Taking Health Policy Ideas Seriously

National Journal's Expert Blogs asks, "Is a new health care proposal by Newt Gingrich and John C. Goodman worth considering? Here are the highlights.

(Gingrich is former speaker of the House and a senior fellow at AEI, and Goodman is president of the National Center for Policy Analysis):

  • Allow people a generous tax credit or let them deduct the value of their health insurance up to a certain amount.

  • Encourage employers to provide portable insurance, and allow individuals to purchase insurance across state lines.

  • Allow those with chronic diseases to manage health dollars in health savings accounts, and use Medicaid's Cash and Counseling program for the homebound disabled as a model.

  • Encourage some health plans to specialize in managing chronic diseases.

  • As long as total cost to the government does not rise and quality of care does not suffer, doctors should be free to repackage and reprice services.

  • Don't cut Medicare.

  • Allow employers to obtain individually owned insurance for retirees at group rates and to deposit premiums for post-retirement insurance into HSAs. Employers and younger employees could save tax-free for post-retirement health.

  • Make anonymous Medicare claims and other government data available to consumers.

  • Eliminate junk lawsuits.

  • Use enhanced coordination of benefits, third-party liability verification and electronic payment to stop health care fraud.

  • Cut red tape before and during review by the FDA and monitor the quality of drugs and devices once they reach market."

AEI's Thomas P. Miller offered the following response:

Newt Gingrich and John Goodman offer their ten best ideas for health reform. The ideas are neither particularly new nor detailed, but, to be fair, their original exposition undoubtedly was limited by the constraints of the op ed genre and the temptation to offer the most popular and least complex policy nostrums. Moreover, the competition in the health reform arena is not that keen, even beyond the confines of partisan posturing.

The greater problem lies in converting the equivalent of policy sound bites into effective and robust policy changes. Consider the challenges facing the Gingrich-Goodman proposals in the real world:

  • Make insurance affordable. Changing the current tax treatment of health care spending could make tax subsidies more equitable and/or better targeted. But this approach doesn’t make health care any less expensive; it just shifts the bill to someone else. We might rearrange tax subsidies so that some categories of people get more of them and others get less, or we could try to borrow even more money to match additional reductions in tax revenue today (and pass the debt service and debt repayment costs on to future taxpayers tomorrow). But until the actual delivery of care becomes more efficient and effective, and the demand for health care services drops below projected levels, the aggregate cost of insurance that finances most of it will not really become any more "affordable." We just will pay for its higher costs in other ways. In fact, some of the increase in subsidized health insurance spending will be diverted into higher prices, rather than greater quantities of health care services (see "deadweight loss").

We just may be seeing another appearance of the Two Santa Claus Theory, in which promises of deeper tax cuts by Republicans compete with offers of greater spending by Democrats for the favor of myopic voters.

Perhaps Gingrich and Goodman would consider providing less tax relief to higher-income, lower-risk insurance purchasers and more to lower-income, higher-risk purchasers. Perhaps they believe that most Americans need to spend even more on health care and even less on other goods and services. Perhaps they believe that we should reduce other categories of public spending to balance out greater public sector spending on health care. But I did not see any hint of that in their proposal. Where "more affordable" ends and "greater cost consciousness" begins remains unclear. Then again, we just may be seeing another appearance of the Two Santa Claus Theory, in which promises of deeper tax cuts by Republicans compete with offers of greater spending by Democrats for the favor of myopic voters.

The Gingrich-Goodman transitional approach of "choose your best tax subsidy" (either the old tax exclusion or a new tax credit) is a Priceline-like device to keep more insurance purchasers happy, while maximizing the net tax expenditure/revenue loss amount. It was first advanced by then-Rep. John Cooksey of Louisiana in a proposed bill about ten years ago, before he ran into some language problems in a 2002 Senate race (see "turbans, diapers, and fan belts").

