Elizabeth Warren’s Health Plan and the Limits of “Experts”

By one count, Sen. Elizabeth Warren used 9,275 words in her health care plan (that is, her original health care plan, not the one she released two weeks later, to overcome the political obstacles she created in the first version). Of that lengthy verbiage, one word stands out: “Expert” appears no fewer than 18 times in the document.

According to Warren, “the experts conclude” that her plan would cost $20.5 trillion over a decade; other “top experts…examine[d] options” to pay for that new federal spending. She cited experts in triplicate for emphasis, noting “the conclusions of expert after expert after expert” that a single-payer health care system can cover all Americans while lowering costs. Warren even pledged that “no for-profit insurance company should be able to stop anyone from seeing the expert…they need.”

Therein lies her biggest problem: In farming out every policy issue for “experts” to solve, Warren effectively insults the intelligence of American voters—telling them they’re not smart enough to solve their own problems, or even to understand the details of her proposed solutions.

‘Experts’ Couldn’t Even Build a Website

The Massachusetts senator’s reliance on experts jives with her campaign’s unofficial slogan. No matter the issue, Warren has a plan for that—blessed by the experts—to enact her agenda. But as Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.” For reasons both practical and philosophical, Warren and her technocratic ilk might benefit from some humility as they seek to remake the health care system—and the nation.

Six years ago this fall, the failure of healthcare.gov provided a searing example of the limits of expertise. After years of planning and countless federal dollars, what Health and Human Services Secretary Kathleen Sebelius called a “debacle” played out in slow-motion on national television. Half a century on from Halberstam’s best and brightest, Barack Obama had to concede that government was “generally not very efficient” at procurement and technology.

Another politician who invoked “experts” regarding health policy, Max Baucus, did so in August 2010. Then the chairman of the Senate Finance Committee, Baucus said he did not bother to read the Obamacare legislation he helped to draft because “It takes a real expert to know what the heck it is. We hire experts.”

Nearly four years later, one of those experts—Yvette Fontenot, who worked on Baucus’ staff during the Obamacare debate—admitted that when drafting the law’s employer mandate, “we didn’t have a very good handle on how difficult operationalizing the provision would be at that time.” Here again, remaking a health system approaching $4 trillion in size brings unintended consequences lurking at every corner.

Yet Warren and her “experts” see no such reason for caution. One of the authors of her health care paper, former Obama administration official Donald Berwick, once said, “I want to see that in the city of San Diego or Seattle there are exactly as many MRI units as needed when operating at full capacity. Not less and not more.” Implicit in his statement: Federal officials, sitting at desks in Washington, or at Medicare’s headquarters in Baltimore, can quantify and assess the “right” number of machines, facilities, and personnel in every community across the land.

Liberals Act Like Voters Are Stupid

A belief that administrators should, let alone can, effectively micromanage an entire health system requires no small amount of hubris. Indeed, Berwick said in a 2008 speech that “I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for leaders to do.”

In this vein, Berwick echoed his Obama administration colleague Peter Orszag, who in advocating for an unelected board to make recommendations reducing health spending—a change included in Obamacare, but repealed by Congress last yearargued that “we might be a healthier democracy if we were slightly less democratic.”

From the 2004 work “What’s the Matter with Kansas?” to the post-mortems after the last presidential election, liberals continue to question why some households vote against their supposed financial interests. The “expert” mentality—as Orszag wrote, “relying more on…depoliticized commissions for certain policy decisions”—likely plays a role, as by its very nature and through its soft paternalism it disenfranchises Americans.

For instance, studies suggest most low-income individuals do not particularly value Medicaid coverage, yet neither Warren nor others on the left spend much time debating whether expanding health insurance represents the best way to help the poor. As Reagan would note, they’re from the government, and they’re here to help.

Warren thinks that to win the presidency, she must convince voters she has a plan for everything. In reality, her campaign’s hopes may rest instead on developing a plan to narrow the growing gap between the rulers—her beloved “experts”—and the ruled.

