The Scouting Report Web Chat: Health Care Reform Legislation

Reforming the American health care system was a key aspect of President Obama’s agenda for 2009. Now that bills have passed both the House and the Senate, health care reform may be within reach—although significant hurdles remain.

Not all experts are happy with the legislation. Some argue reform will be too expensive. Others, like Brookings Senior Fellow Henry Aaron, want to more aggressively rein in costs. Still, Aaron argues that the proposed legislation will accomplish more than its critics suggest—and waiting to pass reform until a more perfect solution is achieved may not be worth delaying coverage for uninsured Americans.

As part of a new Brookings series to assess the President Obama’s performance in his administration’s first year in office, Aaron answered your questions on health care reform in a live web chat on Wednesday, January 13. Fred Barbash, senior editor at POLITICO, moderated the discussion.

Fred Barbash-Moderator: Welcome everyone. Henry Aaron needs no introduction but I’ll give him one anyway. He is Senior Fellow, Economic Studies, The Bruce and Virginia MacLaury Chair at Brookings.

A noted health care expert, he focuses on the reform of health care financing; public systems such as Medicare and Medicaid; Social Security; and tax and budget policy.

He’s here today to take questions on, of course, health care reform.

12:26 [Comment From Jason: ] Do you feel optimistic about health care reform in 2010?

12:28 Henry Aaron: Prospects look good. A lot of obstacles have been overcome. Passage is likely. But even after the president signs a bill, the debate will continue. Many of the key provisions won’t be implemented until 2013 or 2014. That means that health reform will be a central issue in the next two elections.

12:28 [Comment From Gail Dutton, GEN: ] Will the reconciled bill more closely resemble the version passed by the Senate or that passed by the House?

12:30 Henry Aaron: I think the bill will resemble the Senate’s. Any defection of even one Senatorial supporter would doom the bill. That means that the House will have little leverage. But in some respects, notably in assistance to low- and moderate-income households, the House bill is superior. One should expect some increase in assistance from the levels passed by the Senate.

12:30 [Comment From Danielke: ] How would you rate President Obama’s progress on health care over the past year? And Congress’s progress?

12:31 Henry Aaron: As one who was pessimistic about prospects of the ‘one-big-bill’ strategy, I am struck that things have moved as far as they have. The process has been slower than supporters hoped. But it has come a very long way.

12:31 [Comment From John Mulligan-ProvJournal: ] Please review the state of negotiations over the role of abortion in the health care overhaul, specifically telling us what you think the final compromise language will say and whether Mr. Stupak’s group has the votes to stop the bill if the abortion language falls short of his demands.

12:33 Henry Aaron: This is one area where the House bill was ‘tougher’ than the Senate bill. The negotiations are not public; so, all one can do at this point is guess. I expect the abortion provisions to deviate little from those in the House bill, as this is one area where it is the House that has the leverage. Many Democrats who voted for the bill are strongly anti-abortion rights and would defect if this provision is significantly weakened. The Senate, I think, will ‘give this one’ to the House and go along.

12:33 [Comment From John Mulligan-ProvJournal: ] A number of governors assert that the Medicaid expansion in both will impose heavy burdens on precarious state budgets; the administration asserts that “offsets’’ (such as delays in imposition new Medicaid costs on the states) will soften the budget blow. Who is right and why?

12:35 Henry Aaron: The administration is much closer to being ‘right.’ Both bills pick up most of the incremental cost of added Medicaid coverage. Some side deals were cut that provided even more help to a few states. It is likely that the final bill will extend that help, at least in part, to all or most of the other states. This is a negotiation which means that the governors are fighting for as much as they can get.

12:35 [Comment From John Mulligan-ProvJournal: ] Please describe the state of negotiations on whether the big money-raiser for health care should be the excise tax on “Cadillac’’ health plans or the new levy on the wealthiest taxpayers. Kindly touch on the pros and cons of each approach.

12:37 Henry Aaron: As Winnie-the-Pooh said, when asked whether he wanted honey or sweetened condensed milk in his tea, “both, please.’ The excise tax on high-cost plans will be scaled back, but it will probably survive (which is a good thing); the income tax surcharge may vanish, but if it does, it is likely to be replaced by a tax on payrolls of high earners. Paying for the subsidies (which are likely to be increased) is inescapable, as president Obama cannot possibly sign a bill that would boost the deficit, given his unequivocal commitment not to do so.

