Constitutional Challenges to ACA Medicaid Reforms Would Be a Lot Stronger If They Had a Constitutional Principle To Support Them
At oral arguments over the health reform law last week, the Eleventh Circuit panel showed a surprising amount of interest in the other constitutional challenge to the Affordable Care Act (ACA)—the states’ claim that the ACA’s Medicaid provisions are unconstitutionally coercive, effectively commandeering state governments into doing the federal government’s bidding. Brad Joondeph reviews the arguments presented by former Solicitor General Paul Clement on behalf of the states.
First there’s an argument from “sheer volume”: the enormity of federal Medicaid funding unconstitutionally tips the balance of federalism in favor of the feds. The difficulty with this argument is that, if the sheer volume of Medicaid makes new conditions on federal spending unconstitutionally coercive, then every new amendment that has increased states’ program costs in the past several decades must also have been unconstitutional.
Then there’s an argument from the disproportionality of new conditions: a state’s noncompliance with the new conditions jeopardizes all its federal funds, not just funds newly dedicated in the ACA. Same problem as before. If new conditions on existing federal funding were unconstitutionally coercive, then you’d have to explain why the Supreme Court reached the exact opposite conclusion in South Dakota v. Dole.
And then there’s a third argument that Joondeph sums up like this:
[T]he ACA (a) imposes an individual mandate on all Americans to acquire health coverage, (b) applies that mandate to everyone, including Americans below the poverty line, but (c) provides no subsidy for those persons falling below the poverty level (though it does provide subsidies for those between 133% and 400% of poverty). Thus, the ACA on its face assumes that every state will comply with the Act’s Medicaid conditions, for this is the only way envisioned by the Act for indigent Americans to satisfy the mandate.
So Congress imposed the mandate assuming that the states will comply with new Medicaid conditions, and therefore . . . the ACA is coercive? Hmmm. Well, the first problem with this argument is that it is not an argument—it doesn’t connect premises to a conclusion. 
But even if we spot them a major premise to be articulated later, there are two other, fatal problems with it: it confuses states with the people who live in them; and it does not take into account that the ACA provides exemptions to the mandate for those who cannot afford qualifying coverage.
If State XX decided to quit Medicaid rather than accept new conditions on federal funds, the formerly Medicaid-eligible population of XX would likely be less than enthused, mandate or no. But here’s the thing. Even if they were subject to the mandate, the fact that Congress had imposed that burden on them would have precisely nothing to do with the state and its former Medicaid program. In no sense does the individual mandate place demands on the states in their sovereign capacity. It is touching that these states would equate a mandate upon its less fortunate citizens as a mandate upon the sovereign state itself. Touching, but false. And irrelevant. The mandate has nothing to do with Medicaid and nothing to do with the states (except in the minor sense that state officials in the Exchanges might certify compliance with the mandate).
What’s more, if Medicaid coverage were not available, the mandate would not apply to many people with incomes under 133% of the poverty level (FPL). This gets pretty complicated, so I’m going to save the details for another post. Suffice it to say that the mandate may not apply to people earning under 100% FPL, and people between 100% FPL and 133% FPL will either have access to subsidies or will be exempt due to the ACA’s provision excusing anyone for whom the cost of the cheapest qualifying plan would be more than 8% of their income.
In fairness, it is probably best not to think of these as separate arguments. Each fails on its own, but together they loosely approximate plausibility. As Joondeph wrote in an earlier post:
Perhaps, as the states’ brief seems to suggest, it is not any one of these factors in isolation, but the three in combination, in the context of a singularly enormous federal spending program, which renders the ACA’s Medicaid expansion unconstitutional. This is not implausible. But it is also hard to figure out how the Court could ever articulate a rule or principle of constitutional law that actually operationalizes the idea. Even if one could articulate it, the implications could be extremely destabilizing for constitutional law, and in an area that really matters (and matters on a regular, ongoing basis).
As I’ve written before, the Supreme Court’s precedents have left the door open to this kind of challenge, but they don’t illuminate a distinct line between what is and isn’t coercion. Probably because there isn’t one.
Not All Medicaid Provisions Were Created Equal
I feel like some key points I wanted to make in my last post got lost in . . . well, all those words. So I’ll try again. I do not think it is optimal policy to enforce Medicaid’s Section 30(A) “equal access” provision by means of litigating cuts in provider payment rates. The analysis required is not within the institutional competence of the courts.