This post was originally published at The Federalist.

Did Obamacare Increase the National Death Rate?

Researchers have raised legitimate questions about whether a policy change included in Obamacare actually increased death levels nationwide.

Some may recall that two years ago, liberals engaged in no small amount of hyperbolic rhetoric insisting that repealing Obamacare would kill Americans. They viewed that fact as a virtual certainty, and spent more time arguing over precisely how many individuals would die under the law’s repeal.

About the Readmissions Program

The Obamacare change sparking the policy debate involves the law’s hospital readmissions program. Section 3025(a) of the law required the Department of Health and Human Services to reduce Medicare payments to hospitals with higher-than-average readmission rates. The program began in October 2012, and since October 2014 has reduced payments by 3 percent to hospitals with high readmission rates for three conditions: heart failure, heart attacks, and pneumonia.

The program intended to make hospitals more efficient, and encourage them to treat patients correctly the first time, rather than profiting on poor care by receiving additional payments for “repeat” visitors. However, several data points have called into question the effectiveness of the policy.

First, a recent article in the journal Health Affairs concluded that data proving the readmissions program’s effectiveness “appear to be illusory or overstated.” The study noted that, right before the readmissions program took effect, hospitals could increase the number of diagnoses in claims submitted to Medicare. After controlling for this difference, the Harvard researchers concluded that at least half of the “reduction” in readmissions came due to this change.

By contrast, a December study in the Journal of the American Medical Association found an even darker outcome. The JAMA study, which examined a total of 8.3 million hospitalizations both before and after the readmissions penalties took effect, found that the program “was significantly associated with an increase in 30-day postdischarge mortality after hospitalization for [heart failure] and pneumonia, but not for” heart attacks. This study suggests that, rather than incurring penalties for “excess” readmissions, hospitals instead chose to stop readmitting patients at all—and more patients died as a result.

Is This ‘Alarmist’ Rhetoric?

In a blog post analyzing the debate at the New England Journal of Medicine, former Obama administration budget director Peter Orszag pointed out the two studies arrive at conclusions that are likely mutually contradictory. After all, if the readmissions policy didn’t affect patient outcomes, as the Health Affairs analysis suggests, then it’s hard simultaneously to argue that it also increased patient mortality, as the JAMA paper concludes.

But Orszag also criticizes The New York Times for an “unduly alarmist” op-ed summarizing the JAMA researchers’ results. That article, titled “Did This Health Care Policy Do Harm?” included a subheading noting that “a well-intentioned program created by the Affordable Care Act may have led to patient deaths.”

  • Washington Post: “Repealing the Affordable Care Act Will Kill More than 43,000 People Annually”
  • Chicago Tribune: “Repealing Obamacare Will Kill More than 43,000 People a Year”
  • Vox: “Repealing Obamacare Could Kill More People Each Year than Gun Homicides”

These headlines don’t even take into consideration the comments from people like former Sen. Harry Reid (D-NV), who said, “If you get rid of Obamacare, people are going to die.” Then there were the “analyses” by organizations like the Center for American Progress, helpfully parroted by Sen. Bernie Sanders (I-VT), that said “getting rid of Obamacare is a death sentence.”

Alongside this rhetoric, the supposedly “alarmist” Times article seems tame by comparison. It didn’t use the word “Obamacare” at all, and it couched its conclusions as part of a “complex” and ongoing “debate.” But of course, the contrast between the mild rhetoric regarding hospital readmissions and the sky-is-falling tone surrounding Obamacare repeal has absolutely nothing to do with liberal media bias or anything. Right?

Democrats, the Science Deniers

The Times article concludes by “highlight[ing] a bigger issue: Why are policies that profoundly influence patient care not rigorously studied before widespread rollout?” It’s a good question that Democrats have few answers for.

Liberals like to caricature conservatives as “science deniers,” uninformed troglodytes who can barely stand upright, let alone form coherent policies. But the recent studies regarding Obamacare’s hospital readmissions policy shows that the Obama administration officials who created these policies didn’t have any clue what they were doing—or certainly didn’t know enough to implement a nationwide plan that they knew would work.

