Perhaps The Affordable Care Act Will Work

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The Affordable Care Act contained many, many, many provisions that aimed to increase the cost effectiveness of American health care. It proposed to, for example, penalize hospitals that did a poor job of handling re-admissions. The Congressional Budget Office’s general view was that the gains from this kind of thing are too uncertain to score. Only hard quantitative measures like new taxes, changes in eligibility, or cuts to payment rates were scorable. The basic view is that you can cut health spending with price controls, or by throwing people off public programs, or by taxing services so that they get more expensive. But you can’t actually make them more efficient.

As a scoring practice, I’m not sure what the alternative would be. But as an analysis, it’s wrong. If you say to someone “you can have all the iPads you want, for free,” the person is going to want a lot of iPads. They can, after all, be given away or sold. If you want to reduce iPad consumption, only rationing or pricing is going to work. But if you say to me “you can have all the MRIs and blood tests you want, for free,” I’m going to say that I actually don’t want any MRIs or blood tests. I, like many Americans, am not sick and I’m not a hypochondriac and I find visiting doctors to be mildly unpleasant. I have no desire to have my blood tested or to sit in a tiny coffin-like box and have some imaging done. Until I develop some ailment, you’d have to pay me to get me in one of those machines. So along those lines, it’s clearly possible in principle to reduce consumption of health care services without rationing or higher prices by actually managing health better. Nobody says “don’t bother to get this surgery right the first time, my insurance will pick up the tab if you have to cut me open again next week.” And yet medical errors happen all the time.

So one big question is how well will the ACA’s reforms work? Peter Orszag rounds up some promising new good news. To me this is a reminder that there are worse things in the world to do than “kicking the can down the road” on the budget deficit. In the long-term, only health care changes will make the math add up. But if we can avoid a medium-term crisis in the medium-term, we may have much better information about what will work here. Panicking and implementing a “grand bargain” to raise the Medicare age is neither necessary nor sufficient.