But that’s not to say that there’s anything wrong with private enforcement of Medicaid provisions in general. For example, Igor Volsky wrote favorably of the Washington state supreme court’s recent decision blocking reductions in coverage of personal care for children. I agree completely with that decision and with the use of private litigation to enforce the provisions of federal Medicaid law at stake in that case.
But there are significant differences between the Washington case and the Independent Living Center case which is now pending at the U.S. Supreme Court (and which I wrote about last time). The Washington case, Samantha A. v. DSHS (pdf), concerned the “comparability requirements” of the federal Medicaid law, 42 U.S.C. 1396a(a)(10)(B), aka “Section 10(B).” Independent Living concerns the “equal access” provision, 42 U.S.C. 1396a(a)(30)(A), aka “Section 30(A).” The relevant difference between them is that Section 10(B) is cast in terms of guaranteeing a clear and specific individual entitlement, whereas Section 30(A) issues a broad, multi-faceted directive to the states which, while intended to protect Medicaid beneficiaries as a whole, does not accord them specific rights individually.1
The point is, some statutory provisions are better suited than others for enforcement by litigation. It is one thing to adjudicate individuals’ rights, but another thing entirely to adjudicate whether broad policy objectives are met.
- To be enforceable under 42 U.S.C. 1983, a statutory provision must contain clear rights-creating language. Note that the case was decided in state court, which means that a federal cause of action was not necessary anyway. But the case undoubtedly could have been brought in (or removed to) federal court. Unlike Section 30(A), the provisions implicated in Samantha A.—Section 10(B) and the “early periodic screening, diagnosis, and treatment” (EPSDT) provisions of 42 U.S.C. 1396d—have been found enforceable via Section 1983 civil rights actions. And whether we like it or not, the same rationale that has led the Supreme Court to limit the availability of § 1983 actions is very likely to apply to the Court’s consideration of actions brought under the auspices of the Supremacy Clause theory being tested in Independent Living. [↩]
Explaining the Administration’s Brief against Suits to Block Medicaid Cuts
There’s a bit of dissension simmering among Medicaid advocates over the surprising amicus brief (pdf) filed with the Supreme Court a few weeks ago by then-acting Solicitor General Neal Katyal in the case of Douglas v. Independent Living Center of Southern California. The brief takes the position that Medicaid providers and beneficiaries do not have the right to sue state governments over cuts in provider payments, even if the cuts would violate federal Medicaid law. That might sound harsh, as it would leave people without a remedy when state cuts threaten to make vital medical care unavailable. But I would contend that Katyal’s brief for the Administration has it right. The remedy that is needed is a policy remedy—one that requires balancing interests and responsibilities of varied groups of citizens and multiple levels of government—and should be formulated, enacted, and overseen by policymakers, not the courts.
Medicaid is a cooperative program jointly administered and financed by the federal government and the states. States have flexibility in setting provider payment rates but must conform to certain federal requirements. The underlying dispute in the Independent Living case is about whether California’s decision to cut Medicaid rates breached those federal requirements.
Under 42 U.S.C. § 1396a(a)(30)(A) (“Section 30(A),” also known as the “equal access provision”), a state participating in the Medicaid program must:
provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the [state Medicaid] plan . . . as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area[.]
(Note: Don’t worry, there’s nothing wrong with your eyes or brain. You’ve just read a tiny portion of Title XIX of the Social Security Act, and it always feels like that.)
Now, the issue on appeal to the Supreme Court is not the substantive issue of whether California’s rate cuts violated the bolded provision, but the threshold issue of whether Medicaid beneficiaries and providers have the right to sue the state to enforce that provision. There’s a bit of a history to this, but the short version is that, at least since its 2002 decision in Gonzaga v. Doe, the Supreme Court has curtailed access to the courts in cases like this by narrowing application of Section 1983 of the Civil Rights Act (42 U.S.C. 1983). It was once, but is no longer, possible to sue state officials via Section 1983 for violations of Medicaid’s equal access provision. So the California plaintiffs in Independent Living had to get creative and find a cause of action elsewhere.