Given this implementation failure, and the staggering level of willful ignorance by the technocrats who would micro-manage our health care system, why on earth should we give them even more power, whether through a single-payer system or something very close to it? The very question answers itself.

This post was originally published at The Federalist.

Just the Facts on Drug Negotiation

Congressional hearings often serve as elaborate theatrical productions. Members ask pre-written questions, receive formulaic answers, and in many cases use witnesses as props to engage in rhetorical grandstanding. The grandstanding element was on full display Tuesday during the confirmation hearing for Alex Azar, the Health and Human Services Secretary-designee. Sen. Claire McCaskill (D-MO) wanted to beat up on “evil” drug companies, and she wasn’t going to let facts get in her way.

McCaskill spent two minutes attacking pharmaceutical advertisements, including a reference to “the one for erectile dysfunction where they have them in two bathtubs,” before she tackled the issue of Medicare “negotiating” prices with drug companies. At this point she demonstrated ignorance on several issues.

Second, McCaskill failed to grasp that Medicare drug plans already negotiate with pharmaceutical companies, and that the discounts they obtain have helped keep overall premiums for the prescription drug Part D plan low. It may sound radical to McCaskill, who has spent practically her entire adult life working in government, but the private sector can negotiate just like the government, and probably do so more effectively than a government entity.

Third, McCaskill refused to believe that getting the government involved in “negotiating” drug prices would not save money. When Azar explained that removing a provision prohibiting federal bureaucrats from “negotiating” prices wouldn’t save money, McCaskill called his explanation “just crazy” and “nuts.”

It isn’t nuts, it’s economics. Even though McCaskill tried to lecture Azar on economics and markets at the beginning of her questioning, her queries themselves showed very little understanding of either concept. In a negotiation, the ability to drive a hard bargain ultimately derives from the ability to seek out other options. If Medicare must cover all or most prescription drugs, such that it can’t walk away from the proverbial bargaining table, it will by definition be limited in its ability to put downward pressure on prices.

But don’t take my word for it. As Azar pointed out to McCaskill, none other than Peter Orszag, who directed the Office of Management and Budget (OMB) under President Obama — said as much in an April 2007 Congressional Budget Office letter:

By itself, giving the Secretary broad authority to negotiate drug prices would not provide the leverage necessary to generate lower prices than those obtained by PDPs and thus would have a negligible effect on Medicare drug spending. Negotiation is likely to be effective only if it is accompanied by some source of pressure on drug manufacturers to secure price concessions. The authority to establish a formulary, set prices administratively, or take other regulatory actions against firms failing to offer price reductions could give the Secretary the ability to obtain significant discounts in negotiations with drug manufacturers.

Only the ability to limit access to drugs by setting a formulary or imposing  administrative prices, i.e. “negotiating” by dictating prices to drug companies, would have any meaningful impact on pricing levels. But this truth proved inconvenient to McCaskill, who admitted she “refuse[d] to acknowledge it.”

Instead, McCaskill continued haranguing him about the evils of drug companies. She pointed out that one congressman who helped negotiate the prescription drug benefit, Rep. Billy Tauzin (R-LA), “went to run PhRMA after he finished getting it through.”

Indeed he did. And as the head of PhRMA, he bragged about the “rock-solid deal” he cut with the Obama administration to help his industry. Big Pharma’s “deal” as part of Obamacare encouraged seniors to purchase costlier brand-name drugs instead of cheaper generics, which the CBO concluded would raise Part D premiums by nearly 10 percent. And who voted for that “rock-solid deal?” None other than Claire McCaskill.

As the old saying goes: If you have the facts on your side, pound the facts. But if you don’t, pound the table.

The facts indicate that McCaskill voted for a “rock-solid deal” with Big Pharma that raised premiums on millions of seniors, which actually makes her part of the problem, not part of the solution. Of course, that also makes her willingness to grandstand at Tuesday’s hearing, and her unwillingness to face facts she now finds politically inconvenient, less “crazy” than it first seemed.

