Strengthening Constitutional Self-Government

No Left Turns

Mr. Orszag’s 30 Percent Non-Solution

Barack Obama is clearly determined to make Bill Clinton’s greatest domestic policy failure – leaving office without a national health insurance program – his own greatest success. The reason it will be difficult, even for a president with high approval ratings facing an opposition party in disarray, is that the government cannot dramatically expand its entitlement obligations at a time when voters are expressing bailout-fatigue and global bond markets are signaling federal deficit-fatigue. The solution to this political problem is obvious and inevitable: the Obama health care plan will be sold using liberalism’s when-all-else-fails rhetorical device. It’s the one that assures a dubious public not to fear a vast and expensive-sounding proposal, because the program will “pay for itself” and probably “pay for itself many times over.”

The basis of the argument that America can restructure its health care system to guarantee coverage to millions of people not insured today without taking on enormous new financial burdens is that by eliminating wasteful spending and duplication, more care will not require more dollars. The leader of this effort is Peter Orszag, director of the Office of Management and Budget. According to a recent New Yorker article, Orszag became “obsessed” a few years ago with research by the Dartmouth Institute on Health Policy and Clinical Practice that strongly suggested “there must be enormous savings that a smart government, by determining precisely which medical procedures are worth financing and which are not, could wring out of the system.” Sure enough, a report last week from the Council of Economic Advisors relied on the Dartmouth data to assert that “nearly 30 percent of Medicare’s costs could be saved without adverse health consequences.” Extrapolating from the portion of the population covered by Medicare to the entire nation, the report says, “[It] should be possible to cut total health expenditures by about 30 percent without worsening outcomes,” which would be the equivalent to finding an additional 5 percent of GDP in a drawer in the nation’s closet that we had forgotten about.

Wait a minute, said Virginia Postrel on her blog last week. Before we make the entire nation a guinea pig for testing Orszag’s cost-reduction theory, why not try it on the big portion of the health-care market that the federal government already dominates? “[You] do have to wonder,” she said, “why a report that claims that Medicare is wasting 30 percent of its spending thinks it’s making a case for making the rest of the health care system more like Medicare.”

The New Yorker breathlessly declared that Barack Obama is “betting his Presidency” on “Orszag’s thesis” that “a government empowered with research on the most effective medical treatments can, using the proper incentives, persuade doctors to become more efficient health-care providers, thus saving billions of dollars.” The success of Obama’s presidency is a goal in which the New Yorker is heavily invested, of course. Perhaps there are even higher stakes that its editors could imagine, however, such as the solvency of the federal government, or the health and peace of mind of millions of patients who have more confidence in their doctors’ recommendations than those issued by a federal agency.

To his credit, Orszag phoned Postrel after her “Medicare First” blog post received a lot of attention. His argument against her idea – “changing Medicare and waiting to see how it works before messing around with the rest of the health care system” – is notably weak, however. The politics of what she suggests are impossible, according to Orszag. “I don’t think you’re going to get these aggressive changes in Medicare unless you do some coverage expansion now,” he told her. An example he gave Postrel is that the AARP “will accept significant changes in Medicare only if the money goes to expanding coverage.”

I couldn’t find any evidence of this line in the sand on AARP’s vast website, but let’s stipulate that this is indeed their position. It’s hardly dispositive. The biggest lobbying organization in Washington, representing millions of people enrolled in Medicare, doesn’t seem as confident as the Council of Economic Advisors that the latest ingenious idea from academia can be imposed on its members “without worsening outcomes.” If Orszag is right, AARP’s members aren’t being asked to give up anything that improves their health and longevity. Before plunging into a national system from which none can exit, it would be interesting to know why they think differently.

Discussions - 2 Comments

Of course I can't vouch for the 30%, and I have not followed this research closely since the 1980s, but readers might wish to look at the Wennberg "small area" studies beginning in the 1970s. They, and like studies, are at the heart of the current cost-saving estimates (and optimism). Links are on the ">">http://tdi.dartmouth.edu/faculty/publications/121"> Dartmouth site.

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