Enter the Supremacy Clause theory. The Ninth Circuit let the plaintiffs’ substantive claims go forward, holding that the state can be sued via a nonstatutory “implied” right of action under the Supremacy Clause of the U.S. Constitution. The idea here is intuitive: there’s gotta be some way to make states conform to the federal statute—federal law being the “supreme law of the land” and all.1
But that intuitive rationale assumes a false dilemma between private enforcement and none. And while every right deserves a remedy, not every provision of law confers a right. There are good reasons not to read Section 30(A) to establish an enforceable individual right. One is the difficulty of assessing what constitutes compliance—what payment levels are sufficient to ensure access to care and are “consistent with efficiency, economy, and quality”—and, hence, of fashioning an appropriate remedy. The judiciary’s institutional competence to make those assessments is, in a word, suboptimal.2 To give just a little flavor to the point, consider that for any rate cut in provider payments, the state saves money which it might then use to finance more Medicaid enrollment or more expansive coverage. (The likelihood that it would in fact do so is beside the point.) How’s a court to decide if the new allocation has worsened access or improved it?
The fundamental obstacle to realizing the promise of equal access in Medicaid has not been simply a failure of enforcement. It is deeper than that. The problem has been that there is no broadly accepted measure of access to care. But as a result of a new report from the Medicaid and CHIP Payment and Access Commission (MACPAC) established in 2009, CMS has now proposed regulations (pdf) which would require states to develop data and methods for evaluating Medicaid beneficiaries’ access to care. The MACPAC report lays out a framework for analyzing access along three dimensions: (1) enrollee needs, (2) availability of care and providers, and (3) utilization of services. Within that broad framework, states would have flexibility to design methods as they see fit. The data and analysis would be publicly available and reviewed by CMS for sufficiency of access whenever the state proposed to amend its State Medicaid Plan in a way that reduced rates or restructured payments.
Medicaid advocates say federal enforcement is not a viable alternative to private suits, because it is hampered by limited means. CMS may withhold federal funds from states who fall out of compliance with Section 30(A), but such withholding only hurts providers and beneficiaries of Medicaid, not the state officials responsible.
However, the new regulatory scheme, if adopted, would transform the whole landscape. The metrics developed will for the first time give CMS the ability to make evidence-based evaluations of state plan amendments and—crucially—to reject amendments that are inconsistent with the mandate of equal access.
The Administration’s brief in Independent Living is not some sort of concession to states who want to cut Medicaid, or a betrayal of the goals of PPACA. As Suzy Khimm suggested in a guest post at Ezra Klein’s blog last week, it should be understood as part of a strategy to consolidate federal regulation and oversight in Medicaid. It seems to me that’s the approach most likely to realize the promise of Medicaid’s equal access provision.
- There’s a deeper legal rationale to the Supremacy Clause theory—one which explains some mysterious gaps in federal court jurisprudence and which I may post on separately—but it would take us pretty far afield from the Medicaid policy implications of interest here, so I’ll leave it aside for now. But it’s important to note that this is not an established theory recognized by the Supreme Court, and the chances it will be adopted now are slim. Furthermore, it is not the case that a decision in agreement with Katyal’s argument would undo a vibrant regime of private enforcement of Section 30(A). At present there is no regime of private enforcement of 30(A). [↩]
- Prior to Gonzaga, private enforcement of the equal access provision had been the norm, and the federal circuit courts developed their own, sometimes inconsistent standards for evaluating state compliance. For helpful background, see this discussion (pdf) by Boston University law professor Abigail Moncrieff. Also, see Moncrieff’s article on the trend toward federal enforcement. [↩]
Is the Mandate Penalty a Penalty?
Arguments for the constitutionality of the individual mandate as an exercise of the taxing power often start by noting that the penalty is reported on income tax returns, calculated as a percentage of income (with a flat minimum and a cap), and codified in the Internal Revenue Code. They go on to detail the ways the ACA’s penalty differs from typical penalties: there is no scienter requirement (one’s state of mind is irrelevant to assessment of the penalty); criminal punishments are not available to enforce payment; the amount of the penalty is reasonable, not exorbitant, and limited to the actual cost of qualifying coverage; and it is imposed in proportion to the frequency of noncompliance, month by month. These points have been fixtures of the United States’ briefs throughout the ACA litigation.
