One Fiscal Cliff Down and Three To Go––But No Real Solution On the Horizon

Last week's deal to avert the "fiscal cliff" settled very little.

For those in the health care market, I will suggest the big takeaway is that we should expect very little will be settled in the coming months and we will continue to face a great deal of uncertainty for years to come.

The 2012 Elections and 2013––We Face a Daunting To-Do List

The Affordable Care Act ("Obamacare") is now settled law.
It will be implemented. It will also have to be changed but not until after it is implemented and the required changes become obvious and unavoidable. We can all debate what those things will be (cost containment is on top of my list) but it doesn't matter what we think will happen––time will tell. 

There are and will be more lawsuits.
I wouldn't waste a lot of time worrying about those. Anyone in the market will do better spending their time getting ready for all of the change coming.

But, when will the Affordable Care Act (ACA) be implemented?
So far, only about 15 states say they want to implement health insurance exchanges. Some of those may not make the October 1, 2013 kick-off date.

Maybe now that it is clear the law will go forward, some of the conservative states who have said they would not build one will get into high gear rather than have the Obama administration do it for them. But they may not have enough time to be ready in less than eleven months.

Romney vs. Obama: The Romney-Ryan Medicare Plan Compared to the Obama Medicare Plan—Who’s Telling the Truth on Medicare?

They both are and they both aren’t.

I’ve never seen a week in health care policy like last week. The media reports have to be in the thousands, all trying to make sense of the furious debate between Obama and Romney over Medicare.

As someone who has studied this issue for more than 20 years, it has also been more than exasperating for me to watch each side trade claims and for the press to try to make sense of it.

This blog post is quite long because the subject matter is complicated. If you want to cut to the chase, see my conclusion and summary at the end of this post.

Wyden and Ryan—One is Up and the Other is Down—and They Are Both Telling the Truth

Republican Vice Presidential pick Paul Ryan isn’t the only one Democrats are piling on this week. The knives have come out for Senator Ron Wyden, the Oregon Democrat.

I guess that isn’t a surprise. If Ron Wyden is right on Medicare then so are Paul Ryan and Mitt Romney.

The fundamental problem here is that the Democrats have decided that their best path to victory in the November elections is to say that the Republicans want to destroy Medicare as we know it and that the Democrats can preserve it.

The truth is that no one can preserve Medicare as we know it. There isn’t a prayer that your father’s Medicare will be around in 10 years. There is a legitimate policy debate going on about the direction we will have to go with it.

"Five Myths About Medicare"

I recommend you read John Rother's recent op-ed in the Washington Post, "Five Myths About Medicare."

John argues that each of these statements is a myth:

1. Medicare is inefficient and fails to control costs--the CBO has projected that per capita spending will grow only 1% more than inflation over the next decade.
2. The well-off don't pay enough for their Medicare benefits--working age premiums as well as Part B premiums already vary considerably by income.
3. Medicare benefits are overly generous--in 2007 Medicare paid an average of only half of the $18,000 the average beneficiary spent.
4. Cutting Medicare is the only way to save it--changing incentives to providers offers more promise.
5. Medicare needs fundamental restructuring--"Even the most well-run and efficient program cannot nearly double its enrollment without a matching increase in money."

And this conclusion:

"Containing health-care cost growth is critical for Medicare’s survival, but it’s impossible to do that for Medicare alone. Payment restraints and incentives that improve value must be applied to the entire health-care system to be effective."

Read "Five Myths About Medicare"

Medicare Advantage Premiums Drop an Average of 7% and Enrollment up 10%—That Must Make Republicans Just Want to Cry

Medicare Advantage would appear to be a fantastic success—senior premiums are dropping and enrollment is increasing.

Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.

“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.

And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.

But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.

There is that old saying, “Sometimes it’s better to be lucky than good.”

First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.

What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.

The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.

Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.

So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.

But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.

Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?

Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.

First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.

Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.

Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.

Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.

Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.

It must make Republicans just want to cry.

2012: A Year of Huge Uncertainty in Health Care Policy

2013 may be the most significant year in health care policy ever.

But we have to get through 2012 first.

Once the 2012 election results are in there will be the very real opportunity to address a long list of health care issues.

If Republicans win, the top of the list will include “repealing and replacing” the Affordable Care Act. If Obama is reelected, but Republicans capture both houses of Congress, we can still expect a serious effort to change the law. Then there is the granddaddy of all problems, the federal debt. The 2012 elections could well prepare the way for entitlement reform—particularly for Medicare and Medicaid. Even if Obama is reelected, the 2013 agenda will include a serious debate about Republican ideas to change Medicare into a premium support system and block grant Medicaid to the states.

If the election is a draw with neither side able to unilaterally move their agenda—likely in the form of Obama still in the White House but facing a Republican Congress, the pressure to deal with the growing costs of Medicare and Medicaid as well as nagging concerns about the implementation of the Affordable Care Act will create an imperative for action in 2013.

That first year after a presidential election is the time when things can get done. After a long and drawn out campaign, that is the year that everyone expects action. With 2014 being another election-year and 2015 and 2016 years in the run-up to another four-year presidential election cycle, passing big legislation only becomes more difficult as time goes on.

What does this mean for 2012? Look for most health care action to be out on the campaign trail as both sides try to achieve a mandate to act in 2013.

That doesn’t mean 2012 won’t be short on drama.

The big show will be up at the Supreme Court starting in late March. Will the Supremes uphold the whole Affordable Care Act, tell everyone to come back in 2014 when someone is actually harmed by the individual mandate (citing the Anti-Injunction Act), throw the individual mandate out and send the law back to lower courts for a many months process deciding what else has to go, toss the Medicaid expansion, or some combination of all of the above?

About the only certain judicial path over whether and how the Affordable Care Act would be implemented is for the Court to uphold the whole thing. The alternatives could be any number of combinations that would present the market with a nothing short of an implementation nightmare.

Can you even imagine the run-up to full implementation on January 1, 2014 if President Obama were to be reelected, the Republicans were to capture both houses of Congress, and the Court overturned the individual mandate and any number of related items? The law would have to be fixed. A Republican Congress would want to “fix” it one way and Obama would be determined not to see the Affordable Care Act gutted, with neither side able to unilaterally advance a solution.

Or, we could have a majority of Republicans in the Congress, and a Republican President in the White House, that would certainly kill at least the budget related parts of the bill before Valentine’s Day 2013 no matter what the Court said—it would take 60 votes in the Senate to get rid of all of the law. That would leave a market that had already implemented the first elements of the law and was almost ready to implement the rest of a long list of huge new changes that would have just evaporated but still leaving some of the law's items dangling if the two sides couldn't find a way to work together.

Or, the Court could throw out the individual mandate and the related insurance elements of the new law with a Republican Congress and President eager to throw out the rest of it, needing only 51 Senate votes to get virtually all that was left.

Will the Supreme Court throw a wrench into the Affordable Care Act? I have no idea and I don’t see any evidence anyone else does either. The chances they could throw out the mandate and other key parts of the law look to be about as good as their upholding the whole thing or citing the Anti-Injunction Act in telling everyone to come back in 2014. Don’t underestimate the Court’s interest in not fiddling with the Anti-Injunction Act any more or less than any other part of the law they are going to review.

