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Are We Entering an Era of Political Cooperation on Medicare?

There’s a chance that we’re starting to see a convergence of opinion on Medicare among Democrats and Republicans on Capitol Hill. I know the recent bickering makes this seem like an odd contention, but consider the following:

  • In recent decades Republicans have done a great job of tarring Democrats with the “tax and spend” label while being fiscally irresponsible themselves. Republicans criticized Carter era deficits, and then proceeded to run up much more startling deficits under President Reagan. Bill Clinton had us looking at surpluses(!) as far as the eye could see until W came in and sent the red ink soaring –partly through tax cuts but largely by boosting spending. When Republicans continued brandishing the “tax and spend” cudgel, Democrats figured they were suckers to go the Clinton route of fiscal responsibility and get no credit for it
  • We’re now at the point where the size of the national debt actually matters. The only way to bring it under control is to bring deficits down. This is something on which Republicans and Democrats can agree. So now you’ve got both parties committed to the idea of deficit reduction; that just hasn’t been the case before.
  • There are still big differences on how to do it, but approaches –at least on Medicare– are likely to converge once the challenge is faced in a serious way, i.e., with an eye toward solving the problem rather than pandering to one group or another. In the case of Medicare, Republicans are likely to move toward the Democrats’ position over time.
  • The Ryan budget proposal is the beginning of this convergence. Rather than cynically trying to scare seniors by claiming Democrats are taking away Medicare (as his colleagues have been doing up til now), Ryan is explicitly acknowledging that Medicare spending can’t continue on its current path. His frank talk is now earning some serious backlash in “town hall meetings” –the same venues where opponents of the Patient Protection and Affordable Care Act (PPACA) took out their wrath on Democrats in the run-up to health reform’s passage. It’s actually good that Republicans are getting a taste of the same medicine they were dishing out  –maybe it will make the GOP think twice about starting up those tactics in the future.
  • Once Republicans decide to think seriously about Medicare costs, they’ll find that the Ryan plan isn’t going to do the trick. A loosely regulated private health insurance industry like Ryan envisions can’t and won’t deal with societal priorities like enrolling sick people for premiums they can afford. At a minimum that’s going to lead Republicans toward similar insurance industry reforms as PPACA (e.g., guaranteed issue, limitations on medical underwriting) in order to preserve Medicare’s universal coverage of the elderly
  • If well-informed, constructive parties –including the Congressional Budget Office, the media, policy wonks, and maybe even presidential candidates– engage on these issues they may yet get toward a national consensus. One reason I’d like to see Mitt Romney get the Republican nomination is it might actually engender a productive debate about Medicare. (Then again Mitt has disappointed in the past.)

I’m getting ahead of myself, but I also think it’s possible that in about 10 years we’ll see significant support among Democrats and Republicans for a single payer system. But that will have to be the topic for a future post.

David E. Williams is co-founder of MedPharma Partners LLC, strategy consultant in technology enabled health care services, pharma,  biotech, and medical devices. Formerly with BCG and LEK. He writes regularly at Health Business Blog, where this post first appeared.

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19 replies »

  1. We are actually entering a suicide alley politically. If there is to be a bipartisan solution, then the Dems get to take the lead, since it is their constituency that will scream the loudest.

    This should be fun to watch, a bear market in government.

  2. because you said on every service, apples to apples, we are more expensive then OECD, bread bread comment.

    I agree we need to cut a lot of utilization, a lot of fraud, little unit cost, but that wasn’t how I read you earlier comment. Now that we agree do you want to call barack and Don or do you want me to? You know they will want to take credit for this.

    Generitcs are a great example of how competition can foster lower prices and efficent markets

  3. Why pick generics of all things? And for that matter, why pick any one particular expense?
    Let’s cut a little bit on utilization, a little on costs, a little on fraud, a little on self-referrals, a little on administrative functions, etc. – everybody gets hit a little bit and nobody gets clobbered out of existence, i.e. shared sacrifice.

  4. Hate to tell you this Nate but the US massively subsidies wheat to the tune of billions every year. Corn, feed grains, and soybeans too for that matter. All together when you add up federal and state subsidies whether direct payments or other forms of support it was well over $100B in 2008.