Two weeks ago, arguing before the Fourth Circuit, Acting Solicitor General Neal Katyal went momentarily off script and made a point I don’t recall seeing before. At around 1:15:28 of the audio for the argument in Liberty University v. Geithner (mp3 available here), Katyal says:
Unlike any other kind of criminal penalty which I’m familiar with, when you pay the penalty here, you are excused altogether from the underlying thing that the government is asking you to do, which is to have insurance.
This is a surprisingly tricky argument to tease out. First, a quick set up: Katyal wants to establish that the mandate is an exercise of the taxing power. To do that, he is arguing that the mandate penalty operates like a tax and that it does not operate like all or most other penalties. By distinguishing other penalties, Katyal hopes to strengthen the inference that the mandate is a tax. The more essential or fundamental the distinction, the stronger the inference. So that’s where we are.
Now, note that Katyal couldn’t possibly mean you are generally or prospectively excused from the mandate when you pay a penalty for past noncompliance. You will still be required to get insurance in the future, or else pay another penalty. This is no different from any other kind of penalty. If you are a hospital administrator and you get hit with a “civil monetary penalty” (a fine) for some improper HIPAA disclosures, obviously payment of that penalty does not give you free license to go hog-wild releasing even more personal health information.
What Katyal must mean instead is that paying the mandate penalty excuses you from correcting past noncompliance. Without undertaking a systematic inquiry, it seems plausible that other laws’ penalty schemes typically do require corrective action in addition to payment of penalties. HIPAA imposes higher penalties for uncorrected violations. Violations of Stark, the law prohibiting physician self-referrals, incur stiff penalties and require the physician to return the proceeds derived from prohibited referrals. Pay your taxes late, you pay a penalty—and you pay your taxes. In various ways, each of these penalties requires corrective action. The ACA does not. So that’s a promising interpretation of Katyal’s argument. Now let’s evaluate it.
There’s something a little weird about the idea of correcting the fact that you were uninsured at some time in the past. If it were just a matter of money being in the wrong place, like a late tax payment that’s in your bank instead of the U.S. Treasury, you could easily fix that: just move the money. But there’s not really anything you could do to correct your past insurance status, so it’s not exactly clear that there’s anything for the law to excuse you from. I suppose we might say you are excused from having to get retroactive health insurance, but that would be a purely notional benefit to you, because there is no such thing as retroactive health insurance. The law might as well excuse you from giving birth to yourself.
The question then is whether excusing people from corrective action tells us that (a) the ACA penalty is not like other penalties in an important way; or that (b) the ACA penalty differs only as a result of the peculiar nature of ”the underlying thing that the government is asking you to do.” Whether or not (a)—Katyal’s thesis—is right, I think (b) is wrong. It would be a mistake to think that the above-mentioned weirdness arises only because insurance is involved. The weirdness arises because the fact that you did not have insurance is irreversible.
But other things can be just as irreversible. When a HIPAA violation occurs and someone’s protected health information has been disclosed, you can stop further disclosures from happening and fix whatever caused this one, but you can’t un-disclose the disclosed information. You can’t just wipe the memories of anyone who happened to see it. The genie is out of the bottle and can’t be stuffed back in. However, unlike the ACA, HIPAA does require that you correct the cause of your noncompliance. If your patients’ records aren’t secured, you’ll have to secure them. Which is to say, in the context of HIPAA, “corrective action” is not about undoing past violations—it’s about preventing future ones.
And that brings us to a clear, meaningful difference with the individual mandate. The ACA penalty scheme is fundamentally indifferent to the causes of noncompliance, past or future. It is more incentive than corrective or deterrent. It offers you a choice—get coverage or pay the penalty—but there are no enforcement consequences beyond the penalty. In the eyes of the law, failing to get insurance will be like making early withdrawals from your 401(k). You are free to do it, for any reason or none, but you will pay a price for it on your taxes.
A Surprising Concession on Severability
Brad Joondeph comments on a surprising development in the United States’ reply brief (pdf) before the Eleventh Circuit Court of Appeals:
[T]he United States is now conceding that the ACA’s community-rating and guaranteed-issue provisions are not severable from the minimum coverage provision. The government had essentially conceded as much in a hearing before the district court, but I think this may be the first time it has done so in a brief.
