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.
Tuesday, September 20, 2011
Thursday, August 4, 2011
Rethinking the Value of Medical Services
by Brian Klepper and David Kibbe
One of American politics’ most disingenuous conceits is that health care must cost what we currently pay. Another is that the only way to make it cost less is to deny care. It has been in industry executives’ financial interests to perpetuate these myths, but most will acknowledge privately that the way we value and pay for medical services is a deep root of America’s health care cost explosion.
When the Resource-Based Relative Value Scale (RBRVS) became the framework for Medicare payment nearly twenty years ago, it equated a medical service’s “value” with four categories of physician work inputs: time, mental effort and judgment, technical skill and physical effort, and psychological stress. The assessment process, handled from the outset by the American Medical Association’s (AMA) secretive, specialist-dominated Relative Value Scale Update Committee (RUC), delineates and quantifies a service’s inputs in terms of its Relative Value Units (RVUs) which, with a monetary multiplier, define its worth.
In 1989, RBRVS’ lead architect, William Hsaio, confidently suggested that the process would be rational and reliable:
Getting Values Wrong
The resulting inconsistencies in how we value services are breathtaking. For an unexceptional example, compare the reimbursements for a moderately complex primary care office visit for an established patient (CPT 99214) with an ophthalmologist’s 10-15 minute cataract extraction with implantation of an intra-ocular lens.
A primary care office visit can be classified as a 99214 if it requires 25 minutes of face time and has two of three components: a detailed history, a detailed examination or medical decision-making of moderate complexity.
Keep in mind that, in primary care, new signs and symptoms must be weighed against the whole of medicine. Is a persistent cough a bronchial infection, tuberculosis, lung cancer or something else? The variation across patients is staggering as well. Primary care doctors typically see conditions ranging from sprains and hernias to infectious diseases and vascular ailments, and must be a specialist in dealing with this complexity. In 2011, Medicare pays $111.36 for a 99214.
By contrast, specialist physicians in many disciplines face less patient variation, at least compared to primary care doctors’ experience, but their work may have more “wow.” Cataract removal, a 50 year old procedure that has been highly refined and automated, immediately improves sight, a dramatic impact. Many ophthalmologists operate “focused factories,” processing an assembly line of 20 or more cataract patients. With pre-screened patients and a controlled clinical environment, the risks are relatively predictable, the mental demands limited and the work repetitive. For cataract extraction, Medicare currently reimburses the ophthalmologist $697.12, and requires a $139.24 patient co-payment, for a total of $836.36.
In other words, relying on the RUC’s assessment using RBRVS, Medicare values the ophthalmologist’s work 7.5 times more than the primary care specialist’s. The valuation assumes that the complexity and skill required in the two encounters are heavily weighted toward the ophthalmologist, though it could be reasonably argued that the mental effort, judgment and skill required by the primary care doctor are greater.
But there is a more serious flaw in the approach. RBRVS bases value on the demands of physician work, but ignores the actual benefit to the patient or society. It doesn’t consider whether the service followed evidence-based guidelines (and whether it was appropriate or even necessary) or whether the hoped for health outcome was achieved.
We need both primary care specialists and procedural specialists. The policy questions are whether one should be valued at so much more than the other, and whether we need more procedural specialists than primary care doctors, or the opposite as other developed nations have settled on. The way we pay for services should reflect our decisions. But also, we need a payment approach that is fair, consistent, transparent and more congruent with modern notions of value.
The flaws in our medical services valuation and payment system create incentives for unnecessary and unnecessarily complex services that expose patients to gratuitous risk (and sometimes, harm), and that artificially increase cost for purchasers. This one mechanism is largely responsible for taking the health care industry and the larger economy to the edge of an economic precipice.
What Should CMS Do Now?
Against the intensifying national economic crisis, CMS could immediately and substantially reduce unnecessary cost by revamping this system. It should aggressively identify and reassess over-valued specialty services, while re-valuing primary care. Equally important, the definition of value must be broadened beyond physician work inputs to quantitative measures of impact, efficacy and efficiency, using the plentiful evidence now available in both clinical encounter and financial claims data.
Adjusting the current approach to payment will be opposed by procedural specialists and powerful health care interests that have fed for decades off the specialty-based largess. But ultimately, it would serve their interests and those of the American people by stabilizing a system wildly out of control.
Klepper and Kibbe have been frequent contributors to this blog
Brian Klepper, PhD is a health care analyst, consultant and commentator. He is Managing Principal of Healthcare Performance Inc., a business development practice based in Atlantic Beach, FL, and Chief Development Officer for WeCare TLC, LLC, an onsite clinic firm based in Longwood, FL.
David C. Kibbe, MD, MBA is well known as an innovator and independent thought leader in the fields of primary care EHR technology and consumer health IT in the United States. HIs writings have had a strong influence on the "modular approach" to EHRs, and to the development of Clinical Groupware. A co-developer of the ASTM Continuity of Care Record standard, or CCR, that utilizes XML for computable health information exchange, he is an experienced clinician who practiced medicine in private and academic settings for more than 15 years. Dr. Kibbe has taught informatics at the School of Public Health, University of North Carolina at Chapel Hill, and founded two health care IT companies.
One of American politics’ most disingenuous conceits is that health care must cost what we currently pay. Another is that the only way to make it cost less is to deny care. It has been in industry executives’ financial interests to perpetuate these myths, but most will acknowledge privately that the way we value and pay for medical services is a deep root of America’s health care cost explosion.
When the Resource-Based Relative Value Scale (RBRVS) became the framework for Medicare payment nearly twenty years ago, it equated a medical service’s “value” with four categories of physician work inputs: time, mental effort and judgment, technical skill and physical effort, and psychological stress. The assessment process, handled from the outset by the American Medical Association’s (AMA) secretive, specialist-dominated Relative Value Scale Update Committee (RUC), delineates and quantifies a service’s inputs in terms of its Relative Value Units (RVUs) which, with a monetary multiplier, define its worth.
In 1989, RBRVS’ lead architect, William Hsaio, confidently suggested that the process would be rational and reliable:
We found that physicians can rate the relative amount of work of the services within their specialty directly, taking into account all the dimensions of work. Moreover, these ratings are highly reproducible, consistent, and therefore probably valid.But Dr. Hsaio did not anticipate that special interests would capture the process and manipulate it to financial advantage. Twenty years after RBRVS was adopted, “mental effort and judgment” has been hijacked to favor specialist physicians and hospitals, primary care has been stifled, and the relative value system has become a study in caprice and distortion.
Getting Values Wrong
The resulting inconsistencies in how we value services are breathtaking. For an unexceptional example, compare the reimbursements for a moderately complex primary care office visit for an established patient (CPT 99214) with an ophthalmologist’s 10-15 minute cataract extraction with implantation of an intra-ocular lens.
A primary care office visit can be classified as a 99214 if it requires 25 minutes of face time and has two of three components: a detailed history, a detailed examination or medical decision-making of moderate complexity.
Keep in mind that, in primary care, new signs and symptoms must be weighed against the whole of medicine. Is a persistent cough a bronchial infection, tuberculosis, lung cancer or something else? The variation across patients is staggering as well. Primary care doctors typically see conditions ranging from sprains and hernias to infectious diseases and vascular ailments, and must be a specialist in dealing with this complexity. In 2011, Medicare pays $111.36 for a 99214.
By contrast, specialist physicians in many disciplines face less patient variation, at least compared to primary care doctors’ experience, but their work may have more “wow.” Cataract removal, a 50 year old procedure that has been highly refined and automated, immediately improves sight, a dramatic impact. Many ophthalmologists operate “focused factories,” processing an assembly line of 20 or more cataract patients. With pre-screened patients and a controlled clinical environment, the risks are relatively predictable, the mental demands limited and the work repetitive. For cataract extraction, Medicare currently reimburses the ophthalmologist $697.12, and requires a $139.24 patient co-payment, for a total of $836.36.
In other words, relying on the RUC’s assessment using RBRVS, Medicare values the ophthalmologist’s work 7.5 times more than the primary care specialist’s. The valuation assumes that the complexity and skill required in the two encounters are heavily weighted toward the ophthalmologist, though it could be reasonably argued that the mental effort, judgment and skill required by the primary care doctor are greater.
But there is a more serious flaw in the approach. RBRVS bases value on the demands of physician work, but ignores the actual benefit to the patient or society. It doesn’t consider whether the service followed evidence-based guidelines (and whether it was appropriate or even necessary) or whether the hoped for health outcome was achieved.
We need both primary care specialists and procedural specialists. The policy questions are whether one should be valued at so much more than the other, and whether we need more procedural specialists than primary care doctors, or the opposite as other developed nations have settled on. The way we pay for services should reflect our decisions. But also, we need a payment approach that is fair, consistent, transparent and more congruent with modern notions of value.
The flaws in our medical services valuation and payment system create incentives for unnecessary and unnecessarily complex services that expose patients to gratuitous risk (and sometimes, harm), and that artificially increase cost for purchasers. This one mechanism is largely responsible for taking the health care industry and the larger economy to the edge of an economic precipice.
What Should CMS Do Now?
Against the intensifying national economic crisis, CMS could immediately and substantially reduce unnecessary cost by revamping this system. It should aggressively identify and reassess over-valued specialty services, while re-valuing primary care. Equally important, the definition of value must be broadened beyond physician work inputs to quantitative measures of impact, efficacy and efficiency, using the plentiful evidence now available in both clinical encounter and financial claims data.
Adjusting the current approach to payment will be opposed by procedural specialists and powerful health care interests that have fed for decades off the specialty-based largess. But ultimately, it would serve their interests and those of the American people by stabilizing a system wildly out of control.
