Aaron: Any Republican President Faces a Very Difficult Choice

Eli Y. Adashi, MD, MS, CPE; Henry Aaron, PhD


May 29, 2012

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Editor's Note:

In this segment of Medscape One-on-One, Eli Y. Adashi, MD, MS, CPE, discusses with health economist Henry J. Aaron, PhD, how US healthcare policy would be affected if Mitt Romney were elected president in November. Aaron, a senior fellow at The Brookings Institution, a nonprofit public policy organization, also gives his thoughts on the future financing of Medicare and Medicaid and what would happen should the Patient Protection and Affordable Care Act be overturned by the US Supreme Court.


Dr. Adashi: Hello. I'm Eli Adashi, Professor of Medical Science at Brown University and host of Medscape One-on-One. Joining me today is Dr. Henry Aaron, the Bruce and Virginia MacLaury Chair at The Brookings Institution and a veteran health scholar of significant renown. Welcome.

Dr. Aaron: Thank you very much.

The Affordable Care Act on Trial

Dr. Adashi: You recently attended the 3-day hearings of the Supreme Court on the Affordable Care Act. Could you define for our viewers the key issues that were being discussed?

Dr. Aaron: There are a great many issues, and I think their importance far transcends the extremely important fate of the Affordable Care Act. The major issue was on the second day, which is whether the individual mandate that requires that individuals carry approved health insurance was within the scope of Congress to enact under its authority to regulate interstate commerce.

Going in, I think a great many people really didn't think this was a terribly close issue, although there had been divided decisions in lower courts. The reason for that train of thought was that the Supreme Court had sustained regulations in situations that were not dramatically different from this one. And I felt, from the standpoint of an economist, that it was clear that the decision to buy or not to buy insurance had a profound effect on the insurance industry, which Congress can regulate, and that in the end it was not going to be a close question for most of the justices.

How wrong I was. As it turned out, 4 of the justices pretty clearly were sympathetic with this part of the bill, on the basis of their questions to the attorneys for each side. Two of them who asked questions were very critical of the idea, and it was pretty clear that they were not going to support the requirement. Justice Clarence Thomas, who is notoriously silent and didn't ask questions, has a well-established record that placed him in the same camp as the 2 who would oppose the bill. The 2 key justices were Justice Anthony Kennedy and Chief Justice John Roberts, who seemed leery of the mandate but were not settled in opposition.

On day 3, which in some ways was even more striking, the court had asked for arguments on the question of whether the federal government could extend Medicaid coverage in the way it is written in the Affordable Care Act. No lower court had thought this was an issue worth much attention. They had assumed that the federal government and Congress had the power to do this. But the Supreme Court asked for arguments on it. And from the nature of the questions asked, this issue also seems to be very close.

If you put those 2 issues together, you are looking at the major parts of the Affordable Care Act. But you'd also have in play constitutional jurisprudence that could have vast and far-reaching effects way outside the area of healthcare policy regulation or insurance.

Dr. Adashi: In terms of the relative authority of Congress and its ability to, in fact, legislate similar such initiatives.

Dr. Aaron: Yes. For example, the federal government has in a large number of areas given money to the states on the condition that they do certain things that Congress wanted them to do.

Dr. Adashi: Along the lines of Medicaid.

Dr. Aaron: Yes, and it extends to transportation policy, income support, health -- you name it. If the court should end up placing a limit on the degree to which Congress can leverage state behavior through providing financial incentives, that will have ramifications throughout domestic policy in the United States.

Did the Administration Prove Its Case?

Dr. Adashi: Recognizing that your background is not legal, nevertheless as an astute observer, did you feel that the case for the Obama administration was compellingly presented?

Dr. Aaron: I think there are 2 issues. One can do a kind of critical review of the lawyers' performance in responding to the justices' questions. Much more important than that, however, is the quality of the briefs that were presented to the court. People who have observed the court -- and I'm an amateur, as you correctly point out -- are divided as to how important oral arguments are.

There's a lot of feel when you're watching it happen. And in this case, I think there was some disappointment with the way in which the administration's case was presented. But as an economist rather than as a lawyer, I have to say that my principal reaction was that the questions from the justices reflected a distinct lack of understanding of some pretty basic economics of the healthcare industry.

Justices, judges, and lawyers, in general, are not trained in economics any more than economists are trained in law. We're amateurs in the other field. Increasingly, law schools include training in basic economics for new students. So I hold out some hope that the justices' clerks may provide some real assistance here.

How Might the Supreme Court Rule?