There is a fair amount of strategic sense to this. First, making such a concession only bolsters the government’s argument that the minimum coverage provision is essential to the ACA’s broader regulation of the health insurance or health care services markets. Second, it makes the government seem more reasonable. Third, it essentially forces the Supreme Court’s hand a bit when the case ultimately gets there: if the justices want to take down the mandate (which might be politically popular), they will also have to bring down the ACA provisions that overwhelming majorities of Americans support. And that would not be so popular.
The background, of course, is that when District Court Judge Roger Vinson ruled the Affordable Care Act’s minimum coverage provision (i.e., the individual mandate) unconstitutional in Florida v. HHS, he struck down the entire ACA on the grounds that its many provisions were “inextricably bound together in purpose and must stand or fall as a single unit.” I’ll take Joondeph’s word that there is strategic sense to the administration’s concession, but it’s questionable whether the law really requires non-severability of the guaranteed-issue and community-rating provisions. Certainly there is strong evidence that such regulations can destabilize insurance markets in the absence of a coverage mandate. But it is not, I think, generally desirable that we put judges in the position of conducting severability analysis based on their sense of what policy outcomes are more workable than others.
Severing unconstitutional provisions from a statute necessarily calls for some measure of legislative judgment. But if the focus of the analysis is on limiting the extent of judicial lawmaking, rather than on the workability of various policy alternatives, it’s not clear that the right result would be to lump the guaranteed-issue and community-rating provisions in with the mandate.
The IPAB and Its Critics
The Affordable Care Act creates a 15-member independent board to propose measures to slow the cost growth in federal health programs. The board is known as the Independent Payment Advisory Board, or IPAB.
The IPAB makes periodic appearances at the business end of Republican talking points. Lately Rep. Paul Ryan (R-Wisc.), Chair of the House Budget Committee, has been raising the call to repeal the IPAB, despite being the same Rep. Paul Ryan who introduced legislation in 2009 creating an independent commission with powers exceeding the IPAB’s—an IPAB “on steroids”—as Don Taylor recently reminded us.
There are basically two lines of attack on the IPAB, both tending somewhat toward the hysterical, and both easily answered. One is the charge of DEATH PANELS or, in more refined parlance: rationing. It seems the force behind the indefatigable claim that the IPAB will ration care has only been made stronger by a provision in the ACA (pdf) specifically forbidding the IPAB from rationing care:
The proposal shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums under section 1818, 1818A, or 1839, increase Medicare beneficiary costsharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria.
PPACA § 3403, via Austin Frakt. There’s really nothing else to say about that.
The second line of attack consists of the more rarefied charge that the IPAB is undemocratic—a kind of procedural perversion of the normal constitutional order. DrRich at the Covert Rationing Blog recently made the case that the IPAB possessed “dictatorial powers,” a claim he walked back a bit after a thorough takedown by Shadowfax at Movin’ Meat. The key here is that Congress is allowed to delegate powers to administrative agencies if those powers are limited by an “intelligible principle,” like, say, the principle of being related to health care payment reform recommendations.
The extent to which congressional procedure constrains Congress’ own role in reforming payment policy is a separate matter. Shadowfax notes that one Congress cannot prevent future Congresses from changing the law, which is true. I’d explain the point this way: the Constitution lays out the basic framework for lawmaking but gives Congress authority to set its own procedural rules with regard to just about everything else. That means that Congress is free to erect procedures that impede its own effectiveness if it wants to; and it means that Congress is free to remove those impediments if it wants to.
Self-imposed legislative constraints like supermajority requirements do create an uncomfortable doctrinal tension when paired with a relaxed approach to the delegation of legislative authority to independent agencies. But unless you think Congress is not permitted to delegate IPAB-type powers to any agency, there is no real constitutional problem with procedural rules designed to make it harder for Congress to intervene in the the agency’s exercise of the limited discretion Congress itself has delegated.
UPDATE: made the terrible and wrong introduction a little less terrible and wrong.
Was the Fourth Circuit Baffled by the Inactivity Argument?
The Fourth Circuit Court of Appeals heard oral arguments on the constitutional challenges to the ACA in Liberty University v. Geithner and Virginia v. Sebelius on Tuesday. Tim Jost has an authoritative overview and summary at Health Affairs, and Brad Joondeph has some insightful notes at the ACA Litigation blog. After listening to the audio, the single dominant impression I’m left with is something I already knew: Acting Solicitor General Neal Katyal has got some serious game.