Klepper and Kibbe have been frequent contributors to this blog
Brian Klepper, PhD is a health care analyst, consultant and commentator. He is Managing Principal of Healthcare Performance Inc., a business development practice based in Atlantic Beach, FL, and Chief Development Officer for WeCare TLC, LLC, an onsite clinic firm based in Longwood, FL.
David C. Kibbe, MD, MBA is well known as an innovator and independent thought leader in the fields of primary care EHR technology and consumer health IT in the United States. HIs writings have had a strong influence on the "modular approach" to EHRs, and to the development of Clinical Groupware. A co-developer of the ASTM Continuity of Care Record standard, or CCR, that utilizes XML for computable health information exchange, he is an experienced clinician who practiced medicine in private and academic settings for more than 15 years. Dr. Kibbe has taught informatics at the School of Public Health, University of North Carolina at Chapel Hill, and founded two health care IT companies.
Monday, August 1, 2011
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!
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!
Wednesday, July 27, 2011
We Are Reaping What We Have Sown—The Debt Standoff
On this blog a month ago, I said the politicians were starting to scare me with the apparent eagerness of some to actually take the government to default to make a political point.
For weeks we have heard political leaders on both sides tell us there would be no default.
But the two sides have so backed themselves into opposite corners that they have left no opportunity to meet in the middle. Democrats say they have to have a tax increase, or failing that no cuts to entitlements. Republicans say absolutely no tax increases and they need to see entitlement cuts.
This only gets fixed if somebody capitulates. The consequences for any side doing that might be the loss of their own base going forward.
There isn’t any middle ground here because there is no middle ground left in Washington, DC. The last few elections have seen the replacement of “moderates” by evermore far right or far left senators and representatives. This process has only been exacerbated by the gerrymandering of Congressional districts to ensure they were safe for either side but at the same time leading to their coming under the control of party activists pushing their representatives either far left or far right. It also hasn't helped that each side is so certain of their cause and only has to dial their favorite channel to be assured of that.
Yet, ironically, the last three elections have been decided by where independent voters have gone—not by the far left or the far right.
Obama and his leadership can’t afford to offend their base and Boehner and McConnell can’t afford to offend theirs. Boehner’s biggest problem right now is not Nancy Pelosi, it is his Tea Party wing that, as of this writing, is so far denying him the votes he needs for his debt limit proposal. Already, a few of the Tea Party folks are whispering that they need to get rid of Boehner because of his latest debt proposal.
Both sides also believe a standoff helps them in the next election. I don’t think it helps anybody. My sense is that the first Wednesday of November 2012 neither side will have the votes to unilaterally drive their agenda through.
Many on both sides have recently argued that compromise is what has gotten us into our fiscal problems (and that might be right) and that compromise is now the wrong thing to do. But it will be impossible for either side to "fix" things their way unless they come to dominate the Congress and capture the executive branch--something that is mighty hard to do in the American political system.
The fact is no progress can be made in a divided government without compromise.
But leaders on both sides are all confidently telling us a debt limit deal will get done.
I will tell you that all over corporate America companies are thinking through their liquid cash positions and getting any borrowing done before August 2nd.
I suggest you also be ready just in case.
It looks like we are on the way to reaping what we have sown--not just this month but for some time to come until both sides finally come to the conclusion they will have to work together.
Earlier post: The Debt Ceiling Debate—Some of These People Are Nuts
For weeks we have heard political leaders on both sides tell us there would be no default.
But the two sides have so backed themselves into opposite corners that they have left no opportunity to meet in the middle. Democrats say they have to have a tax increase, or failing that no cuts to entitlements. Republicans say absolutely no tax increases and they need to see entitlement cuts.
This only gets fixed if somebody capitulates. The consequences for any side doing that might be the loss of their own base going forward.
There isn’t any middle ground here because there is no middle ground left in Washington, DC. The last few elections have seen the replacement of “moderates” by evermore far right or far left senators and representatives. This process has only been exacerbated by the gerrymandering of Congressional districts to ensure they were safe for either side but at the same time leading to their coming under the control of party activists pushing their representatives either far left or far right. It also hasn't helped that each side is so certain of their cause and only has to dial their favorite channel to be assured of that.
Yet, ironically, the last three elections have been decided by where independent voters have gone—not by the far left or the far right.
Obama and his leadership can’t afford to offend their base and Boehner and McConnell can’t afford to offend theirs. Boehner’s biggest problem right now is not Nancy Pelosi, it is his Tea Party wing that, as of this writing, is so far denying him the votes he needs for his debt limit proposal. Already, a few of the Tea Party folks are whispering that they need to get rid of Boehner because of his latest debt proposal.
Both sides also believe a standoff helps them in the next election. I don’t think it helps anybody. My sense is that the first Wednesday of November 2012 neither side will have the votes to unilaterally drive their agenda through.
Many on both sides have recently argued that compromise is what has gotten us into our fiscal problems (and that might be right) and that compromise is now the wrong thing to do. But it will be impossible for either side to "fix" things their way unless they come to dominate the Congress and capture the executive branch--something that is mighty hard to do in the American political system.
The fact is no progress can be made in a divided government without compromise.
But leaders on both sides are all confidently telling us a debt limit deal will get done.
I will tell you that all over corporate America companies are thinking through their liquid cash positions and getting any borrowing done before August 2nd.
I suggest you also be ready just in case.
It looks like we are on the way to reaping what we have sown--not just this month but for some time to come until both sides finally come to the conclusion they will have to work together.
Earlier post: The Debt Ceiling Debate—Some of These People Are Nuts
Wednesday, July 6, 2011
The Awful Dichotomy Between Health Care Politics and Policy
Amy Goldstein has an important article in today’s Washington Post detailing the place Don Berwick, the Medicare and Medicaid administrator, finds himself in.
It is all but certain he will have to leave his post at year’s end, when his recess appointment expires, because the Senate will not confirm him for a lack of Republican support.
Berwick is one of the most respected health care experts in the country—his career has been dedicated to improving quality first and with that the cost of care. With the new law giving his agency more opportunities to experiment with new approaches and the ability to more quickly implement the things that work, he was the ideal choice.
But with the Democrats ramming the law through without a political consensus to support it, Berwick also became the political whipping boy for opponents to pile on. That he has been willing to point to the things that work in places like Britain only gave the political opportunists plenty of red meat to throw into an already red hot ideological debate.
In my mind, the great frustration in health care is that we really aren’t so far away from being able to make the system far better than it is—in both its quality and its cost. To test and perfect the best ideas we need to be willing to try new things—many of which won’t work but can form the basis of finding out what does work.
His proposed Accountable Care Organization (ACO) rules were a disaster and he should have known better. But there is also no reason why that failure can’t lead to a better outcome—if finding the right answer is what we are all ultimately interested in.
But, particularly in this red hot political environment made more red hot by one side always more willing to jam their ideas down the other side’s throat—whether that be a new health care law or a debt ceiling solution—people like Berwick get caught up in the bigger political fight.
My sense is that a Republican President, as much as a Democratic one, could have as easily appointed Don Berwick CMS administrator.
People say Don Berwick’s failing is that he is a “political neophyte.” It is the reality that once you get to Washington having the right answer isn’t enough—you have to be able to get it through the system. What does it say about Washington when a first class expert speaking what he sees in good faith as “truth” is seen to be naïve and can be quickly dismissed for “having a record on rationing care?”
But Don Berwick never had a chance in an environment where trying to find the right answers takes a back seat to scoring political points.
With health care costs and the nation’s debt crisis now coming to a place where change is unavoidable, we can’t afford this toxic take no prisoners political environment much longer.
In fact, August 2nd might be the day it all comes home to roost.
It is all but certain he will have to leave his post at year’s end, when his recess appointment expires, because the Senate will not confirm him for a lack of Republican support.
Berwick is one of the most respected health care experts in the country—his career has been dedicated to improving quality first and with that the cost of care. With the new law giving his agency more opportunities to experiment with new approaches and the ability to more quickly implement the things that work, he was the ideal choice.
But with the Democrats ramming the law through without a political consensus to support it, Berwick also became the political whipping boy for opponents to pile on. That he has been willing to point to the things that work in places like Britain only gave the political opportunists plenty of red meat to throw into an already red hot ideological debate.
In my mind, the great frustration in health care is that we really aren’t so far away from being able to make the system far better than it is—in both its quality and its cost. To test and perfect the best ideas we need to be willing to try new things—many of which won’t work but can form the basis of finding out what does work.
His proposed Accountable Care Organization (ACO) rules were a disaster and he should have known better. But there is also no reason why that failure can’t lead to a better outcome—if finding the right answer is what we are all ultimately interested in.
But, particularly in this red hot political environment made more red hot by one side always more willing to jam their ideas down the other side’s throat—whether that be a new health care law or a debt ceiling solution—people like Berwick get caught up in the bigger political fight.
My sense is that a Republican President, as much as a Democratic one, could have as easily appointed Don Berwick CMS administrator.
People say Don Berwick’s failing is that he is a “political neophyte.” It is the reality that once you get to Washington having the right answer isn’t enough—you have to be able to get it through the system. What does it say about Washington when a first class expert speaking what he sees in good faith as “truth” is seen to be naïve and can be quickly dismissed for “having a record on rationing care?”
But Don Berwick never had a chance in an environment where trying to find the right answers takes a back seat to scoring political points.
With health care costs and the nation’s debt crisis now coming to a place where change is unavoidable, we can’t afford this toxic take no prisoners political environment much longer.
In fact, August 2nd might be the day it all comes home to roost.