Dr. Adashi: I know it's difficult to foresee the future, but as you reflected after the fact, have you formulated in your own mind certain scenarios that might transpire depending on what the decision might be?

Dr. Aaron: That's a good question, and it's one that's almost too good. The reason is that the number of scenarios is very large -- ranging from affirming the whole bill just as it is to tossing the whole thing out, which is also not impossible at this point. But in between, there is a range of other possibilities -- opinions that are very narrowly crafted to deal only with certain points. For example, it might be decided that while the mandate is not acceptable, some or all of the rest of the bill is retained. That was one of the issues that were argued on the final day of arguments, the so-called question of severability.

If the mandate is found unconstitutional, does the rest of the bill go with it? Does some of the rest of the bill go with it? Or does the rest of the bill stand? All 3 positions were argued. And on this particular issue, I think it's very unclear as to which position will actually prevail.

Another question would concern whether, if the individual mandate is sustained, there is some principle the judges craft that narrowly approves the health mandate, but sends a message that any further extensions of congressional efforts to require behavior under the Interstate Commerce Act are going to be viewed unsympathetically. Again, not directly impacting the health bill, but having very great importance for other social legislation.

A "Prescription for Healthcare Chaos"

Dr. Adashi: You recently wrote an opinion piece wherein you stated that scrapping the Affordable Care Act would, and I quote, "be a prescription for healthcare chaos." Can you expand on what you meant and what you had in mind when you wrote that?

Dr. Aaron: This depends on whether and how all or parts of the bill might be invalidated. If the entire bill is invalidated, I think it's very difficult to conceive of an administration, a president, in the foreseeable future of either party wanting to stick his or her neck out very far on healthcare policy. They will look back and see that President Clinton tried and managed to lose both houses of Congress in the next election. That President Obama tried, and by assumption the Supreme Court invalidated it at a very considerable cost, because President Obama really staked a great deal on the passage of this bill. It is the leading domestic piece of legislation of his administration.

Obama also lost the House of Representatives. I think it would cast a pall over his reelection efforts. But the message for future presidents would be, don't go for the long ball. Don't swing for the fences. Do small things, because if you really take chances and go for a large-scale legislative reform in health or anything else, you're exposing yourself to very great danger.

I think if the legislation was overturned, it would stall domestic national policy on healthcare reform for quite a long time. Even with a more limited negative decision from the court, it's conceivable that an idea that was gaining some currency a few years back could return -- which is, we don't do things nationally here, but we will provide support to the states to undertake health reforms.

In fact, that's an idea that had some bipartisan support back before President Obama became president, at a time when the prospects for national action seemed extremely remote. That idea could come back. And it does have precedent north of the border. That, after all, is how the Canadians evolved over time to have the health system they now -- through the individual provinces.

Dr. Adashi: You could argue that besides Massachusetts, we have Vermont working on its own plan. And who knows what's next?

Dr. Aaron: If there were some financial carrots that were given regulatory flexibility, who knows?

The Conflicting Views on Medicare

Dr. Adashi: Another issue of ongoing currency is the financing of Medicare. Correct me if I'm wrong, but the general sense is that the future financing of Medicare is articulated along 2 distinct lines; one that is articulated by the Affordable Care Act and the Obama administration, and the other, which is articulated by U.S. Representative Paul Ryan, who is the Chair of the House Budget Committee and whose views are distinct from the Administration's view.

Could you take a minute or 2 to compare and contrast these 2 divergent world visions?

Dr. Aaron: This is an area where the Affordable Care Act is of central importance, because a host of legislation that's going to either expire or come up for renewal at the end of this year, so thinking about Medicare requires this larger context. At year's end, the Bush-era tax cuts are going to either expire, in which case rates rise, or the cuts will get extended in whole or in part. Payroll tax cuts that we've had for the past 2 years will expire.

The national debt ceiling is going to have to be raised again. Spending cuts that were agreed to by Congress in August of last year and others that occurred automatically when the so-called supercommittee failed to reach agreement are to take effect. This will happen January 1st of next year.

All of this is occurring at the same time, so that the shape of the tax and spending side of the budget will be up for grabs in a way that is unprecedented in US history. Cross that with the Affordable Care Act. The Affordable Care Act actually does a great deal to improve the long-term financial prospects of Medicare hospital insurance, the part that everybody talks about as becoming insolvent or running out of money.

In fact, if the Affordable Care Act remains on the books and is enforced as written, there will be very little long-term financial gap left in Medicare Part A hospital insurance. Little tiny changes in the benefit side or in taxes and the system will be viable for the indefinite future. If the Affordable Care Act is tossed, then that opens up a much larger financial gap in Medicare hospital insurance.

Enter the disagreement between the visions for Medicare. One vision -- the Administration's vision, and I think that of most liberals and probably some conservatives in Congress -- is to maintain the current defined benefit character of Medicare. There are certain covered services. If their costs go up, basically the risk is shouldered by the taxpayer. It doesn't fall on retirees or the disabled.

The alternative vision, the one that Congressman Ryan is associated with, says, well, we don't know what's going to happen to future spending. But we think if the risk is shifted to the individual, to the beneficiary, they will become very tough shoppers for healthcare. They will help hold down the cost. But if they don't, they bear the risk.

The debate about the financing of Medicare runs along 2 lines. What's the most effective way to control the growth of spending? Do you use the buying power of a large purchaser, such as Medicare? Or do you rely on individual insurance shoppers? And on the other hand, if we fail to control the growth of health care spending, who gets stuck with the cost?

Those are pretty fundamental differences in points of view. By and large, conservatives argue for the individual shopper and have said that they want the risk to lie with the beneficiary. Political liberals, progressives in the modern parlance, have argued that the defined benefit character was important because it kept risk away from a vulnerable population. And they believe -- and I think I'd have to say I believe -- that the more effective way of controlling spending would be to use the buying clout that Medicare has.

Dr. Adashi: It probably should be pointed out that at least the most recent version of the Ryan plan includes as an option for consumers to continue using Medicare as we know it.

Dr. Aaron: That's if Medicare is sustainable over time. The most recent version -- mainly the version that Congressman Ryan and Senator Ron Wyden, a Democrat from Oregon, signed onto -- is still in such embryonic form that the details are not specified. The details are everything.

I am skeptical that when they get to writing legislative language, they're going to be able to find language that both Senator Wyden and Congressman Ryan can embrace.

The Conflicting Views on Medicaid

Dr. Adashi: Interesting. Perhaps we should move now to Medicaid, which is the other all-important entitlement that everybody is struggling to finance in a way that would be workable for all involved.

Here again, there appear to be 2 very divergent points of view. The Affordable Care Act calls for the expansion of Medicaid, with the incorporation of a large segment of the uninsured population into the mix. On the other hand, yet again, there is a conservative position that favors a very different approach, leaning toward block grants and state control as distinct to the previous federal/state partnership.

What do you think about these 2 options? What are the strengths and weaknesses of these different positions?

Dr. Aaron: If the objective is to cap or limit the federal budgetary cost of Medicaid, a block grant system is the way to go. But there are other objectives that are at least as important, and I would argue more important.

One of the functions of Medicaid has been to act as an element not just of the social safety net, but as what we economists call an "automatic stabilizer." When spending in the economy at large goes down and unemployment goes up, what comes in and picks up the slack? Unemployment insurance does that for the people who lose work. They get cash from the state unemployment insurance funds. But so does Medicaid.

Medicaid is not just poverty driven. It's unemployment driven. When people lose their work, they lose their income. They can very easily become eligible for Medicaid. The program provides a very important protection during time of need not just for the beneficiaries directly, but for the economy at large because spending goes up.

If you move to a block grant, that second function goes away because you have capped federal spending. If unemployment goes up, state revenues go down. More applicants come in for Medicaid, but the state revenues are declining.

We know from historical experience the reaction of states in that circumstance is to limit funding. The way to do that with Medicaid is to cut back on eligibility, and to reduce the benefit itself.

One of the issues here is, what do you lose in the way of protection at the time of greatest need for the people who are Medicaid eligible? Fiscal probity and parsimony are virtues not to be dismissed. But protection for vulnerable populations in my view is what the program is about. The block granting of Medicaid would sacrifice a large part of that purpose of the program.

Is There a Permanent Fix for the Medicare Sustainable Growth Rate?

Dr. Adashi: Our viewers who are providers are obviously interested in an ultimate solution to Medicare reimbursements, as determined by the sustainable growth rate formula, which has yet to be permanently fixed. What is your sense of how this will ultimately play out and when?

Dr. Aaron: I don't know. And the reason I say that is on the one hand, I don't think there is any responsible observer, conservative or liberal, who thinks that the fee cuts called for by the sustainable growth rate formula are actually going to be imposed this year, next year, or ever. It's just not going to happen.

Fees are going to grow. They've actually been pretty flat for quite a while under Medicare. But the idea that we would cut them 28% or 30%, it's not going to happen for reasons of substance and politics.