12:38 [Comment From Suzanne – IL: ] If a bill similar to the Senate bill gets passed, will it do anything to curb rising health care costs?

12:40 Henry Aaron: The Senate bill is better than the House bill on cost control. It contains virtually all of the reforms, even if in embryonic form, that analysts have proposed to slow the growth of health care spending–bundled payments, accountable health organizations, a panel to propose changes in Medicare–as well as direct reductions in the growth of payments under Medicare. Even if all work, however, the impact on the growth of health care spending will take years–even a decade or more–to become apparent. The simple fact is that health care spending is going to keep on rising as a share of GDP.

12:40 [Comment From jhoger: ] Would it be possible to pass a public option as a separate bill through reconciliation? If so, why not take that approach since it obviates need for moderate Democrat support?

12:43 Henry Aaron: I think that one could try, but even if it passed, it will have little effect if it takes the form embodied in the House bill. The reason is that the public plan would have few customers to start with and would therefore have next to no leverage in negotiating fees with providers. The result would be few enrollees and grave doubts on whether the public option would even survive. The real cost problem is not practices of insurance companies, but practices of providers. And changing them requires that purchasers of insurance have powerful leverage. That means that a high degree of competition among small insurance plans may trim insurance company profits (which are small anyway) but would reduce their individual clout in dealing with providers.

12:43 [Comment From Randy Dutton: ] Will any resulting bill coercing Americans to buy health insurance survive the Constitutional challenge by the 13 state Attorney Generals?

12:44 Henry Aaron: I’m an economist, not a lawyer, but I should be very surprised if the courts sustained these challenges. Federal involvement in health care is not exactly a new idea!!

12:44 [Comment From Lester: ] Do you think the expansion of Medicare to people in their 50s is likely to crop up again in the near future? It seems very popular, but just got killed in a bout of anxiety about the current bills being considered.

12:46 Henry Aaron: I’d be surprised if it did and went anywhere. If this bill passes, the administration is going to be absorbed in implementing it; Congress will discover mistakes and have to fix them. And public debate on the provision of this bill will not abate. There just won’t be enough energy to go in new directions on Medicare. Anyway, those 55+ers will be covered under alternative arrangements.

12:46 [Comment From Gail Dutton (GEN): ] How will passage affect the ability to innovate at biotech/pharmaceutical companies?

12:49 Henry Aaron: The drug companies have already made their ‘contribution’ through the deal negotiated with the White House early in 2009. They did not geld themselves in that negotiation. The extension of insurance will actually increase demand for pharmaceuticals. The biggest problem for some drug companies is the expiration of patents on blockbuster drugs and the lack of new drugs to replace them. But the thrust of the question is very important–although one may deplore some of the pricing practices of drug companies, the simple fact is that they do fund research out of profits on patented drugs and advances in pharmaceuticals are going to be an important component of the improvement in medical care over the coming decades.

12:50 [Comment From Randy Dutton: ] Will the billions of dollars of health care program money collected in the first 5 years, before services are rendered, be put into a lock box, or will it be accessible to Congress to pay for other programs?

12:51 Henry Aaron: There will not be and never has been a ‘lock box.’ But I think that the pressure on Congress to cut spending and/or raise taxes in the next few years is going to be powerful. The budget statement of president Obama will almost certainly address the deficit problems that the nation faces.

12:51 [Comment From Btomar: ] What will happen to the deficit as we wait for all of the demos and other new cost slowing mechanisms to be fully implemented?

12:53 Henry Aaron: There is a serious timing issue. Under current policy, even with health reform, the deficit is going to go up before savings from various health reforms can be realized. That is why, as I said in my previous answer, dealing with the deficit will be an insistent and horrendously difficult problem in the next few years. I say that even though more than all of the projected growth in the deficit is traceable to projected increases in federal health care spending.

12:54 [Comment From Eric (DC): ] Some experts are saying that both the “Cadillac tax” and the employer mandate will be scaled back significantly, if not removed from the final bill. A bill will likely get passed (possibly using some “fuzzy math”), but the Massachusetts experiment suggests that health care reform will move from issues of access to cost control.

