Tuesday, April 27, 2010

Orszag on health care costs

Okay, there are many reasons to be against the Obamacare bill, but let's try to understand one aspect of the bill that has been in the news lately: The Independent Payment Advisory Board.
OMB director, Peter Orszag, gave a talk at the Economic Club on April 8th of this year during which the subject of Medicare cost containment came up. The following is a rather lengthy extract of Orszag's comments:
DR. ORSZAG: Furthermore, healthcare is a dynamic market. It’s always going to evolve. In that setting, the only sensible approach in my mind is an evolutionary one where you try lots of things, throw lots of thing up against the wall and have a mechanism in place to move to scale immediately on the most promising ideas, and that’s exactly what the legislation does, both through the innovation center that’s created and importantly through — I think folks have not really focused on the Medicare Commission, the Independent Payment Advisory Board, that’s created. This institution could prove to be far more important to the future of our fiscal health than, for example, the Congressional Budget Office. It has an enormous amount of potential power. How that potential is realized is going to have a very significant influence on our future fiscal trajectory.

DR. ORSZAG: Well, let me just first pause and point out that’s exactly what we just created for Medicare. So this Independent Payment Advisory Board has the power and the responsibility to put forward proposals to hit a pretty aggressive set of targets over the long term. And furthermore, the proposals take effect automatically, unless Congress not only specifically votes them down but the President signs that bill. So the default is now switched in a very important way on the biggest driver over long-term cost, which is the Medicare program.
MR. RUBENSTEIN: Was that explained to Members of Congress very carefully?
DR. ORSZAG: Yes, it was and that’s why this was something that was very difficult to actually — this is why I think it was under-appreciated, that this is a very substantial change. Again, a lot will depend on whether it realizes its potential, and how the culture develops, but it has statutory power to put forward proposals to reduce healthcare cost growth overtime and improve quality, and those proposals take effect automatically if Congress ignores them, or if Congress votes them down and the President vetoes that bill. So in other words, inertia now plays to the side of this independent board.

To summarize, the Obamacare bill set up an independent board to develop cost control measures using an evolutionary heuristic of some sort. And, these measures will take effect by default unless Congress enacts legislation to nullify the measure and that legislation is signed into law. So, Congress—as they are wont to do—will not be able to go to sleep but will have to maintain vigilant watch over the Board.

But, the whole issue may become moot. As already mentioned, there are many reasons to be against Obamacare; the chief reason being it's an unconstitutional overreach on the part of Congress in enacting the legislation in the first place.


Tony said...

According to the market-research group Datamonitor, medical inflation is the reason for yearly increases of 8% in health insurance premiums. The steady progress in the development of new drugs, therapies and equipment used to diagnose medical conditions and the resulting costs are an obvious reason for this. This is understandable and everyone wants the latest in diagnostics and treatments. Equipment becomes obsolete with time and invariably the very words newer and improved mean a rise in cost.

hbl said...

The take away is, the government cannot do anything better than the private sector. And, most likely, they will make a muck of everything they put their hand to.

I am sure you know a camel is really a race horse developed by government committee.