Where Economists Meet Since 1968
Health Reform: Where do we go from here?
Summary of remarks by: *
Stuart M. Butler, The Heritage Foundation, Discussant
Bob Graboyes, National Federation of Independent Business, Moderator
March 25, 2010
Len Nichols (via Bob Graboyes) offered several key ideas about health reform:
(1) Small / non-group health care markets should be as efficient as current large employer markets.
(2) The bill offers a good basis for reinventing the health care delivery system; unaccountable fee-for-service will end. Performance-based pay for all providers will replace this. Health care will become more holistic and integrated.
(3) Health reform will have redistributive effects as thirty million additional people will now have insurance. The effective is substantial but not massive on Gross Domestic Product.
(4) The debt issue is large and real but not as serious as the debt the nation faced after World War II. At that time, though, there was bipartisan support for the war and debt spending.
(5) The Democrats made some embarrassing compromises to pass the health care bill, but those are relatively small compared to the magnitude of the bill.
Stuart Butler offered the following:
Now that the health bill has passed, will health care be off the agenda for the next twenty-five years? This is doubtful – Congress might repeal or amend parts of the law in the future, and the Executive Branch has to write the rules that will drive the implementation
Candidate and President Obama made a point in the campaign for health care reform that if someone is happy with their current health care insurance, nothing will change. This is not true. The health care system, due to the legislated changes, will affect everyone. Most profound will be the impact of the state health insurance exchanges. Butler supports the state model with diversity and experimentation among the states. Still, Butler expects insurance to be increasingly regulated by the federal government quality, evolving into a public utility model.
The House [of Representatives] lost the debate over the public plan. But the legislation creates federally regulated private plans administered by the US Office of Personnel Management (OPM). But with its large current pool of federal employees, retirees and dependents, the OPM actually has considerable regulatory powers, which it doesn’t fully utilize. But if it uses those powers under the legislation, the result would be in effect a public option – a victory for the House.
With the exchanges the nation is also starting down the road of ending employer sponsored health insurance, with employers in the future playing little more of a bookkeeping role – like they do with retirement plans.
The long run costs of health care reform will force major action in the future. Given the nature of Congressional Budget Office analytical constraints, the cost of the health care bill has been understated. Total expenditures will be so large there will have to be some form of public spending caps. Three approaches to doing that include conventional price controls, health care rationing wherein panels will decide who gets care, or a defined contribution model.
After his talk, Butler answered audience questions. Below are some:
Q: With an increase in participation in health insurance plans, why will costs not go up immediately?
A: There will indeed be a supply constraint initially and increased demand will push up prices. Health insurance companies are already beginning to anticipate this and raising premiums.
Q: Some have complained that debate over the current bill was inadequate, but haven’t we as a society been debating health care policy for decades? And wouldn’t we at some point have had to take the leap and legislate and implement health care reform?
A: It is true that the debate has been inadequate. There has been analysis over the years about how Americans perceive an issue, based on their values and their understanding. Unfortunately in health care, Americans are really at the beginning of their thinking on the policy options and trade-offs. They don’t fully grasp basic concepts, nor do they accept that there must be trade-offs. Although Americans are ill-informed, there is a danger to relying on a “they will like it when they see it” model. The challenge is to bring health care reform down to basic values, like budgeting.
Q: What role can government play in keeping down costs?
A: Assuming you do want the government to constrain spending there are major obstacles to doing so. Our form of democracy, versus a parliamentary system, does not concentrate power sufficiently to carry out such direct cost-containment. Even under a parliamentary system it is difficult.
Q: What is the downside of health care insurance becoming more like a utility?
A: With a utility model, one has to think about setting rates and who is going to do that. Then you have to think about the enormous political pressures and incentives on the body regulating the utility.
Bob Graboyes added that traditional utility companies haven’t had to deal with the rapidity of changes in inputs and outputs.
Q: When will see the gargantuan costs?
A: Hard to predict the precise turning point, but very soon the actual costs will start to outpace predictions. We will need a system with proper incentives to get back on track.
Dr. Stuart Butler is the Vice President for Domestic and Economic Policy at the Heritage Foundation, and has been with the think tank since 1979, focusing on issues ranging from health care and Social Security Reform to welfare reform and tax relief. He has been published in academic journals such as the Journal of the American Medical Association and Health Affairs and has testified before Congress numerous times. Recently, the National Journal has named him one of Washington’s 12 “key players” on health care.
Dr. Len Nichols is the Director of the CHHS Center for Healthy Policy Research and Ethics at George Mason University. Previously, he was Director of the Health Policy Program at the New America Foundation. During the first two years of the Clinton Administration, Dr. Nichols was the Senior Advisor for Health Policy at the Office of Management and Budget. He also has been an advisor to the World Bank, the Pan American Health Organization, and was a member of Louisiana Governor Kathleen Blanco's Health Reform Task Force from 2004-2006. Dr. Nichols frequently testifies before Congress.
Dr. Robert F. Graboyes is Senior Healthcare Advisor at the National Federation of Independent Business (NFIB). He also teaches health economics and finance in masters and doctoral programs at Virginia Commonwealth University, the University of Virginia, and George Mason University. Previously, he was an economics professor at the University of Richmond, Africa economist at Chase Manhattan Bank (New York City) and manager and economist at the Federal Reserve Bank of Richmond.
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