(Cross-Posted at www.progressivefix.com--I'm behind putting these up on my blog...)

I spent a chunk of time on the train to New York yesterday reading through bloggers’ reactions to Democrats’ reactions to the Scott Brown victory in Massachusetts. And I’m confused.

First, an awful lot of liberal bloggers seem all too eager to advance a pernicious stereotype about the Democratic Party — that it is feckless, weak, wimpy, cowardly, unprincipled, etc. Look, it’s not that every Democrat was scared away from health care reform by the Brown win. As far as we know, very few were. If you want to make accusations of cowardice, aim them at those few specific legislators who have flip-flopped — the rest of the party can’t do much to make them vote in favor of reform. If President Obama didn’t come out as aggressively in favor of passing the Senate bill as you wanted, that’s probably because he knows he doesn’t have the votes and has little interest in self-immolation. By tarring the entire party, you aid and abet Republican efforts to caricature Democrats.

And for the love of God, if you 
feel no longer energized to elect Democrats in November because some congressman in some other state caved, well, you need to take a deep breath and count to 10. Losing health care would be a huge, regrettable defeat, but by sitting out November, you would also make progressives in Congress worth supporting suffer for the sins of others.


(Cross-Posted at www.progressivefix.com--I'm late getting these up on my blog...)
There will be a mountain of analysis regarding the Brown victory in Massachusetts last night and what it means for health care reform. But what is striking to me this morning, skimming my
RSS feeds, is the same thing I have found striking throughout the past year — how willfully ignorant liberal advocates of health care reform continue to be about public opinion on the Senate- and House-passed versions of health care reform.

There’s no need for extended analysis of the polling to make my point. Start with the basic favor/oppose trend for health care reform:

You can argue that people are uninformed. You can argue that Republicans have misled them. You can argue that people support something called “health care reform” as a general concept. But the numbers are what they are — only a minority supports the bills under consideration.

Faced with such numbers, reform advocates have defensively pointed out that much of the opposition to health care reform comes from the left, as if that somehow rendered the bills’ unpopularity irrelevant. What is devastating to their case, however, is a look at the intensity of views toward reform.

When assessing polling results, I have found it is crucial to employ what I call the Kessler Rule, after Third Way’s Jim Kessler. Jim argues that anytime someone tells a pollster that they are “somewhat” supportive or opposed to something, it basically means they don’t have strong feelings one way or another or that they have so little interest in the issue that they haven’t even formed an opinion. 
Rasmussen has been asking its respondents whether they “strongly” or “somewhat” support or oppose health care reform for months. The first time they asked was in August, during the congressional recess, when they found that 43 percent of respondents were strongly opposed, compared with 23 percent who were strongly supportive. Keep in mind, this was when the public option was still included in all major proposals, so liberal backlash was unlikely to have been much of a factor in this contrast.

The most recent poll Rasmussen conducted was over the weekend. Results: 44 percent strongly opposed, 18 percent strongly supportive.

You would think that such numbers would dent the confidence of reform advocates that the public overwhelmingly supported their own preferences. You would be wrong. Instead, incredibly, health care reform was 
cited throughout the fall and winter as Exhibit A for why we need to get rid of the filibuster in the Senate! If something as popular as health care reform faced such difficulty winning passage, it was argued, then the Senate can no longer govern!

Now with Scott Brown’s defeat of Martha Coakley, advocates have 
bent over backwards making the case that the election of a conservative in one of the most liberal states in the country — to fill a seat vacated by the patron saint of health care reform, at a time when the result would determine the fate of reform — had nothing to do with public opposition to reform.

Rasmussen’s election night survey says everything you need to know about how much these advocates are kidding themselves: 
78 percent of Brown voters strongly oppose the health care bills before Congress.

What’s my point? It’s not that the case for health care reform is bunk or that policymakers should make their decisions based on polls. Like many progressives, I think the House should pass the Senate bill and that they should fix it later. (Unlike most progressives, my “fixes” would involve moving in the direction of Wyden-Bennett or even a more generous version of the House Republican bill rather than in the direction of House Democrats.) It’s not that liberal advocates should not spin issues in ways that promote their policy preferences. It’s that they should not 
believe their own spin — the country remains moderate. But don’t take it from me — take it from the 2010 electorate in November.
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

If you’ll forgive me for egregiously mixed metaphors, I want to draw attention to an implicit assumption among many health care reform advocates related to controlling healthcare spending: that if not for the politics involved, it would be fairly easy to rein in costs.

