8:43am

Mon February 7, 2011
Opinion

The New Republic: The Real Costs Of Health Reform

Jonathan Cohn is a senior editor at The New Republic.

Two weeks ago, before a lower federal judge in Florida declared the Affordable Care Act unconstitutional, another relatively obscure government figure generated news about health care reform. It was Richard Foster, the chief actuary at the federal agency that runs Medicare and Medicaid.

During a Capitol Hill hearing, Foster was asked to judge claims that the health law would "hold down costs." Foster said he thought the claim was "false … more than true." Critics of the overhaul seized on his comments as proof that they have been right — and proponents have been wrong — about the law's fiscal impact.

It's a legitimate argument. Unlike the controversy over death panels, the issue of how much health reform will ultimately cost is both complicated and open to honest differences of opinion. And unlike, say, the right-wing scare-monger Betsy McCaughey, Rick Foster is a bona fide expert with a record of intellectual integrity. Remember those stories about the government official who, in 2003, challenged the Bush Administration's optimistic projections about what the Medicare drug bill would cost? Foster was that official.

But if we're going to take Foster seriously, it's important to be clear about what he said, what he didn't say, and what it all it means.

Keep in mind, first, that it's not clear exactly what question Foster was answering in that snippet of testimony. After all, "cost" can mean different things. It can mean the health costs that individuals, businesses or government bear, and it can mean costs in the near future or costs in the many years beyond that. It's possible that Foster was simply saying that, 10 years hence, the government will have spent roughly the same amount on health care as it would have if the law were not in effect.

If so, that's neither surprising nor particularly worrisome. The idea behind the Affordable Care Act is to strengthen health insurance and give it to more people, which will cost the government money. At the same time, though, it will make the health care system as a whole more efficient, which will save the government money. Over the course of a decade, the costs and savings should be about equal, which means the net cost to the government would be roughly zero — even as we'd made insurance both more reliable and much more available. That would be a pretty good deal.

Now, if you're worried about the government's long-term fiscal future — and you should be! — the key question is what happens after those 10 years. The big worry is that the budgetary burden of health care will become staggeringly heavy in 2030, 2040 and beyond. The only way to avoid that scenario is to slow down the growth of federal health care spending — that is, to make sure it doesn't keep going up as fast as it's been for the last few decades.

This is the key area of dispute and what Foster, most likely, had in mind. The official government projections, including the ones Foster made, suggest the health law will reduce that rate of growth, albeit modestly. But in his reports, and then again in his recent testimony, Foster suggested those projections might be unrealistic. The problem is that they include some automatic, annual reductions in what the Medicare program will pay hospitals — scheduled reductions, according to Foster, that future lawmakers are not likely to allow when they actually come due.

This argument is more sophisticated and reasonable than the erroneous claim, made by many critics, that the federal government is simply incapable of reducing Medicare spending. Foster's worry is that hospitals can't adjust to lower reimbursements by increasing productivity, the way the law assumes they will; instead, he fears, they will just lose money and, in some cases, face the prospect of closing. In response to this threat, Foster says, lawmakers would likely cancel the reductions.

Is he right? Foster admits he isn't sure. Among other things, he assumes that the law's reforms of the way we organize and pay for care — everything from developing electronic records to financial incentives for coordination among doctors — won't help them reach those productivity goals. But many experts with just as much experience and integrity disagree, citing the hospital sector's well-known waste and the fact that these reforms have never been tried so extensively, particularly in combination with one another. These experts also point out, respectfully, that Foster has been wrong before: His projections for the 2003 Medicare drug benefit turned out to be considerably inflated.

Even if some hospitals do lose money, that might not be a bad thing. Currently, lots of smaller hospitals offer services like advanced cardio-vascular surgery or cancer treatment because those fields are lucrative. But this practice tends to drive up costs, since the availability of such services encourages more doctors and to use them. (It's called "supply-driven demand.") And it's not even good for the patients, since most of those hospitals can't do the procedures as effectively or safely as the intensive, high-level hospitals that specialize in them.

Still, suppose Foster is right about the law's ultimate outcome — that the cuts prove too harsh and, as a result, the hospitals successfully lobby to eliminate them. What then? Well, we'd have to admit defeat, because if it's impossible to reduce spending on hospitals then it's also impossible to reduce government spending across the health care system. Taxpayers would be stuck writing larger and larger checks on government health programs, making the ability to balance budgets contingent on our future willingness to raise taxes or cut spending elsewhere.

In other words, we'd be in the same basic fiscal place we are now, with one key difference: We would have universal health insurance and its protections. It wouldn't be an ideal situation, but it'd still be better than what we'd have without the law.

This column is a collaboration between TNR and Kaiser Health News. Copyright 2011 The New Republic. To see more, visit http://www.tnr.com/.

Related program: