The Politics of Oxygen

Today’s WSJ has a fun profile of Peter Orszag, the Director of the Office of Management and Budget, and the challenges he faces making cost control a key part of health care reform.

I particularly enjoyed this episode: 

The battle heated up in June, when Mr. Orszag visited Capitol Hill to discuss health care with a small group of House Democrats. The meeting started well, with one lawmaker after another echoing his message that spending controls were critical to any health-care overhaul, according to two administration officials.

Then one member said her top priority was winning higher payments for oxygen suppliers, the officials say. Mr. Orszag was taken aback. Officials had been trying for years to cut payments to suppliers of oxygen and other medical equipment, which critics say are inflated. Yet when a new competitive bidding process was set to take effect last year, industry supporters in Congress were able to delay the plan. They are still fighting to block changes.

“One of the reasons we currently have such disjointed and skewed incentives is that we have an excessively political process,” Mr. Orszag said in an interview.

I think Peter is absolutely correct.

When I first worked for Congress, I was stunned by the amount of time and effort that members gave to issues that struck me as minutiae. This was particularly severe in health care. Congressional staff — and, at times the members themselves — would worry about things like payment rates for wheel chairs, bidding rules for oxygen suppliers, and other micro-health financing issues.

Those micro issues are, of course, a big deal for the individuals involved. And it’s natural that they would go to Congress to express their views, since Congress ultimately controls the payment rates for programs like Medicare.

But it still strikes me as a fundamental mismatch between what Congress ought to be doing — establishing the broad policies that guide the delivery and financing of health care — and what Congress actually does.

As the health debate moves forward, it would be useful to consider whether some decisions might best be transferred from Congress to other decision makers. At Peter’s initiative, the Obama administration has offered one approach: empowering in the Medicare Payment Advisory Commission to make some decisions about payment rates. MedPACs decisions would go into effect unless Congress over-ruled them. That still leaves some power in Congress’s hands, but perhaps it will shield the payment process from so much politics.

A bolder approach, well beyond the bounds of the current debate, would be to move Medicare to a premium support model, in which the government provides subsidies for seniors to purchase insurance from competing providers (somewhat similar to what happens in the current drug benefit). Premium support raises a host of challenges. But, at least in principle, it would provide a way to focus Congress on big picture issues — what’s appropriate minimum coverage for seniors, how much should taxpayers chip in, etc. — while leaving the micro issues to the competing insurance companies.

My point is not to recommend either of these approaches specifically, but just to suggest that it would be useful to consider health financing reforms that would separate Congress (and, therefore, politics) from individual payment decisions.