Remember Health Care?

August 3rd, 2011 at 4:40 pm

While jogging this morning, I heard an interesting discussion/debate on the “On Point” radio show between Dean Baker and Steve Bell (also, listen to the opening where Major Garrett shares some worthy insights into the debt deal—his first lesson from the deal is dead on: “A new precedent. Debt-ceiling increases are now tied to deficit reduction.”)

One part that interested me was their discussion of health care and its role—or lack thereof—in the budget debate.  As long as health care costs keep growing two percent faster than GDP, which has been the trend for years now, there’s no clever debt deal that “gets our fiscal house in order.”

So, if we wanted to have a discussion about actually changing out budget trajectory, we’d have to talk health care (we’d also have to talk revenues, but that’s another discussion).  And here, an important concept here is cost-shifting versus cost-saving.

Given all the talk of the budget pressure from health care entitlements—Medicare and Medicaid—it’s easy to forget that our affordability problem is as much a private sector as it is a public sector problem.  If anything, costs in the public programs have consistently grown more slowly than those in the private sector (which makes sense when you think about overhead, like advertising and profits).

I stress this because Bell raised the issue of premium support—where the gov’t subsidizes your purchase of a health insurance policy—as a tool for health care reform, citing a plan that gave seniors the option to opt out of Medicare and use vouchers to purchase health insurance on the private market.  You will recall that Rep Ryan’s premium-support plan took a lot of heat, but Bell argued his plan is better since it offers a more valuable voucher whose value grows more quickly.

He’s right about the improvement over Ryan, I’m sure, but these voucher programs generally just shift costs around.  That is, they get around that GDP+2% problem by force, and only for the public sector.  In Rep Ryan’s case, the voucher grows with inflation; in Bell’s, it’s GDP+1%.

Both will lower costs to the government but neither will lower costs to the system, and that makes all the difference.  If you don’t do something to slow the pace of health care costs system wide, you’re pretty much shifting around deck chairs.

My CBPP colleague Paul Van De Water will have a piece out soon on premium support—looks excellent from what I’ve seen so far, and I’ll link to it when it’s out.


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4 comments in reply to "Remember Health Care?"

  1. Merrill Goozner says:

    CMS actuaries say health care only grew at GDP last year and projects nominal growth at 5.8 percent over the next decade. If inflation is 2 percent, and growth is 2.8 percent, that’s already at GDP+1%. The latest projections, which came out last week, have been totally ignored by the press. I wrote about on the Fiscal Times website if you want to look it up.

    • Jared Bernstein says:

      I’ll check out your piece, Merrill. Can you tell us what explains teh deceleration–are you sure it isn’t just cyclical???

      I hope GDP is 2.8…but the point of my commentary still holds…even with generous premium support ala Aaron/Reichhaur (sp), which has the subsidy rising with health costs, you don’t lower costs system wide.

  2. Brett Mercer says:

    Two comments, first regarding: Major Garrett shares some worthy insights into the debt deal—his first lesson from the deal is dead on: “A new precedent. Debt-ceiling increases are now tied to deficit reduction.”

    For now… But won’t this end up going the way of the fillibuster? Ever more used for every sort of reason to the point where it has become accepted that 60 votes are required to do anything in the Senate. Notwithstanding that the Constitution specifies where supermajorities are required.

    Second comment (and lets call this the real comment), why don’t I read more about the efforts in the Affordable Care Act to control costs. Granted, these don’t happen for awhile and we don’t know how much impact they may have on cost growth, but shouldn’t we talking about and working toward using these (and whatever other ideas actual experts on such matters might have) as the starting point for cost controls, specifically real savings rather than the cost shifting you’ve discussed?

    To be a little more explicit, the advisory board is under attack from those who claim to be concerned about medicare costs, but it’s a real attempt to address costs. I can’t really take anyone seriously when they discuss rising medicare costs and is unwilling to utilize everything that is already in the law to address those costs. And anyone who is actually trying to undermine those efforts should be continually mocked when they mention medicare costs.

  3. GOP Momentum! Why Stop Now? Coburn And Hatch Propose More Cuts « Alan Colmes' Liberaland says:

    […] the nation’s fiscal position,” we would be engaged in serious discussions about how to control heath care costs, which are the single largest driver of our deficit. Instead, Senators Coburn and Hatch are focused […]