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Ezra Klein Takes on Paul Ryan and Fails

John on March 2, 2010 at 11:17 am

Update: Paul Ryan responds to Ezra here.

Perhaps he saw this IBD piece asking why there has been no response to Paul Ryan’s critique of the numbers?

In any case, Ezra Klein tries to respond to Ryan. He begins by wisely conceding at least half of Ryan’s argument:

In Ryan’s favor, Democrats have artificially lowered the cost of the bill by pushing its start date back to 2014, even as its 10-year budget window begins in 2010. The 10-year cost of the bill is really only counting six years of operation. This was a deceptive effort to keep the bill’s price tag under $1 trillion, even as the bill’s price tag was really quite a bit more. Point for Ryan.

Klein spends half a dozen paragraphs quibbling over the Medicare and Social Security Trust Funds (hint: they don’t exist) and then goes in for what he takes to be Ryan’s big failure:

In 1997, Republicans passed the Medicare Sustainable Growth Rate into law. The provision created a simple equation meant to hold down Medicare costs and cut doctor payments when they rose…What’s needed is to reform the system so we stop delaying it. And we will need to do that — and this is important — whether or not health-care reform passes…

The SGR problem predates health-care reform and exists irrespective of health-care reform’s fate. Attempts to lash the two together are nonsensical.

Nonsensical? So a massive health reform effort designed to control costs across the board has no connection whatsoever to a measure designed to control costs in one part of the system? That’s like saying attempts to save money in the family budget by going out to the movies less has no relation to buying an expensive new home theater. Indeed, Klein tries an argument very much like this saying:

imagine you’re buying a new house. But your old house needs $20,000 in roof repairs. You will have to pay for those repairs whether you move or whether you stay, because you can’t have your roof caving in come the next heavy rain. Are your roof repairs part of the cost of the new house? If you think so, then you agree with Ryan. If not, then you don’t.

I’m sorry, Ezra, but there’s only one house and only one roof, it’s the one we’re all living under. If the roof is leaky over grandma’s bedroom (and it is) and we also intend to expand the house to “cover” more people by building an addition which will include a whole new section of roof, well…it’s all the same roof.

Now you might argue that we need to focus on the addition and grandma can continue putting pots and pans around her room to collect the rain for now, but to say there’s no natural connection? I bet grandma thinks there is. She’s probably not too happy about seeing money “borrowed” from her repair budget to build the new roof. Indeed, that’s how a lot of seniors see this.

Sorry, but what’s truly nonsensical is to suggest that the inability of government to control the cost of Medicare is somehow logically distinct from a brand new effort by government to control costs for the whole system including Medicare. It’s all of a piece.

Finally, the cost curve. Here’s Ezra’s take:

health-care reform initially increases spending to cover the uninsured. That raises the level of spending, but not the curve. The curve actually flattens. If you extend the trend out to the second decade — which is what Ryan does in other parts of his presentation, including for the $2.3 trillion figure — the curve goes down. Kevin Drum graphed it here, concluding that “a decade after the reforms kick in, we’d be providing health care to at least 30 million more people and spending no more than we would if we did nothing,” which is to say, the curve-bending elements of the plan would’ve saved enough money to cancel out the new coverage expenses.

He’s right about the numbers, but…these numbers are wrong. How do we know? Look at Massachusetts, which instituted universal coverage and found that it was far more expensive than predicted. The state has been struggling to repair the gaping hole in its budget ever since. They passed $800 million in new taxes in 2008 alone and it wasn’t enough. Liberals and conservatives in the state have gone on record saying it should not be adopted nationwide. Why? Because the same thing that happened in MA will happen on the national scale if a similar plan is adopted. The savings will not materialize, the increased utilization will cost more than anticipated. In short, based on real world experience there is every reason to think that Kevin Drum’s graph is a fantasy. We should be thinking about that now rather than later.

Morgen adds: I agree with John that the CMS (and CBO) have likely grossly underestimated the ultimate cost of health care reform. Primarily because I think they have underestimated the degree to which the provision of health insurance will continue to shift away from the current employment-based model. In fact, with the relatively weak employer mandate, and the government subsidies available to individuals in the exchange, I think the Democrats’ healthcare bill will accelerate this trend. Even a shift from employment-based coverage as little as 10% above what the CBO estimated would result in substantially higher costs to tax payers. (I wrote more about this here.)

Lastly, it’s worth noting that respected economist and Obama health reform adviser David Cutler actually postulated last September that the cost curve would bend down even without reform. Because of the increased use of information technology, more efficient production of medical devices and pharmaceuticals, and better management of chronic health conditions, among other factors. In fact, as I stated in my earlier post on this, I think its arguable that the systemic savings which Cutler envisions are much less likely under a reform plan which will not only flood the market with 30+ million newly insured, but does so by shifting an even greater proportion of the costs to the federal government.

Morgen update: Let me also add that the CMS report itself provides plenty of good reasons to question the accuracy of their cost estimates. From page 17 of the report (“Caveats”):

Many of the provisions, particularly the coverage proposals, are unprecedented or have been implemented only on a smaller scale (for example, at the State level). Consequently, little historical experience is available with which to estimate the potential impacts.

The behavioral responses to changes introduced by national health reform legislation are impossible to predict with certainty. In particular, the responses of individuals, employers, insurance companies, and Exchange administrators to the new coverage mandates, Exchange options, and insurance reforms could differ significantly from the assumptions underlying the estimates presented here.

And this one in particular is HUGE:

In estimating the financial impacts of the PPACA, we assumed that the increased demand for health care services could be met without market disruptions. In practice, supply constraints might initially interfere with providing the services desired by the additional 33 million insured persons. Price reactions—that is, providers successfully negotiating higher fees in response to the greater demand—could result in higher total expenditures or in some of this demand being unsatisfied. Alternatively, providers might tend to accept more patients who have private insurance (with relatively attractive payment rates) and fewer Medicare or Medicaid patients, exacerbating existing access problems for the latter group. Either outcome (or a combination of both) should be considered plausible and even probable.

In other words the CMS analysis did not take into account predictable, real-world economic effects in determining their cost and spending estimates.

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