The first half of 2012 will be the quiet before the potential storm as we await the Supreme Court’s decisions.

If they uphold the law we will need to await the election. With Republicans poised to hold the House and capture the Senate, the real question looks to be whether President Obama will be reelected and therefore able to defend the Affordable Care Act with his veto pen.

If the Court throws out key moving parts in the law, the only way to avoid real market problems will be for the 2013 Congress and President to work together.

If this spring the Court cites the Anti-Injunction Act and tells both sides to come back in 2014, we will just have more uncertainty with nothing decided and the same Constitutional issues still festering.

And, then there are the still growing federal debt and the Medicare and Medicaid entitlement issues to be decided. The 2012 elections are setting up to be a referendum over Republican proposals to limit federal entitlement liabilities by implementing a Medicare premium support system as well as shifting responsibility for Medicaid to the states via block grants versus Democrats who will defend the traditional structure of these entitlements.

What will 2012 give us in 2013?

Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

House Budget Chair Paul Ryan (R-WI) and Senator Ron Wyden (D-OR) have embraced a Medicare reform plan that in concept borrows heavily from one championed by former New Mexico Senator Pete Domenici and former Clinton budget chief Alice Rivlin.

Specifically, Wyden and Ryan are proposing to alter the earlier Ryan Medicare plan by:

1. Continuing to offer the traditional Medicare plan—Ryan would have eliminated it—in addition to a range of private Medicare plans offered by health insurers.
2. Tying federal Medicare premium support to an amount equal to the second lowest cost Medicare plan—public or private—available to seniors in each market. Ryan would have set a flat premium support amount in year-one and increased that only at the rate of inflation.
3. Instituting a series of consumer protections and medical underwriting rules designed to protect seniors.
4. Instituting an annual cap on what the federal government could pay for Medicare at an amount equal to the increase in the nation’s GDP + 1%—Ryan would have capped annual increases in the federal premium support amount at the increase in the consumer price index.
   

On this blog I have been arguing that the risk for health care costs rising too quickly should not be borne entirely by seniors--that the stakeholders who really run the system should be most accountable. And, that is what the Wyden-Ryan plan would do: "Any increase over that cap will be reflected in reduced support for the sectors most responsible for cost growth, including providers, drug companies, and means-tested premiums,” their plan states.

The Wyden-Ryan plan would begin in 2022.

Under Wyden-Ryan, if Medicare costs increased at a rate greater than the cap, the Congress would have to determine where to make reductions in spending—they could not directly cut senior benefits. Just what would force them to do that is unclear.

The new Wyden-Ryan Medicare policy proposals accomplish an elegant combination of key progressive and conservative health care reform principles. Their proposal also produces an enormous political bombshell on the eve of the 2012 elections.

Wyden and Ryan also propose to improve the under-age-65 employer health insurance market by allowing businesses with fewer than 100 workers to move to a defined-contribution model without tax penalties—something that is very similar to the earlier Wyden-Bennett health reform plan.

An Elegant Policy Compromise
Republicans have supported a defined contribution approach to Medicare reform. Already, House Republicans have voted in favor of the first Ryan proposal. That proposal would eliminate the traditional Medicare plan and replace it with a premium support system, or voucher, with which to buy from a range of private Medicare offerings. Any annual increase in the value of the premium support under the first Ryan plan would be capped at the rate of annual inflation as defined by the consumer price index—health care costs have consistently risen at much faster levels.

On this blog, I have been very critical of that proposal because it would shift all of the risk for the adequacy of any future federal premium support entirely onto the shoulders of seniors.

Democrats generally believe in the current Medicare plan, that seniors should be guaranteed a defined Medicare benefit and that the government pay a fixed portion of all Medicare costs as it does now—a defined benefit plan.

The problem is that the defined benefit Medicare plan we now have, and the government’s guarantee to pay most of its costs, is literally bankrupting the country.

So, something has to give.

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

The Political Bombshell
Frankly, the way Washington normally works, I would have expected this kind of compromise a year from now—after the 2012 elections.

But if an idea like this is ever going to make it into law, the right thing to do is to get it out there now so that the coming election debate over Medicare has all of the good ideas on the table.

Maybe a good sign is that both sides are claiming victory. Ezra Klein at the Washington Post says, "But the secret of these types of premium-support platforms is that they are, in essence, a vindication of the Affordable Care Act." The Wall Street Journal is out with an editorial on Thursday claiming the Wyden/Ryan proposal is a Republican victory “because it shows that the serious entitlement debate is taking place within the camp of choice and incentives, not the Obama status quo.” Nice try guys.

But politically, it is unavoidable to conclude that Ryan has given all of those Republicans in the House, who have already voted for his first Medicare plan, a severe case of heartburn—not to mention all of those Republican presidential candidates who have made the first Ryan Medicare plan a virtual litmus test for who really is a conservative Republican.

To say Ryan’s first Medicare plan was controversial and a huge political risk is a pretty big understatement. And, many Republicans, particularly in the House, unconditionally embraced it.

But, here is what Ryan said in Politico on Wednesday:

“If you wait and allow the political paralysis to stop us from fixing and saving this program then you’re not going to be able to grandfather people. Then you’re not going to have severe disruptions in seniors lives that would just be, I think, morally wrong because we see this problem coming. What Ron and I are trying to do is to prepare the ground for a consensus to be accomplished as soon as the politics allow it to happen.”

Can’t disagree with that logic—that bipartisan logic, in fact.

But what does that do for all of the House Republicans who stepped out on that risky Medicare limb for Ryan and now have to defend their vote on the eve of an election? A vote that would have “killed Medicare as we know it?” Or, those Republican presidential candidates who couldn’t wait to out do the other candidates with their zealous support of it?

Gingrich and Romney embraced the Ryan Medicare plan—albeit with the key modification that the Ryan plan should keep Medicare as one of the options. Smart on their part. But Ryan goes a lot further than that in his bipartisan proposal with Democrat Wyden by, among other things, increasing the rate at which premium supports—and therefore the federal entitlement—would increase and by creating a defined benefit Medicare floor in the new proposal as well as conceding consumer protections to Wyden (make that more regulation than most Republicans would like to see).

Democrats may now be mourning the loss of the first Ryan plan they thought was a big fat political target going into 2012. But, by coming on board with Wyden, Ryan has all but conceded his first proposal wasn’t politically acceptable. Democrats who said they would never alter the Medicare entitlement, an unrealistic promise in the face of the debt crisis, can't be happy a leading progressive has found a way to do it.

Democrats jumped all over Gingrich’s original rejection of the Ryan plan, when he called it “right wing social engineering.”

You have to believe they are now going to have a better time jumping on all those Republicans who voted for, or have unconditionally supported, that first Ryan plan now that that key parts of that idea have been abandoned by its author.

But that analysis focuses on the partisan politics that are sure to follow in this town.

I will suggest that this proposal represents something above all of that.

Who is the winner here?

Bipartisanship. This compromise carefully recognizes and balances important principles from both sides toward a solution to a major problem and I hope people who really want to fix things will appreciate that.

This is a good day for the country—and we haven’t had one in a while.

