high and the power of compound interest so strong that reducing the growth rate by 1.5 percentage points per year would save substantial sums. It would reduce national health expenditures by more than $2 trillion over the next decade. [...] A slower growth rate in overall health-care spending would help to promote and sustain a slowdown in Medicare and Medicaid spending, too. If cost growth slowed by that much in the future, Medicare and Medicaid spending would reach only about 10% of GDP by 2050 -- half the level than if historical growth rates continued.
This is followed by an earnest but optimistic exposition on four steps to restrain spending: HIT, CER, Prevention, and reimbursement reform to "reward quality."  All laudable and beneficial goals, and perhaps they will have some marginal benefit in constraining the growth in costs.

But for once, I have to agree with David Brooks of the NYT: Fiscal Suicide Ahead
There are deep structural forces, both in Medicare and the private insurance market, that have driven the explosion in health costs. It is nearly impossible to put together a majority coalition for a bill that challenges those essential structures. Therefore, the leading proposals on Capitol Hill do not directly address the structural problems. They are a collection of worthy but speculative ideas designed to possibly mitigate their effects.

The likely outcome of this year’s health care push is that we will get a medium-size bill that expands coverage to some groups but does relatively little to control costs. In normal conditions, that would be a legislative achievement.
The rest of Brooks' column is off-base, in that Obama's deficit spending is otherwise disconnected from health care.  I'm still an enthusiast for the health insurance reform plan, if only because of the necessity of covering the uninsured.   We should not, however, delude ourselves into thinking that it will solve all our problems, and some of them, cost growth in particular, will be exacerbated by the expansion of health insurance, requiring further reforms down the road.  I'm OK with that -- politics is the art of the possible, and I don't think that universal coverage and definitive finance reform are possible in the same year.  Nothing in what I've seen thus far makes me think that much inroads into cost containment will be made this cycle.


  1. I guess i am still waiting for the day that someone explains to me how we are going to pay for all this.

  2. 1) the coalition made pledges ie. promises.

    2) until I hear Orzag or anybody in Washington start talking about curtailing malpractice and defensive medicine costs, and end of life costs, then it's all just fluff.

  3. Traditional insurance and government programs disconnect people from the cost of medical care. The only way to limit spending growth is to reconnect the consumer to the true costs.

    If the family really had to pay to put 85 year old grandma with dementia, Parkinsons, DM, CHF, aspiration pneumonia on the vent to make her suffer another week until her tortured death then maybe they would not insist upon it.

    More insurance is not the answer.

    I remember my physician father loudly proclaiming in 1966 when medicare was started that "This would bankrupt the country"


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