Contra David Brooks, there is no “market system” alternative to the political system in running Medicare

Pardon the most boring title in the history of RBC.

Until late August, Republicans’ political and policy approach to entitlements rested on four pillars:

1. Deep cuts to Medicaid, accompanied by a block grant structure which shifts costs and risks away from the federal government and onto individuals, states, and local governments.
2. Repealing health reform, and thus forestalling both the Medicaid expansion and the range of protections and subsidies embodied in health insurance exchanges.
3. Transforming Medicare from a defined-benefit to a voucher program in which traditional Medicare competes with private plans.
4. Congratulating themselves for making hard choices on entitlements while simultaneously appealing to the over-55 Republican base by hammering the Democrats over the $716 billion in Medicare payment cuts included in the Affordable Care Act.

The first two pillars remain in place. For all the criticisms of Governor Romney for his vagueness, his approach to Medicaid and health reform are all too clear. Repealing health reform will result in roughly 30 million Americans going uncovered who would otherwise be insured. “Repeal and replace,” along with the block- granting and cutting of Medicaid will reduce federal support for Medicaid by roughly one-third a decade from now, maybe more….

The third pillar is there, too, but things are more complicated. Republicans’ voucher approach over the past several years—and its policy justification—were stated with admirable clarity in this year’s Republican platform:

The first step is to move the two programs away from their current unsustainable defined-benefit entitlement model to a fiscally sound defined contribution model. This is the only way to limit costs and restore consumer choice for patients and introduce competition; for in healthcare, as in any other sector of the economy, genuine competition is the best guarantee of better care at lower cost.

Traditional Medicare would be one available plan. It would compete with private plans which would presumably offer something of similar value. This approach seeks to provide Medicare recipients with greater incentives to use fewer medical services and to choose cheaper insurance plans.

This proposal reflects a long line of previous Republican proposals, including the House Republican budget for fiscal year 2013. These would plainly convert the current Medicare guarantee into a voucher. Moreover, by capping the rate of growth of this voucher’s value, Republican plans would shift costs and risks away from the federal government and onto individual recipients.

In late August, responding to withering criticism for their voucher plan, the Romney team vaguely but definitely backpedaled from a purely defined-contribution model to one in which vouchers would be priced at the second-cheapest bid. It appears that the value of Medicare vouchers would not be capped over time.  As with Romney’s tax and “repeal and replace” health reform plans, the details are left artfully vague. The only supporting information is provided through a handful of rather cursory and confusing campaign blog posts.

The fourth pillar remains in place, too. Republicans claim to leave current benefits in place for current recipients and for near-retirees age 55 and older. (This claim is dubious, among other reasons because the Affordable Care Act provides important benefits to seniors and because health reform is important to millions of near-retirees. But that’s another matter.) The political logic of this stance is obvious, as is its overall intellectual incoherence. Of course it’s unsurprising that Romney would congratulate himself for creating a Medicare plan that faces up to the entitlements crisis. More surprising is the fact that distinguished outside commentators congratulate him, too.

Consider David Brooks’s column this morning in the New York Times. Brooks argues that “Paul Ryan’s Medicare plan” is “the best thing the Romney-Ryan campaign has going for it.” Brooks rightly notes that we have a serious Medicare budget problem, which is crowding out our ability to address other pressing social needs. Brooks also notes something else:

According to the Urban Institute, the average couple in 2010 had paid $109,000 in Medicare taxes during their working years but would be able to receive about $343,000 in benefits. A chunk of that $234,000 gap will be paid for by their grandkids. That should weigh on the conscience of every American over 55.

He’s right. My own attitudes regarding intergenerational matters have hardened watching a segment of seniors adopt an absolutist defense of their own government benefits while opposing reasonable measures to address equally compelling social needs.

Make tough Medicare choices-but not now

Brooks then makes an odd omission. We have an incumbant president and a challenger here. One represents a party that enacted a fiscally irresponsible Medicare prescription drug plan whose unfunded liabilities rival Social Security’s. The other represents a party which enacted health reform in a fiscally responsible manner that included $716 billion in politically difficult Medicare cuts. It was President Obama, not Mitt Romney, who made the tough Medicare choices here. He was right to do so without undermining the security of Medicare recipients, while freeing resources to address the national disgrace and myriad human tragedies associated with fifty million uninsured people.

About half of that $716 billion addresses issues such as overpayments to Medicare Advantage plans and home health providers. These cuts would be justified independently of health reform. We’re paying more than we have to for some costly services. Many of the remaining cuts are offsets (to different degrees in different settings) by the financial benefits to hospitals and to other providers that flow from coverage of the uninsured. We’ll see how these go. As I see things, President Obama has made rather courageous decisions to finance his health care plan. He’s gotten about zero political credit for this.

