Former Obama Administration Budget Director Peter Orszag published a Bloomberg op-ed this morning in which he criticized conservative proposals to introduce premium support in Medicare. He claims that the “private market tooth fairy” can’t cut costs – arguing that the Congressional Budget Office doubted this premise, and that any cost differentials between government-run Medicare and private plans would be based on private plans treating healthier patients than traditional Medicare.
Orszag claims that CBO said that the private plans in the House Republican premium support proposal would be more expensive for beneficiaries than traditional Medicare. But that’s only a quarter-truth, at best. First, Orszag admitted that he used an out-of-date 2011 CBO report to characterize the 2012 House Republican proposal; he claimed he did so because the 2011 CBO analysis “was the only one that CBO has evaluated in terms of total, not just federal, cost.”
That sleight-of-hand was bad enough – but there’s absolutely no excuse for Orszag’s other key omission, which is that CBO currently has no technical capacity to determine whether or not competition can help reduce health costs. A recent Health Matters column in CongressDaily (subscription required) pointed out this key flaw in CBO’s estimating models:
[CBO] Director Douglas Elmendorf told the House Budget Committee in 2011, his office doesn’t have the ability to account for any cost decreases (or increases, for that matter) that could come from competition between private plans. “We are not applying any additional effects of competition on this growth rate over time in our analysis of your proposal. And, again, we don’t have the tools, the analysis, we would need to do a quantitative evaluation of the importance of those factors,” Elmendorf said….
CBO’s current estimate puts the effects of competition at zero, which Gail Wilensky, a former head of Medicare and Medicaid in the George H.W. Bush administration, says is an even worse assumption than making some sort of educated guess. “You know it’s not zero, that’s the complete cop-out,” Wilensky said in an interview. “Their assumption is zero; it’s a very specific assumption, and it’s the one thing that’s definitely not accurate.”
Before joining the Obama Administration, Orszag served as Elmendorf’s predecessor as CBO Director. He knows that this lack of capacity on the effects of competition is a MAJOR hole in the organization’s technical capacities – in fact, one could assign him at least some responsibility for failing to develop those models during his time as CBO Director. Yet he mentioned none of this in the op-ed.
Instead, Orszag spent time criticizing the process of risk adjustment – in which plans with sicker-than-average beneficiaries receive higher payments than plans with healthier-than-average patients, to compensate the former for their higher costs and discourage plans from attempting to game the system. Orszag alleges that risk adjustment is imperfect – which is true – but goes on to say that risk adjustment is so imperfect that private plans could still undermine traditional Medicare by soliciting healthier patients, despite the risk adjustment methods in place. Orszag’s argument would sound slightly more genuine were it not for this paragraph included in Section 1343(b) of Obamacare:
(b) CRITERIA AND METHODS.—The Secretary, in consultation with States, shall establish criteria and methods to be used in carrying out the risk adjustment activities under this section. The Secretary may utilize criteria and methods similar to the criteria and methods utilized under part C or D of title XVIII of the Social Security Act. Such criteria and methods shall be included in the standards and requirements the Secretary prescribes under section 1321.
In other words, Obamacare explicitly grants HHS the authority to impose the risk adjustment methods currently being used in Medicare Advantage – the exact same methods that Orszag claims will undermine traditional Medicare. If those Medicare Advantage risk adjustment methods are so flawed, as Orszag claims, then why did the Obama Administration – of which Orszag himself was a member – permit them to be used in Obamacare Exchanges as well?
Orszag’s column got this much right – there is a “fairy” tale regarding premium support proposals. But the real fairy tale lies in the inconvenient truths Orszag himself was unable or unwilling to mention in his supposed critique.