The Ryan Health Care Proposals—Not Your Congressman’s Health Plan

Update: The New Wyden-Ryan Plan - Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

In a speech at the Hoover Institution today, Representative Paul Ryan (R-WI) argued again that his proposal to reform Medicare, and now his tax credit proposal for replacing the Democratic health care law for those under-age 65, would guarantee to citizens “options like the ones members of Congress enjoy.”

His proposals would not give people the guarantees members of Congress, and all other federal employees for that matter, now enjoy.

This is not a small point.

Previously on this blog, I have argued that many of the defined contribution reform proposals, Ryan’s included, should be faulted for putting all of the future risk of health care costs on beneficiaries.

Ryan’s Medicare plan would create a premium support system for seniors. The premium support amount would increase each year by the rate of basic inflation, even though health care costs have historically increased much faster. Seniors would then take this premium support payment to the market and buy their own private health insurance policy. Another recent Medicare reform proposal by the health care industry would increase a similar health care premium support payment each year by the rate of increase in the gross domestic product (GDP) +1%.

In both cases, neither insurers nor health care providers would have any of the risk, and therefore responsibility, for keeping costs under control. The entire burden for the adequacy of these premium support payments would be with the beneficiary. If health care costs rose faster than these premium supports, tied to these indexes that have always trailed health care inflation, too bad for the beneficiary. Any excess cost is borne by the individual.

Ryan and his colleagues would argue that this is just what we need to create—a market so robust we can finally begin to control costs. Beneficiaries struggling to make their health care dollars stretch would seek out those health insurance plans that really did control costs. From his speech at the Hoover Institution today:

“The growth of these [health care] defined contributions should be capped, to reduce the inefficiencies that have led health-care costs to spiral out of control.”

As I have said before, after more than 20 years of defined contribution health insurance experience in the market there is no evidence this will occur. The Ryan school of health care thought argues that, “By putting the power into the hands of individuals, we can let competition work in health care just as it does everywhere else.”

I am continually amazed at those who argue the health care market can work, as Ryan put it today, “as it does everywhere else.” They are right that the health care system is too much driven by third-party pay and its beneficiaries have historically had too little incentive to be prudent buyers. But the health care market is also a one driven by complex science, major and legitimate philosophical differences about treatment choices, and enormous supply-side powers.

In short, grandma, or you or me for that matter, is no match for the American health care system.

That aside, Ryan is wrong when he says his plan is just like the plan members of Congress have. These schemes to cap health care premium support are fundamentally different from the Federal Employee Health Benefit Plan (FEHBP) that members of Congress enjoy.

From the federal employee handbook:

“The [federal employee health insurance] premiums for your enrollment are shared by you and your Federal agency or retirement system. The government pays the lesser of: 72% of the average total premium of all plans weighted by the number of enrollees in each, or 75% of the premium for the specific plan you choose.”

So, the federal government guarantees to Congressman Ryan, all of his Congressional colleagues, and all federal employees, that it will pay for at least 72% of the average cost of the health plans offered to and selected by federal workers—no matter how much the cost of the program rises over the years.

Ryan’s proposal would make no such guarantee.

I am not arguing that the federal government must guarantee that everyone should have 72% of his or her health care costs underwritten by the federal government year after year—or by anyone else for that matter. Nor am I arguing that defined contribution health care should not be part of any solution.

What I have consistently argued on this blog is that everyone—individuals, health care providers, and insurers—must all have some skin in the game in order for us to have the systemic change needed to finally reform our health care system.

The problem I have with the Ryan plan, and those plans similar to his, is that they give beneficiaries 100% of the risk and then just tell them to trust the market. If costs grow faster than the inflation indexes that underlie these premium supports, as they always have, tough luck.

For the Ryan plan to really be effective, and fair, he and the others proposing this kind of solution must put the same kind of responsibility on everyone else—particularly the most powerful in the health care system.

More, I will suggest that hospitals, doctors, drug companies, and insurers have the potential to affect the cost of health care far more than your grandmother will ever have.

The Health Leadership Council Medicare Proposal: Too Much Responsibility on Beneficiaries and Not Enough on Providers

The Health Leadership Council (HLC), a coalition of CEOs from many of the leading health care companies, has created a list of Medicare reform recommendations for the Super Committee tasked with finding at least $1.2 trillion in budget savings.

As we begin the national debate over what to do about Medicare's unsustainable costs, I will suggest that the HLC proposal gives us one, of what will have to be many, outlines for discussion.

Their recommendations include:

• Creating a new Medicare Exchange, beginning in 2018, where beneficiaries would have the choice of private Medicare plans as well as the traditional Medicare plan. The HLC proposal would be a defined contribution program much like the Republican Ryan plan but would differ from Paul Ryan’s in a couple of key ways. First, in the HLC proposal traditional Medicare would continue to be one of the options. Second, the annual increase in the beneficiary support premium would be more generous—the HLC is proposing an annual premium support increase equal to GDP plus 1%.
• Gradually increasing the Medicare eligibility age from 65 to 67—starting in 2014.
• Reforming Medicare’s cost sharing structure by increasing deductibles and co-pays as well as requiring high-income beneficiaries to pay the full cost of Medicare Part B.
• Implementing medical liability reform including a cap on non-economic damages, a one-year statute of limitations, and a “fair share” provision that would limit damages commensurate with responsibility for the injury.

The HLC estimates that its recommendations would generate savings of $410 billion over ten years—about a third of what the Super Committee is charged with finding.

The HLC’s suggestions have merit but, I will suggest, make the same fundamental mistake the Republican adopted Paul Ryan proposal made: They put all the onus for Medicare savings on the beneficiary—not the providers and not the insurance companies.

No Medicare reform proposal can be enacted if it does not protect Medicare beneficiaries by assuring them that it can achieve affordable costs.

The HLC would create a Medicare premium support based upon the average cost of a Medicare plan—and then increase that by GDP+1% in each subsequent year. That makes sense—the beneficiary support starts where costs are at inception and then increases by a factor (GDP+1%), which is reasonable for beneficiaries and providers and sustainable for the country.

In fact, I will suggest, that any final Medicare reform proposal will likely contain a cap of GDP+1% both because it gives the country an affordable objective and because it preserves spending at current levels plus a reasonable rate of growth.

But the problem with the HLC proposal is just what risk and responsibility does it transfer to health care providers and insurers? If the government premium support isn’t enough, providers can just demand more from insurers, and insurers in turn can just make up the difference by increasing premiums for seniors. There is certainly some upward limit on what people can pay, but the tension will always be to shift costs to the beneficiary as costs escalated.

More, the system would almost certainly become even more tiered than it is today. The Medicare option could easily look more and more like Medicaid as those able to afford better coverage fled to the more expensive private plans and those unable to pay the free market increases would have no alternative but the Medicare fee-for-service plan that stayed viable by paying providers less—and as a result looked more and more like Medicaid.

The HLC’s suggestion to increase the eligibility age for Medicare beginning in 2014 is a non-starter. The Congress might end up increasing the Medicare eligibility age at some point. But it won’t be done for people nearing retirement age—who have done their retirement planning presuming an age-65 eligibility. The Super Committee must come up with savings in the 10-year budget window—and that is too soon for any Medicare eligibility age change.