This post was originally published at The Federalist.

Jonathan Gruber, Transparency, and Obamacare’s IPAB

The administration faced a political firestorm last week, when videos emerged featuring MIT professor—and paid Obamacare consultant—Jonathan Gruber making comments on “the stupidity of the American voter,” and claiming that only a deliberately opaque and deceptive process was essential to the law’s enactment. But the administration may soon face a policy controversy as well—for the law features a board that can operate in nontransparent ways, and which will empower technocrats like Mr. Gruber himself.

While the Independent Payment Advisory Board, or IPAB, may bring to mind the latest Apple product offering, the reality is far different. Designed to control health spending, the board of 15 experts—nominated by the president, based in part on suggestions from congressional leaders, and confirmed by the Senate—will have the power to make binding rulings to slow the growth in Medicare outlays. Furthermore, the administration’s budget proposed giving IPAB even more authority, by reducing the caps on Medicare spending the board will be charged to enforce.

IPAB has yet to be constituted. The budget sequester and other savings proposals have thus far kept Medicare spending below the targets that would trigger IPAB recommendations, and Republican leaders have indicated to President Barack Obama their disinclination to provide the White House suggestions for nominees. As a result, the president has yet to make formal nominations—not least because, if the Medicare spending target is reached, requiring IPAB to make formal recommendations to Congress, but IPAB does not do so, that power would then lie within the Department of Health and Human Services itself.

IPAB faces several characteristics that could imbue it with the lack of transparency Mr. Gruber infamously discussed in his speeches:

  • Former Obama administration official Peter Orszag wrote a piece for the New Republic in which he cited IPAB as one way to “counter the gridlock of our political institutions by making them a little less democratic.” In 2012, Politico stated that, while in the White House, Mr. Orszag had “pushed” to include the board in the law.
  • Section 3403 of Obamacare, which creates IPAB, does not require the board to conduct any open meetings. The law merely says that “the board may hold such hearings…as the board considers advisable;” it does not require IPAB to do so.
  • Likewise, while the law prohibits IPAB from “ration[ing] health care,” the term “rationing” is nowhere defined in statute. Former Health and Human Services Secretary Kathleen Sebelius conceded this point, and acknowledged that HHS would likely have to define “rationing” before the board could begin its work—but it has yet to do so.

Prior to the recent controversies, Mr. Gruber seemed like exactly the type of expert—an “individual with national recognition for [his] expertise in health finance and economics”—that might have received an appointment to IPAB. Interviewed for a 2011 article about who might serve on the board, Mr. Gruber didn’t rule it out entirely, while admitting that statutory restrictions on IPAB members’ outside activities might dissuade individuals from applying.

As it happens, Mr. Gruber currently serves on the board of the Massachusetts Connector, an entity charged with implementing the Commonwealth’s health care overhaul. However, to judge from comments made to reporters last week, an aide to Gov. Deval Patrick seemed keen to downplay his influence: “When his term expires at some point, that will be a decision for someone else at that time.”

But beneath the political controversy lies a philosophical question. Fifty years ago last month, Ronald Reagan summarized the concern in his “A Time for Choosing” speech:

This is the issue of this election—whether we believe in our capacity for self-government, or whether we abandon the American revolution and confess that a little intellectual elite in a far-distant capital can plan our lives for us better than we can plan them ourselves.

Therein lies the Obama administration’s bigger problem—how to reconcile a law that increases the influence of independent experts with a high-profile example of such an expert who repeatedly treated American voters with open hostility and contempt. At a time when both the health care law and the federal government itself remain historically unpopular with voters, the Gruber controversy only heightens the perceived distance between the governing and the governed.

This post was originally published at the Wall Street Journal Think Tank blog.

Brookings v. Dartmouth on Health Costs

The Brookings Institution released a study last week that could turn the debate over health spending on its head. While many health analysts—including several key advisers to the administration during the debate over Obamacare—believe that variations in physician practice patterns could represent the key to unlocking a more efficient health system, the Brookings paper questions the degree to which such variations even exist.