That’s because, the argument goes, there is easily identifiable inefficiency in the way we currently spend health care dollars. There are enormous regional disparities in, for instance, per capita Medicare spending. What is more, these differences are apparently unrelated to differences in the health of the underlying populations, and they don’t produce better outcomes. Rather, the differences reflect the ways that health care providers diagnose and treat patients in different parts of the country. So say the much-revered Dartmouth College health researchers, whose findings have been fairly uncritically embraced by many on the left.

Politics aside (the difficulty is that one person’s wasteful diagnostic test is another’s life-saving intervention), I always was suspicious of this argument. If there are excess profits to be made, then why is it that providers in only some parts of the country go after them or successfully extract them? Then a fascinating study came out that was mostly ignored but that should have raised questions about the Dartmouth research.

A potential problem with the Dartmouth research is that if there are unmeasured differences in health between patients who go to different providers, then the finding that greater spending is unrelated to outcomes could simply derive from people in worse health being very expensive to treat. The Dartmouth researchers use relatively crude measures to statistically control for these differences (because they are the only ones available).

MIT economist Joseph Doyle got around this problem by looking at patients who needed emergency care while they were visiting Florida. Because there is no reason to expect that unhealthy tourists are more likely to end up in higher-spending ERs, any differences in outcomes between those who went to high-spending hospitals and those who went to low-spending ones should reflect only the spending difference. Doyle found that higher spending did produce better outcomes.

Disparities in Data

Now MedPAC, the panel that monitors how Medicare reimburses providers and makes recommendations to Congress, has released a study that shows that disparities in Medicare spending are quite a bit smaller when other important factors — such as regional differences in wages and extra reimbursement related to medical education — are taken into account (hat tip to Mickey Kaus). If one looks only at per capita Medicare spending, high-spending areas of the country have costs that are 55 percent higher than low-spending areas of the country (I’m talking about the 90th and 10th percentiles, for those of you statistically inclined). After making MedPAC’s adjustments, however, that difference shrinks to 30 percent.

Thirty percent might still be considered a big number — in a perfect world adjusted spending shouldn’t differ at all — but other evidence in the MedPAC data gives reason to question the precision of any of these kinds of comparisons. I put the figures for all 404 geographic areas into a spreadsheet (which you can get from me if you’re interested — data wants to be free!) and looked at the top and bottom quarter of adjusted spending.

High-spending areas are dominated by the South, particularly the states stretching from Florida across to Texas and Oklahoma. They also include 15 of the 30 biggest metropolitan areas, including all of the biggest southern and midwestern metros, save Atlanta and Minneapolis, and none of the biggest northeastern or western metros, save Los Angeles, Las Vegas, Phoenix, Denver, and Pittsburgh.

On the other hand, low-spending areas are dominated by the West, particularly Alaska, Hawaii, Washington, Oregon, Idaho, and most of California (with the exception of Los Angeles and San Diego). Also overrepresented are small metropolitan areas in the upper Midwest and Dakotas, in New York, Maine, Virginia, and Georgia. None of the biggest ten metropolitan areas are represented in the bottom quarter, and only four of the biggest thirty are (San Francisco, Seattle, Portland, and Sacramento).

Compare these findings to those of the Dartmouth folks (Map 1). While many of the same conclusions show up in their map, there are some notable differences. Most importantly, California and the Boston-Washington corridor look like they spend a lot more in the Dartmouth map than they do in the MedPAC data (and the Mountain West states look like they spend a lot less).

Fixing Inefficiencies Not a Silver Bullet

If different sets of rankings differ as notably as these two do, then that says to me that there is a lot of noise in these rankings and that perfectly adjusted spending figures would potentially produce a distribution of areas that would look different from either set. In particular, I suspect that it would show that the vast majority of spending variation could be explained by factors that had nothing to do with inefficiencies.

