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July 23, 2009

Putting Health Reform's Costs in Perspective

Maggie Mahar

Include the tab for expanding Medicaid, and the proposal for health care reform that the Senate Health, Education, Labor, and Pensions (HELP) Committee approved last week will probably cost $1.6 trillion, report the Urban Institute’s Linda J. Blumberg and John J. Holahan in a brief titled: “Beyond the $1.6 trillion sticker shock.”

This “is clearly a considerable sum,” acknowledge the researchers, who were funded by the Robert Wood Johnson Foundation. They note that when the Congressional Budget Office (CBO) announced that it guessed the Senate Committee’s health plan could cost that much, “the estimate caused the committee to stop its deliberations,” and set a new goal: “a plan that would cost closer to $1.0 trillion.”

But perhaps Finance Committee Chairman Senator Max Baucus didn’t need to panic. As Blumberg and Holahan point out: “The $1.6 trillion is a 10-year number,” measuring how much reform is expected to cost the nation between 2010 and 2019. Meanwhile, over that same span the Congressional Budget Office (CBO) projects that total GDP will “equal $187 trillion.” 

Thus, they observe, “the estimated gross costs of health reform are less than 1 percent of the GDP over ten years.”

Naysayers Ignore the Savings Built Into Health-Care Reform

Moreover, the $1.6 trillion is a total or gross estimate which does not take into account how the planned reforms would automatically reduce other government spending. Nor does it factor in how much individuals will save if they no longer have to purchase insurance in the non-group market where policies are exorbitantly expensive. The price tag also does not reflect the savings that would flow from structural changes in the health care system—changes that are spelled out in the House Democrats’ plan. Finally, while $1.6 trillion is a nice chunk of change, that number should be compared to what it will cost the nation if we don’t have health care reform.

Begin with government savings. “Multiple threads of federal and state spending currently devoted to financing uncompensated care could be cut substantially, if not eliminated,” Blumberg and Holahan observe. “Such offsets will likely reduce the net new spending attributable to comprehensive reform to about $1.2 trillion,” they add, referring to the numbers in “Covering the Uninsured in 2008: Current Costs, Sources of Payment and Incremental Costs,” an article published in Health Affairs last year.

Skeptics' estimates of cost also ignore how much employers and individuals would save under reform. Policies in the non-group market are so pricey in part because the administrative costs of selling insurance to customers “one enrollee at a time” are so high. Self-employed workers and others who are currently buying individual coverage will be able to find significantly less expensive policies in the Insurance Exchange that is part of the Democrat’s plan. Many smaller employers also will benefit from the broad-based risk-pooling in the Exchange.

We also should compare the cost of reform to what would happen if we don’t re-structure the health care system. If the nation’s health care bill continues to grow at the current rate, “from 2010 to 2019 total health care expenditures, public and private, will total $33.0 trillion,” the Urban Institute’s researchers report.

“The $1.2 trillion that we estimate in net new spending will therefore increase expected health costs by only 3.5 percent. The problem that the nation faces is not the small increment necessary to expand coverage to the uninsured, but the high and growing baseline costs of the system.”  

As I have explained in past posts, health-care inflation, driven in large part by over-use of advanced medical technologies, is the real threat to the economy. On this point, I’m in good company:  Dartmouth researchers Drs. Jack Wennberg, Elliott Fisher and Jim Weinstein, White House Budget director Peter Orszag, the Institute for Healthcare Improvement’s Dr. Don Berwick, and surgeon/writer Dr. Atul Gawande all  agree: tests and treatments that provide little or no benefit to the patient—while exposing him or her to needless risks—are making healthcare unaffordable.

Blumberg and Holahan argue that the only way to address soaring health care inflation is “through payment and delivery system reforms.”  Reform must change how health care is delivered, how we pay for it, and what we are paying for.

The good news is that these are precisely the cost-saving provisions embedded in the bill that three House committees approved last week. Here I must disagree with CBO Director Doug Elmendorf’s assertion that the health care reform plans put forward by Democrats in the Senate and the House do not provide “the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

I am frankly baffled by Elmendorf’s comments. He seems to ignore much of the detail in the 1018 page House plan. Here are just a few examples of how the bill would cut spending:

    It calls for a demonstration program to evaluate the benefits of “shared decision-making” by letting Medicare pay for the time doctors and decision-making coaches spend consulting with their patients about various treatment options. 

Research shows that when patients are given the opportunity to weigh potential risks and benefits, roughly 20 percent decide against elective surgery, treatments and tests.  The goal of “shared decision-making” is not to save dollars —the aim is to let the patient make an “informed choice” rather than passively giving “informed consent”—and later regretting the decision. 

But the savings are certainly welcome. And it’s worth noting that  patients who engage in shared-decision-making are much less likely to experience regrets, and much less likely to sue. This, too, will help trim the nation’s healthcare bill—particularly if other states follow the state of Washington’s example and provide legal safe harbor for doctors who follow the shared decision-making protocol.