  5. Interesting question for all the liberals here;

    If your a fan of progressive taxes then do you support progressive drug prices? What about progressive healthcare cost? If we make more then everyone else in the world shouldn’t we pay more, or does that only work when your taking other people’s money?

    “The study addresses the issue of “what can we say about the average price of drugs in the U.S. relative to other countries,” says Danzon, “and also looks at the question of whether other countries are paying their fair share.” On the first point, “when we look at a comprehensive market basket of products, the differences on average are smaller than many previous commentators have argued. And second, when we compare those price differences to the differences in income, we find that other countries’ prices are not out of line relative to income. If we are going to measure paying our fair share in terms of prices relative to income, then most of the Europeans are paying their fair share.”

  6. “slice by equal slice costs more here. ”

    “Interestingly, the study also shows that the U.S. has one of the highest levels of generic drug use relative to total prescription volume, and that generic prices are lower in the U.S. than in all the countries except Canada, where the difference is 6%.”

    Except it doesn’t. Generic Rx for example. While we do pay more per unit the bigger problem is the number of units and the type of units we are getting.

    ” the US has historically subsidized bread”

    No like you point out it does wheat and wheat is a small part of the total cost of bread. Labor and fuel are both higher.

    http://www.ndwheat.com/growers/detail.asp?newsID=1209

    The farm value of the wheat in a loaf of bread is estimated to be about 20 cents at this season’s average wheat price of nearly $8.00 per bushel. A year ago, it was roughly 12 cents. On a percentage basis, as frequently cited by baking industry spokespersons, the increase appears to be more significant – but as the example illustrates – is vastly overstated in its real impact on the real cost to the consumer. The actual 8 cent per loaf increase pales in comparison to other escalating costs related mostly to energy and transportation which farmers, bakers and all basic industries have experienced. In the case of pasta, the numbers are roughly the same. The actual cost of durum in a one pound package of pasta, even at today’s higher prices is still only 20 to 30 cents of the $1.50 per package store-shelf cost paid by the consumer. A year ago this was roughly 12 to 15 cents.

  7. No, not lunch, just bread, slice by equal slice costs more here. Solve this one first, then we can discuss the condiments.

    Just a quick reminder, the US has historically subsidized bread (wheat) and it is still doing so. I don’t see any bread lines. Are you, perhaps, confusing cause and effect?

  8. ” The simple fact is that a loaf of health care costs twice as much in the US than anywhere else.”

    Technically lunch cost twice as much in the US then anywhere else. Part of this is becuase we eat more and part becuase we like artisian breads instead of the plain boring Euro loafs.

    To solve the problem of bread costing twice as much is a totally different solution then lunch costing twice as much.

    “bread must be subsidized so it’s cheap, available and accessible to all. ”

    Really? How come every collapsed economy that subsidies bread has bread lines? What good is cheap bread if there is no cheap bread to buy?

  9. And one more thing….. If you are willing to learn just one lesson from those Socialist Europeans, learn this: bread must be subsidized so it’s cheap, available and accessible to all. The cake alternative leads to instability and violence.

  10. This is like fitting a square peg in a round hole. The simple fact is that a loaf of health care costs twice as much in the US than anywhere else. Not because we are inefficient and have primitive means of production, but because selling health care is a much more lucrative business in the US, allowing for more layers of “value” added intermediaries into the process.

  11. Liberals keep telling us that healthcare in other countries cost half as much per capita as it does in the U.S., they have universal access and comparable or better quality. They praise the European and Canadian concept of solidarity. They downplay rationing, especially in the UK and Canada and, in short, they wonder why we can’t be more like Europe and Canada, at least when it comes to healthcare.

    At the same time, malpractice suits are far less common in other countries so there is less defensive medicine. When serious tort reform, including health courts and safe harbor protection from lawsuits for doctors who follow evidence based standards where they exist is proposed, trial lawyers scream that we need to protect the individual’s ability to have his day in court and Democrats in Congress, especially the Senate, back them up.

    People in other countries seem more accepting of death when the time comes and less likely to demand lots of futile end of life care as a result. When there is no living will, advance directive or person to make decisions on the patient’s behalf, the default protocol at the end of life in the U.S. is to “do everything” mainly because providers are afraid they might be sued if they don’t. Why can’t the default protocol be: apply common sense depending on circumstances without having to fear being sued if the patient dies a few days or weeks before he would have if they “did everything?”