There is also growing evidence that pushing back the retirement age simply shifts costs to the pre-retirement market at an even higher cost than what it costs for Medicare to cover these beneficiaries.

The HLC's means testing recommendations call for more cost sharing as a strategy to focus seniors attention on cost control. As a concept, this makes sense and could well be part of any final Super Committee plan--but it all depends upon the details.

The HLC’s tort reform ideas are far too incremental—they call for capping payments on what is a fundamentally flawed system. Why not fix the system rather than Band-Aid it? Proposals for health courts and no-fault resolution that emphasize data collection and quality improvement would have been more the kind of proposals I would have expected from the HLC.

The Health Leadership Council’s recommendations do create a structure that gives seniors more incentives to purchase the most efficient health plans, put a reasonable limit on what our country can spend on the Medicare entitlement, and recognize that more cost sharing, particularly for higher income beneficiaries, and a later eligibility age, will ultimately be part of the solution.

But just what are all the insurance companies and drug companies that are part of this group willing to do to put some of their “skin” in the game?


For those convinced that just putting the market in charge will control costs and produce affordable premiums, a recent post: Inconvenient Facts for Both Republicans and Democrats—Neither Side’s Health Care Proposals Are Supported By Past Performance

The Debt Super Committee—Will We Get a Deal?

It’s back to work in Washington, DC and all the attention is now on the Super Committee and their goal of cutting spending by at least $1.2 trillion over ten years.

If the committee fails to come up with a plan that passes the Congress, there would be $1.2 trillion in automatic cuts. The health care special interests have reason to hope they will fail—the fallback cuts would only impact Medicare providers in a small way—2% in provider cuts—and not directly impact beneficiaries or Medicaid generally. Any Super Committee deal would likely be more far reaching if for no other reason than to protect the defense budget from the huge cuts the fallback would require.

But the fallback would not solve any of the systemic problems the health care entitlements face and only prolong the inevitable day of fiscal reckoning.

Even a $1.2 trillion reduction—$2.1 trillion with the additional $915 billion reduction in discretionary spending that was part of the deal—is only a down payment on solving America’s fiscal woes—we face a $10 trillion budget shortfall over the next ten years.

Will the Super Committee succeed? That’s the big question in Washington.

Many believe it cannot succeed because all of the fundamental policy differences between conservatives and liberals remain while many in both parties think failure and taking the issues to the next election makes political sense.

Others worry that the fallback cuts to defense are so great that outcome has to be avoided and the committee just has to be serious about finding a solution. Add to that the political consequences of failure with voters, who watched the debt ceiling talks and are more disgusted than ever before. The latest polls say the voters are now looking to “throw the bums out” no matter which party they’re in if they don’t grow up and start solving problems.

With federal health care costs being the biggest deficit driver the Super Committee has another impossible challenge. No one wants to cut the Medicare benefits of current retirees or those who will retire in the near-term. But the Super Committee has only a ten-year budget window that it has to work within. How do you reduce Medicare spending between now and 2021 but not hurt a current retiree or someone whose plans for retirement assume Medicare benefits won't change?

My sense is that if we see another messy political stalemate in the Super Committee the next election will be about throwing the incumbents out—Democrat and Republican. I am hopeful both sides understand they need a deal, or the 2012 political consequences will be dire for anyone now holding a federal office.

But, as I said during last summer’s debt ceiling debate, just exactly how both sides, which have been so intransigent, can find a way to compromise isn’t clear to me.

One scenario for what could will happen suggests that the Super Committee will not be able to come to an agreement, the $1.2 trillion fallback trigger's automatic cuts would take effect, and the impact of that trigger, primarily on defense, would be so bad that the Congress would be forced to revisit the entire deal in 2013––after the election. Think of the annual Medicare physician Sustainable Growth Rate fiasco but every year for the whole budget until a consensus in the country can develop about how to permanently fix this.

But more failure at reaching a deal will only make the voters more mad then they already are--if that is possible.

Some have suggested the real solution is to "go big"--agree to a real longer-term solution that begins the process of entitlement reform that is inevitable. While "going big" is arguably the right thing to do it would also mean a "great compromise." Something both the far left and the far right would find anathema in this hyper-charged 2012 election environment. A grand compromise would likely mean more taxes and deep entitlement cuts--something that members of Congress aren't likely to do for fear of retribution from their respective base with the primary season just months away. Can you imagine what the Tea Party would do during primary season to any Republican who voted for a tax increase? Or, what the left would do to a liberal that "sold out" the entitlements?

Another scenario, suggested by a report last May from the Committee for a Responsible Government, details almost $1 trillion in a wide variety of smaller scale common ground budget cuts already proposed by both Republicans and Democrats. This list illustrates that there might be a means to eek out $1.2 trillion in savings and avoid having to deal with the most controversial ideas--tax increases and at least far reaching entitlement reform.

The Super Committee has an almost impossible job in front of them. Any "go big" and systemic solutions I can think of would appear to be politically impossible. Maybe they can kick the can down the road one more time. Maybe not.

What a mess.

The Debt Deal: There Will Be Blood on the Floor on November 23rd

The debt deal is finally done. But it really isn’t an agreement on what cuts will be made, just the process that will be used to make them.

The real work is left to the Congressional appropriators for the first $917 billion and for a super-committee of Congress for the second $1.2 trillion to $1.5 trillion in ten-year cuts.

That second tranche is where health care will make its contribution. The super-committee has to make its decisions by November 23rd and, as a practical matter, the Congress can only accept what the super-committee decides or face the consequences of the automatic $1.2 trillion fallback cuts.

When it comes to health care and the super-committee, all federal health care spending is on the table—–Medicare, Medicaid, the new law, benefits, and provider payments.

Since the budget window for the deal is ten years, it is not likely that any changes will be made to entitlement eligibility—such as delaying the Medicare eligibility age from 65 to 67. It just wouldn’t be fair to tell a 60-year-old their Medicare eligibility age is being raised. But we could see more means testing of Medicare premiums.

It is possible that the super-committee could deal with real systemic health care reform—–particularly in the way we pay providers. But I doubt it. The committee isn’t going to have a lot of time to take up so complex a matter as systemic health care payment reform given that they will have to deal with hundreds of billions more in cuts from lots of federal programs. I don’t see the committee as having the expertise, will, or the time to tackle real health care reform.

The real potential for cuts will be to provider reimbursement.

So, all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.

Physicians, facing a 29.5% Medicare Sustainable Growth Rate (SGR) fee schedule cut on January 1, 2012, need to be really worried. That 29.5% cut is part of the existing budget baseline from which the super-committee needs to cut hundreds of billions more—much less find tens of billions of dollars to put these doc cuts off again. Hospitals who got off with a $150 billion contribution to the Affordable Care Act have to be in the bull’s eye this time. Drug companies are a particularly juicy target for liberals who don’t like them and conservatives who wish the Part D program had never been passed. Medicare Advantage insurers have recently been reporting record profits—not something you want to be doing when the Congress is looking for lots of cash.