Monday, June 27, 2011
The Debt Ceiling Debate—Some of These People Are Nuts
I don’t know about you but the politicians are starting to scare me with their inability to make progress in the federal debt limit discussions. Worse, is the apparent eagerness of some to actually take the government to default to make a political point.
I know a lot of conservatives say missing the August 2 deadline isn’t a big deal but I think it is.
The 2011 deficit is projected to be $1.6 trillion, or about $133 billion a month.
Said another way, the 2011 federal budget is $3.8 trillion. But federal revenues are only about $2.2 trillion—a gap of $1.6 trillion.
That means that 40 cents of every dollar the U.S. government spends in 2011 has to be borrowed!
We have hit the $14 trillion cap on federal borrowing. If it isn’t raised by about August 2, the federal government can’t borrow anymore and it will have only 60% of the money it needs to continue to function.
Most of the press reports have put the failure to be able to borrow more in the context of not being able to redeem the debt coming due and spooking the financial markets. That is a big deal.
But another big deal here is that the Treasury would have only 60% of the money it needs to pay the bills. This isn’t simply a matter of paying higher interest to rollover old debt--the feds couldn't issue the new debt they would need for the current month's deficit. Without raising the debt limit, the government would not be able to borrow the money it needs to fund the monthly budget shortfall of about $133 billion—40 cents of every dollar it needs to spend in 2011.
The good news is that the 60 cents on the dollar the federal government would have from its revenue stream could pay for things like Social Security benefits and keep funding the troops in the field.
But, who wouldn’t get paid because the federal government would have to immediately cut the budget by 40%? Might the government suspend payments to hospitals and doctors and to Medicare Advantage insurers?
In an instant, federal spending would decrease by 40%--leaving lots of bills unpaid. In turn, those who didn’t get paid couldn’t pay their bills. This would cascade through the economy like an economic tsunami in short order. Can you imagine the impact on a hospital that gets half of its revenue from Medicare and Medicaid if its government payments were frozen? Or, the impact on a health plan that is heavily invested in the Medicare Advantage business? A health plan could become technically insolvent and under state control in a matter of a few weeks.
There are lots of people in Washington that seem to be either eager to make a political point at the real risk of precipitating an incredible financial crisis or they are playing a very cynical game of chicken.
People wouldn't be so foolish to let this get to such a place? Hey, the Dodgers declared bankruptcy today!
I know a lot of conservatives say missing the August 2 deadline isn’t a big deal but I think it is.
The 2011 deficit is projected to be $1.6 trillion, or about $133 billion a month.
Said another way, the 2011 federal budget is $3.8 trillion. But federal revenues are only about $2.2 trillion—a gap of $1.6 trillion.
That means that 40 cents of every dollar the U.S. government spends in 2011 has to be borrowed!
We have hit the $14 trillion cap on federal borrowing. If it isn’t raised by about August 2, the federal government can’t borrow anymore and it will have only 60% of the money it needs to continue to function.
Most of the press reports have put the failure to be able to borrow more in the context of not being able to redeem the debt coming due and spooking the financial markets. That is a big deal.
But another big deal here is that the Treasury would have only 60% of the money it needs to pay the bills. This isn’t simply a matter of paying higher interest to rollover old debt--the feds couldn't issue the new debt they would need for the current month's deficit. Without raising the debt limit, the government would not be able to borrow the money it needs to fund the monthly budget shortfall of about $133 billion—40 cents of every dollar it needs to spend in 2011.
The good news is that the 60 cents on the dollar the federal government would have from its revenue stream could pay for things like Social Security benefits and keep funding the troops in the field.
But, who wouldn’t get paid because the federal government would have to immediately cut the budget by 40%? Might the government suspend payments to hospitals and doctors and to Medicare Advantage insurers?
In an instant, federal spending would decrease by 40%--leaving lots of bills unpaid. In turn, those who didn’t get paid couldn’t pay their bills. This would cascade through the economy like an economic tsunami in short order. Can you imagine the impact on a hospital that gets half of its revenue from Medicare and Medicaid if its government payments were frozen? Or, the impact on a health plan that is heavily invested in the Medicare Advantage business? A health plan could become technically insolvent and under state control in a matter of a few weeks.
There are lots of people in Washington that seem to be either eager to make a political point at the real risk of precipitating an incredible financial crisis or they are playing a very cynical game of chicken.
People wouldn't be so foolish to let this get to such a place? Hey, the Dodgers declared bankruptcy today!
Tuesday, June 7, 2011
Inconvenient Facts for Both Republicans and Democrats—Neither Side’s Health Care Proposals Are Supported By Past Performance
I call your attention to Ezra Klein’s column in the Washington Post this morning.In it he cites data that has been out there for a long time but Ezra puts some perspective on it that never occurred to me before.
Examining the Kaiser Family Foundation brief, “Health Care Spending in the United States and Selected OECD Countries” he points out, “Our government spends more [as a percentage of GDP] on health care than the governments of Japan, Australia, Norway, the United Kingdom, Spain, Italy, Canada, or Switzerland.”
The data would seem to indicate that even our single payer government-run American health care programs, Medicare and Medicaid, cost way more than similar health plans in these nations.
The argument is often made that we should adopt a single payer—or perhaps a “public option”—health plan in the United States in order to control costs and cover everyone. But it would appear that even those programs in America are way too expensive when compared to similar programs in other industrialized nations.
As for the Republican market-based approach, Klein also points out that those programs have been ineffective at cost control. House Republican Paul Ryan often cites the Medicare Part D drug benefit as proof his proposals to privatize Medicare would work better than what we have. But as Klein points out, Part D premiums have risen 57% since 2006 and the program is on track to see nearly 10% growth in annual costs over the next decade.
And, the existing private Medicare Advantage program “ended up costing about 120% of what Medicare costs.” That’s a new data point for me. However, I do know that Medicare Advantage insurers in recent years have been paid at least 13% more than traditional Medicare.
My takeaway from all of this is that neither side has the answer to bringing America’s health care costs under control.
Liberals think that a single payer, or at least a “public option,” is the best hope and point to Europe and Canada as proof of that. But, as a percentage of GDP, the cost of our already government run health care plans rivals many of those nations' entire government spending on health care.
Republicans argue we need to move entirely toward market-based solutions. But with two big market-based Medicare programs already operating, neither Part D nor Medicare Advantage has come close to demonstrating affordable cost growth.
But both Republicans and Democrats do have something in common—each is offering supposedly painless solutions. For the liberals, just put the government in charge and we will magically have affordable health care for everyone. For the conservatives, just put the market in charge and we will have a solution.
Painless solutions might be politically attractive, but the data indicates they will not get the job done.
Recent post: What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game
Wednesday, May 25, 2011
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!
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
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
Thursday, May 12, 2011
The Lightweight Romney Health Plan
Mitt Romney has outlined his new health plan. He outlined five key steps in an op-ed in USAToday. Here is a summary:
It looks to me like his health care outline is more intended to make conservative Republicans happy then to really propose ways to reform America’s health care system.
There isn’t one new idea here and it all comes straight from the 2010 Republican campaign playbook.
I have a number of questions:
I doubt even the “Tea Party” Republicans, it is meant to please, will buy it.
Step 1: Give states the responsibility, flexibility and resources to care for citizens who are poor, uninsured or chronically ill.who are poor, uninsured or chronically ill.
Step 2: Reform the tax code to promote the individual ownership of health insurance.
Step 3: Focus federal regulation of health care on making markets work…For example, individuals who are continuously covered for a specified period of time may not be denied access to insurance because of pre-existing conditions. And individuals should be allowed to purchase insurance across state lines, free from costly state benefit requirements. Finally, individuals and small businesses should be allowed to form purchasing pools to lower insurance costs and improve choice.
Step 4: Reform medical liability. We should cap non-economic damages in medical malpractice litigation.
Step 5: Make health care more like a consumer market and less like a government program. This can be done by strengthening health savings accounts that help consumers save for health expenses and choose cost-effective insurance.
It looks to me like his health care outline is more intended to make conservative Republicans happy then to really propose ways to reform America’s health care system.
There isn’t one new idea here and it all comes straight from the 2010 Republican campaign playbook.
I have a number of questions:
- We all seem to agree that the biggest problem is the cost, and therefore the affordability, of health care. Where’s the cost containment in his plan?
- He talks about giving states the “resources” to take care of the uninsured and the poor. Just what resources, how much money, and where will that money come from?
- He wants to reform the tax code to permit individual ownership of insurance. But the real premium support most working Americans get is from their employer. When an employer provides health insurance it does so by paying an average of 70% of the cost–worth about $9,000 for family health insurance today. The health insurance tax benefit is worth perhaps 20% of that cost for most workers. How does Romney intend to make an individual system as effective in supporting the purchase of health care? How much support is he willing to provide and where will the money come from?
- He proposes guaranteeing insurability for those who are continuously covered. But to be continuously covered, an individual has to be able to afford the insurance. How will he assure consumers not just have access to insurance but also affordability?
- He proposes allowing people to purchase insurance across state lines so that they have access to lower cost insurance. Just which state has low cost and affordable health insurance?
- He proposes that individuals and small business be able to form purchasing pools to lower costs and improve choice. Presumably, the only difference from these pools and those now offered by insurance companies are that his pools would be exempt from state benefit mandates. How would he protect the existing small group and individual markets from “cherry picking” as the healthy would be enticed to leave the existing state-regulated pools while the sick remained where they could get more comprehensive coverage?
- He proposes medical malpractice reform. Experts generally believe the kind of reform he is proposing would lower the country’s health care bill by about $60 billion a year. However, that is only about 3% of our annual costs. What other cost containment proposals does he have?
