Asymmetrical Information - Megan McArdle

04.12.13

Pro-Obamacare Groups say that Now We Need Cost Control. Why Didn't We Hear This Three Years Ago?

Obamacare's Cost Control: Too Little. Hearing About It: Too Late

Sarah Kliff has a nice little piece on health care advocates getting together to figure out how to control costs.  "Obamacare Expanded Health Access" read the title. "Now supporters want another bill to tackle costs."

[T]he Partnership wants to start putting political muscle behind the ideas that already exist — and, after it does that, pass legislation that would control health-care costs in a way the Affordable Care Act doesn’t.

“One of the things we’ve all learned from decades of painful experience with health-care reform is that these are very powerful interests,” Families USA Executive Director Ron Pollack says. “If they’re not bought in, we’re not going to achieve significant change.

“What we think we’re doing that’s unique is we’re going to reach out to those key parties and key sectors. If we’re successful, we’ll lay the basis for a comprehensive, thoughtful approach to dealing with costs and quality.”

But wait, wasn't Obamacare going to control health care costs?  I know I heard that somewhere . . . ah yes, that's right, I heard it from Families USA.  In January 2010, when the bill that is currently law was before Congress, Families USA wrote:

When the President and progressive leaders in Congress took on the task of health care reform one year ago, they made three broad promises to the American people: (1) to cover the uninsured, (2) to make coverage more stable and secure for the middle class, and (3) to contain costs. Few dispute that the bills now before Congress deliver on the first two promises. But even though both packages project reductions in long-term federal deficits, there is still significant skepticism about the third promise of cost control. We examined the bills before Congress and found 12 broad categories of cost-containment. We conclude that these measures will save American employers and employees approximately $814 billion in the next 15 years.

Nor were they alone.  In late 2009, lots of supportive analysts were confidently predicting that Obamacare would be a major step towards controlling health care costs.  Now the conventional wisdom is that the cost containment is pretty trivial--a good start, at best.  What happened in between?

To be fair, there have been a number of surprises since Obamacare passed.  Several of the key funding mechanisms have had to be stricken.  The high risk pools turned out to be extremely undersubscribed, yet nonetheless over budget.  The hopes that RomneyCare was enabling Massachusetts to control costs turned out to be false.  Medicare's pilot programs, into which much hope had been poured, turned out to mostly be a bust.  Meanwhile, the administration, which had spent years complaining about outrageous "overpayments" to Medicare Advantage plans, and using Medicare Advantage cuts as one of the major pillars of Obamacare cost control, started going wobbly when the cuts actually had to be made. Who could have predicted that all these different things would go wrong?  

Ahem.  Here is my prediction from the day after the bill passed:

This program will not reduce the rate of growth in medical costs by anything like 1.5% a year.

This was actually a rather easy prediction to make, for two reasons.  The first is that the folks who are pushing a project always underestimate the cost, and the stiffer the opposition to their product, the more optimistic they get in order to counter all those shortsighted naysayers on the other side.  

The second is that much of the cost cuttting was going to be tremendously politically unpopular: unpopular with service providers, and unpopular with the patients that they start refusing to serve.  Which is about 100% of the people who vote on the issue of health care spending.  The folks who want you to cut that spending--healthy taxpayers--don't pay enough attention to the issue to matter.  The political incentives all run the wrong way--which is why, as I've noted before, most of Europe is actually worse at controlling spending growth than we are.

(Surprised?  America is growing from a higher base; we did a terrible job of cost control in the 1980s.  But since then, our system has gotten relatively good at holding growth down.  It will be interesting to see how that changes over the next decade.)

The problem, of cours,e is that we passed a massive new entitlement in part because these groups argued that we'd be getting substantial cost control--"bending the cost curve", as the White House budget director put it.  

Now, I'm sure that any of those who argued it can say that what they're saying now is not at odds with what they were saying then--that we have bent the cost curve, but just not enough.  In fact, I'd take issue with that: it's not clear to me that we've bent it at all, and I think there's a strong possibility that we'll end up bending it upwards in the near term.   But it's true that many of these groups are still claiming significant spending cuts for ObamaCare, even if not as much as predicted.  

But that is not the impression that the general public took away from their remarks at the time, when they accentuated the positive.  The briefings from pro-Obamacare groups did not suggest that it would achieve some fairly trivial cost reductions, with the bulk of the work on cuts still to be done in some successor bill.  They emphasized the historic achievement and presented 10- or 15- year estimates that made the reductions sound very large.  An average reader who did not spend all day steeped in these debates--and I include Congressmen in that group--could be forgiven for coming away with the impression that Obamacare was going to deliver a twofer: coverage expansion and a permanent solution to the nation's health care cost problem.

Many a company has ended up in a disastrous merger the same way.  

So it's a shame that we only started hearing about the need for further, much more drastic action on spending after Obamacare had passed.  Unfortunately, we apparently had to pass the bill in order to find out what wasn't in it.