It’s All Going According to Plan

by Jonathan Halvorson

ObamaCare Most people regard health care reform in America as thoroughly bungled. The proverbial train left the station weak and wheezing, was pushed off the rails by hooligans and is about to crumple in an inglorious heap in the ditch. Only about 20% say the reform hits the sweet spot, with the rest convinced it went too far or didn’t go far enough.

To review the most recent pilings-on: in a time of huge Federal deficits, we get depressing predictions that the PPACA will do little or nothing to slow the growth of health care costs. Only a year after passage of what was supposed to be comprehensive reform, Democrats acknowledge that Medicare and Medicaid spending remain out of control and propose new cuts in the hundreds of billions. In the span of four months, Republicans switched from posing as aggrieved defenders of Medicare spending, to proposing to slash it and leave seniors to absorb the spillover. Medicaid funding is probably even more precarious, since fewer Medicaid recipients vote.

To add injury to injury, the Supreme court may rule to invalidate the entire law, or perhaps just the mandate to purchase insurance, thereby removing the most hated part of the law, but eliminating the “universal” part of universal coverage and inviting an actuarial death spiral. Oh, and the few reforms that look like they might bring costs down, like the IPAB board in Medicare and the minimum medical expense ratio for insurers, are under threat of being watered down. A year after legislation has been passed that will transform nearly a fifth of the American economy, to the casual observer it looks like nothing much has happened and nothing in the future is secure, especially anything that the big industry players don’t like.

In light of this and more, pessimism is understandable, but what we are witnessing in these turns of events is not politically-driven chaos. There is good reason to think that events are unfolding more or less in line with a staged strategy for deep reform that emerged out of the experience in Massachusetts. The strategy is essentially this: enact universal coverage first to precipitate a sense of crisis. This will lead to deep reform on the problem that exacerbates all other problems: the cost of health care, which is twice as high as any other nation.

So why precipitate a crisis, and what reason is there to think it will work? Long time observers of health care policy know that sharp cost controls are a political third rail. Reducing costs means changing how millions of people do their jobs, paying many of them less, and laying off many more. It means less income for organizations that collectively have over 2 trillion dollars in annual revenue.

The power of the lobbies is hard to overstate. Aside from the lobbying money, nearly every House member has a hospital among the largest employers in their district. On top of that, physicians and hospitals are highly trusted and find it relatively easy to mobilize public opinion against cuts. Health care industry lobbies are even more formidable if they work with the Republicans’ sense of ideology and self-preservation to stoke fears about reform.

Stoking fears about health spending cuts is, of course, exactly what happened in the 2010 elections, and can be credited with bringing the Republicans back into sharing power in Congress. It isn’t hard to imagine the bloodbath if there actually were severe cuts in Medicare spending in the PPACA. As for the original legislation itself, Democrats could not have afforded to lose a single Senator, which is hard to imagine not doing if the AMA, AHA, AHIP or PHRMA had turned against the bill.

Under these circumstances, the best the Democrats could hope for in the short term was to find a compromise with the health care industry and peel it away from the Republicans. It was an odd scene: Republicans, the friends of big business, were screaming at the top of their lungs that “Obamacare” was a socialist infiltration to destroy market-based health care, while the big industry lobbies were all on record as supporting the legislation and worked to promote it.

But for all the heat that the PPACA has gotten for being too corporatist and/or not serious enough about reforming what is driving the costs higher, it has in fact successfully triggered a major increase in concern on costs, unprecedented in recent years. This new seriousness about cutting costs is not an accident, or a censure of PPACA. It was foreseeable by those who learned the lessons of Massachusetts.

Reforms to how health care is paid for that were impossible before are becoming inevitable and then accelerated after. Instead of paying simply for the volume and complexity of care–thus encouraging more volume and more complexity, regardless of whether it is making us healthier, let alone whether it is the best way to make us healthier–the next 20-30 years will see a transformation to paying for the outcomes of health care, keeping populations healthy, and for doing the care that is shown to be most effective. Some of this is vaguely present in the PPACA, and some of it will likely come from future reforms.

