The rougher road to health care cost control

There may be an ironic turn of the screw in the argument of an Urban Institute health policy paper by Robert Berenson, John Holahan and Stephen Zuckerman that a "hard trigger" for a strong public option may have a better chance of controlling health care inflation than the weak public options currently included in the House and Senate bills (an argument that Ezra Klein calls "as clear-headed on the public option as anything I've read').

The core argument is this: health care costs are out of control mainly because hospitals and doctors have undue pricing power in many markets. The main potential of a public option for controlling costs lies in exploiting Medicare's pricing power by tying public option payment rates to Medicare's - which neither the House nor Senate public option does. The current weak public option provisions could be negotiated away in favor of a well designed "hard trigger" -- one that goes into effect automatically if either plan pricing or overall health care cost control targets aren't met. Such a trigger would presumably mandate a strong public option with the right kind of pricing power.  Moreover, that trigger should go into effect by 2014, when the exchanges have barely got started -- so little or no time would be lost.

The obvious irony is that liberals going to the mat for a weak public option and pooh-poohing trigger options may be fighting the wrong battle (within the realm of the possible defined by the Senate's effective 60-vote requirement for passage). But a further irony may rest in the scenario that Berenson et al envision should the current bill fail to control costs. If a bill passes without a strong public option or trigger for a small public option,

The outcome is likely to be that costs will continue to spiral upward. In effect, the nation would be relying on the range of promising pilot approaches to cost containment that would take some time to be successful. If they are not, we may be left with increasingly regulatory approaches, such as rate setting or utilization controls that apply to all payers (my emphasis).

To my mind, those "increasingly regulatory approaches" are the desired end in any case.    In France, Germany, and Japan -- all of which provide universal health care at half to two-thirds the per capita cost of health care in the U.S., with superior outcomes -- the government imposes a monopsony, i.e., sets universal rates and coverage rules for a multitude of private (albeit nonprofit) insurers. Arguably, monopsony pricing is the sine qua non of cost-effective universal health insurance. As Klein is fond of pointing out, procedures in the U.S. on average cost double what they cost in Canada, where provincial governments set the rates and coverage rules. MRIs in the U.S. cost ten times what they cost in Japan.

Countries with successful universal health care coverage all to varying degrees squeeze hospitals and doctors. In the U.S.,100 years of failure to deliver on universal health care has made it impossible for the federal government to assert such power in one fell swoop.  One way or another, we will have to get to uniform pricing by degrees. It would be nice to get there without letting costs run amok  to the point of national bankruptcy.  The Urban Institute report maps out how failure to impose pricing discipline gradually may lead to doing it suddenly.