The arguments have sparked some interesting intramural debate at the Volokh Conspiracy about whether and why the judges might have been skeptical of, or baffled by, the challengers’ Commerce Clause argument and its reliance on the much-ballyhooed distinction between activity and inactivity. Orin Kerr points out that the criminal-law treatment of acts and omissions is not always a model of clarity, and that the common-law “actus reus” requirement—the requirement that there be a “guilty act” and not just a “guilty mind”—may be satisfied by an omission or failure to act in certain instances. When someone is under a legal duty to act and fails to do so—i.e., is inactive—the actus reus requirement is met and the government may impose punishment on the person even in the absence of a specific, affirmative act.
If the proposed activity requirement for Commerce Clause regulation were modeled on the doctrine of actus reus, it would have zero effect in the context of the individual mandate. Consider: The mandate imposes a kind of legal duty, the duty to obtain health insurance; the “inactivity” of the uninsured is the failure to carry out that duty; and failure to carry out the duty to obtain health insurance triggers the federal government’s authority to regulate, which it does by means of a monetary assessment (or “penalty”) on your annual income tax.
Now, obviously the analogy is imperfect, and it’s important to note that no one is specifically advocating that the activity/inactivity distinction be patterned after the common law act/omission distinction. It wouldn’t have to be. But Kerr wants to make the broader point that we don’t really know what the distinction will mean when elevated to constitutional doctrine, given the vagueness and ambiguity it carries. I sympathize, though I don’t think the point is unanswerable. There’s a lot of vagueness and ambiguity in legal doctrine. There’s a lot of vagueness and ambiguity in everything, at the margins. But as Jonathan Adler responds, paraphrasing somebody (Edmund Burke maybe?), “[W]e know the difference between day and night even if twilight blurs the line of demarcation.”
Activity and inactivity were much discussed at Tuesday’s hearing, but metaphysical unpleasantness was largely avoided. In Katyal’s hands, the government’s argument seems a little tighter and more refined, while following broadly the same outline: The individual mandate is a regulation of economic activity—an activity in which we all partake, eventually—namely, the consumption of healthcare services. Its purpose is to stabilize the financing of healthcare services through the private insurance system. These are appropriate means and ends for a valid exercise of authority under the Commerce Clause. But even if the courts were to construe the mandate as regulation of inactivity, it would still be authorized under the Necessary and Proper Clause as a rational means to effectuate the ACA’s comprehensive scheme of insurance regulation. Thus, Katyal argued, it doesn’t matter whether the courts do or do not recognize an activity requirement under the Commerce Clause. The mandate should be upheld either way.
It’s Not All about Baby Boomers
It is common for people to think, or assume, that projected growth in Medicare costs is primarily a result of retiring baby boomers. But the graph below, from Austin Frakt, shows that if the rate of increase in Medicare spending were just a function of growth in the population of seniors, our long-term budget outlook would be in much better shape:
The darker blue is the growth in costs attributable purely to the aging of the population. The infographic in the last post suggested that the elderly portion of the U.S. population is not extraordinarily high by international standards. The point here is that cost trends do not reduce to demographics in any case.
More on Those Finest of Fine Stitches
The second in a two-part series of infographics on medical costs from Medical Billing & Coding, via Austin Frakt:
Via: Medical Billing And Coding.
Paradox Glossed
I’ve always been a little unsure about the policy ramifications of regional variations in medical care. The Dartmouth Atlas project’s findings—famously noted in Atul Gawande’s New Yorker piece comparing health outcomes and utilization in McAllen and El Paso, Texas—suggest an inverse relationship between the amount of care provided and the quality of health outcomes resulting from that care.
In other words, higher levels of care are associated with lower levels of health. That’s a pretty counterintuitive relationship, begging to be fleshed out with detail. Of course the key to the mystery is that some high-utilization areas are going way overboard on costly tests and procedures that are unnecessary and sometimes harmful.