At its core, the debate boils down to a difference in two econometric models, both of which attempt to explain geographic variations in spending— for instance, why Medicare spends so much more per patient in Miami than in Minneapolis. Researchers affiliated with the Dartmouth Atlas of Health Care previously found what they consider large, unexplained variations in health spending. Their research—which examines data from individual Medicare beneficiaries, controlled for health status—led them to conclude that differences in physician behavior may account for much of the unexplained spending variations.

The Brookings study, however, uses a different model, one that examines spending data from the state level, and controls those state data using average health attributes in that state, rather than using data from individual Medicare beneficiaries. This state-based model explains much more of the previously unexplained geographic variation in spending, arguing that states with similar demographics have similar spending levels. As a result, the Brookings paper concludes—contra­ Dartmouth—that “geographic variation in health spending does not provide a useful way to examine the inefficiencies of our health system.”

It’s unclear who has the more accurate model, and why. While Brookings’ state-level model incorporates data from both Medicare and non-Medicare beneficiaries, the Dartmouth research focuses just on Medicare patients—and may therefore be skewed by traits particular to the Medicare program, or Medicare beneficiaries, that do not apply to the population as a whole.

The debate over spending variations has profound policy implications. Former Obama administration official Peter Orszag, who has cited Dartmouth research in his writings, believes that variations in physician practice patterns—doctors performing too many tests, for instance—lie at the root of the unexplained variations in spending.  Mr. Orszag and others used this theory to inform many policy choices related to Obamacare, which included a variety of carrots and sticks that attempted to change physician behavior and reduce spending variations.

The Brookings study undermines the basis of the Dartmouth thesis, and one of the reasons why Obamacare’s adherents believe the law will ultimately reduce health costs. Despite its arcane details, the debate between Dartmouth and Brookings will have profound real-world consequences for our health system in the coming years.

This post was originally published at the Wall Street Journal Think Tank blog.

Fact Check: Access to Physician Services

In reviewing the transcript of the President’s speech before AARP, there was one dubious statement we overlooked, and it’s this: “A new study says that under their [premium support] plan, if just 5 percent of seniors switch to private plans, 40 percent of doctors who currently take Medicare would stop accepting it.  So think about that.  Millions of seniors would be forced to change doctors.”  As one might expect, there are several problems with this statement:

  • First, it wasn’t a “study” in any sense of the term – and it certainly wasn’t independent.  The President was referring to a back-of-the-envelope calculation by his former budget director in a Bloomberg column this weekOne might argue that the author of the study, Peter Orszag, might be slightly biased towards the President this November, seeing as how he used to work for him.
  • Second, Obama himself mis-characterized the Orszag column.  Here’s what Orszag actually wrote: “About 10 percent of the U.S. population is now enrolled in traditional Medicare, and an additional 5 percent has private Medicare plans.  Let’s assume, for the sake of argument, that the Ryan plan would cause another 5 percent of the population to shift…”  Orszag based his conclusions on 5 percentage of the entire American public switching away from Medicare, whereas the President said Orszag’s conclusions were based on 5 percent of seniors switching away from Medicare – a much lower bar.  So the President over-stated the impact of Orszag’s “study” and its effects on physician access.
  • Most importantly, Orszag’s conclusions – which were over-estimated by the President – aren’t borne out by recent evidence.  Medicare Advantage enrollment HAS gone up by leaps and bounds in recent years – since 2003, it has more than doubled in both absolute terms and as a percentage of Medicare beneficiaries.  In other words, seniors have switched plans, as the chart below shows.  Yet the Medicare Payment Advisory Commission said this year that “overall, beneficiary access to [Medicare physician] fee schedule services is good.”  If Orszag believes that beneficiaries switching to private plans would cause doctors to stop seeing Medicare patients, then why did a 100 percent increase in Medicare Advantage enrollment not have a significant effect on access to physician services in traditional Medicare?