The Romney/Ryan team has relentlessly attacked these measures, arguing to their political base among middle-class and affluent seniors—the very group Brooks notes is receiving large actuarial subsidies-that they should be exempt from quite reasonable measures to discipline Medicare spending.

Ryan pressed this case especially hard, for example in his speech at the Villages, an affluent Florida retirement community. Ryan explicitly presents health policy as a battle for scarce resources between Medicare recipients and others, less-deserving, who receive “a new entitlement we [by which he presumably doesn’t mean the uninsured] didn’t even ask for.”

Ryan did not make this case to 400,000 elderly Floridians who rely on both Medicare and Medicaid. David Brooks never mentions the word Medicaid at all. Yet one of the most frightening weaknesses of the Romney-Ryan Medicare plan is its cursory treatment of nine million elderly, low-income, or disabled Medicare recipients who also receive Medicaid. These men and women account for about one-third of traditional Medicare spending. I don’t see how you can sharply cut Medicaid without cutting services to this complex and vulnerable group.

The argument for Romney’s plan must settle on one of two alternatives here. Either that plan imposes a hard cap on the growth of Medicare spending, or it doesn’t. If it does impose a cap, it would protect the federal budget by shifting costs and risks onto individual recipients by allowing the value of Medicare vouchers to rise more slowly than medical care inflation. If it doesn’t impose such a cap, Romney should stop pretending that he’s offering concrete measures to bend the cost curve or to achieve the long-term cost-containment Medicare genuinely requires.

One obviously hopes that competition will help to uncover new savings. Now most policy wonks-myself included—believe that competition brings various benefits to the health care market. Medicare Advantage (stripped of additional subsidies) has a valuable role to play here. But just to be clear-There is no support within the health economics literature or in cross-national comparisons for claims that insurer competition will markedly reduce medical care expenditures or prices.

Brooks also writes: “The history of Medicare is strewed with efforts to control costs by controlling prices. The results are terrible.” Actually, Medicare’s history is slightly better than the general medical economy. Health care costs within the competitive private insurance market have risen more rapidly than Medicare’s costs have. Medicare, Medicaid, and private health insurance systems are all bedeviled by a fee-for-service financing model that demands reform, though the political, administrative, and clinical feasibility of alternative models remains unknown.

To make one obvious point, we face huge cost challenges that arise from the concentrated market power of major academic medical centers. How would supplanting traditional Medicare with a fragmented ecology of private insurers address this problem?

Governor Romney does speak of charging more affluent seniors higher premiums over time. I would support such a policy. One doesn’t need a radical overhaul to do this. One could do the same thing within traditional Medicare. And there’s no reason to confine such progressive policies to Medicare. Addressing (ahem) capital gains, estate, and gift taxes should be in the mix here, too.

Politics vs market?

Brooks makes a more subtle analytic error that may be more important. He writes: “Basically, there are two ways to reduce Medicare inflation, through the political system or through a market system.” Contrasting politics and markets is such a part of the discourse that one might miss the incoherence in what Brooks asserts. There is nothing more inherently politicized than our $2.7 trillion medical economy. Comparing congressional pork barrel politics within traditional Medicare to the idealized workings of some “market system” is thus misleading.

Whatever Medicare “market system” we create will be influenced and shaped by an army of lobbyists and constituencies who will help determine the program’s basic structures and (too often) the legislative fine print in areas that require greater distance from interest-group politics. Why does Brooks believe Medicare Advantage plans were overpaid in the first place, or why it proves so difficult to enact competitive bidding for pharmaceuticals or for medical devices whose manufacturers are located in politically critical districts?

President Obama’s proposed Independent Payment Advisory Board (IPAB) provides one constrained, but valuable effort to discipline these processes and to address Congress’s collective action problem in controlling costs. IPAB is frequently attacked as a secret group of experts imposing centralized decisions without democratic authority. In reality, IPAB would be much more transparent and democratic than the current system, in which individual legislators quietly seek to micromanage Medicare’s wheelchair procurement and similar matters.

If Governor Romney supplants traditional Medicare with a premium-support system, private Medicare plans will descend on Washington to constrain traditional Medicare’s ability to leverage its dominant market position in setting hospital payments. These firms will lobby for generous reimbursement rates. Some will be down in the weeds of risk-adjustment systems, lobbying for approaches that retain their ability to overtly or covertly attract and retain healthier and less-challenging Medicare recipients. 

That’s why the fine print is so important. That’s also why I’m so concerned by the shifting and vague descriptions of the Romney plan. These details will be filled in by the emphatically conservative House Republicans who produced the politically-toxic Ryan budgets and the 2012 Republican platform.

Lurching to the rhetorical center, candidate Mitt Romney now seeks to distance himself from these documents and from this core constituency which dominates his party. After election day, it would be a very different story. And if moderates such as David Brooks are disappointed, they can’t say they weren’t warned.