Doug Holtz-Eakin on Health Reform

The former Congressional Budget Office Director and McCain for President Policy Director spoke to the National Economists Club at 12:30 p.m. last Thursday in Washington, D.C. He made a strong case that Congress is on the wrong track with its health reform bills. His podcast is well worth listening to.

1. We badly need health reform both to improve health outcomes and lower costs, but also to alleviate federal and state deficits and to eliminate the labor market distortions of people tied to jobs they would otherwise leave to keep their health insurance. We’re running out of time to get this done without major economic dislocations.

2. “I don’t know know a budget gimmick that’s out there that hasn’t been used.” The taxes and program cuts are front-loaded, and the increased coverage and benefits are back-loaded. The bills assume future Congresses will make health spending cuts that no Congress has ever been willing to make. “Starving a system that is broken, won’t fix it.” The CLASS Act long-term care section of the bill collects five years of taxes before paying any benefits, the bulk of which occur after the 10-year budget window.

3. “Both [House and Senate] bills expand coverage first and impose delivery system reforms second – exactly backwards.” They don’t bend the cost curve downward. “These are large new spending programs” that will grow at 8% a year, far greater than the economy. We should fix the delivery system first and expand coverage gradually later, so we don’t overwhelm the system.

4. “Hospital administrators and doctors hate each other because of the [perverse] incentives. We need to fix them so that they work together.” Paying doctors by the procedure and forcing hospital to cut capitated costs guarantees that confrontation as the expense of quality care for patients.

5. We risk a financial market backlash, forcing us to cope with higher interest rates and the resulting lower growth.

6. We risk making real health reform harder. Adding 12% more insured patients to the system is going to stress doctors and hospitals. Demanding that they change how they practice on top of that may cause them to balk. We should get the practice reforms first.

7. We risk a political backlash when insurance premiums rise faster than observable health benefits. “We’ve seen this movie before” with Catastrophic Health Care in 1988, when Chicago seniors stopped House Ways and Means Chair Dan Rostenkowski’s limo to protest higher costs imposed before perceived benefits. Congress repealed that law within a year.

8. “There is another way to do this.” Do the delivery system reforms first and devote the savings actually achieved to expanding coverage.

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About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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