The point is that even discounting the political difficulties of enacting policies that rely on comparative effectiveness research to weed out inefficiencies in healthcare spending, it’s not at all clear that regional variation in healthcare spending is proof that such inefficiencies exist. That’s not to say that there are no inefficiencies, but weeding them out won’t be as simple as making Florida providers act like Minnesota ones.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.

(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

Regardless of whether health care reform is ultimately signed into law — and momentum makes it increasingly likely, if far from certain — the historic passage of the House bill constitutes a remarkable legislative accomplishment. More than that, however, the bill would give millions of Americans health security. Under the status quo, the Congressional Budget Office estimates that 19 percent of Americans will be uninsured in 2019. The House bill would reduce that figure to six percent (see Table 3). It’s an achievement progressives should cheer.

That said, I’ve heard and read a number of critiques of the House and Senate bills that give reason for concern as well. Tellinglythese critiques have almost all come from outside the progressive community. The intra-progressive health care reform debate — make that the absence of a debate — has revealed a depressing with-us-or-against-us mindset that we like to think is only a conservative malady. But if health care reform is enacted in the coming months, progressives will need to focus sincerely on a problem to which they have paid only lip service over the last few months, one that reform is sure to exacerbate: the perilous fiscal health of the federal government.

The Grim Deficit Outlook I know — it’s soooo 1995 to worry about such things. But we face a serious problem, and despite the promises of reform advocates, the legislation being considered is not going to make it less severe. CBO projects the 2009 deficit to be 11.2 percent of GDP, which will put the federal debt held by the public at 53.8 percent of GDP (see Tables 1-2 and 1-6). Not since 1945 has the deficit been this big (see Table 1.2). Not since 1955 has the federal debt been so large (see Table 7.1). And all that understates the magnitude of the problem. If you take into account the net liabilities incurred in the federal government’s takeover of Fannie Mae, Freddie Mac, GM, and Chrysler, and the bank assets purchased as part of TARP, things look far worse — we could potentially be understating deficits over the next 10 years by as much as 80 percent.

Assume for the moment that health care reform does not pass. Deficits actually won’t look quite so bad in two or three years, but they will increase steadily thereafter (see Figure 1-2). Under realistic assumptions, the national debt will continue growing as a share of GDP — to roughly 100 percent by 2022 (assuming no losses on those recently purchased financial assets). That is worth restating: our current path will cause the federal debt to be as large as the entire annual output of the U.S. economy within a dozen years (see Figure 1-3). That hasn’t happened since World War II (Table 7.1). And while the national debt was roughly cut in half over the dozen years following the war, after 2022 the national debt would increase at an accelerating rate.

Now the first person to say that health care reform is deficit reduction gets a smack to the head. Yes, the growth in deficits and the debt over the long run anticipated by these projections will be due to rising health costs (see Figure 4-1). And yes, in addition to expanding insurance coverage, cost control has been widely cited as an objective for health care reform. The problem is, the bills under consideration have ended up not taking cost control seriously.

And for good reason, since real cost control under the delivery and insurance systems favored by reform advocates would have proved either too expensive or too intrusive to pass. Alternative systems, such as those envisioned by Sen. Ron Wyden (D-OR), might have been able to control expenditures through progressive cost sharing. (Under Wyden’s proposal, individuals would be subsidized on a sliding scale for the purchase of insurance from among plans that compete on price, with incentives for them to choose more cost-efficient coverage.) But the supposed savings in the House and Senate bills are fictions that reform supporters have been complicit in spreading.

The Illusion of Cost Control Consider the House bill. The CBO has to take the provisions in the bill at face value, even if they are highly unlikely to ever be implemented. Revenue to pay for the $1.052 trillion dollar gross cost of the insurance expansions comes from a number of sources. Roughly $460 billion would come from raising taxes on those with an adjusted gross income of $500,000 (individual) or $1 million (joint). At least $240 billion would be raised from Medicare cuts to providers (perhaps closer to $300 billion), about $170 billion would come from penalties assessed on individuals and employers for not complying with mandates, and $170 billion would come from reducing payments to managed care plans under Medicare. These and other changes would reduce the deficit over 10 years by $109 billion and could reduce the deficit slightly over the following 10 years.