While there is a 2% cap on any cuts that could occur to Medicare in the $1.2 trillion default trigger, there are no limits to what the super-committee can cut. As an order of magnitude, it looks to me like the cuts Medicare will have to eventually sustain from the super-committee will have to approach to the cuts the program saw under the new health care law--largely because of the impact the SGR formula has on the baseline the committee will have to use.

Medigap insurers could also be at risk. A proposal to reduce first dollar Medigap coverage continues to hang-on and would likely at least be on the super-committee’s table. Its $50 billion value is just too big to ignore. But that is offset by how unpopular such direct cuts to millions of Medigap policyholders would be.

I would not be surprised to see the super-committee take a hard look at reducing Medicaid spending by giving the states more flexibility and less money.

The debt ceiling formula the Congress and the President just agreed to is a particular problem for the physicians. They are the ones who agreed to support the new health care law (the AMA anyway) without getting a fix to the Sustainable Growth Rate dilemma. Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.

Given how reluctant Congress has been to cut the docs in past years, just how the heck are they going to accomplish net Medicare cuts and take care of the docs this time?

And just think of the impact big provider cuts could end up having on health care cost trends as providers attempt to shift the impact of these cuts to the entire health care system--just as health care cost trend has finally been slowing down.

If you thought we had a tense few weeks over the debt ceiling, you had better clear your calendar for the weeks leading up to the November 23rd super-committee deadline. The debt deal was only about process, this next big fight is going to be about real and significant cuts and there will be be some significant blood on the floor when it is over!

Earth to Republicans: You Are In Big Political Trouble Over the Ryan Medicare Plan

Update: The Wyden-Ryan Medicare Plan - Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

It should now be clear to Republicans they are in trouble over the Ryan Medicare plan.

Yesterday, they lost a seat in a solid Republican New York House district. Their candidate had benefited from lots of money and House leadership attention. The big issue was the Ryan Medicare plan.

All month, Republican Presidential candidates have been walking a tightrope over the Ryan plan--don't embrace it but don't criticize it either for fear of offending the base who will drive the primary outcomes next year. You only had to watch the Gingrich implosion to see what happens if you fall off that tightrope.

Next the Senate will take up the Ryan budget. Senate Democrats can’t wait for a vote on it and are making the Ryan Medicare plan the central issue. Already, at least three Senate Republicans have said they will not vote for the House budget over the Medicare issue. Leader McConnell, sensitive to its political vulnerability, has told Senators they are free to vote their conscience on this one.

Apparently, Republicans don’t understand that they didn’t win the 2010 elections so much as the Democrats lost them. Their fixation on appeasing the right wing of their party misses the critical point that it is independent voters who make the difference in winning or losing an election.

In 2006 and 2008, independents went Democratic. In 2010, they abandoned the Democrats for the Republicans out of concerns for where the Dems were taking the county—not the least over health care.

But an apparent arrogance among Republicans that their 2010 victory was more about them than a rejection of the Democrats quickly led the House to pass Ryan’s budget and Medicare plan with all but four Republican votes. They seemingly never considered the possibility that dismantling Medicare, as we know it, needed to be pre-sold to voters. Now, those House Republicans are hanging out on one giant limb the Democrats can’t wait to cut off in the next election.

That House vote has put Republican presidential candidates and Republican Senators in a really tough spot: Keep independent swing voters happy by backing way from the Ryan plan but offend the Republican base, or support the Ryan plan by giving those House members now out on that limb political cover for their ill considered vote and suffer their own longer-term political consequences?

Ryan’s Medicare plan has been called courageous and farsighted. It may be more foolish and hardly good policy.

Readers of this blog know of my criticisms of the Affordable Care Act particularly over its lack of cost containment—the fundamental health care issue we face.

Ryan’s Medicare plan is poor politics and it is poor policy.

It is poor politics because it is nothing but a cost shift strategy. It is poor policy because it is nothing but a cost shift strategy.

It is hardly courageous. Apparently Republicans have no more courage to face the cost issue—and the politically powerful provider community—than Democrats do.

Now, for those of you ready to criticize these comments for my “lack of understanding of defined contribution health care policy,” please read this first: Defined Contribution Health Care—The Conservatives' Silver Bullit

The Budget Fight: It Will Be A Long Hot Summer, and Fall, and Winter…

The good news is that Democrats and Republicans are finally seriously engaged over the country’s fiscal crisis.

And, each side is presenting a starkly different course for the voters to choose from.

When it comes to the health care entitlements, Republicans want to cut the health care entitlement benefits and therefore ease the pressure on federal spending.

Obama wants to largely leave the programs in place and raise taxes--about $1 in tax increases for $2 every dollars in cuts.

Neither touches Social Security. Obama wants to make cuts to the Pentagon's budget—the Republicans don't.

The solution Republican House Budget Chair Paul Ryan (R-WI) has presented for controlling Medicare and Medicaid costs is almost entirely a cost shift strategy. While I would agree that means testing and defined contribution approaches to making health care consumers more cost conscious should be part of the solution, this is about all Ryan is proposing.

I worry that Ryan and the Republicans are just sticking future seniors with the problem—uncontrolled health care costs—without doing anywhere near enough to create a more cost effective health insurance and delivery system for them to have a chance of finding affordable health care.

I worry less about the Republican proposal to block grant Medicaid payments to the states. While this is just another cost shift strategy that limits federal spending at the expense of the states, at least the states have the ability (and then the incentive) to implement Medicaid cost containment policies--state by state--that give them the chance of actually reducing costs and delivering affordable care. States also have to balance their budgets every year--a real incentive the feds don't have!

The President said all of the right things about health care in his budget and debt speech yesterday. But this President has been saying the right things, while telling us we can’t kick the entitlement can down the road any longer, since he took office. And, then he just kicks the entitlement can down the road.

The only promising health care proposal I heard from the President yesterday was his proposal to strengthen the Medicare Cost Board (the IPAB), which the Affordability Act created last year. But even that was far more tepid a proposal than it needs to be. He would only sharpen the trigger—invoking the Board if spending began to exceed GDP growth by one-half a percent rather than the current one percent. What he really needed to do was expand the breadth of its powers, to include things like the benefit structure, and to get it working sooner—it now can’t impact health care spending before 2015—2020 for hospitals.

Neither the Republicans nor the President have done anything near enough in their proposals to counter the chronic unsustainable rise in health care spending that is just going to continue without systemic change to the way providers and insurers are paid.

Republicans pretty much just shift costs to seniors and the states. Obama pretty much just shifts the costs of these unaffordable programs to the “rich” through bigger taxes.

I doubt Ryan's Medicare cost shift strategy has much of a chance politically. The President will have all he can do to keep both Democrats and Republicans, under pressure from the provider special interests, from repealing the Medicare cost board as it now exists.

Whatever the political outlook for either side, we are about to see another budget and deficit showdown/crisis around Memorial Day—this one over raising the debt ceiling.

The two sides couldn’t have more different approaches to the problem—but neither really have solutions.

When the two sides get past what will quickly become the debt ceiling crisis—likely no more smoothly than they did the recent government shut-down crisis over the 2011 budget, then it will be on to the 2012 budget fight and the same stark differences and lack of real health care solutions.

This summer's debt limit, and the fall's 2012 budget confrontations, will be herculean fights.

