Douglas Holtz-Eakin: 'We've Created a Competition in Entitlement Programs'

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Douglas Holtz-Eakin is the president of the American Action Forum and a former director of the Congressional Budget Office. He also served on President George W. Bush's Council of Economic Advisers. With the Affordable Care Act's insurance marketplaces beginning their third open enrollment this week, RealClearHealth talked to Holtz-Eakin about what's working, what's not working, what can be done today to address problems with the law, and what should be on the agenda of a new administration in 2017.

A transcript follows.

Also: Sabrina Corlette on 3rd ACA Open Enrollment

RealClearHealth: Looking back at the rollout of the ACA, what has worked better than expected?

Douglas Holtz-Eakin: Actually, not much has worked better than I expected. I was not a big fan, and I think there are two really troubling developments: One, we haven't bent the health care cost curve -- that's the number one priority. And number two, if you look at the enrollments, they're below what CBO projected for the exchange markets. We've got 10 million fewer people in employer-sponsored insurance, and the hope was not to erode that. We appear to have.

Most of the expansion has been in Medicaid, which is a very costly government program that doesn't work very well. So, I think there's great room for improvement going forward.

RealClearHealth: What has been the biggest failure of the Affordable Care Act?

Douglas Holtz-Eakin: I think the biggest failure is that it used Medicaid for the expansions, and it used Medicare as the pay-fors. And then it became politically toxic. It was a very unpopular, contentious law. And that meant that it froze in place any ability to do genuine entitlement reform for years.

I think we need to reform Medicare, make it solvent for the future. I think we need to reform Medicaid, deliver better care to the low-income. We couldn't do that because it all meant touching the ACA.

RealClearHealth: This month, Congress rolled back the redefinition of small-group insurance. What other course corrections are needed?

Douglas Holtz-Eakin: It was a good move to not expand the definition of the small-group market. Congress and the president seem to have seen that.

I also think that on a bipartisan basis, the IPAB (Independent Payment Advisory Board) is a poor configuration. It really doesn't solve any problems. It's not given the tools to actually redefine Medicare and change the incentive structure. So I could easily see that going [away].

There always will be the contentious taxes in the ACA. The medical device tax isn't very good. The Cadillac tax is not as good as capping the exclusion. The health insurers tax is one of the worst designed taxes in history. So I would think that at some point in the future, you could easily say, OK, we need to raise some revenue, but let's roll this into, say, a tax reform or some other effort to rationalize the tax system.

RealClearHealth: So to deal with the pay-for issues, you'd roll these changes into a larger tax reform bill?

Douglas Holtz-Eakin: You absolutely have to pay for this. There's a big move to get rid of the Cadillac tax. I think that would be wrong from a budget point of view. I also think it's wrong from a health policy point of view.

We've created this competition in entitlement programs. We have an accidental entitlement, which is we don't tax employer-sponsored insurance. We have another entitlement program called exchange subsidies. And they compete with one another. Are we going to stay in the employer market and get the entitlement which was an accident in World War II? Or we going to go to the insurance exchanges and get the new entitlement?

That's not really good policy.

RealClearHealth: Looking ahead to 2017, what would you put at the top of the agenda?

Douglas Holtz-Eakin: I think the number one priority should be entitlement reform, particularly Medicare reform. Because Medicare drives practice patterns in the United States. We know that fee-for-service Medicare is a bad idea. There's a universal recognition of that. So if you can take on the issue that Medicare is not financially sustainable, it can provide better care, and in the process go after the health care cost curve -- that would be the number one thing to do.

RealClearHealth: What form would this Medicare reform take?

Douglas Holtz-Eakin: I think the big divide is on how you get to a system that offers comprehensive care that's coordinated. Conservatives like to look at Medicare Advantage, which you can think of as one big bundle, and you'd pay a certain amount for an individual and subsidize those who need it, and then say, go take care of care.

What you see on the other side of the aisle is: Let's expand the bundling in fee-for-service Medicare, and they've done a lot of that.

In the end, those end up as the same system, and the question is how will we get there?

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