12:56 Henry Aaron: The people at the center of the Massachusetts reform state candidly that they addressed insurance access first, largely ignoring cost control, because they believed that if they tried to tackle both, the bill would have failed. But they fully understood that they would, inevitably, have to grapple with cost control. They are doing so now. The federal bills are more responsible than that. The tax increases and spending reductions in both the House and Senate bills fully pay for the cost of health reform. CBO says that they think that is true both in the first decade and the second, although they do not present formal estimates beyond the first ten years.

12:57 [Comment From Randy Dutton: ] The Canadian health care system made it illegal for people to use their own money for better and faster health care. Is that same provision written into the Senate Bill, and economically, how will such restrictions affect the health care services industry serving overseas customers?

12:59 Henry Aaron: The Canadian supreme court invalidated that provision. Nothing in either the House or Senate bills prevents individuals from buying as much health care as they want with their own money. The only similar restriction is in the Senate bill, which says that undocumented aliens cannot buy insurance through the newly created health insurance exchanges even if they use their own money exclusively. I expect that provision to be removed, as its retention might cause several House Democrats, especially from the Hispanic caucus to defect; and that would be fatal.

1:00 [Comment From Gail Dutton (GEN): ] How will the provision for comparative effectiveness of drugs be implemented?

1:01 Henry Aaron: Comparative effectiveness was part of the economic stimulus bill. It creates an agency to do such studies and appropriated something north of $1 billion over about five years.

1:01 [Comment From Eric (DC): ] Experts are predicting that both the “Cadillac tax” and the employer mandate will get scaled back, if not removed from this bill. A bill will inevitably get passed (probably using some “fuzzy math”), but the Massachusetts experiment (and your own comments) suggests that health care reform will now move from expanding access to controlling costs. TWO QUESTIONS: 1) What have we learned from Massachusetts about controlling costs? and 2) Which cost control reforms, from Massachusetts or elsewhere, hold the most realistic promise of becoming law and making a significant financial impact?

1:04 Henry Aaron: I’ll focus on question 2. Massachusetts hasn’t really done much yet on cost control. The House, and especially the Senate, bills do much more. I’m not sure how much more, given the rather meager state of current knowledge about how to implement various proposed reforms (such as bundled payments) that can be done than what is in the Senate bill. But the risk is that people are going to expect large immediate effects. They are unlikely. It is going to take time to implement the pilots and demonstrations, identify what works, and then take them to scale. But it is all that can be done right now.

1:05 [Comment From Suzanne – IL: ] This is as far as comprehensive health care legislation has ever gotten. Why? What did the Obama administration do better than the Clinton?

1:07 Henry Aaron: Fifteen more years of frustration with rising rates of uninsurance and with rising health care spending. Also, the results of research showing that as far as quality is concerned, the United States is not as ‘hot stuff’ as many Americans thought we were. In addition, Obama used a different strategy: he didn’t draft a long complicated bill in relative secret and then send it up to legislators who had no hand in drafting it. Instead, he stated broad principles and let the members of Congress do the job themselves. That cost a lot of time, but was almost certainly the wise thing to do. I suspect that we may have Rahm Emanuel to thank for that.

1:07 [Comment From Suzanne – IL: ] You might not know the answer to this, but would appreciate any of your thoughts on the matter since you’ve been involved in the health care debate for awhile now. Why do you think that people are fine with having publicly funded schools, but are scared by publicly funded health care?

1:10 Henry Aaron: As Tevya said, ‘tradition.’ We have had public schools for a couple of hundred years. They evolved as an instrument of forging community in a new republic. Health care used to not matter very much, as doctors and hospitals couldn’t do much. We paid for it privately, and that system became ingrained in our consciousness. Health care is now enormously important. And people are–understandably–very hesitant about fundamental changes in something as important as health care. The large majority of Americans, despite griping, like their insurance, like their doctor, and report general satisfaction with their last contact with hospitals.

1:11 [Comment From Matthew: ] Even without the public option, will this be a big win for people who currently can’t afford health care? Will there still be people who can’t?