Now, here’s where advocates — columnists, bloggers, even think tank researchers and economists — have drifted imperceptibly from pontificating to shilling. Put aside the strong likelihood that the Medicare provider cuts are dialed way back (if they are not, the administration’s own Centers for Medicare and Medicaid Services predicts that many providers will stop accepting Medicare patients). Put aside the fact that the “doc fix” to reverse most of the provider cuts that were already legislated for coming years will add $210 billion over this same 10-year period when it is passed. The bill’s purported deficit reduction of $109 billion is about two percent of the accumulated deficits from 2010 to 2019 (see Table 1-2). In other words, the House bill would barely make a dent in future deficits under the rosiest of interpretations — and is actually likely to increase rather than decrease them taking into account the anticipated adjustments.

What about the Senate bill? Harry Reid’s mash-up awaits CBO’s final word, but the Baucus bill would cover fewer people and therefore be slightly cheaper than the House bill. The bill’s insurance provisions have a gross cost of $829 billion over 10 years, paid for by a tax on high-premium private health plans (about $200 billion), Medicare provider cuts (about $160 billion), and Medicare managed-care cuts (about $120 billion).

Here, it’s worth noting the sloppiness of some reform proponents’ arguments over the wisdom of pursuing such an ambitious program despite yawning deficits. In a recession, they have argued, we cannot worry about deficits — greater spending is just what is needed to stimulate the economy. With the return of growth, we will have little problem dealing with deficits later.

But the Baucus bill’s 10-year deficit reduction of $81 billion would be achieved by spending essentially nothing in the first four years (from 2010 to 2013). Needless to say, if we still need federal economic stimulus in 2013, we will have bigger problems than deficits.

The effect on deficits is basically neutral for the following six years (see Table 1). Nevertheless, CBO does estimate that the Baucus bill would continue to produce small savings in the second 10 years. Of course, if the Senate follows the path the House is taking, it will include a “doc fix” that will wipe out even these dubious savings.

Why Progressives Should Care About Costs Meanwhile, all of the magic bullets (the “game changers”) that progressives trumpeted, from the public option to comparative effectiveness research, to IT improvements, to a Medicare Commission that would propose cuts would produce negligible savings in the foreseeable future, according to CBO.

There were “strong” versions of several of these proposals that could have produced cost savings, but they proved too strong for legislators to risk their jobs for. What progressives will get out of health care reform instead is what most really wanted: near-universal coverage.

A worthy goal, no doubt. But if progressives fail to get serious about fiscal responsibility, the consequences — whether in the form of another financial crisis, slow or stalled economic growth, or political abandonment by the sons and daughters of the Perot voters — could undo much of the good that may yet come out of health care reform. Think it has been hard to pass reform? Try raising taxes dramatically to protect it down the road.

In Washington this time of year, thoughts turn to getting the hell out of Dodge for climates not shaped by former swampland.  The coming weeks will be decisive for the fate of healthcare reform, as members of Congress go home to hear from constituents, interest groups dig in for the coming battle royale, and the press looks for something to cover other than kidnappings and hurricanes.  Healthcare reform is now as close to passing as it has ever been in modern America.  But I'm going out on a limb and predicting it will fall short again.

From the beginning, reformers have been most interested in expanding coverage to the uninsured and only secondarily interested in bending the cost curve.  But adding coverage costs lots of money.  Even absent coverage expansions, as current Office of Management and Budget director Peter Orszag made clear while director of the Congressional Budget Office, healthcare costs threaten to explode the federal budget.  Trying to expand coverage without addressing this explosion—indeed, making it much bigger—was never going to be an option politically.  (You think the Blue Dogs and Senate Finance Committee Republicans are dissatisfied now?)

The problem is that the evidence on how to reduce health spending either doesn't exist or involves policies such as greater cost-sharing that are unattractive to progressives.  Instead, reformers lashed themselves to evidence from Dartmouth researchers that much of what Americans spend on healthcare is wasteful.  From this conclusion, the solution that suggested itself to reformers was that to control costs, the delivery of care should be rationalized in some way that at the very least will require federal incentives.  And here the reformers pinned their hopes to a number of policies that came to be known as "game-changers": health IT and medical records, comparative effectiveness research, and a public plan with strong bargaining power against providers.