  • Make health insurance portable. Most popular concepts of portability present it as a set of one-sided call and put options (unpriced, too), by which consumers who want to keep what they have can retain it even when they leave a job but those who want something different are under no continuing obligation to stay in their last risk pool or its particular book of business. A change in tax policy toward a more level playing field for all purchasers would help to some degree, but it remains unclear how many employers would want to turn over the keys to their health benefits plans to ex-employees (see "recruitment, retention, and COBRA selection costs"). Interestingly, arguments for greater insurance portability seem to have increased even as the average length of job tenure remained essentially unchanged over the last few decades. The idea of allowing and facilitating interstate sale and purchase of health insurance has finally graduated to bumper sticker status, but the magnitude of resulting insurance cost savings projected by its advocates tends to outrun the evidence base (see relative contributions to total costs of care from "geographic variation in medical practice" vs. "regulatory wedge" across states) and neglects the likely speed bumps of accompanying procedural safeguards. Reconciling demands for greater portability with those for increased choice of insurance products may have been solved in theory, but it requires much more heavy lifting in practice. It would involve much more risk adjustment, basic benefits standardization, future indexing complexity, and binding bilateral responsibilities than most shallow concepts of portability acknowledge, let alone prescribe.

  • Meet the needs of the chronically ill. Medicaid cash and counseling worked wonderfully for a particular category of beneficiaries, and for a limited range of less complex services. How scalable its initial approach may be remains untested, though further efforts to expand its scope and scale remain worth pursuing. Gingrich and Goodman emphasize the role of health plans in more specialized management of chronic diseases, yet the real need is for more specialized and more effective management of those diseases by coordinated teams of physicians and other health care providers. Health plans need to be sufficiently deep and diversified to handle a wider range of unexpected future health needs, not just a narrower basket of chronic diseases. Whether Newt and John would support far more comprehensive (and intrusive) harvesting and analysis of privately insured Americans’ health risk status, more centralized risk adjustment of insurance reimbursement, and another round of complex cross-subsidies by an at least quasi-public body--to make their objective work beyond Medicare and Medicaid--remains unknown.

  • Allow doctors and patients to control costs. Gingrich and Goodman do not propose to write blank checks with public funds for whatever doctors prescribe and patients demand. However, when they generically promise that total costs to the government will not rise and quality of care does not suffer, they fail to prescribe how costs will be capped (capitated reimbursement?) and quality will be measured (comparative effectiveness? pay for performance?).

  • Don’t cut Medicare. The problem of Medicare’s own unfunded liabilities under current law also will not be solved if future Medicare spending is not reduced. In this case, Gingrich and Goodman deliver a subheading that their accompanying text cannot address seriously.

  • Protect early retirees. Many employers and the tax code appear to be out in front of Gingrich and Goodman on this issue (see "access only" retiree insurance offered by employers with capped or grandfathered retiree health benefits plans, plus VEBAs, section 401(h) accounts, and section 420 excess assets transfers). The larger problem is less one of developing additional tax-advantaged vehicles and more one of either employers or their older employees finding sufficient funding to make use of them (see work longer, save more, restore economic growth, duh).

  • Inform consumers. The terminology of Gingrich and Goodman confuses "data" with "information." Medicare claims data and other government data by themselves will be useless to patients without further aggregation, refinement, measurement, analysis, interpretation, and translation into relevant, robust, and actionable information; followed by its effective dissemination. One of the missing links involves enabling competing private intermediaries to fill this gap, once the initial aggregation and refinement of government claims data has been completed.

  • Eliminate junk lawsuits. Absolutely, along with junk medical practices. Still more effective and likely at the state, not national, level.

  • Stop health-care fraud. The main difference between much lower levels of private insurance fraud and the bonanza of public health program fraud is that the former set of payers controls it prospectively while the latter set reacts to it retrospectively.

  • Make medical breakthroughs accessible to patients. In many cases, more is learned about the full benefits and additional uses of new medical products after they enter the market than before-as long as they are allowed to get there and compete with olde- line therapies and treatments.

In summary, Gingrich and Goodman primarily offer the initial outlines of what might turn out to be at least several good ideas, but as Senator Scott Brown said during his winning campaign, "We can do better." Both gentlemen have done so in the past, and should be challenged to flesh out the best of their many ideas more extensively and realistically in the future. Otherwise, they will remain a few bricks shy of a full load.

Thomas P. Miller is a resident fellow at AEI.

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