The main White House argument for health-care reform goes something like this: If we spend now on a hugely expensive new insurance program for the middle class, we can save later by reducing overall U.S. health spending. This "tastes great, less filling" theory could stand some scrutiny, not least because it is being used to rush through the greatest social spending program in American history.What if this particular theory turns out to be a political illusion? What if the speculative cost savings never report for duty, while the federal balance sheet is still swamped with new social obligations that will be impossible to repeal? The only possible outcome will be the nationalization of U.S. health markets, which will mean that almost all care will be rationed by politics.
Since Medicare was created in 1965, U.S. health spending has risen about 2.7% faster than the economy and on current trend would hit 20% of GDP within a decade. Every public or private attempt to arrest this climb has failed: wage and price controls in the 1970s, the insurance industry's "voluntary effort" in the '80s, managed care in the '90s.
Now the White House -- especially budget chief Peter Orszag -- claims there is new cause for hope. The magic key is the dramatic variations in per patient health spending among U.S. regions. Often there is no relationship between spending and the quality of care, according to a vast body of academic research, most of it coming out of Dartmouth College. If the highest spending areas could be sanded down to the lowest spending areas, about 30% in "waste," or $700 billion each year, would be saved. More than enough to pay for ObamaCare. Or so the theory goes.
But -- how? Mr. Orszag's ideas include more health information technology; emphasizing prevention and healthy living; rejiggering reimbursement policies so doctors and hospitals are paid more for quality care; and funding federal research that compares the effectiveness of medical treatments. These are the lovable bromides of all politicians, and some of them may or may not improve health overall. But there's scant evidence that any of them will ever save real money. There's a reason the Congressional Budget Office can't score them.
Think about comparative effectiveness. Why is low-cost, high-quality Minnesota, say, already making more rational decisions than high-cost, lower-quality Texas? It's ridiculous to suggest that doctors in Rochester have access to clinical information that isn't available in Houston. If it's because the former are simply better physicians, well, medicine isn't Lake Wobegon, where everyone is the Mayo Clinic.
The reality is that after three decades of economic research, the reasons that spending varies are still highly uncertain. As in politics, everything is local in health care. Most of the variation is due to the use of services and mix of care that patients receive, while some relates to labor costs and local prices. The abiding mystery is why practice patterns oscillate so widely, even among hospitals in the same city.
Not surprisingly, variation is greatest when doctors don't agree on the best treatments -- as with back injuries, for example. Another part is technology. New therapies are developed at an astonishing pace. Consider the stent, which props open arteries after a heart attack and was barely used in 1994. By 1998 stents were used in a majority of coronary surgeries. Constant innovation means that there must be trial and error, and thus regional spending variation.
None of the complexities surrounding regional health spending variation would matter as much if the Obama Administration were merely trying to defossilize Medicare and save the federal fisc. But instead it is exploiting the looming bankruptcy of our current entitlements as a pretext to pass the largest entitlement expansion since 1965. And it is selling this agenda with a phony cost-control "plan" that doesn't even exist.
The now-famous Obama-Orszag mantra -- "entitlement reform is health-care reform" -- really means that when they're done, all health care will be an entitlement.