    Patient expectations in general may be higher in the U.S. How many people demand an MRI for every headache even when the doctor doesn’t think it’s necessary? How many people come in wanting a prescription for some drug they saw advertised on TV and the PCP doesn’t have time to fully explain to them why it wouldn’t do them any good or is no better than a much cheaper generic?

    Medical prices per service, test, procedure or brand name drug are far higher in the U.S. than in other countries. We could probably mitigate the drug pricing issue with more restrictive formularies but people are generally unwilling to accept a formulary as restrictive as the VA’s. Doctors earn more money in the U.S. than doctors in other countries do. Hospital prices are much higher in the U.S. and more happens to patients while they’re in the hospital even though the average length of stay is actually shorter in the U.S. I suspect that a good portion of this may be due to defensive medicine as well, especially the workup given patients presenting at the ED.

    Finally, we have a system where most people in the workforce get their health insurance through an employer. This is not likely to change anytime soon, but it’s an accident of history related to the need to get around World War II era wage and price controls. There’s that heavy hand of government again leading to unintended consequences.

  12. David in this post speculates “that we’re starting to see a convergence of opinion on Medicare among Democrats and Republicans on Capitol Hill” regarding ways to address the Medicare cost problem. He notes that the Republicans used the “tax and spend” cudgel on Democrats, while at the same time “being fiscally irresponsible themselves”; but, he argues, now that the deficit is so large, the Republicans are likely to move toward the Democrats’ position over time. A key part of the Democrats’ position is the establishment of the Independent Payment Advisory Board (IPAB), which has been described as a mechanism designed “to address predictably misaligned incentives within our health care political economy.”

    I share Steve’s concern that David may too optimistic. Harold Pollack, who blogs over at http://www.samefacts.com , has similar concerns. As he succinctly put it, “[e]very Democratic and Republican policy expert knows that we must reduce congressional micromanagement of Medicare policy. Unfortunately, every Democratic and Republican legislator knows that mechanisms such as IPAB that might do so would thereby constrain their own individual prerogatives,” such as the ability “to help that local wheelchair manufacturer or academic medical center, [or] to make sure that this national association of orthopedic surgeons or home care providers has proper cover in the legislative process….” http://v.gd/G8DWc7 (h/t Brad DeLong http://v.gd/6uMidf).

    Regarding Nate’s tiresome screeds on this website, I quote Professor Pollack’s response to a similar attack on his opinions: “There is a certain authoritarian mindset in [such]writing, which flattens basic distinctions between conventional technocratic liberalism and socialist central planning. Unfortunately, the internet encourages and rewards precisely this sort of boorish overstatement.” He is being kind to call it “boorish.” More likely, it is a well planned propaganda effort designed to arouse passions and to undermine and drown out rational political discourse.

  13. “but most do not and that includes the majority covered by employers”

    How do you define the word most? Most people would consider most to be atleast 50%+1, you apparently have redefined it to low double digits. No study ever has shown 50% of americans having trouble paying their healthcare bills.

    “being made uncompetitive on account of high health care prices.”

    Only companies being made uncompetitive by healthcare are those with union CBAs that lock them into overly expensive benefits. WOuld it really kill Union members to use generic instead of brand, maybe not have every hospital in the country, or have the public picking up their viagra?

    Look at the recent earning announcements, American companies appear to be doing pretty darn good overseas. Strength of the dollar would have a much bigger impact then healthcare cost. Take the price of a widget or what ever product you want, labor makes up at most maybe 20% of that and healthcare makes up what 10% of that? Total healthcare adds maybe 2% to the cost of goods, at most. Dollar has declined 11% so far this year alone.

    “The biggest tactical and strategic errors occur when people insist on preparing for the battles of the past. The world has changed, is changing, and resting on your laurels now will practically guarantee that someone else will be eating your lunch in the future.”

    Then why are we trying to copy OECD health systems from 10 years ago that are clearly failing today? Look how much cheaper their healthcare was, when measured in flawed manners, we should do what they did, ignoring the austerity measures sweeping through all of them today.

    Your right, we started copying socialism and surprisingly we are ending up just like all other socialist nations, broke.

  14. “Americans want lots of healthcare and they have the money to buy it.”