The promise of universal coverage in PPACA changes the debate, and nowhere more starkly than in Republican attitudes. Instead of defending the status quo of American spending as an example of markets at work, or as justified by providing us with the highest quality health care system in the world (a false statement by most measures), Republicans are coming to identify health care spending with government spending. In doing so, they associate it with what nearly all social program spending is in their eyes: a wasteful effort to redistribute wealth to the undeserving. One can only imagine their zeal to cut overall health care spending once 2014 rolls in and federal subsidies go out to millions of Americans to pay for private insurance coverage. There will be no way to cut government program spending with out cutting private insurance spending, which will mean cutting health care spending overall.

The gamble of the Massachusetts approach is this: once you have universal health care, it is locked in. Just like with Medicare and Social Security, no one is going to take that entitlement away. The focus instead will be how to pay for it, as is happening now in Massachusetts. More Republicans will begin to turn their attention away from defending the bloated delivery system (we’re the best in the world! Government cost controls just make it worse!) to criticizing it (how wasteful!). More liberals will turn their attention away from universal health care (pretty much got it!) to reducing the revenues of massive corporations and making it easier for the non-wealthy citizens to afford care. Non-ideological tax payers will take a greater interest as well, once tax dollars are seen as propping up more of the system, especially in the first few years.

The basic strategy mirrors the Grover Norquist strategy on the Republican side. The Norquist approach is to cut taxes whenever politically possible (politically popular) and never raise them (politically popular), while taking a softer stance in the short term on government spending cuts (which are also generally unpopular). The result is the massive deficits under Republican presidents since Reagan. The goal is to force a reckoning that brings the American public to choose lower taxes over higher government services to bring the books back into balance. The ultimate agenda, obviously, is small government, but accomplished by precipitating a crisis on national debt. The Massachusetts strategy employs a similar idea: take the easier step first (coverage expansion), which entrenches the political change, but also brings higher costs and (fear of) deficits, which in turn triggers a reckoning, but with a different calculation of the end result: serious reforms to the way that money is spent to reduce inefficiencies and overpayments. Time will tell whether the Norquist or Massachusetts strategies will achieve their ultimate goals, but at the very least one can be sure that they have both in their ways managed to precipitate a feeling of fiscal crisis, and something will soon have to give.

But isn’t this gambit irresponsible? For the Norquist approach, yes, because the trillions in the deficit are real. For the Massachusetts approach, no, or at least, not yet. The major costs of the PPACA don’t kick in until 2014, giving three years to plan on how to reduce the cost of the system before the subsidies take effect. And even then there are new revenues to cover most or all of the additional cost of care. The law has precipitated a psychological sense of fiscal crisis in the beltway without creating the crisis itself.

The great real fear is that what is coming next to lower costs is the wrong kind of reform. Paul Ryan has already shown what that wrong kind of reform is: cuts in the level of benefits, without tackling the cost of care itself. In other words, we still pay twice as much for a drug or a hospital visit as the rest of the world, but we’ll just cut the benefits in half and force people to decide whether they can afford to pay for it. That is the biggest threat to the path we’re on now from a progressive perspective.

The choice we face next is to primarily cut costs by reducing benefits, or to cut them by keeping the benefits but reducing the fee paid per service and reducing care that is least likely to produce good outcomes. It is only with health care reform that we can seriously, once again, consider the second approach.

So yes, it is an exaggeration to say that it's “all” going according to plan. For one thing, there wasn’t just one plan. Many Democrats did not see the need for deeper cost reforms, or bought into the myth of high set costs for high quality care. For another, the train could certainly still derail. I would even grant that the track is still being laid as we go. But as I’ve watched this reform unspool over the last three years, I’ve grown increasingly pleased by how far we’ve come and more confident in how well we are set up to fight the major unfinished battles ahead.

Jonathan Halvorson, PhD, has worked for the past six years in managed care. His views are entirely his own and do not represent those of his employer or other known individuals, living or dead.