And so you might think, “Aha! This is an overutilization problem. Doctors in these areas are ordering too many procedures, so we need to lower reimbursements to get them to cut back.” But doctors elsewhere with basically the same reimbursement rates, the same incentives, aren’t going similarly overboard. And we don’t expect that their outcomes would improve if they provided less care. And it’s not automatic that reducing the number of tests and procedures in McAllen would cut out only or mostly the harmful ones.
Anyway, via Austin Frakt, this graph from the Congressional Budget Office provides a helpful way to conceptualize the relationship between utilization and outcomes. It shows how an inverse relationship might appear in a comparison of two regions but not within a single region.
Austin explains:
Suppose we reduced reimbursements so that region 2 had the same utilization level as region 1. That would shift region 2 to the empty circle in the figure. However, at that point, region 2′s outcomes are even worse than they were to begin with. In other words, cutting reimbursements does reduce utilization, but it does so in a way that is harmful to outcomes.
The challenge is to reform policy to reduce spending while not harming outcomes (and, hopefully, improving them). A naive interpretation of geographic variations does not suggest the right reform. Simply spending less is not the right approach.
Let Us Now Praise Incompletely Theorized Cost Control
One of the vexing things about the health reform “debate” leading up to the Affordable Care Act was that, despite considerable success in co-opting potentially adverse interest groups, efforts to bridge the divide with the partisan political opposition were a total failure.
After observing that there still isn’t a lot of constructive engagement on the issues, Don Taylor reaffirms his belief that we need bipartisan compromise on the framework of reform to move ahead to the tough issues of cost control. Certainly reform would be easier if undertaken cooperatively, but I question the need for a grand compromise.
As I see it, there are basically three ways to get major reforms done: (1) one side could win on coverage and keep winning, getting cost reform done unilaterally; (2) the two sides could reach a negotiated bipartisan agreement on coverage and cost; or (3) one side could win on coverage, and cost reform could move ahead despite the losing side’s misgivings about the coverage framework.
It is more or less inevitable that power will alternate between the two parties in at least one of the three elected bodies of government, so path (1) is extremely unlikely, essentially impossible. I think path (2) is possible but only when the stars are perfectly aligned. That is, only in the rare times when a significant legislative achievement would not be credited to the president in a way that seemed likely to boost the electoral prospects of the president’s party. That leaves path (3).
If you’ve thought this through before, you’ll probably recognize path (3). It’s where we are now, after passage of the ACA. And it’s where we’ll stay, absent judicial intervention. A certain amount of throat-clearing is de rigeur here—the ACA doesn’t go far enough on cost control, is just the first step, and all that—but given that we don’t actually know yet how to tame cost growth, it’s hard to imagine a more promising approach that is anywhere near as realistic about the politics of reform. And that goes for both interest-group politics and partisan legislative politics.
In the last analysis, as Taylor says, cost control will mean reducing patients’ care or reducing providers’ incomes or both. But the theory of the ACA is that, with ingenuity and concerted effort, we can ease into reform, making smart adjustments as we go, mitigating adverse effects. Igor Volsky sketches the ACA’s early-stage efforts at cost-control:
[The ACA] eliminates overpayments to private insurers and slowly phases-in payment adjustments that encourage providers to deliver care more efficiently. The law also gives [CMS] greater discretion to experiment with alternative payment systems — so that providers are compensated for delivering care more efficiently, rather than just ordering more tests — and establishes an innovation center for payment reform.
The genius of the ACA’s strategy on costs is, or was, that it does not determine in advance which sectors will bear the greater burdens of reform, and thus it does not, or did not, immediately or disproportionately threaten major stakeholders in the healthcare system. It’s an incompletely theorized agreement of sorts.
The ACA can credibly promise cost containment that is politically tenable even in the absence of bipartisan support because it combines incompletely theorized notions of cost-effective care with a mechanism, the Independent Payment Advisory Board (IPAB), designed to circumvent routine political obstruction in Congress and to turn Congressional status quo bias into a structural force for reform.
Those Must Be Some Very Fine Stitches Indeed
Via Medical Billing And Coding. (And h/t TIE.)
The Limits of Cash
In a post titled “In Defense of Cash,” Karl Smith winds up identifying an interesting problem with the idea of replacing social programs with cash programs:
Cash rocks. Or to be more specific liquidity rocks. Both individually and socially. Its great for all your occasions, cancer and liquidity traps.