Peter Orszag has made ludicrous claims before.  He previously said that Obamacare’s CLASS act would be “on a firm financial footing of its own,” only to watch as the program collapsed even before it began.  Given the evidence above, his claims about physician access appear as logical as his claims about the CLASS Act, and should be taken just as seriously.

More Silliness from Peter Orszag

Former Obama Administration budget official Peter Orszag uses his weekly column in Bloomberg to make claims that premium support proposals will result in fewer doctors accepting patients in traditional, government-run Medicare.  But the article includes several faulty premises, starting with the fact that “Medicare represents such a large share of the health care market.”  The word “market” appears frequently in the Orszag article – but the term has very little to do with government-run Medicare.  A program like Medicare – which relies upon government-dictated, top-down, “take it or leave it” pricing structures – is NOT a market, under any true sense of the term – it’s tantamount to economic dragooning of medical providers.

If Orszag and others on the Left want to argue that Medicare IS a market, ask them how they would respond if half of all doctors, hospitals, or both suddenly decided to drop out of the Medicare program.  Does anyone really believe that liberals would allow such a scenario to happen?  Of course they wouldn’t.  And given the trillion-dollar budget deficits under President Obama – making new money to finance reimbursement rate increases virtually impossible to find – Democrats would instead propose new forms of coercion to keep doctors from leaving the Medicare program.  Orszag may talk about markets all he wants, but it’s patently obvious that no Democrat would ever allow a true marketplace for provider participation to develop within Medicare.

Second, if premium support really does result in some percentage of physicians leaving traditional Medicare, seniors could choose a Medicare Advantage plan to maintain access to their favorite doctors and hospitals as part of that plan’s provider network.  Orszag claims that “the existing Medicare program already offers Medicare Advantage plans, so perhaps anyone who wants private insurance already has it.  But then, what is the point of Ryan’s Medicare reform?”  Well, one point is that premium support would mitigate the effects of Obamacare’s $300 billion in cuts to Medicare Advantage, which will reduce the program’s enrollment by half and plan choices by two-thirds.  So seniors would actually have a true choice in health plans under premium support, which would fix the damage Obamacare is about to inflict on the Medicare Advantage program.

That’s not the only part of Obamacare Orszag conveniently left out.  His piece ignores entirely the fact that both the Congressional Budget Office (which Orszag himself used to head) and the non-partisan Medicare actuary believe that Obamacare will result in providers becoming unprofitable and leaving the program.  Here’s what the actuary had to say:

In the Office of the Actuary’s April 22, 2010 memorandum on the estimated financial effects of the Affordable Care Act, we noted that by 2019 the update reductions would result in negative total facility margins for about 15 percent of hospitals, skilled nursing facilities, and home health agencies.  This estimated percentage would continue to increase, reaching roughly 25 percent in 2030 and 40 percent by 2050.  In practice, providers could not sustain continuing negative margins and, absent legislative changes, would have to withdraw from providing services to Medicare beneficiaries, merge with other provider groups, or shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid payers.

Unless and until Orszag wants to acknowledge what his former colleagues at CBO and elsewhere have said – that Obamacare itself will reduce access to Medicare providers by as much as 40 percent over the long term – he has little right to cast stones elsewhere.  We should take no lessons from someone who, given his VERY selective memory, appears more interested in scoring cheap political points for his former boss than in having a substantive policy discussion.

The Wrong Philosophy for Reducing Health Care Costs

In his weekly Bloomberg column today, former Obama Administration budget director Peter Orszag once again attempts to defend Obamacare’s Independent Payment Advisory Board (IPAB), the group of 15 unelected bureaucrats who will be empowered to make binding rulings on how to reduce Medicare spending.  His arguments are based on two premises – each of which contains flaws.  The first premise is that providers, not patients, should affect most health care spending:

Focusing on providers is key because health-care expenses are so concentrated: High-cost cases account for the vast majority of the total.  In those cases, the care provided is, as it should be, mainly the services and tests recommended by the provider.  So if you do not influence provider recommendations in those cases, you cannot do all that much to improve the system.