    That’s a two headed myth. Witness the recent “free” preventive care screenings offered by Medicare and how people are not lining up to get their freebies. Medical care is not like chocolate.
    Some do have the money to buy it, but most do not and that includes the majority covered by employers, which from what I hear are being made uncompetitive on account of high health care prices. Or is that not really so?

    “Over the past 100 or so years which of those OECD countries would you rather be?”
    The biggest tactical and strategic errors occur when people insist on preparing for the battles of the past. The world has changed, is changing, and resting on your laurels now will practically guarantee that someone else will be eating your lunch in the future.

    This Republic did not invent democracy or republicanism. It took ideas from others and perfected them. We stopped doing that a long time ago and these are the consequences.

  15. “Every other OECD country has heavy government involvement and lower costs. It is not that it cannot be done, it is the politics in the US that hold us back. ”

    Politics or public demand? We consume more junk food then other nations, is that also politics? Americans want lots of healthcare and they have the money to buy it. Its politicis that people spending public money do so inefficinetly but as Americans if we want to blow our personal money on wasteful care is it the roll of government to tell us no?

    “OTOH, there is no model in the world where an unregulated free market system has held down costs.”

    There are no 200 year old Republic/Democracies, should we scrap that for being different as well? Over the past 100 or so years which of those OECD countries would you rather be? There is a reason people have been leaving these OECDs for 300 years and comming here, no?

  16. “So that was all Bill Clinton and had nothing to do with the Republican House that you know actually writes the spending bills?”

    That same GOP House ran up the debt again once they had a GOP POTUS in office. Also,, it is well known that Rubin, for all of his faults, pushed Clinton to hold back on spending and work to reduce the deficit.

    “As Medicare has proven a heavily regulated public plan can’t and won’t deal with fisical priorities like actually delivering what they promise and doing so in a somewhat efficent and fraud free sustainable manner”

    Every other OECD country has heavy government involvement and lower costs. It is not that it cannot be done, it is the politics in the US that hold us back. OTOH, there is no model in the world where an unregulated free market system has held down costs.

    @David- I think you are too optimistic. The parties are so far away that I see little chance for reconciliation. I initially had some hope when I noted that the GOP plan will have an individual mandate for seniors and will use exchanges, borrowing heavily from the ACA (which borrowed heavily form older GOP plans), but the large tax cut in Ryan’s plan make me think they are still not that interested in Medicare, just cutting taxes.

    On the Dem side, after being smeared in the last election for cutting Medicare, ie reducing MA spending to the same level as FFS Medicare, I think they will concentrate on payback. Also, while left leaning pundits have many ideas about cutting costs, the Democratic leadership seems more interested in maintaining the message that they will keep Medicare intact.

    Steve

    Steve

  17. A more cynical view, but one that leads to somewhat the same conclusion, is that eventually a few politicians are going to be smart enough to realize that making politically unacceptable proposal (like both Paul Ryan’s and the President’s) is stupid, and that it’s necessary to seek some middle ground.

    In a THCB post a couple of days ago, I suggested looking again at the bipartisan proposal from the 1999 Medicare Commission, at least as a starting point for discussion. The 1999 proposal isn’t necessarily the answer to Medicare’s woes, but it was one that gained some support from both parties. And that’s better than anything else on the table right now.

  18. ” Bill Clinton had us looking at surpluses(!) as far as the eye could see until W came in and sent the red ink soaring ”

    So that was all Bill Clinton and had nothing to do with the Republican House that you know actually writes the spending bills?

    Bill Clinton’s surplus as far as the eye could see? You that short sighted you can’t see the end of your nose? Clinton’s last year when the dot com crash started whiped trillions off our balance sheet. The surplus was gone Bush’s first year in office not becuase of anything he did but the decline in the economy under Clinton.

    Your taking projections at the peak of the tech bubble and ignoring the fact it was already over. Nice revisionist history there.

    ” A loosely regulated private health insurance industry like Ryan envisions can’t and won’t deal with societal priorities like enrolling sick people for premiums they can afford. ”

    As Medicare has proven a heavily regulated public plan can’t and won’t deal with fisical priorities like actually delivering what they promise and doing so in a somewhat efficent and fraud free sustainable manner. Ryan’s plan will never bankrupt a nation. At worst a couple million people might need additional help from charites. The Democrats bankrupt the country, enslave tens of millions if not more to a substandard system.

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