- He says that his market reforms, such as expanding Health Savings Accounts (HSAs), will drive down costs. HSAs, in various forms, have been around for 20 years–since 2004 in their present form. Yet the free market has only embraced HSAs as a very small part of the system—about 10% of the market. Why does he believe the tinkering with their plan design he is proposing will quickly make them a significant part of the market or make them more affordable?
- What about Medicare? The Romney op-ed in USAToday doesn’t even contain the word, Medicare. His speech in Michigan today only made a passing reference to the Ryan Medicare plan, while promising a plan of his own in the future.
- What about Medicaid? He briefly mentions block grants for the states. But how much money would he give the states compared to what they have now?
I doubt even the “Tea Party” Republicans, it is meant to please, will buy it.
Monday, May 9, 2011
Neither the Republicans Nor the Democrats Want to Face the Provider Cost Problem But Both Want to Dump the Problem on the Consumer
A key piece of Paul Ryan’s deficit reduction plan is to change Medicare as we know it. It appears his bold Medicare premium support proposal is failing to gain traction--it is dead as part of any deficit reduction deal this year. Worse, his Medicare proposal looks to be giving Democrats lots of political ammunition for the 2012 elections.
What lies at the heart of Ryan’s Medicare difficulties is that he would all but abandon future seniors (those now under age-55) to a health care system whose age-adjusted premium support would increase each year only at a rate equal to the increase in the consumer price index while their health care costs would likely continue to increase far faster.
Simply, Ryan just shifts the future burden of uncontrolled Medicare health care costs from the federal government to the senior. That will solve a big part of our federal deficit problem but hardly help people.
Yes, he offers a defined contribution health care solution with the promise of invigorating the markets and making costs lower. But we have had a form of Medicare premium support and private competition for years (Medicare Advantage) and there isn’t a lot of evidence the market can get the cost control job done on its own. (See: Defined Contribution Health Care—The Conservatives' Silver Bullet)
The Democrats have had a field day scaring people over the Ryan proposal because, quite frankly, the Ryan plan gives them a lot of legitimate ability to do so. I guess the definition of a terrible policy proposal is one your opponents can successfully attack without having to mislead people.
But Ryan isn’t the only one guilty of trying to put consumers into a health care system that limits federal spending by shifting the excess cost burden from the government to the consumer.
I call your attention to Jim Capretta’s recent column at Kaiser Health News. Here is a key paragraph:
But in my mind, the real issue here is that both Ryan and the Democrats have made the same mistake.
Both are mostly avoiding the fundamental health care problem in the first place—chronic escalation in costs much higher than either GDP growth or the consumer price index. Neither side has offered a bold plan designed to change the current fee-for-service provider payment incentives that just keep fueling these unaffordable costs. Neither side seems either willing or capable of taking on the provider.
But both are willing to control future federal spending by dumping the excess health care cost problem on the consumer.
I don’t think we are going to have a real health care debate in this country until the voter/consumer/patient comes to understand the long-term threat they face from health care costs that show no sign of abating and they demand that the politicians aim for a solution not on their backs but on the backs of the people sending them these bills.
Recent post: What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game
What lies at the heart of Ryan’s Medicare difficulties is that he would all but abandon future seniors (those now under age-55) to a health care system whose age-adjusted premium support would increase each year only at a rate equal to the increase in the consumer price index while their health care costs would likely continue to increase far faster.
Simply, Ryan just shifts the future burden of uncontrolled Medicare health care costs from the federal government to the senior. That will solve a big part of our federal deficit problem but hardly help people.
Yes, he offers a defined contribution health care solution with the promise of invigorating the markets and making costs lower. But we have had a form of Medicare premium support and private competition for years (Medicare Advantage) and there isn’t a lot of evidence the market can get the cost control job done on its own. (See: Defined Contribution Health Care—The Conservatives' Silver Bullet)
The Democrats have had a field day scaring people over the Ryan proposal because, quite frankly, the Ryan plan gives them a lot of legitimate ability to do so. I guess the definition of a terrible policy proposal is one your opponents can successfully attack without having to mislead people.
But Ryan isn’t the only one guilty of trying to put consumers into a health care system that limits federal spending by shifting the excess cost burden from the government to the consumer.
I call your attention to Jim Capretta’s recent column at Kaiser Health News. Here is a key paragraph:
Ryan's critics have focused particular attention on his plan's indexation of the Medicare "premium support credits" to the CPI in the years after 2022, suggesting that this idea is somehow beyond the pale. But this is sheer hypocrisy on their part because the indexing of government-financed premium credits below cost growth is in the president’' plan too, and yet not a complaint has been heard about that from its advocates. That's right. After 2018, if the aggregate governmental cost of premium credits and cost-sharing subsidies provided in the state-run exchanges exceeds about 0.5 percent of GDP (a condition that the Congressional Budget Office says will be met), the recently-enacted health law requires the government's per capita contribution to health plan premiums in the exchanges to rise more slowly than premiums. The administration actuaries interpret the law to mean that the government's contributions toward coverage will rise with GDP growth after 2018. CBO appears to have a different interpretation. Still, under all interpretations and projections, it's clear that the exchange credits in the new law will not keep pace with expectations of rising health costs. And that's exactly what the president is now saying is so wrong with Ryan's Medicare plan.In fairness, Capretta also makes the broader point that he believes the Ryan plan would create the rigorous competition Medicare needs to control costs.
But in my mind, the real issue here is that both Ryan and the Democrats have made the same mistake.
Both are mostly avoiding the fundamental health care problem in the first place—chronic escalation in costs much higher than either GDP growth or the consumer price index. Neither side has offered a bold plan designed to change the current fee-for-service provider payment incentives that just keep fueling these unaffordable costs. Neither side seems either willing or capable of taking on the provider.
But both are willing to control future federal spending by dumping the excess health care cost problem on the consumer.
I don’t think we are going to have a real health care debate in this country until the voter/consumer/patient comes to understand the long-term threat they face from health care costs that show no sign of abating and they demand that the politicians aim for a solution not on their backs but on the backs of the people sending them these bills.
Recent post: What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game
Sunday, April 24, 2011
There Aren't Enough Rich People To Pay For Medicare And Medicaid!
I hear more and more of my progressive friends arguing, in the context of deficit reduction, that we should be raising taxes before getting aggressive about reducing the cost of Medicare and Medicaid -- as well as Social Security.
To a point, I agree.
This country is in such a hole that it is senseless to deny that at least some new taxes will be needed to pay for all of the nation's bailouts and accumulated debts.
For instance, progressives would like to end the $1 trillion cost over ten years of the Bush tax cuts for those making more than $250,000 a year.
I also believe that ending those tax cuts is necessary.
But if you're looking to better understand the budget policy choices we face, I highly recommend the March 2011 Congressional Budget Office study, "Reducing the Deficit: Spending and Revenue Options." The CBO prices out about all of the budget options.
Here's a chart from that study:
It says that federal revenue, as a percentage of gross domestic product , has averaged 18 percent since the 1970s -- a level that sustained both economic growth and a big government pretty well. At least, until entitlement costs, for which health care is one of the main drivers, started to skyrocket.
If you believe that it is appropriate to pay what we now pay for health care in this country, then yes, we will need lots more taxes. But, on the other hand, why would you raise taxes to pay for something everybody says has a cost that is unnecessarily sky-high? Wouldn't the solution be to fix the cost problem?
Raising taxes is not going to solve the problem of out-of-control entitlement costs. Even huge tax increases on the rich won't get the job done.
After the 1990s combination of the hot economy and President Bill Clinton’s tax increase, federal revenue as a percentage of GDP rose to about 21 percent -- high by historic standards. Then the policies of President George W. Bush came along and dropped that share to about 16 percent -- low by historic standards, and arguably either boosting the economy or helping to create the economic bubble and big deficits. The Great Recession then further pushed federal revenue to a modern-era low -- about 15 percent.
According to the CBO, federal revenue will again rise to the Clinton-era level of about 21 percent of GDP -- but that is when the two-year extension of the Bush tax cuts expires for everybody.
Looks to me like those who argue the Clinton-era taxes were too high are right. Looks to me like those who argue the Bush-era tax cuts are unsustainable are right. Looks to me like those who argue that our current deficit is partly driven by lower revenue because of the recession are right.
To keep federal revenue at the apparently reasonable historic level of about 18 percent of GDP, we probably do have to give back at least some of those Bush tax cuts -- but it should not be necessary to end the Bush reductions that benefitted the middle class. And, we should also expect that some part of this revenue shortfall would be solved when the economy gets back on track.
If all of these steps were taken, it appears that we would be on the way to striking the right balance.
But, for those who think the deficit problem can be solved by just taxing the rich, let me point out another piece of startling information backed up by the CBO's study of policy choices. Replacing the 10-year, $1 trillion Bush tax cut for those people making more than $250,000 a year with a combination of lower income and capital gains taxes would still be worth $1 trillion! As the CBO options paper points out, that works out to an average of about $100 billion a year during each of the next 10 years.
That is a lot of money -- but not compared to the 2011 deficit that is estimated to be $1.6 trillion. Or the many $1 trillion deficits still to come.
Even if we were to raise the top rate to 45 precent for people making at least $1 million a year, and 49 percent on incomes of $1 billion, we would raise only $900 billion over the next decade, according to Citizens for Tax Justice -- again only a small part of the projected deficits.
So, raising taxes on rich people, by itself, hardly makes a dent.
What is making a dent -- really a fiscal train wreck -- is the out-of-control cost of our entitlements, particularly the health care entitlements.