But they were unduly hopeful.  CBO crushed their strategy by declaring these first-wave game-changers not very game-changing at all.  This blow led to a scramble to find other game-changers.  Suddenly "IMAC"--an independent commission that would make decisions about Medicare reimbursement--and taxing overly generous health plans became the ideas for savings that would allow healthcare reform to succeed.  But then CBO last week poured cold water on IMAC, saying that it had a high probability of not saving much at all.  (At any rate, it was always unlikely that Congress was going to cede authority over Medicare spending policy.  Plus, all the factors that prevent Congress from cost-cutting in Medicare today would work toward pressuring them to overturn IMAC decisions, making cuts unlikely.  Plus the whole IMAC idea raises the threat among skeptical voters of rationing by a body that is relatively unaccountable to the public.)  

Progressive Democrats balked at taxing workers for generous health plans because many of those workers are union members.  This fall, look for John Kerry's proposal to tax insurance companies when they offer too-generous plans to get a boomlet of discussion—but then look for it to fail for the same reason that taxing workers failed.  The idea that insurers will absorb the cost of the tax rather than pass it on to workers is a fantasy, and unions will see this.

Ultimately, the reformers' game-changer strategy suffered from two additional problems.  First, the inefficiencies in American health care are not the driver of cost increases – they just make levels higher.  If we could somehow root out all inefficiency, that would be a one-time cost savings but would still leave the cost-curve unbent.

Second, insured Americans prefer maximal choice with inefficiency rather than ceding power to the federal government to limit their choices (even if the result is more efficiency).  To be sure, they don't like that anyone limits their choices, whether it's the government, their employer, or their insurance company.  When insurers tried to move toward more managed care in the 1990s, workers rebelled and insurers gave up.  As for employers, they knew better than to push their workers in this direction.  And despite the myth that employers have resorted to more and more cost-shifting to workers, what has actually happened is that employers pay as great a share of their employees' insurance as they did 20 years ago, but at the expense of wages and salaries (see page 8 of the linked chapter).

Reformers appealed to the insecurity of insured Americans that they might lose their coverage.  They also appealed to dissatisfaction with the status quo.  The problem is that anxiety about losing coverage is relatively modest--with not many more people concerned about it than are worried about crime or even dangerous errors while flying (page 20).  And polls show that the majority of the insured is happy with everything about its care except for rising costs.

Ultimately, progressive healthcare reform offered the insured highly uncertain promises that their costs would go down and that their current coverage would not otherwise be affected.  The latter claim was disingenuous—regulating insurers is sure to shift costs between the healthy and the unhealthy, the young and the old, the rich and the poor.  In New York, younger workers saw huge increases in premiums when community rating was instituted.  And those whose benefits would be taxed would either pay more or lose that coverage for cheaper plans.  Meanwhile, for those uninsured by choice, progressives offered to increase their taxes on April 15 though a fine unless they spent their limited dollars on health insurance.  

Progressives bemoan the fact that the healthcare system today rations by ability to pay, but rationing by willingness to pay is likely to be the only way that we will control health spending.  Federal limits on healthcare choices will never command enough popular support to ensure that 60 Senators enact game-changing reform.  Employers will continue choosing to invisibly make their workers pay for costly coverage by limiting wage growth rather than explicitly make their workers pay for it.  Insurers will never have the bargaining power to bid down reimbursement to providers enough to matter.

If progressives want to get serious about universal coverage, they will need to get serious about cost control.  And that is likely to require that we stop the unequal treatment of health benefits versus wage and salary compensation and unequal treatment of health insurance when provided by employers or unions versus purchased individually or through other means (page 33).  Changing the tax status of employer-provided health insurance should not be a source of revenue for healthcare reform; it should be coupled with offsetting tax cuts.  The federal government can make it easier for individuals to band together in insurance pools and can even sponsor such pools.  It can subsidize the poor and sick.  But then we should let markets work, and individuals will need to choose between more generous coverage and cost-reducing rationing of care.  If we choose more generous coverage, then who cares about bending the cost curve?  But then we will have no one to blame for rising costs.  If we choose less generous coverage, then we will have rationed our own care by choice.