Too bad these fights won’t be over how to solve the problem.


More on the Republican Health Care Proposal: The “Path to Prosperity”—Where’s the Health Care Cost Containment?

On controlling costs: What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game

Will it Be the Bond Market That Finally Forces Serious Health Care Financing Change?

When will the Congress and the White House finally make the hard decisions in order come to grips with the federal deficit problem?

When will we finally deal with real health care reform and get the entitlements, and with them the private health care cost issue, under control?

My focus on trying to answer those questions has always centered on what's going on in the health insurance market: When will costs simply become untenable and therefore force real change?

Watching "Meet the Press" on November 14th, it occurred to me I may have been missing the catalyst for real health care change.

Here is an exchange between moderator David Gregory and former Fed Chair Alan Greenspan:

MR. GREGORY: But don't we have to have an adult conversation with people about what the real [deficit] problem is?

DR. GREENSPAN: Look, I think something equivalent to what Erskine Bowles and Alan Simpson put out [Deficit Commission Chairs' report] is going to be passed by the Congress. The only question is, is it before or after a bond market crisis?

MR. GREGORY: Right.

DR. GREENSPAN: Because there's no alternative. Look, I...

MR. GREGORY: But you got to explain a little bit more what that means. You're talking about debt.

DR. GREENSPAN: Well, here, here's the issue. Right now we have very low bond prices, the markets are functioning in a reasonably good way. The big, serious problem is whether or not the outlook for the longer term deficit spooks the bond market to a point where long-term interest rates and mortgage rates move up very sharply. If that happens, that will cause the double dip. And I'm just basically hoping that we have enough sense to realize that we've got to resolve this issue before it gets forced upon us

"The only question is, is it [our finally dealing with the debt and entitlement problems] before or after a bond market crisis?"

The single biggest driver in our national debt problem is the cost of our health care entitlements.

It may in fact not be the health care system itself and its unaffordable costs that finally force real action for health care cost containment––it may be the global bond market and its lack of confidence in America's ability to finally deal with our debt, and its health care driver, that will cause a crisis that forces health care action.

But would such a crisis force meaningful and rational health care reform or just draconian fee schedule cuts across the board that puts the health care sector––particularly the providers––in a crisis of their own?

Shame on AARP For Their Response to the Deficit Commission Co-Chairs' Report

The Co-Chairs of the President’s Deficit Reduction Commission are out with their preliminary recommendations.

They’ve done a great job—they’ve offended about everyone!

But we have a nearly impossible but unsustainable challenge in front of us if we are ever going to crawl out of this deep hole.

It is not so much what is on their list as what this list tells us about just how fundamental the changes are going to have to be for anyone who depends in any way on the federal government—which would be everyone in this country born or going to be born for decades to come.

In fact, the preliminary report calls for the Congress to revisit the Public Option if health care costs don’t meet a set of initial five-year targets. Nothing has been left off the table whether it is an unfettered discussion of how bad things are or the wide range of controversial options that now must be considered.

So how does AARP respond to the truth about the problem and an honest attempt to deal with it?

Some separate quotes from their press release yesterday in response to the report:

“With the release of the Co-Chairs’ proposal from the President’s Fiscal Commission today, AARP has responded with concern about how these recommendations would hurt the health and financial security of middle class Americans in particular, and believes that the proposal is contrary to the best interests of American families.”

“During these tough economic times, the last thing we should be considering is targeting the guaranteed, inflation-protected Social Security benefits that millions of Americans count on every day,’ said Nancy LeaMond, AARP Executive Vice President.”

“We're also deeply concerned that the Co-Chairs' Proposals would aim to reduce the deficit by shifting health care costs onto seniors in Medicare. Raising costs on the sick and the most economically vulnerable is both wrong and counter-productive policy. Instead, we should be focused on efforts to lower costs throughout the health care system.”

I liked Senate Budget Chair Kent Conrad’s response a whole lot more, "People can say we want to keep what is. What is is not affordable.”

Of course any report like this is going to be "dead on arrival" on Capitol Hill. But it's real value is that it can be the beginning of an honest discussion on what we will have to do.

AARP has lots of people at its Washington headquarters that understand these problems better than most and very much care about maintaining the integrity of our entitlement programs.

I expected a lot more from them.

AARP should be doing its part getting our people ready for change not pretending that it can somehow be painlessly avoided.

AARP should be taking the lead in explaining to seniors, and those on their way to becoming seniors, just what the problems are and just how fundamental the change is going to have to be if we are in fact going to hand our children and grandchildren a sustainable American Dream.

Shame on AARP! If anyone could be providing critically important leadership here it is them.

Download the Co-Chair's Report

The Health Reform Bills Would Be Great For the Business Of Health Care

Have you noticed how none of the big health care business special interests is running any negative health care reform ads? Why should they when each is poised to gain billions of dollars from it?

As President Barack Obama has said many times, any health care bill that costs about $1 trillion would be paid for, roughly half and half, with savings in the health care system and new revenues (taxes).

All told, health care providers will likely get hit by $500 billion in federal payment reductions over 10 years from what they would have received otherwise. This is their "savings" contribution to help pay for the overhaul effort. It amounts to no more than a couple of percentage points less than they would have received anyway.

But more importantly, the Congress is getting ready to spend $1 trillion over the same 10 years mostly to expand Medicaid and provide subsidies to the uninsured to help them purchase private health insurance and be able to pay their medical bills. The health industry, by giving up $500 billion, gets millions more patients armed with public and private health insurance cards. Not a bad deal—particularly when the other $500 billion needed to finance the bill comes from new levies on taxpayers, not bigger industry cuts.

The details show an even prettier picture for the business of health care.

Read the rest of this column at Kaiser Health News.

Grandpa Harry and Grandma Louise

Word from all those town hall meetings members of Congress are having back home this week is that lots of seniors are showing up scared that all the talk of health care reform in Washington, DC might just hurt them.

The seniors’ reasoning goes that Congress is getting ready to cut Medicare in order to pay for the uninsured grandkids' newfound access to a health insurance policy of their own.

Watch for the senior effect on efforts to pay for health insurance legislation once the members of Congress return next week from the recess.

Apparently, it’s not just doctors and hospitals complaining about Medicare cuts.

Or, maybe its doctors and hospitals giving their senior patients an ear full.

Physician Payment Reform--Time for Hard Choices

I recently authored a guest editorial in the February 15th edition of Family Practice News--"The Leading Independent Newspaper for Family Physicians."

Many years ago, the Congress established the Sustainable Growth Rate Formula (SGR) to control physician spending in Medicare. The concept is simple, if Medicare physician costs grow at a pace beyond affordability, next year's payments get cut to rebalance spending getting us back on an affordable track.

Of course, we now know that Medicare's physician costs have risen faster than the sustainable level and the Congress has overridden the formula every year. Private payments to doctors often tied to Medicare schedules have risen in tandem.

Now the docs are headed for a 21% fee cut on January 1 driven by the SGR if the Congress again doesn't act. Will they just punt again--likely cutting Medicare HMOs to pay the docs--or will they finally face up to physician payment reform?