Its also great for decentralized exploration of creative ways to satisfy preferences.
The problem is that its bad for showing tribal allegiance. One can show up to a friends house for dinner with a bottle of wine as gift but not $40 in cash. I let everyone know that would gladly take the cash, but my wife says “this is why no one wants to have dinner with you.”
There is a similar problem replacing Medicare with cash.
Presumably the thought here is that even if we could replace Medicare with a well-designed cash program that could credibly promise adequate benefits and not cause cataclysmic disruptions in the delivery of care, there would still be the added problem of the signaling effects of such a policy change. In other words, this is the idea that law has an expressive function in society—that people want the law to be what we stand for when we’re at our best.
I don’t really buy it, but it’s an interesting idea.
Anyway, back on Earth, there are plenty of substantive reasons to worry that Medicash/Cashcare would just make things worse for our troubled healthcare system. Ultimately, the problem is that people aren’t naturally very good risk managers and, as Ezra Klein suggests, when it comes to seniors’ health we’re dealing with more of a “when” kind of risk than an “if” kind of risk. Which means that the public will likely end up paying for pretty much the same stuff we pay for now; we just won’t have as much cash in the treasury to pay for it all.
One Sentence to End the Mandate Controversy
Tax day is probably as good a time as any to remind folks that the constitutional controversy over the individual mandate could be resolved by amending the ACA with a single sentence. Something like this:
Section 1501 of this Act is enacted under the power of Congress to lay and collect taxes to provide for the general welfare of the United States, and under the power to lay and collect taxes on incomes, pursuant to Article I, Section 8 and Amendment XVI of the Constitution of the United States.
This is admittedly (a) not going to happen and (b) a problematic sequencing of Congressional action and Congressional expression of intent. But (b) doesn’t really matter; it should be sufficient to create a judicial presumption that the mandate was enacted under the taxing power.
As for (a), the lesson should be clear. If indeed the lawsuits were motivated by concern for fidelity to the Constitution, rather than by less high-minded interests, Congressional Republicans could put this scourge behind us by the end of the week.
Private Insurance Is Public, Too
There are lots of ways to set up a system of health insurance. You can involve the government to varying degrees in regulation and payment, and to the extent that the government takes it upon itself to bear the population’s major health risks, you have a system of public insurance. To the extent you allocate risk through market mechanisms, you have a system of private insurance. But either way, at bottom the concept of insurance is about distributing risk through a population. That’s what gives insurance its social utility, and it’s the reason people buy insurance. And so in an abstract sense, all insurance is public insurance. It is people pooling money through premiums or taxes to cover their collective health risk.
Obviously people have different opinions about what sort of system distributes risk more efficiently and fairly. But our political debates have a tendency to get clouded over by the public vs. private question, which is more often than not a distraction. “Public” and “private” are not good stand-ins for fairness and efficiency (or efficiency and fairness), and here in the U.S. of A. we have mixed and jumbled public and private elements in just about every government insurance program and every health-insurance market there is. Even in the market for employer-sponsored plans where about 160 million Americans have “private” health insurance, Ezra Klein reminds us, government’s role is massive:
Most of the people who have health-care insurance and don’t get it from Medicare, Medicaid or the military/veteran’s systems are getting it from their employer. And the reason they’re getting it from their employer is that health-care benefits — unlike wages — are tax deductible. That ends up being a huge subsidy for people who get health care through their employers. Between 2010 and 2014, the Joint Committee on Taxation estimates that this break will cost the Treasury about $660 billion. It’s the single most expensive tax expenditure in the entire tax code.
The employer exclusion was worth about $100 billion in 2009, when, according to CMS, private insurance premiums were about $800 billion. (And the JCT estimates apparently don’t capture the full value of the exclusion, which also provides a significant break in payroll taxes.) But the problem with the exclusion is not that it injects government into the private market; the problem with the exclusion is that it is unfair and inefficient. It is unfair because, as a blanket exclusion from employees’ income, it delivers a higher value tax benefit to those in higher income brackets; and because it transfers wealth from the uninsured who pay taxes but don’t get an exclusion. Compounding the problem, the exclusion probably incentivizes inefficient and overgenerous coverage, as compensation in health benefits is worth more to employees than the equivalent compensation in taxable wages.
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