Here is another chart based upon CBO numbers (that appeared in the recent Ryan Budget proposal:
This chart shows the impact the entitlements -- particularly Medicare -- will have on the federal budget if federal revenue were to hold at the historic level of about 18 percent of GDP. Anything above the black line is a deficit.
Now, remember, this is just entitlement spending. The rest of the federal budget -- interest on the debt, defense spending and every other department and agency would have to get loaded on top of this mountain!
Folks, we can't tax our way out of this mess.
There aren't enough rich people to do it.
This column first appeared at Kaiser Health News.
To a point, I agree.
This country is in such a hole that it is senseless to deny that at least some new taxes will be needed to pay for all of the nation's bailouts and accumulated debts.
For instance, progressives would like to end the $1 trillion cost over ten years of the Bush tax cuts for those making more than $250,000 a year.
I also believe that ending those tax cuts is necessary.
But if you're looking to better understand the budget policy choices we face, I highly recommend the March 2011 Congressional Budget Office study, "Reducing the Deficit: Spending and Revenue Options." The CBO prices out about all of the budget options.
Here's a chart from that study:
It says that federal revenue, as a percentage of gross domestic product , has averaged 18 percent since the 1970s -- a level that sustained both economic growth and a big government pretty well. At least, until entitlement costs, for which health care is one of the main drivers, started to skyrocket.
If you believe that it is appropriate to pay what we now pay for health care in this country, then yes, we will need lots more taxes. But, on the other hand, why would you raise taxes to pay for something everybody says has a cost that is unnecessarily sky-high? Wouldn't the solution be to fix the cost problem?
Raising taxes is not going to solve the problem of out-of-control entitlement costs. Even huge tax increases on the rich won't get the job done.
After the 1990s combination of the hot economy and President Bill Clinton’s tax increase, federal revenue as a percentage of GDP rose to about 21 percent -- high by historic standards. Then the policies of President George W. Bush came along and dropped that share to about 16 percent -- low by historic standards, and arguably either boosting the economy or helping to create the economic bubble and big deficits. The Great Recession then further pushed federal revenue to a modern-era low -- about 15 percent.
According to the CBO, federal revenue will again rise to the Clinton-era level of about 21 percent of GDP -- but that is when the two-year extension of the Bush tax cuts expires for everybody.
Looks to me like those who argue the Clinton-era taxes were too high are right. Looks to me like those who argue the Bush-era tax cuts are unsustainable are right. Looks to me like those who argue that our current deficit is partly driven by lower revenue because of the recession are right.
To keep federal revenue at the apparently reasonable historic level of about 18 percent of GDP, we probably do have to give back at least some of those Bush tax cuts -- but it should not be necessary to end the Bush reductions that benefitted the middle class. And, we should also expect that some part of this revenue shortfall would be solved when the economy gets back on track.
If all of these steps were taken, it appears that we would be on the way to striking the right balance.
But, for those who think the deficit problem can be solved by just taxing the rich, let me point out another piece of startling information backed up by the CBO's study of policy choices. Replacing the 10-year, $1 trillion Bush tax cut for those people making more than $250,000 a year with a combination of lower income and capital gains taxes would still be worth $1 trillion! As the CBO options paper points out, that works out to an average of about $100 billion a year during each of the next 10 years.
That is a lot of money -- but not compared to the 2011 deficit that is estimated to be $1.6 trillion. Or the many $1 trillion deficits still to come.
Even if we were to raise the top rate to 45 precent for people making at least $1 million a year, and 49 percent on incomes of $1 billion, we would raise only $900 billion over the next decade, according to Citizens for Tax Justice -- again only a small part of the projected deficits.
So, raising taxes on rich people, by itself, hardly makes a dent.
What is making a dent -- really a fiscal train wreck -- is the out-of-control cost of our entitlements, particularly the health care entitlements.
Here is another chart based upon CBO numbers (that appeared in the recent Ryan Budget proposal:
This chart shows the impact the entitlements -- particularly Medicare -- will have on the federal budget if federal revenue were to hold at the historic level of about 18 percent of GDP. Anything above the black line is a deficit.
Now, remember, this is just entitlement spending. The rest of the federal budget -- interest on the debt, defense spending and every other department and agency would have to get loaded on top of this mountain!
Folks, we can't tax our way out of this mess.
There aren't enough rich people to do it.
This column first appeared at Kaiser Health News.
Thursday, April 14, 2011
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
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
Sunday, April 10, 2011
What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game
Last week, I posted that I was disappointed in Paul Ryan’s health care budget proposal because it lacked cost containment ideas other than the usual conservative reliance upon the market and defined contribution health care.
In my last post, Why ACOs Won’t Work, I argued that the latest health care silver bullet solution, Accountable Care Organizations (ACOs), are just a tool in a big tool box of care and cost management tools. But, like all of the other tools over the years like HMOs and IPAs, they won’t be used as they were intended because everybody—providers and insurers—can make more money in the existing so far limitless fee-for-service system.
How do you make the American health care system efficient?
You change the game.
You can’t let the $2.5 trillion health care industrial complex any longer make money just getting bigger. The new game has to be one that only pays out a profit for results—better care for a budget the country can live with. There are lots of tools available to do that. ACOs, capitated HMOs, disease management, enormous data mines, electronic patient data systems, and so on.
How do you change the game?
Generally, it will have to be an unavoidable policy imperative that will have to make the giant and powerful health care industrial complex shift to a more efficient and sustainable platform. They gotta have a reason that is unavoidable.
There must be no other choice for them but to play the game differently with new rules that make profit possible only if they make quality care affordable for America.
And, it has to be a policy change. As I have said here before, the conservative notion that the market can, by itself, accomplish this is every bit as naive as the liberal argument we just need a government payer to make things instantly better. There is no evidence in the under-65 market or in Medicare Advantage that the market can do it by itself. There is also no evidence that the giant single payer system we now have—Medicare—has done it.
I also have no illusions about how hard this will be—that recent history is evidence that accomplishing such a game changing policy is all but impossible. The recent health care debate and the lack of cost containment in the Affordable Care Act (I wouldn’t have called it that), makes that clear. Even as this country faces annual deficits of over a trillion dollars and an accumulated $14 trillion dollar debt there is no appetite for real health care solutions—witness the Ryan plan and the Congress’ inability to tackle the Medicare doc payment mess.
Just look at the one thing in the Affordable Care Act that might at least begin to put us on a path to affordable care—the Medicare Independent Payment Advisory Board (IPAB). It would take policymaking for Medicare payments out of the hands of the Congress starting in 2015—2020 for hospitals—and put those decisions with an independent expert board.
But already one Republican and Democratic “deficit hawk” after another is trying to kill the IPAB before it even starts mostly because the health care industrial complex wants it dead. These politicians argue these are decisions that should be left to elected officials. You might also find it interesting to know that the Republican leading the charge for the repeal of the IPAB, Representative Phil Roe (R-TX), received $91,000 in campaign contributions from providers in the last election cycle—double that of the next category of givers on his list (contractors).
A couple of years ago, I suggested a way to get the attention of the health care industrial complex and change the game was to tie the tax deductibility of health insurance offerings to that network of insurers, doctors, hospitals, drug companies, and other providers’ ability to meet cost targets (the Affordability Model). Either control costs or lose the tax incentives for consumers and employers to buy your services and therefore your ability to compete for business. That would get their attention.
That would change the game.
So, if in the face of all of these recent failures to really tackle costs, is there any hope policymakers will be able to give us a game changer?
I will remind you of a post I did last fall. In it I quoted former Fed Chairman Alan Greenspan. When asked if he thought we could ever implement the kind of tough budget medicine called for by the Deficit Commission chairs he replied, “The only question is, is it before or after a bond market crisis.”
This country is headed for a health care budget. The only question is will it be forced on us just before or just after the bond crisis. Just before or just after the rest of the world tells us they aren’t going to subsidize this American fiscal mess—largely driven by our health care costs—any longer.
Then the question will be about whether we have the sense to rationally manage that health care budget with all of these tools we have been developing for 20 years or will the politicians, in the midst of a real crisis, just impose expedient and arbitrary (as in ration care) budget solutions?
I hope the path we will then take is to change the game in a rational way.
In my last post, Why ACOs Won’t Work, I argued that the latest health care silver bullet solution, Accountable Care Organizations (ACOs), are just a tool in a big tool box of care and cost management tools. But, like all of the other tools over the years like HMOs and IPAs, they won’t be used as they were intended because everybody—providers and insurers—can make more money in the existing so far limitless fee-for-service system.
How do you make the American health care system efficient?
You change the game.
You can’t let the $2.5 trillion health care industrial complex any longer make money just getting bigger. The new game has to be one that only pays out a profit for results—better care for a budget the country can live with. There are lots of tools available to do that. ACOs, capitated HMOs, disease management, enormous data mines, electronic patient data systems, and so on.
How do you change the game?
Generally, it will have to be an unavoidable policy imperative that will have to make the giant and powerful health care industrial complex shift to a more efficient and sustainable platform. They gotta have a reason that is unavoidable.
There must be no other choice for them but to play the game differently with new rules that make profit possible only if they make quality care affordable for America.
And, it has to be a policy change. As I have said here before, the conservative notion that the market can, by itself, accomplish this is every bit as naive as the liberal argument we just need a government payer to make things instantly better. There is no evidence in the under-65 market or in Medicare Advantage that the market can do it by itself. There is also no evidence that the giant single payer system we now have—Medicare—has done it.
I also have no illusions about how hard this will be—that recent history is evidence that accomplishing such a game changing policy is all but impossible. The recent health care debate and the lack of cost containment in the Affordable Care Act (I wouldn’t have called it that), makes that clear. Even as this country faces annual deficits of over a trillion dollars and an accumulated $14 trillion dollar debt there is no appetite for real health care solutions—witness the Ryan plan and the Congress’ inability to tackle the Medicare doc payment mess.