Today, everyone says ditch the SGR because it's a disaster and hasn't controlled anything. But wait a minute, isn't the SGR just the parakeet in the mineshaft?

Pay for performance (P4P) seems to be the solution d'jour. But it won't work to control costs unless the overall physician community ends up getting less than it would have. P4P proposals without teeth are just a political sham to pay everyone more.

Here is my editorial:

Time for Hard Choices

When it comes to health care reform, one thing no one argues about is that costs will need to be cut. If President Barack Obama and Congress want to insure more people, the money will have to be spent more efficiently.

Unfortunately, however, cutting costs, especially physician payments, is going to be extremely difficult—if not impossible—to do. I have been watching the political debate among physician groups in Washington, and I've also been out in the rest of the country talking to physicians and physician groups. I have come away with the clear impression that none of them believes he or she can be paid less. All of them believe that their backs are against the wall, and that they just can't stay in business under the current reimbursement system. Where does that leave us? I don't know.

Pay for performance (P4P) is one idea that has been touted as a partial solution to our health care cost problem. It sounds like a great idea; who can argue that we should not be paying for good performance? The problem with it is that there's an elephant in the room: If you in fact pay for performance and pay more for the people who are the most efficient, you will pay less to doctors in general. P4P is a means to pay less. It has to be a means to pay less, because the Medicare program—which is currently experimenting with P4P—is headed toward insolvency in a few years. But in the P4P systems I see, it looks like everyone's a winner. Real P4P isn't going to work that way.

Another idea being suggested for changing the health care cost structure is revising the Sustainable Growth Rate (SGR) formula that is used by Medicare to calculate physician payments. But here's a question you don't hear in Washington: What's wrong with the SGR? It was created about 10 years ago to automatically pare back physician payments when the aggregate payments were unaffordable. Is it not the parakeet in the mine shaft warning us about spending too much?

I'm not saying that the SGR is perfect. But isn't it the SGR's job to tell us when the system is broken? If so, please don't shoot the messenger.

The SGR is a good example of real cost containment. Maybe Medicare got the formula wrong in terms of payments to primary care physicians vs. specialists, but in the aggregate, what's wrong with the answer it's giving us? Congress says we have to rebase it, which means “Never mind, let's give the doctors what they want.”

The SGR could be tied to a benchmark we could afford, such as the growth of the economy. If that benchmark were sufficient, we would be on track to payment reform. I don't want to defend the SGR in detail, but tying it to a benchmark of sustainability seems like a reasonable thing to do.

All this still leaves open the question of how much waste there is in health care spending. Data from the Dartmouth Institute for Health Policy and Clinical Practice show that 30% of all health care dollars are spent wastefully. We know how to fix that, but we don't want to do what we know needs to be done. Part of the solution is given in the Obama health plan—deciding which procedures and treatments are appropriate in which circumstances. A federal cost board that oversees when certain procedures are used would go a long way toward eliminating the waste. But that would get a lot of opposition from the device industry and other health care lobbying groups.

Health care reform isn't going to be easy; it involves a lot of hard choices. But we need to have the courage to do what must be done.

CBO to Health Care Reformers: Naive Policy Makers Need Not Apply

The Congressional Budget Office (CBO) has released two comprehensive papers detailing the policy and financial options for health care reform: Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume I: Health Care.

I can't overestimate the importance of these documents to health care reform.

I recently did a post as sort of an open letter to the CBO: To the Congressional Budget Office: Please Keep Playing it Straight!

After reading these two reports, totaling more than 400 pages of some of the most valuable health policy analysis I have ever seen, I now know that I had no reason to worry that the CBO would just tell the politicians what they wanted to hear.

Any Congressional health care reform proposal will need to be “scored” by the CBO and, by preempting the coming proposals with this report, the career CBO health care experts have now made it very clear they will not be an easy touch. Reformers are going to have to play the game on the up and up—show real savings or find the money elsewhere. CBO Director and incoming Obama Budget Director, Peter Orszag, also deserves a lot of credit for supporting his staff and issuing this report.

It is also clear that, whoever the Congressional Democratic leadership appoints to succeed Orszag, a marker is down. The CBO is on the record about what the likely reform options will cost before anyone had a chance to bring political pressure to bear. And, that just might have been intentional.

The work contains an inventory of about all of the health care reform options being discussed complete with a thorough cost/benefit analysis detailing their impact on federal spending. There would certainly be impact on private spending from many of these options but this at least gives us a relative cost index to compare the many health care reform ideas. This is also a financial report and did not attempt to measure quality improvements.

Taken together these two documents make a number of critical points:

1. There are no one, two, or even ten silver bullets. There are literally dozens of steps that will likely have to be taken in order to achieve the savings necessary to make our system more cost and quality effective.
2. The politically easy stuff won't get it done. Democrats and Republicans have said that things like prevention, wellness, and wider use of health information technology can free-up the savings we need to make our system affordable even while we dramatically expand the number of citizens covered. But the CBO confirms that these less politically problematic “cost containment lite” proposals won’t be enough: “…approaches—such as the wider adoption of health information technology or greater use of preventive medical care—could improve people’s health but would probably generate either modest reductions in the overall costs of health care or increases in such spending within a 10-year budgetary window.”
3. Really controlling costs will be very hard and will require some courageous and politically problematic actions: “Those problems cannot be solved without making major changes in the financing or provision of health insurance and health care. In considering such changes, policymakers face difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal spending and total costs for health care.”
4. Changing what we pay will have far more potential to change the system's costs than changing how we pay.
   

The CBO’s work provides a detailed shopping list of policy options complete with assumptions and an analysis of what the various steps could cost or save the federal budget.

When you read through the reports it becomes clear that there are things we can do that will help but really be a drop in the huge health care bucket. There are other things that we can do that would have a really dramatic impact on federal health care spending—and they tend to be the most politically problematic.

For example, The Baucus Health Plan makes a big deal about saving money from “waste, fraud, and abuse.” But such efforts are estimated by the CBO to save a relatively inconsequential $500 million over ten years. Using pay-for-performance systems, the health care fix de jour, yields only single digit gains while reducing Medicare physician payments in line with productivity gains would save a whopping $201 billion over ten years.

Rebasing the Medicare physician payments using the Medicare Economic Index (MEI) would cost a budget busting $556 billion over the next ten years and "equalizing" the private Medicare Advantage payments—the favored method to pay for a fix—would only save $157 billion over the same period.

Many of these proposals save a great deal of federal spending because they shift costs to the private sector—for example a “pay or play” large employer mandate would save the government $48 billion but would certainly cost the private employer community a great deal more.

Here is a partial list to give you a sense for the trade-offs. Note in particular the items, or categories, that make a big or small difference compared to others. The estimates apply to federal spending and the cumulative impact the particular proposal would have on the deficit over ten years--between 2010 and 2019.

The reports also detail the many advantages and disadvantages to do these things not directly reflected by the budget estimates.

I offer this partial list from the 115 options presented as a quick opportunity to compare many of the most mentioned policy options and other options the CBO has found will have the biggest impact. You really need to read the document and the assumptions that go with these estimates to fully appreciate the analysis.