In the end, reformers may get an expansion of Medicaid or SCHIP for their efforts--though probably not unless the feds subsidize states at an enhanced rate, given the governors' opposition to taking on more costs when their budgets are in such a mess.  But I'm betting that come 2010, we will have lost another opportunity to do a lot of good by not facing up to hard political and economic realities.


First the right started talking up this post by AEI resident scholar Andrew Biggs showing that consumer spending on veterinary services is rising as fast as health care spending in the U.S. (see Cowen, McArdle, Kling, Mankiw, Manzi).  Then the left responded (see Klein, Yglesias, Drum, and a sympathetic DeLong).  There have been two main criticisms of the chart (reproduced below).  First, there's funny business going on with the scales used (as Matt puts it, "Fun with the Y Axis").  Second, the figures aren't comparable because they should be per capita.  Let's take a look at both of these criticisms.


First on scaling.  You could write an entire book on how to lie with charts. But this one's fine -- both Y axes start at 0, and both end close to where the series hits its maximum.  It's true the levels of spending are much different, but Biggs's point is about the change, not the levels.  If you eyeball the numbers in the chart and compute % changes over the period, you'll see that they're similar.

Let's do that.  Biggs shows national health expenditures rising from about $800 billion in 1984 to about $2.1 trillion in 2006 -- an increase of about 160 percent.  The increase in veterinary service spending was from about $4.5 billion to about $11.1 billion, or 150 percent.  Given these are rough guesses and that all of these numbers have considerable uncertainty, that's pretty similar.  Point for the conservatives!

However....I tried to find  Biggs's figures on the web but couldn't.  I'm pretty sure they're wrong.  [Update: Biggs emailed me to say that he had adjusted for inflation, which I should have guessed--so his figures are not "wrong". -srw]  The official source of national health expenditure data is the Centers for Medicare and Medicaid Services.  National health expenditures, according to CMS's figures rose from roughly $400 billion in 1984 to $2.1 trillion in 2006 -- an increase of 426 percent -- not 160 percent!  Point for the liberals!

Except...it looks like Biggs's veterinary expenditure figures might be off too.  Consumer Expenditure Survey figures on veterinary services expenditures are not, as far as I can tell, easily gettable.  Instead, I went to the trusty Statistical Abstract, put out annually by the Census Bureau.  And lo and behold, those crazy bastards have data from the American Veterinary Medical Association going back to 1983 on household expenditures on veterinary services for dogs and cats.  When I add up expenditures on both, the increase is from $3.5 billion to $21 billion--an increase of about 500 percent!  Point for the conservatives (if not for Biggs)!

A number of commenters noted that these figures really ought to be per person/animal. Otherwise, it's possible that the increase in the number of pets outpaced the increase in the number of people and that's what's really driving the figures for animals.  From one perspective, if household pets were growing more numerous at a faster rate than their owners were, that would simply reflect that with growing affluence, people are choosing to spend more on the luxury good that is a furry four-legged companion occasionally needing expensive veterinary care, just like they are choosing to spend more on health care.  But if the argument is about inefficiency in care, then per-capita expenditures are probably the most appropriate.

Anyway, when you look at the increase in spending per capita, health care spending per person rises by 350 percent, vet spending per dog rises by 335 percent, and vet spending per cat rises by 340 percent..  So on this one, I think the conservatives have the better argument, despite the flaws in the original evidence.

(Sources: For the vet and pet data, see http://www2.census.gov/prod2/statcomp/documents/1990-03.pdf, Table 400, and http://www.census.gov/compendia/statab/tables/09s1201.xls.  For the health expenditure data, see http://www.cms.hhs.gov/NationalHealthExpendData/downloads/nhe2007.zip, and for the population figures, http://www.census.gov/popest/archives/1990s/popclockest.txt and http://www.census.gov/popest/states/NST-ann-est.html.)