Can a Grand Bargain Ever Work?

The idea behind a grand bargain to get the federal budget deficit under control is a simple one. Republicans agree to tax increases and Democrats agree to spending cuts.

In a previous post I warned that this could be a trap for Republicans, just like similar budget deals have been in the past.

There are two problems. First, the tax increases will hit immediately, while the spending cuts will be mainly in the future. That means future Congress's will have an opportunity to renege on the agreement before any serious spending reduction takes place. Second, all the serious spending increases in future years are on health care and health care spending cannot be curtailed unless there is fundamental reform. Since the Democrats have signaled they won't agree to fundamental reform, that means no deal that can be agreed to will be workable.

Unless…unless even Democrats come to understand that health reform is in everybody's self-interest.

Consider that Medicare has a list of about 7,500 separate tasks that it pays physicians to perform. For each task there is a price that varies by location and other factors. Of the 800,000 practicing physicians in this country, not all are in Medicare and no doctor will be a candidate to perform every task on Medicare's list. Still, Medicare is potentially setting about 6 billion prices at any one time!

Is there any chance that Medicare can make the right decisions for all these transactions? Not likely.

What does it mean when Medicare makes the wrong decisions? It often means that doctors face perverse incentives to provide care that is too costly, too risky and less appropriate than the care they should be providing. It also means that the skill set of our entire supply of doctors will become misallocated, as medical students and even practicing doctors respond to the fact that Medicare is over-paying for some skills and under-paying for others.

What could we do differently? Former Medicare Trustee Thomas Saving and I made a few proposals in a recent post at the Health Affairs Blog.