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BOOK REVIEWSAssume A Can OpenerReforming Medicare: Options, Tradeoffs, and Opportunitiesby Henry J. Aaron and Jeanne M. Lambrew (Washington: Brookings Institution Press, July 2008), 191 pp., $28.95
Just as in love or real estate, timing is everything in policy analysis. Henry Aaron and Jeanne Lambrew—or at least their publisher—obviously timed the appearance of Reforming Medicare for the interregnum just before the start of a new administration in Washington, whose officials will undoubtedly need a primer on one of the federal government’s largest and most important programs. Recent events, however, have dramatically altered not only the nation’s fiscal condition, but also the likelihood that informed publics will willingly accept the kind of analysis in which Reforming Medicare is so thoroughly rooted. Aaron and Lambrew are two of the most thoughtful, judicious students of health policy around, and their efforts at achieving clarity and balance are evident in every page of this extended essay, or very short book. The first three chapters, in particular, provide an excellent, concise, but systematic overview of Medicare and Medicare policy, which could serve as a useful primer for anyone new to the subject—almost as useful, in my view, as Marilyn Moon’s primer published two years ago. The next three chapters describe and analyze generic options for Medicare reform: (1) "updated social insurance"; (2) "premium support"; and (3) "consumer-directed Medicare." And here’s where I think the book’s usefulness has been critically damaged by the events of the past few months. For options 2 and 3 are essentially theoretical constructs, largely unsupported by empirical evidence, based on the assumptions of the analytic framework of neoclassical microeconomics—the same framework that convinced policymakers that we should repeal Glass-Steagall, deregulate trading in financial derivatives, and reduce the capital requirements for investment banks. Aaron and Lambrew are too thoughtful and too wise, of course, to make unqualified or exaggerated claims for either of these options, and they seem particularly unenthusiastic about consumer-directed plans, but they don’t really question the basic leap of faith underlying both alternatives—that the market for health care can and perhaps should be made to perform more like a theoretical "real" market. When I had more responsibility for Medicare policy than I have now, I often felt as though I were constantly shadowboxing with phantoms. In contrast to the very real, excruciatingly well-documented shortcomings of the actual Medicare program, policy analysts and their political allies would counterpose theoretical constructs that were dramatically inconsistent with historical experience or observed reality but unassailable precisely because they were hypothetical. As the old joke about economists would have it, one only has to assume a can opener to overcome a model’s shortcomings. When I objected to proposals on those grounds, I was accused of being "anti-intellectual." Thirty years of well-documented historical experience have, for example, clearly established that although private plans can (and sometimes do) provide major benefits to Medicare beneficiaries, they are almost inherently incapable of saving the program any money. Yet proponents of premium support continue to argue that private plans could generate savings for Medicare, without seriously damaging access or quality, if policy fine-tuning were accomplished. In support of that argument, they adduce the public relations claims of the private insurance companies about all the great things they are doing to reduce costs and increase quality—claims that ring extremely hollow to those of us outside the Beltway who deal with that industry every day. Assume a can opener.... More broadly, an accumulating body of empirical evidence increasingly reinforces the reality that " market-based" approaches to health care cost containment can succeed only by impairing access to care for those who need it. But the analytic framework in which Aaron and Lambrew operate doesn’t leave them many alternatives. They deserve all the credit in the world for recognizing, for example, that it’s almost impossible to successfully constrain Medicare costs without a more systematic approach to the problems of health care inflation, but their only recommendations for that larger problem incorporate the old bromides of better information, comparative effectiveness research, information technology, and quality improvement. Policy analysts make fun of politicians who claim they can balance the budget by eliminating "waste, fraud, and abuse," but with a straight face they then propose to control health care costs by making the system more efficient. Efficiency has hardly anything to do with it. What health care costs are all about is market power and the distribution of monopoly rents. Every other industrialized nation understands that and does something about it. U.S. providers and insurers understand it, too, which is why the more sophisticated providers resist any efforts to aggregate power on the buyers’ side. But the mainstream of U.S. policy analysis just doesn’t seem capable of even framing the question, let alone solving it. Similarly, Aaron and Lambrew show considerable courage, in terms of the contemporary debate, by simply and repeatedly insisting that Medicare’s long-term financial problems cannot be solved by cost-reduction measures alone, that sooner or later increased revenues will also be necessary. But they then briefly cite a Congressional Budget Office laundry list of revenue-raising options without subjecting them to any serious comparative analysis, perhaps in recognition of the political environment that prevailed until just a few months ago, or perhaps because older concepts of evaluating alternative revenue sources in terms of the equity of distributional impacts have fallen into disuse. Whatever the cause, the revenue side of the equation receives only a tiny fraction of their attention. In sum, this is in many ways a very good book, but except for the timeliness of its data, it could have been written ten years ago, or even fifteen. We’ve been going around in circles in the health policy debate all that time, with little evidence of developing consensus, and—more importantly—with continuing deterioration in access and acceleration in costs. Perhaps even more distressingly, while both presidential candidates talk about the need for change, their health care advisers are the same old folks spouting the same old nostrums. Maybe the public knows something we don’t.
Bruce Vladeck (bruce.vladeck{at}ey.com) is senior health policy adviser at Ernst and Young in New York City. He was administrator of the Health Care Financing Administration from 1993 through 1997 and subsequently served as a member of the National Bipartisan Commission on the Future of Medicare.
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