Just look at the one thing in the Affordable Care Act that might at least begin to put us on a path to affordable care—the Medicare Independent Payment Advisory Board (IPAB). It would take policymaking for Medicare payments out of the hands of the Congress starting in 2015—2020 for hospitals—and put those decisions with an independent expert board.
But already one Republican and Democratic “deficit hawk” after another is trying to kill the IPAB before it even starts mostly because the health care industrial complex wants it dead. These politicians argue these are decisions that should be left to elected officials. You might also find it interesting to know that the Republican leading the charge for the repeal of the IPAB, Representative Phil Roe (R-TX), received $91,000 in campaign contributions from providers in the last election cycle—double that of the next category of givers on his list (contractors).
A couple of years ago, I suggested a way to get the attention of the health care industrial complex and change the game was to tie the tax deductibility of health insurance offerings to that network of insurers, doctors, hospitals, drug companies, and other providers’ ability to meet cost targets (the Affordability Model). Either control costs or lose the tax incentives for consumers and employers to buy your services and therefore your ability to compete for business. That would get their attention.
That would change the game.
So, if in the face of all of these recent failures to really tackle costs, is there any hope policymakers will be able to give us a game changer?
I will remind you of a post I did last fall. In it I quoted former Fed Chairman Alan Greenspan. When asked if he thought we could ever implement the kind of tough budget medicine called for by the Deficit Commission chairs he replied, “The only question is, is it before or after a bond market crisis.”
This country is headed for a health care budget. The only question is will it be forced on us just before or just after the bond crisis. Just before or just after the rest of the world tells us they aren’t going to subsidize this American fiscal mess—largely driven by our health care costs—any longer.
Then the question will be about whether we have the sense to rationally manage that health care budget with all of these tools we have been developing for 20 years or will the politicians, in the midst of a real crisis, just impose expedient and arbitrary (as in ration care) budget solutions?
I hope the path we will then take is to change the game in a rational way.
Thursday, April 7, 2011
Why ACOs Won’t Work
First, I think Accountable Care Organizations (ACOs) are a great idea. Just like I thought HMOs were a good idea in 1988 and I thought IPAs were a good idea in 1994.
The whole notion of making providers accountable for balancing cost, medical necessity, appropriateness of care, and quality just has to be the answer.
But here’s the problem with ACOs: They are a tool in a big tool box of care and cost management tools but, like all of the other tools over the years like HMOs and IPAs, they won’t be used as they were intended because everybody—providers and insurers—can make more money in the existing so far limitless fee-for-service system.
I see the $2.5 trillion American health care system as a giant health care industrial complex. It just grows on itself and sucks in more and more money. Why not? The bigger it gets the more money we give it.
How do you make it efficient? You change the game. You can’t let it any longer make money just getting bigger. The new game has to be one that only pays out a profit for results—better care for a budget the country can live with. There are lots of tools available to do that. ACOs, capitated HMOs, IPAs, disease management, enormous data mines, Electronic Patient Data Systems, and so on.
But, here’s the rub. There isn’t a lot of incentive for payers and providers to do more than talk about these things and actually make these tools work. Right now they can just make lots more money off the fee-for-service system. They demand more money and employers and government and consumers are willing to just dump more money into the system. Sure they complain about it but they just keep doing it.
On the heels of the “Patients Rights Rebellion” (or maybe better titled the Provider Rights Rebellion) in the late 1990s, a CEO of one of the biggest health plans told me, “We’ve had it. We tried to manage care. Actually got results. Then consumers and employers and the politicians all sawed the limb off on us. Screw it. Back to fee-for-service. We can make more money doing that and not take all of this heat. They won’t admit it but that is what they [patients, employers, and politicians] really want.”
ACOs won’t succeed in the near term any more than capitated HMOs and IPAs accomplished anything in their day because there is no reason—no imperative—for the health care industrial complex to want them to succeed.
Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?
Oh, there will be some providers—particularly hospital administrators—who can’t wait to build an ACO but probably more because they want another excuse to corner the primary care docs as a marketing channel for their growing system. But spend millions to develop an ACO so they can get less money? Only in the policy wonk netherland does that compute.
The only people on the ball when it comes to this ACO idea are the anti-trust lawyers and with good reason.
In my next post, I will talk more about how we might change the game so that these tools can work.
Update October 2012
POLITICO Pro Health Care's team leads an interactive conversation focusing on the role and future of ACOs and their impact on providers and patients featuring Dr. Donald Berwick, former President and CEO, Institute for Healthcare Improvement, and former administrator, Centers for Medicare and Medicaid Services; Joseph F. Damore, FACHE, Vice President, Premier Inc.; Bruce M. Fried, SNR Denton; Karen Ignagni, President and CEO, America's Health Insurance Plans; Robert Laszewski, Health Policy and Strategy Associates.
Link to the video here
The whole notion of making providers accountable for balancing cost, medical necessity, appropriateness of care, and quality just has to be the answer.
But here’s the problem with ACOs: They are a tool in a big tool box of care and cost management tools but, like all of the other tools over the years like HMOs and IPAs, they won’t be used as they were intended because everybody—providers and insurers—can make more money in the existing so far limitless fee-for-service system.
I see the $2.5 trillion American health care system as a giant health care industrial complex. It just grows on itself and sucks in more and more money. Why not? The bigger it gets the more money we give it.
How do you make it efficient? You change the game. You can’t let it any longer make money just getting bigger. The new game has to be one that only pays out a profit for results—better care for a budget the country can live with. There are lots of tools available to do that. ACOs, capitated HMOs, IPAs, disease management, enormous data mines, Electronic Patient Data Systems, and so on.
But, here’s the rub. There isn’t a lot of incentive for payers and providers to do more than talk about these things and actually make these tools work. Right now they can just make lots more money off the fee-for-service system. They demand more money and employers and government and consumers are willing to just dump more money into the system. Sure they complain about it but they just keep doing it.
On the heels of the “Patients Rights Rebellion” (or maybe better titled the Provider Rights Rebellion) in the late 1990s, a CEO of one of the biggest health plans told me, “We’ve had it. We tried to manage care. Actually got results. Then consumers and employers and the politicians all sawed the limb off on us. Screw it. Back to fee-for-service. We can make more money doing that and not take all of this heat. They won’t admit it but that is what they [patients, employers, and politicians] really want.”
ACOs won’t succeed in the near term any more than capitated HMOs and IPAs accomplished anything in their day because there is no reason—no imperative—for the health care industrial complex to want them to succeed.
Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?
Oh, there will be some providers—particularly hospital administrators—who can’t wait to build an ACO but probably more because they want another excuse to corner the primary care docs as a marketing channel for their growing system. But spend millions to develop an ACO so they can get less money? Only in the policy wonk netherland does that compute.
The only people on the ball when it comes to this ACO idea are the anti-trust lawyers and with good reason.
In my next post, I will talk more about how we might change the game so that these tools can work.
Update October 2012
POLITICO Pro Health Care's team leads an interactive conversation focusing on the role and future of ACOs and their impact on providers and patients featuring Dr. Donald Berwick, former President and CEO, Institute for Healthcare Improvement, and former administrator, Centers for Medicare and Medicaid Services; Joseph F. Damore, FACHE, Vice President, Premier Inc.; Bruce M. Fried, SNR Denton; Karen Ignagni, President and CEO, America's Health Insurance Plans; Robert Laszewski, Health Policy and Strategy Associates.
Link to the video here
Tuesday, April 5, 2011
The “Path to Prosperity”—Where’s the Health Care Cost Containment?
Paul Ryan’s overview of his proposed 2012 Budget Resolution contains an honest and compelling description of America’s debt and deficit spending dilemma.
Every American should read it.
As I read through his discussion of the huge hole we’re in and the imperative to fix it, he had me thinking that we finally have a politician willing and ready to deal with the problem. But when I got to the end of the document, I felt like there was a missing chapter—the one with the controversial and politically problematic but necessary bad news solutions.
In Ryan’s document, his proposed solutions for unsustainable entitlement spending in Medicare, Medicaid, and Social Security each get a few paragraphs with little in the way of detail. The Affordable Care Act gets fixed by simply repealing it.
Beyond his defined contribution market ideas for Medicare, he only mentions tort reform and eliminating the Medicare physician fee cuts (at a cost of $350 billion over ten years) without reforming the Medicare docs payment system.
From what I see, Ryan’s solution to the federal entitlement budget mess is to largely shift the problem to individuals and the states.
Let me be clear, I agree with much of the direction Ryan takes. None of this will be solved without doing things like raising eligibility ages (to 67 for Medicare), means-testing, giving Medicare and Medicaid beneficiaries incentives to spend theirs and taxpayer health care dollars more wisely and giving the states the Medicaid flexibility they need to master the biggest part of their budgets—as well as ending one unfunded federal Medicaid mandate imposed on the states after another.
Ryan deserves a lot of credit for putting these things on the table—where Democrats have already begun to demagogue them.
But the conservative notion that if we just create more robust health care markets and our health care funding challenges will just all painlessly go away, is naive. Just like it is naive for liberals to argue that all we need is a single-payer health care system--or a "public option"--to fix it all. Decades of a single-payer Medicare system have not proven that approach capable of solving the problem on its own any more than decades of a private insurance/managed care system for those under age-65 have proven the market on its own capable of solving the health care cost problem. Nor have private Medicaid insurance plans that have helped the states control costs proven to be, by themselves, the silver bullet.