This premise is valid – to a point.  Obviously, heart attack patients rushed to the emergency room will have little substantive opportunity to influence their health care spending decisions.  But the statement lands on shakier ground in other cases; Orszag’s statement that care “should be” directed by the provider also implies that, for instance, knee replacement patients will not, and should not, be able to influence their course of treatment.  In some cases, our health system currently lacks the proper tools to allow such patients to make fully informed choices – but enhanced price and quality transparency data can remedy this defect.

Orszag makes an even less compelling case when he argues that only Medicare can influence provider behavior:  “For better or worse, only Medicare is large enough to lead the health-care system toward a new structure of payment for providers.”  The problem with this argument is that Orszag and his fellow liberals only want to follow the logic one way.  Because if liberals want to argue that only Medicare has the market clout to change the health care system, that also means Medicare’s size was large enough to cause the system’s current problems.  And, nearly 50 years after Medicare’s creation, liberals haven’t explained how “This Time Is Different” – how a Medicare system can help solve a problem of exploding health costs that it helped to create.  In fact, the Congressional Budget Office noted earlier this year that most Medicare demonstration programs over the past several decades have NOT saved money – suggesting Obamacare’s efforts to control costs by micro-managing Medicare in  different fashion won’t work either.

The bottom line is that the philosophy Orszag approvingly recommends in which “direct modification of the behaviors of providers (versus consumers or payers)” by a board of government bureaucrats isn’t likely to be successful, in two respects.  First, as noted above, CBO has taken a dim view towards the notion that better bureaucratic tinkering will change the dire direction of health spending, and the Medicare program.  Second, and more fundamentally, the American people won’t take kindly to the idea of government bureaucrats engaging in “direct modification” of providers – while ignoring patients entirely.  That smacks of everything Democrats said Obamacare was not – namely, a government takeover of health care.  And it might explain why President Obama, despite blowing full speed ahead on virtually every other aspect of Obamacare implementation, has yet to appoint a single individual to IPAB – because he doesn’t want to reveal the board’s true design until after the November election.

Peter Orszag’s “Fairy” Tale

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.

Get Ready for the NEXT Obamacare Mandate

Politico Pro reports this afternoon (subscription required) that the Administration and outside groups have begun a series of backroom discussions regarding long-term care and the CLASS Act.  Among the topics being discussed – how to enact something similar to a participation mandate.  One participant said “there have been discussions about incentivizing enrollment in ways that would ‘come close enough to mimicking a mandate.’”  One way could involve taxing all Americans who do not participate in CLASS – a policy the Supreme Court upheld as constitutional not two months ago.

This movement towards a de facto CLASS mandate is entirely predictable – in fact, was predicted – once HHS admitted the program could not be made solvent without a mandate.  After all, Peter Orszag, the former Obama Administration budget director, first referenced the idea of mandatory participation in CLASS last summer; other liberal bloggers have agreed.  The Justice Department likewise conceded in a Pennsylvania courtroom that mandatory long-term care insurance would be constitutional.  And now, mere months after the Supreme Court upheld Obamacare’s individual mandate as a tax – forcing all Americans to purchase a product for the first time ever – the Obama Administration is already wondering how close it can come to enacting yet another purchase mandate on the American people.

It’s also worth noting the “closely guarded” nature of these secret negotiations, and the fact that most participants won’t even say who’s in the (back)room:

Participants wouldn’t discuss which federal officials have attended the meetings.  HHS did not respond to a request for comment by deadline….[One participant] declined to say whether federal officials have joined in the discussions.  Other group members POLITICO spoke with also declined to say who’s participating, citing directions…

Negotiations on C-SPAN, it ain’t, that’s for sure.  But one thing is fairly certain: If HHS is conducting secret backroom discussions, and not telling Republicans, let alone the public, about them, you can practically bet the policy the Administration will try to ram down Congress’ throats – or implement unilaterally – will be government-centered, and far from bipartisan.