The question is, how do we get out of this situation? The simplest thing would be to say, "All right, we made a mistake. We're going to renormalize the fee structure to where it is. And we're going to have some kind of an arrangement taking over from here."

But that sensible course of action would require Congress to record the additional cost that it would have to take account of for not cutting the fees 28% or 30%. But that's a $300 billion hit to the budget over the next decade. No member of Congress really wants to do that. So they keep delaying things.

The Medicare Payment Advisory Commission and a congressionally created organization of experts to provide advice to Congress has suggested a modest cut in fees for specialists, with fees maintained at current levels for primary care specialties and general practitioners. This has the effect of achieving some savings, while recognizing the failure of the sustainable growth rate formula. Simultaneously, it changes the relative remuneration in a direction that many observers now think the fee structure should change to. That as the population changes, as increasing awareness of the services that really make a difference in people's lives becomes apparent, we should increase the relative remuneration of primary care and encourage more doctors to go into those fields.

But we're still a long, long way from getting to an agreement, which is why I said I don't know at the outset.

Dr. Adashi: So it won't happen this year?

Dr. Aaron: No. We will probably kick the can down the road another year.

How Would Healthcare Look Under President Romney?

Dr. Adashi: Before we conclude, may I ask for your thoughts about healthcare under President Romney should he be elected? What will that be like?

Dr. Aaron: I will resist the facetious response brought up by his campaign manager's reference to the Etch A Sketch®. But I really don't know. Anybody running for a nomination in either party, and emphatically in the Republican Party today, has to secure the support of the constituency that votes in primaries. That's a different constituency from the one that elects the president. And of necessity, there is a difference in emphasis in the case that one makes to those 2 different groups.

Without suggesting fickleness or an improper change of position, it's entirely natural that candidate Romney -- or, rather, candidate for the Republican nomination Romney -- is going to take a different position than candidate for the president of United States Romney.

Both are going to be different from the position that a President Romney would take, confronted with the realities of budgetary pressures; needing to deal with the states; and needing to take ownership politically, and from a policy standpoint, of the measures that are going to be undertaken in his administration. Early on in the campaign, Mr. Romney indicated that if he became president, he would create a state option under the Affordable Care Act -- that if a state wanted to remain under it, it could. If it didn't, it didn't have to.

That view has vanished. He's emphasized his opposition to the law as a whole. But any president who comes into office -- any Republican president who comes into office -- faces a very difficult choice. If I get rid of the Affordable Care Act, if the Supreme Court hasn't done it already, I own all of the problems of the US healthcare system. The likelihood that more and more people are going to be uninsured, the likelihood that costs are going to continue to rise -- they're now my responsibility. I think there's going to be an effort to try to mute that. And that may involve an attempt to retain some elements of the Affordable Care Act or to reenact them if they have been invalidated.


Dr. Adashi: I will close on a personal note, if I may, by pointing out that you joined The Brookings Institution back in 1968, and in the ensuing 44 years, you have dedicated yourself to the study of healthcare, healthcare policy, and healthcare economics. What would you say were the influences or events that really are responsible for the choice you made and the longevity of your interest? (Editor's Note: Dr. Aaron spent 1977-1978 working as the assistant secretary for planning and evaluation at the US Department of Health, Education, and Welfare, renamed the US Department of Health and Human Services in 1980. He then returned to The Brookings Institution.)

Dr. Aaron: I was interested primarily in Social Security and public finance issues, including taxation. In 1977, I got a job in what was then called the Department of Health, Education, and Welfare because of a little pamphlet I had written on welfare reform, so I had actually not worked in healthcare up to this point.

In the course of a couple of years working at the Department of Health, Education, and Welfare, it became crystal clear to me that healthcare policy was going to be the dominant social policy concern in the years ahead. A very old friend, Joseph Newhouse, who is at Harvard University and specializes in healthcare policy, acted as a marriage broker and put me in contact with the late physician, William Schwartz, a renowned nephrologist and health policy expert from Tufts-New England Medical Center. That started a partnership between Dr. Schwartz and I that lasted quite a long time and was the beginning of my work on healthcare policy.

It was very productive. And one thing that I learned is that if you're an economist working on healthcare policy and you think you can do it alone, you're wrong. It is vitally important that people trained in medicine be around the table all the time in the development of healthcare policy. Economists have a lot to contribute, but this isn't a 1-discipline job.

Dr. Adashi: On this note, sincere thanks to Dr. Aaron and to you, our viewers, for joining Medscape One-on-One. Until next time, I am Eli Adashi.


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