    It encourages primary care—which is almost always less expensive than specialists’ care.  The proposal would raise Medicare payments to primary care physicians by at least 5 percent, hiking reimbursements by 10 percent in areas where there is a serious shortage of primary care doctors. In addition, the plan offers bonuses for doctors who create medical homes and manage chronic diseases as well as loan-forgiveness for medical students who choose primary care. The public plan would follow Medicare’s example. Over ten years, this could lead to a significant increase in the supply of primary care physicians.

 One reason that European medicine is more affordable than U.S. care is that patients receive far more primary care, and see many fewer specialists. But in the U.S., thanks in large part to low reimbursements, we have too few family practitioners, and so patients wind up seeing a specialist—or land in an ER—because they cannot secure an appointment with a primary care doctor.

In addition, under the House bill, private insurers will no longer be allowed to charge co-pays for preventive care. Research shows that even small co-pays can cause low-income patients to put off needed care. Over the very long term, this is likely to mean that poorer Americans will live longer, and yes, that will increase total health care costs. But we can hardly object to changes that reduce premature deaths. And over the intermediate term, encouraging patients to go for preventive care means that they will be healthier, and less likely to need hospital care, which should help trim the nation’s healthcare bill..

    It recommends that all manufacturers of drugs and devices be required to report their financial relationships with physicians, pharmacies, hospitals, and other organizations. The Medicare Payment Advisory Commission (MedPac) has concluded that such relationships create conflicts, which lead to increased spending and suboptimal patient care. (In one notorious case, device-makers were paying kick-backs to surgeons to use their most expensive products—whether or not those devices were best-suited for that particular patient.)

    It changes how we pay for care by rewarding physicians who join “accountable care organizations” where they collaborate with hospitals and work as a team to provide more efficient higher quality care at a lower cost over a sustained period of time. As Dr. Atual Gawande points out in his June 1 New Yorker piece, experience demonstrates that ACO’s consistently offer better value for our healthcare dollars.

    It requires that all private insurers pay out a certain (as yet unspecified) percentage of their premiums in reimbursements. Those who do not meet the target will have to give rebates to enrollees. This implicitly puts a cap on insurers’ profits, and encourages greater administrative efficiency.
    It gives both Medicare and the public sector plan the power to reset reimbursements based on how much the treatment benefits the patient. On this point, perhaps CBO director Elmendorf should re-read the  CBO’s December 2008 report,  Key Issues in Analyzing Major Health Proposals :

“Rather than denying coverage,” for less effective treatments, Medicare could “tie its payments  to providers” to effectiveness the CBO suggests,  lowering fees for those treatments that provide less benefit. Meanwhile, patients could be required to pay for at least a portion of the additional costs of clinically less effective treatments. Ultimately, “the potential impact on Medicare spending could be substantial,”  the report adds, “If Medicare “link[ed] both new and existing evidence to payment rules or cost-sharing requirements.”

Orszag Responds to Elmendorf

When White House Budget direct Peter Orszag responded to Elmendorf’s comments Friday, he elaborated on how White House reformers plan to “bend the health care cost growth curve down in years to come” by “empowering an independent, non-partisan body of doctors and other health experts to make  recommendation about Medicare payment rates and other reforms.” 

In a letter to Congressional leaders, Orzag outlined the administration’s support for “an Independent Medicare Advisory Commission (as well as Senator Rockefeller’s similar proposal to accomplish this [goal] through the existing MedPAC).”

Orszag explained that the “Independent Medicare Advisory Council (IMAC) would be an independent, non-partisan body of doctors and other health experts, appointed by the President, confirmed by the Senate, and serving for five-year terms. The IMAC would issue recommendations as long as their implementation would not result in any increase in the aggregate level of net expenditures under the Medicare program; and either would improve the quality of medical care received by the program’s beneficiaries or improve Medicare’s efficiency.”

Political meddling would be kept to a minimum: “As with the military base-closing commissions, this proposed legislation would require the President to approve or disapprove each set of the IMAC’s recommendations as a package. If the President accepts the IMAC’s recommendations, Congress would then have 30 days to intervene with a joint resolution before the Secretary of Health and Human Services is authorized to implement them.

“This approach would free Congress from the burdens of dealing with highly technical issues such as Medicare reimbursement rates while rightly giving them . . .  a say in the matter."                                   

Stepping Back, and Understanding Reform As a Process

Ultimately, both the Senate bill and the House bill are works-in-progress that, in the end, will have to be reconciled. But the idea of creating an independent panel of medical experts who could implement changes in how Medicare pays for care, steering physicians and patients toward the most effective treatments dovetails nicely with recommendations in the House bill.  Over ten years, structural reforms will began to pay for the $1.6 trillion cost of healthcare reform—and they will keep on paying in the years that follow.

In the end, it is important to understand that health care reform will be a process, not an event that takes place this year or next.


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Gregg's Health Insurance News

You bring up some great points, but what about the drug companies and how they are enabled by the FDA to profiteer at a disgusting clip (some drugs realize a profit margin of 5,000% per pill). Made-up illnesses like "Restless Leg Syndrome" and their treatment are easily approved through the FDA, and a good percentage of drugs approved for sale on the market today used phony clinical trial results for passage in the first place.

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