And, Ryan ignores a huge “elephant in the room” when he argues that giving seniors “premium-support” to subsidize their private Medicare purchases will lead to a more cost effective program. If that were the standalone solution, why after 20-years aren’t private Medicare Advantage plans cheaper than the traditional Medicare program?
When it comes to health care, it looks to me like Ryan has done what the Democrats did last year when they passed the Affordable Care Act—he fell way short on the real issue: Controlling costs.
When Democrats and/or Republicans are willing to face the cost issue and fundamentally begin to change the financing system and the perverse incentives that payers, providers and consumers now deal with every day then we will finally begin to talk about solutions.
You will know it the minute they do. Those finally held responsible for controlling costs will be screaming about the dislocation real reform will cause.
You might also find David Whelan's Forbes article, on the topic of liberal objections to a voucher system, of interest: Paul Ryan's Medicare Plan Sounds Just Like Zeke Emanuel's Voucher System
What might cause Democrats and Republicans to finally face the health care cost issue head-on? Prior post: Will it Be the Bond Market That Finally Forces Serious Health Care Financing Change?
Every American should read it.
As I read through his discussion of the huge hole we’re in and the imperative to fix it, he had me thinking that we finally have a politician willing and ready to deal with the problem. But when I got to the end of the document, I felt like there was a missing chapter—the one with the controversial and politically problematic but necessary bad news solutions.
In Ryan’s document, his proposed solutions for unsustainable entitlement spending in Medicare, Medicaid, and Social Security each get a few paragraphs with little in the way of detail. The Affordable Care Act gets fixed by simply repealing it.
Beyond his defined contribution market ideas for Medicare, he only mentions tort reform and eliminating the Medicare physician fee cuts (at a cost of $350 billion over ten years) without reforming the Medicare docs payment system.
From what I see, Ryan’s solution to the federal entitlement budget mess is to largely shift the problem to individuals and the states.
Let me be clear, I agree with much of the direction Ryan takes. None of this will be solved without doing things like raising eligibility ages (to 67 for Medicare), means-testing, giving Medicare and Medicaid beneficiaries incentives to spend theirs and taxpayer health care dollars more wisely and giving the states the Medicaid flexibility they need to master the biggest part of their budgets—as well as ending one unfunded federal Medicaid mandate imposed on the states after another.
Ryan deserves a lot of credit for putting these things on the table—where Democrats have already begun to demagogue them.
But the conservative notion that if we just create more robust health care markets and our health care funding challenges will just all painlessly go away, is naive. Just like it is naive for liberals to argue that all we need is a single-payer health care system--or a "public option"--to fix it all. Decades of a single-payer Medicare system have not proven that approach capable of solving the problem on its own any more than decades of a private insurance/managed care system for those under age-65 have proven the market on its own capable of solving the health care cost problem. Nor have private Medicaid insurance plans that have helped the states control costs proven to be, by themselves, the silver bullet.
And, Ryan ignores a huge “elephant in the room” when he argues that giving seniors “premium-support” to subsidize their private Medicare purchases will lead to a more cost effective program. If that were the standalone solution, why after 20-years aren’t private Medicare Advantage plans cheaper than the traditional Medicare program?
When it comes to health care, it looks to me like Ryan has done what the Democrats did last year when they passed the Affordable Care Act—he fell way short on the real issue: Controlling costs.
When Democrats and/or Republicans are willing to face the cost issue and fundamentally begin to change the financing system and the perverse incentives that payers, providers and consumers now deal with every day then we will finally begin to talk about solutions.
You will know it the minute they do. Those finally held responsible for controlling costs will be screaming about the dislocation real reform will cause.
You might also find David Whelan's Forbes article, on the topic of liberal objections to a voucher system, of interest: Paul Ryan's Medicare Plan Sounds Just Like Zeke Emanuel's Voucher System
What might cause Democrats and Republicans to finally face the health care cost issue head-on? Prior post: Will it Be the Bond Market That Finally Forces Serious Health Care Financing Change?
Thursday, March 10, 2011
So How Are Democrats and Republicans Different?
Just how is the way Wisconsin Republicans have handled the political confrontation over worker rights different than the way Washington, DC Democrats handled last year's health care vote?
With apologies in advance to Ezra for taking some liberties with his column yesterday evening in the Washington Post:
What happened in Wisconsin [Washington DC] tonight [last March]
By Ezra Klein [Bob Laszewski]
Here's what just happened [last March] in Wisconsin [Washington, DC]: The rules of the state's [U.S.] Senate require a quorum [60 votes] for any measures that do [don't] spend money. That's how the absence of the Senate's Democrats [the election loss in Massachusetts] could stymie Gov. Scott Walker's [the Democrat's efforts] to block [pass] the proposed budget law [the new health care bill] -- it spent [parts didn't spend] money, and thus it needed a quorum [60 votes].
But in a surprise move earlier today [after the Massachusetts loss], Wisconsin's [Washington's] Senate Republicans [Democrats] rewrote the bill [using reconciliation rules] and left out all the parts that spent [didn't spend] money. Then they quickly convened and passed the new law, which included the provisions stripping most public-employee unions of their collective bargaining rights [a bill that dramatically impacted 14% of the economy and the delivery of everyone's health care] but excluding everything in the law [by crafting a special a reconciliation bill leaving everything out that] that spent [didn't spend] money.
What happens [happened] next? Expect the protests over the next few days [ensuing months] to be ferocious. But unless a judge [the Supreme Court] rules the move illegal -- and I don't know how to judge the likelihood of that -- Walker's [the Democrat's] proposed [new health] law will go forward. The question is whether Walker and the Republicans [Obama and the Democrats] who voted for it will do the same.
Polls in Wisconsin [across the country] clearly showed that Republicans [Democrats] had failed to persuade the public of their cause. Walker's [Obama's, Reed and Pelosi's] numbers dropped, while Democrats and unions [Republicans and the Tea Party] found themselves suddenly flush with volunteers, money and favorable media coverage. And they plan to [did] take advantage of it: Eight Wisconsin Republicans have served for long enough to be vulnerable to a recall election next year, and Democrats have already begun gathering signatures. Now their efforts will accelerate. "We now put our total focus on recalling the eligible Republican senators who voted for this heinous bill," said Mike Tate, chairman of the Wisconsin Democratic Party. "And we also begin counting the days remaining before Scott Walker is himself eligible for recall." [The Republicans scored the biggest off-year election victory in a lifetime.]
With apologies in advance to Ezra for taking some liberties with his column yesterday evening in the Washington Post:
What happened in Wisconsin [Washington DC] tonight [last March]
By Ezra Klein [Bob Laszewski]
Here's what just happened [last March] in Wisconsin [Washington, DC]: The rules of the state's [U.S.] Senate require a quorum [60 votes] for any measures that do [don't] spend money. That's how the absence of the Senate's Democrats [the election loss in Massachusetts] could stymie Gov. Scott Walker's [the Democrat's efforts] to block [pass] the proposed budget law [the new health care bill] -- it spent [parts didn't spend] money, and thus it needed a quorum [60 votes].
But in a surprise move earlier today [after the Massachusetts loss], Wisconsin's [Washington's] Senate Republicans [Democrats] rewrote the bill [using reconciliation rules] and left out all the parts that spent [didn't spend] money. Then they quickly convened and passed the new law, which included the provisions stripping most public-employee unions of their collective bargaining rights [a bill that dramatically impacted 14% of the economy and the delivery of everyone's health care] but excluding everything in the law [by crafting a special a reconciliation bill leaving everything out that] that spent [didn't spend] money.
What happens [happened] next? Expect the protests over the next few days [ensuing months] to be ferocious. But unless a judge [the Supreme Court] rules the move illegal -- and I don't know how to judge the likelihood of that -- Walker's [the Democrat's] proposed [new health] law will go forward. The question is whether Walker and the Republicans [Obama and the Democrats] who voted for it will do the same.
Polls in Wisconsin [across the country] clearly showed that Republicans [Democrats] had failed to persuade the public of their cause. Walker's [Obama's, Reed and Pelosi's] numbers dropped, while Democrats and unions [Republicans and the Tea Party] found themselves suddenly flush with volunteers, money and favorable media coverage. And they plan to [did] take advantage of it: Eight Wisconsin Republicans have served for long enough to be vulnerable to a recall election next year, and Democrats have already begun gathering signatures. Now their efforts will accelerate. "We now put our total focus on recalling the eligible Republican senators who voted for this heinous bill," said Mike Tate, chairman of the Wisconsin Democratic Party. "And we also begin counting the days remaining before Scott Walker is himself eligible for recall." [The Republicans scored the biggest off-year election victory in a lifetime.]
Sunday, March 6, 2011
Fixing America's Health Care Reimbursement System
This post is authored by Brian Klepper and first appeared at Kaiser Health News:
A tempest is brewing in physician circles over how doctors are paid. But calming it will require more than just the action of physicians. It will demand the attention and influence of businesses and patient advocates who, outside the health industrial complex, bear the brunt of the nation's skyrocketing health care costs.
Much responsibility for America's inequitable health care payment system and its cost crisis is embedded in the informal but symbiotic relationship between the Centers for Medicare and Medicaid Services and the American Medical Association's Relative Value System Update Committee -- also known as the RUC. For two decades, the RUC, a specialist-dominated panel, has encouraged national health care reimbursement policy that financially undervalues the challenges associated with primary care's management of complicated patients, while favoring often unnecessarily complex, costly and excessive medical services. For its part, CMS has provided mostly rubber-stamp acceptance of the RUC's recommendations. If America's primary care societies noisily left the RUC, they would de-legitimize the panel's role in driving the American health system's immense waste and pave the way for a more fair and enlightened approach to reimbursement.