Change the Health Insurance System

• Foster the Formation of Association Health Plans – Adds $220 million to the deficit by 2019.
• Allow Individuals to Purchase Non-Group Health Insurance Coverage in Any State - Reduces the deficit by $7.4 billion by 2019.
• Impose a “Pay-or-Play” Requirement on Only Large Employers – Reduces the deficit by $48 billion by 2019.
• Establish a National High-Risk-Pool Program – Fully subsidizing all state’s to enable them to cap high risk pool premiums at 150% of the market would add $16 billion to the deficit by 2019.
• Establish a National Reinsurance Program to Provide Subsidies to Insurers and Firms for Privately Insured Individuals – Enacting a program to absorb 75% of the cost of high cost claims would add $752 billion to the deficit by 2019.
• Create a Voucher Program to Expand Health Insurance Coverage – Providing vouchers for the uninsured with incomes below 250% of poverty with a cap of $1,500 for individuals and $3,000 for families would add $65 billion to the deficit by 2019.
• Require States to Use Community Rating for Small-Group Health Insurance Premiums – Reduces the deficit by $5 billion by 2019.

Medical Malpractice Reform

• Limit Awards from Medical Malpractice Torts – Reduces the deficit by $5.6 billion by 2019.

Change the Tax System

• Reduce the Tax Exclusion for Employment-Based Health Insurance and the Health Insurance Deduction for Self-Employed Individuals – Capping family health insurance deductions at $1,442 per month adds $452 billion in new revenues by 2019.
• Replace the Income Tax Exclusion for Employment-Based Health Insurance with a Phased-Out Deduction – Beginning to phase-out the exclusion for employer health insurance at $160,000 in family income adds $552 billion in new revenues by 2019.
• Disallow New Contributions to Health Savings Accounts – Adds $10.5 billion in new revenue by 2019.
• Replace the Existing Income and Payroll Tax Exclusion on Employer Provided Health Insurance with a Refundable Credit – A more limited credit equal to 25% of health insurance premiums that would be phased out for high earners would increase federal revenues by a whopping $606 billion by 2019.

Expand Access to Public Programs

• Raise the Age of Eligibility for Medicare to 67 – Reduces Medicare spending by $85.6 billion by 2019.
• Create a Medicare Buy-In Program for Individuals Ages 62 to 64 – Adds $1.2 billion to the deficit by 2019. CBO estimates the average single premium would be $7,600 a year in 2011.
  
• Expand Medicaid Eligibility to Include Young Adults with Income Below the Federal Poverty Level – Adds $22 billion to mandatory spending by 2019.
• Create a Medicaid Buy-In Program – Allowing the uninsured below 300% of poverty to buy-in to Medicaid would add $7.8 billion to the deficit by 2019.
• Expand Medicaid Eligibility to Include Parents with Income Below the Federal Poverty Level – Adds $37 billion to the deficit by 2019.

Quality Initiatives and Pay-for-Performance

• Reduce Medicare Payments to Hospitals with High Readmission Rates Above the 50th Percentile – Saves $9.7 billion by 2019.
• Expand the Hospital Quality Incentive Demonstration to All Hospitals – Saves $2.9 billion by 2019.
• Deny Payment Under Medicaid for Certain Hospital-Acquired Conditions – Reduces mandatory spending by $45 million by 2019.
• Allow Physicians to Form Bonus-Eligible Organizations and Receive Performance-Based Payments – Reduces spending by $5.3 billion by 2019.
• Pay Primary Care Physicians in Medicare Using a Partial-Capitation System, with Bonuses and Penalties – A net reduction of $5.2 billion in spending by 2019.
• Pay for a Medical “Home” for Chronically Ill Beneficiaries in Fee-for-Service Medicare – An increase in mandatory spending of $5.6 billion by 2019.
• Fund Research Comparing the Effectiveness of Treatment Options – The net effect on the deficit between 2010 and 2019 would be an increase of $860 million and “reduce total spending on health care in the United States by an estimated $8 billion over the 2010–2019 period (or by less than one-tenth of 1 percent).” CBO seems to be saying that more such information will be of small value unless underlying incentives that promote inefficient practice patterns are not changed.

Health Information Technology

• Create Incentives in Medicare for the Adoption of Health Information Technology Including Bonuses and Penalties for all Physicians – A reduction in the deficit of $4.4 billion by 2019.
• Require the Use of Health Information Technology as a Condition of Participation in Medicare – A savings of $11 billion on physician payments and a savings of $23 billion for hospitals by 2019.

Change Provider Payments

• Reduce Medicare’s Fees for Physicians in Areas with Unusually High Spending – A reduction of $5.3 billion in federal spending by 2019.
• Reduce Medicare’s Payment Rates Across the Board in High-Spending Areas – A savings of $51 billion by 2019.
• Reduce Annual Updates in Medicare Fee-for-Service Payments to Reflect Expected Productivity Gains - $201 billion in savings by 2019.
• Reduce the Update Factor for Hospitals’ Inpatient Operating Payments Under Medicare by 1 Percentage Point – A savings of $93 billion by 2019.
• Reduce the Update Factor for Payments to Providers of Post-Acute Care Under Medicare by 1 Percentage Point – A savings of $54 billion by 2019.
• Eliminate Inflation-Related Updates to Medicare’s Payment Rates for Home Health Care for Five Years – A savings of $50 billion by 2019.
• Modify the Sustainable Growth Rate Formula for Updating Medicare’s Physician Payment Rates With Annual Updates Based Upon the Medicare Economic Index (MEI) and Include a Part D Hold-Harmless– Eliminating the Sustainable Growth rate Formula and rebasing on the MEI would increase spending by $556 billion over ten years. Freezing payments at 2009 levels would cost $318 billion over ten years.
  
• Set the Benchmark for Private Plans in Medicare Equal to Local Per Capita Fee-for-Service Spending – Reduces spending by $157 billion by 2019.
• Require Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Medicare Part D – Using the Medicaid rebate policy as a model saves $110 billion by 2019.

SCHIP

• Eliminate Allotment Caps for the State Children’s Health Insurance Program and Permit States to Expand Coverage up to 400 Percent of the Federal Poverty Level – Adds $80 billion to the deficit by 2019.

Premium and Cost Sharing in Federal Programs

• Require a Copayment for Home Health Episodes Covered by Medicare – A 10% Copay saves $47 billion by 2019.
• Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare – Saves $27 billion by 2019.
• Impose a Deductible and Coinsurance for Clinical Laboratory Services Covered by Medicare – Saves $24 billion by 2019.
• Institute a Premium for Higher-Income Enrollees Under Medicare’s Drug Benefit Similar to That Used in Part B – Saves $10 billion by 2019 without adjusting for inflation.
• Increase Funding for the Health Care Fraud and Abuse Control Program in Medicare and Medicaid by $1 billion – Savings of $1.5 billion by 2019 for a net savings of $500 million.
• Increase the Payroll Tax Rate for Medicare Hospital Insurance by One Percentage Point – Increasing the Medicare tax by one percentage point on all earnings would increase federal revenue by $592 billion by 2019—doing it only on earnings above $150,000 would increase federal revenues by $77 billion by 2019.

The inescapable conclusion is that what we pay has the potential to matter more than more than how we pay for it.

You can download the CBO reports here.