Governments Controlling Health Care Costs? Tell Me Another One

This story in The Los Angeles Times yesterday by Kim Geiger and Tom Hamburger should give everyone pause about the ability of the federal government to make good on any pledges to cut costs as part of health reform. At issue is the payoff to physicians to get the American Medical Association to support the President’s plans for health care reform. Based on the numbers in the story, it looks like $30 million in lobbying expenses will generate $228 billion in payments to doctors, for a whopping return of 7600 to 1. From the article:

Laszewski, the health policy expert, said the AMA’s support was really explained by the deals the organization cut with the White House and congressional Democrats.

“They were bought off,” he said. “And the price tag was $228 billion.”

Laszewski is referring to what many consider the most costly single concession to any interest group made so far in the bargaining over healthcare.

In 1997, concerned about the soaring cost of Medicare, Congress and Clinton approved a plan to reduce reimbursements to doctors whenever Medicare’s costs outpaced the growth of the U.S. economy.

The idea was to prod the medical community into holding down healthcare costs by cutting back payments if the industry failed to do so.

For the most part, the cuts were never imposed because doctors and other medical service providers persuaded Congress to override them. But for each year that Congress blocked the cutbacks, the next scheduled cuts were larger.

In 2010, the cumulative cut would be a whopping 21%.

Eliminating the cuts has been a top priority for the AMA, which spent $30 million on lobbying since the beginning of 2008. Over the last decade, no other interest group or trade association has had a bigger lobbying budget except the U.S. Chamber of Commerce.

It is folly to believe that the federal government will follow through on any future promises to reduce payments for health care services. Even if today’s Congress agrees that they are needed in theory, tomorrow’s Congress will not follow through in practice. How many more examples of this do we need?

It doesn’t have to get this complicated. Government bureaucrats don’t reduce costs. Market competition reduces costs. The challenge for health care reform is to get the market competition into the places where we want it — providers and insurers competing to deliver better services at lower prices — and out of the places where we don’t want it — insurers competing to insure only the lowest risks and providers gaming the government reimbursement systems to earn the highest profits. You don’t get market competition without consumer choice. So the objective of reform efforts should be to establish a framework in which choice can be expanded, not reduced.

About Andrew Samwick 89 Articles

Affiliation: Dartmouth College

Andrew Samwick is a professor of economics and Director of the Nelson A. Rockefeller Center at Dartmouth College in Hanover, New Hampshire.

He is most widely known for his work on the economics of retirement, and his scholarly work has covered a range of topics, including pensions, saving, taxation, portfolio choice, and executive compensation.

In July 2003, Samwick joined the staff of the President's Council of Economic Advisers, serving for a year as its chief economist and helping to direct the work of about 20 economists in support of the three Presidential appointees on the Council.

Visit: Andrew Samwick's Page

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