1:13 Henry Aaron: I think it will be an enormous advance. The real question regarding affordability is whether people with low and moderate incomes will receive enough assistance to make affordable the insurance coverage they are required to have. Some will gripe. The Senate subsidies may be too low for some. The principle potential losers will be young people with incomes too high to qualify for subsidies. They may have to pay more than now for insurance if they buy it on their own; and they will have to have coverage.

1:14 [Comment From Kenneth: ] Is there anything in either bill about changing the ways doctors are paid? They really need to be put on salary. Fee for service makes zero sense.

1:17 Henry Aaron: Nothing direct. But here is where the bill would initiate changes that could become very significant. There are to be pilots of bundled payments. Now, doctors are paid for each service they provide, often very narrowly defined. Under bundled payments, groups of providers would receive a single payment for a particular patient’s treatment over a wide class of conditions. For example, a single payment might be made for the treatment of a patient with leukemia that would cover the doctor’s services, tests, monitoring by nurse practitioners, and so on. Someone or some organization would have to administer that payment. New methods of paying providers would emerge and new ways of delivering care. I don’t know exactly what would happen. No one does, but the current organization and payment methods would change.

1:17 [Comment From jhoger: ] Do subsidies in the bill take into account differences between salaries and premiums in high cost of living areas or are they based on nationwide standards?

1:18 Henry Aaron: Yes. Implicitly, as the subsidies are defined as sufficient to take the cost of care for people with incomes below 400 percent of poverty down to stipulated percentages of income.

1:18 [Comment From Randy Dutton: ] Over 10 million Americans have health coverage but not insurance. They pay out of pocket and have the means for catastrophic. Why do Congressional leaders using these 10 million as justification for pushing through legislation, when in fact, the 10 million don’t want it?

1:22 Henry Aaron: Unfettered individual discretion is sometimes not optimal. Many states do not permit people to drive without liability insurance. They do so because some people would figure that if a large judgment is levied against them, they will declare bankruptcy or string out legal proceedings indefinitely. Similarly with health insurance, an individual can (with some rationality) decide not to buy insurance, figuring that they will cover the small stuff and, if they get hit with a catastrophic illness, they will simply go into a hospital with the understanding that hospitals are legally required to treat them. And some individuals will simply make mistakes, like the motorcycle driver who doesn’t imagine that he/she might be in a bad accident. Quite simply, individuals can exploit the compassion of a decent society.

1:22 [Comment From Randy Dutton: ] Progressive legislators use vA care as an example of government run health care to demonstrate government’s effectiveness. However, for those of us who get VA care, we consider it inefficient, slow, inconvenient, and uncreative. What studies exist that show VA care equal to private sector health care in throughput?

1:24 Henry Aaron: I’m sorry that you have been poorly served. But the most careful evaluation of the availability of care under different arrangements found a) that on the average Americans receive only a bit over half of recommended care during a typical contact with a doctor or hospital, b) that this statistic is virtually the same regardless of sex, age, income, or race, and c) that one organization has a better record on this metric, the Veterans Administration.

1:26 Henry Aaron: Greater than what? The exchanges will offer multiple plans. The typical employer offers one, two, or maybe three options. Individuals buying insurance on their own can buy from any company selling in their own state, but the rates are typically much higher than those that will be charged through the exchanges. So, on balance, I think that the answer is ‘yes, choice through the exchanges will be enhanced.

1:26 [Comment From Lester: ] Will there be a greater amount of insurance choices available to people who purchase in a health exchange?

1:26 [Comment From Lester: ] I wish from the beginning Democrats would have pushed for a “Medicare for All” bill. Would this type of bill have had a bad effect on the economy?

1:28 Henry Aaron: Clearly, most elected officials were not in favor of that course. They feared that putting most health care spending on budget would have inflated the size of the public sector. Many health economists were skeptical of that course because they do not think that Medicare has been particularly effective in controlling the growth of spending or flexible in encouraging new methods of payment. But some other countries use systems resembling Medicare-for-all and make them work.

1:30 Fred Barbash-Moderator: Great thanks to Henry Aaron for taking all these questions today. And thanks to readers and participants….with apologies to those whose questions we did not get to.

So long for now.