Council of Economic Advisers Chair Christina Romer on Thursday touted the findings of a new report about reforms that could reduce health care costs – even though the same study warned lawmakers to avoid “ill-advised proposals such as the public option” and suggested market-based reforms such as encouraging health savings accounts.
In addition, the report by the Business Roundtable that Romer described as “important” and “powerful,” argued that market-based approaches such as health savings accounts would lower costs, while the tax on high-priced health care plans supported by the White House could mean higher costs.
In a conference call organized by the White House to highlight the report, Romer boasted that current health legislation adopts many of the changes recommended in the report, such as Medicare payment reforms.
“Those kind of reforms that are on the agenda are things that they think are going to show up for people that aren’t in Medicare, and aren’t in the government-provided plan,” Romer said.
Romer called the study an “important report” that came at an “important time.” She added, “The reason the report is so powerful is it does help to emphasize just where we are and how far we’ve come.”
But while it is true that the report is supportive of some of payment and insurance market proposals in current legislation, it also warns of several risks posed by pending legislation, including the possibility that creating a new government-run plan could lead to cost shifting that would raise the price on those who have private insurance.
“In light of the significant risks to private health insurance coverage associated with a public plan and the expected availability of competitive options through the exchanges,” the report reads, “the potential savings from reductions in federal spending could have the adverse impact of significantly raising private health plan costs for employers and for employees.”
The report also was critical of a proposal to tax high end health care plans: “This tax imposes extra costs on employer-sponsored plans which will likely lead to two unintended consequences: Employers will raise out-of-pocket costs for employees to mitigate the impact of the tax, and certain employers will drop employer-sponsored coverage as the cost of providing additional benefits exceeds the cost of paying their employees more in cash
Asked about this discrepancy, Romer responded that, “the things they point out as risks, we’re actually dealing with.” She said that by making sure that the government plan does not tie reimbursement rates to Medicare, Democrats in Congress are avoiding the problem of cost-shifting. She also argued that the excise tax on high-end plans is being altered to exclude those who have more expensive insurance because they are older or in higher risk occupations, such as fire-fighting.
One section of the report, which quotes Milton Friedman, is titled: “True Market Reform Can Yield Even Greater Savings.” It notes that: “Empirical evidence is emerging from consumer-driven experiments using health reimbursement arrangements and health savings accounts as consumer-enabling vehicles. In many of these studies, utilization levels have dropped significantly without any corresponding decrease in quality of care. Efforts to mandate minimum benefit levels without the right incentives for providers and consumers will ultimately contribute to uncontrolled utilization that will drive the cost of these benefits to unaffordable levels.”
However, Democratic reforms being proposed in Congress would move in the exactly opposite direction, by forcing individuals to purchase their health insurance through a government-run exchange in which federal bureaucrats would set benefit levels. In the House bill, the level of benefits individuals would be mandated to purchase would be determined by a new presidentially-appointed Health Choices Commissioner. All of this will discourage the use of HSAs. I asked Romer about this, and she suggested that the tax on high-end health care plans was actually about giving more power to the consumer.
“Part of the idea of how that is going to work is precisely because it does empower consumers,” she responded. “It empowers each of us to have an employer-sponsored plan to call our HR office and say, ‘would you negotiate harder? Would you think about [whether this] is the most efficient plan out there, because I don’t want my plan paying an excise tax.’ So I think that’s something that is very much empowering consumers.”
This is a jaw-dropping response on several levels. For one thing, candidate Obama blasted John McCain for proposing that we change the tax code that rigs the system in favor of employer-based insurance. But the difference is that McCain wanted to replace the current system with a level the playing field so that individuals could achieve the same tax advantages purchasing their own health care plans. Now, the Obama administration is supporting a proposal that would target some employer health care plans, without any offsetting tax credits for individuals, and calling it consumer empowerment. Furthermore, it may be true that workers will ask their employers to provide them with cheaper health care plans to avoid the tax – but that violates the spirit of the promise Obama made that those who like their health care plan can keep it.
Praising the report on the call, Romer declared: “The health legislation that as it’s coming out of congress, they think, could lower costs relative to what they otherwise would have been by as much as $3,000 by 2019.” But in actuality, Business Roundtable officer Antonio M. Perez,, who is also Chairman and CEO of Eastman Kodak Company, said in a statement that: “This report shows that effective reforms can slow health care costs by as much as $3,000 per employee in 2019.” Emphasis mine.
The White House has become so desperate to show cost savings from health care legislation, that administration officials are willing to tout any report that says reform can save money – even a report that undermines the case for many of the specific proposals they are touting.
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