As it is, though, unnecessary health care costs are sucking the life out of the American economy. Over the past 11 years, health care premium inflation has risen nearly four times as fast as the rest of the economy. Health care costs nearly double those in other developed nations have put U.S. corporations at a severe competitive disadvantage in the global marketplace.
Many health care experts believe that half or more of all health care expenditures -- the costs of bloated transactional processes as well as inappropriate procedures, service sites and prescription drug levels -- provide no value. For perspective, this year we'll unnecessarily spend nearly $1.5 trillion on health care, an amount equivalent to the budget deficit. Though we continually have given physicians and the health care industry a pass on this issue, its impact can be understood as the difference between our national prosperity and decline.
The current system's under-valuing of primary care is one of three structural flaws -- the other two are fee-for-service reimbursement and a lack of cost, quality and safety transparency -- that produce excess spending and block the health care sector from working as a true market. Overwhelming evidence shows that allowing physicians to serve as patient advocates and guides throughout the entirety of care results in better outcomes at significantly lower cost. Recently, patient-centered medical homes, super-charged primary care practices, have demonstrated measurable cost and quality successes, also proofs of the approach. These facts are indisputable and are, by the way, the reason why America's corporations are stepping up the use of on-site primary care clinics.
Meanwhile, a spate of recent articles about the RUC have produced swift, strong responses within key circles. They have been passed virally among primary care physicians. Discussions have begun with people who might have influence over the process. And sensible changes in this advisory system seem possible.
Seizing that opportunity would first require mobilizing primary care doctors to demand that their professional societies, such as the American Academy of Family Physicians and the American College of Physicians, abandon the RUC. Then these physicians also would call on CMS to replace it with a more independent advisory panel. That effort would also launch a national discussion about how to more fairly value and pay for America's health care.
But one man's waste is another's income. The current reimbursement system handsomely serves most of the health care industry: health plans; hospitals; specialists; and drug, device and technology firms. Threaten that revenue stream, and those organizations would direct their considerable resources to its protection. In 2009, records show that some members of Congress collected $1.2 billion in health care lobbying contributions - more than it had ever received from an industry on an issue - from health care interests. America's 250,000 primary care physicians are simply no match for the combined power and influence of the rest of the health care industry.
In an influence-driven government like ours, it is the non-health care business sector that has the organization and leverage necessary to drive the health care changes America so desperately needs. The health care industry represents one dollar of every six dollars in the U.S. economy, but industries outside health care represent the other five. If American businesses, led by groups like the National Business Group on Health, the Pacific Business Group on Health, the Business Roundtable, the National Retail Federation, the U.S. Chamber of Commerce and the National Federation of Independent Business were to advocate for the same policies in national health care reimbursement policy that their members are often implementing in their own on-site clinics, it would have a dramatically positive impact on the nation's physical and economic health.
Ironically, health care reform specifically avoided addressing the carnage that has been wrought by the RUC. If America's primary care physicians, backed by the nation's corporations, all working out of enlightened self-interest, were to focus on addressing this one structural defect, the corrective impact on our health system would be greater than all the reform bill's cost-reduction provisions combined.
Brian Klepper is an independent health care analyst, Chief Development Officer for WeCare TLC Onsite Clinics and the editor of Care & Cost. His new site, Replace the RUC, provides extensive background on the issue.
A tempest is brewing in physician circles over how doctors are paid. But calming it will require more than just the action of physicians. It will demand the attention and influence of businesses and patient advocates who, outside the health industrial complex, bear the brunt of the nation's skyrocketing health care costs.
Much responsibility for America's inequitable health care payment system and its cost crisis is embedded in the informal but symbiotic relationship between the Centers for Medicare and Medicaid Services and the American Medical Association's Relative Value System Update Committee -- also known as the RUC. For two decades, the RUC, a specialist-dominated panel, has encouraged national health care reimbursement policy that financially undervalues the challenges associated with primary care's management of complicated patients, while favoring often unnecessarily complex, costly and excessive medical services. For its part, CMS has provided mostly rubber-stamp acceptance of the RUC's recommendations. If America's primary care societies noisily left the RUC, they would de-legitimize the panel's role in driving the American health system's immense waste and pave the way for a more fair and enlightened approach to reimbursement.
As it is, though, unnecessary health care costs are sucking the life out of the American economy. Over the past 11 years, health care premium inflation has risen nearly four times as fast as the rest of the economy. Health care costs nearly double those in other developed nations have put U.S. corporations at a severe competitive disadvantage in the global marketplace.
Many health care experts believe that half or more of all health care expenditures -- the costs of bloated transactional processes as well as inappropriate procedures, service sites and prescription drug levels -- provide no value. For perspective, this year we'll unnecessarily spend nearly $1.5 trillion on health care, an amount equivalent to the budget deficit. Though we continually have given physicians and the health care industry a pass on this issue, its impact can be understood as the difference between our national prosperity and decline.
The current system's under-valuing of primary care is one of three structural flaws -- the other two are fee-for-service reimbursement and a lack of cost, quality and safety transparency -- that produce excess spending and block the health care sector from working as a true market. Overwhelming evidence shows that allowing physicians to serve as patient advocates and guides throughout the entirety of care results in better outcomes at significantly lower cost. Recently, patient-centered medical homes, super-charged primary care practices, have demonstrated measurable cost and quality successes, also proofs of the approach. These facts are indisputable and are, by the way, the reason why America's corporations are stepping up the use of on-site primary care clinics.
Meanwhile, a spate of recent articles about the RUC have produced swift, strong responses within key circles. They have been passed virally among primary care physicians. Discussions have begun with people who might have influence over the process. And sensible changes in this advisory system seem possible.
Seizing that opportunity would first require mobilizing primary care doctors to demand that their professional societies, such as the American Academy of Family Physicians and the American College of Physicians, abandon the RUC. Then these physicians also would call on CMS to replace it with a more independent advisory panel. That effort would also launch a national discussion about how to more fairly value and pay for America's health care.
But one man's waste is another's income. The current reimbursement system handsomely serves most of the health care industry: health plans; hospitals; specialists; and drug, device and technology firms. Threaten that revenue stream, and those organizations would direct their considerable resources to its protection. In 2009, records show that some members of Congress collected $1.2 billion in health care lobbying contributions - more than it had ever received from an industry on an issue - from health care interests. America's 250,000 primary care physicians are simply no match for the combined power and influence of the rest of the health care industry.
In an influence-driven government like ours, it is the non-health care business sector that has the organization and leverage necessary to drive the health care changes America so desperately needs. The health care industry represents one dollar of every six dollars in the U.S. economy, but industries outside health care represent the other five. If American businesses, led by groups like the National Business Group on Health, the Pacific Business Group on Health, the Business Roundtable, the National Retail Federation, the U.S. Chamber of Commerce and the National Federation of Independent Business were to advocate for the same policies in national health care reimbursement policy that their members are often implementing in their own on-site clinics, it would have a dramatically positive impact on the nation's physical and economic health.
Ironically, health care reform specifically avoided addressing the carnage that has been wrought by the RUC. If America's primary care physicians, backed by the nation's corporations, all working out of enlightened self-interest, were to focus on addressing this one structural defect, the corrective impact on our health system would be greater than all the reform bill's cost-reduction provisions combined.
Brian Klepper is an independent health care analyst, Chief Development Officer for WeCare TLC Onsite Clinics and the editor of Care & Cost. His new site, Replace the RUC, provides extensive background on the issue.
Thursday, March 3, 2011
The Republicans Had Better Get Organized on Health Care
If the past week is any indication, the Republicans will have real trouble come 2012 trying to convince voters they have a plan to fix the American health care system.
Last weekend, President Obama endorsed the Wyden-Brown bill that would give the states the opportunity, in 2014, to take their share of the almost $1 trillion the new health law collects and use it to craft an alternative health care plan to their liking.
With Republicans now controlling the “trifecta” in 16 states—the governorships as well as the state legislatures—it is a very interesting offer.
I found an editorial this week in the Wall Street Journal criticizing the offer puzzling.
In an editorial titled, “Obama’s Health Waiver Gambit—the White House offers the mirage of state flexibility," they wrote:
It looks to me like the WSJ is saying conservatives would not be able to cover as many people as well as the Democrats are on their way to doing under the Affordability Act.
First, let me remind you that the CBO has estimated that the new law would only cover about two-thirds of the uninsured. And, that the standard of coverage demanded by the new law sets the “Silver Plan” as the standard—essentially a typical comprehensive major medical plan with a $1,000 deductible. And, let’s not forget that the Affordability Act would require a family of four making $65,000 a year to pay $6,175 in out-of-pocket annual premiums net of any federal subsidy—hardly what the WSJ called, “heavily subsidized” premiums.
The WSJ laments that there isn’t enough “room to innovate” with tax credits and high deductible plans.
Why not? Why can’t a Republican tax credit plan be devised using the Democrats money pot? I see no reason an actuarially equal conservative high deductible plan that gave any excess Democratic cash to consumers in the form of deposits to Health Savings Accounts can’t be crafted that is financed with tax credits. And, all of those Republican governors’ complaints about Medicaid? Here is the block grant of all block grant offers!
Could a Democratic HHS Secretary play games and deny a state an actuarially sound conservative alternative? Sure but after the offer the President put on the table this week, suffer lots of political consequences doing it.
Could the Democrats rig the game by demanding things like too rich a definition of the standard benefits? Sure. But a Republican governor could also put a more reasonable plan on the table and dare a Democratic HHS Secretary to reject it.
Just how would a Democratic HHS Secretary deny a state any reasonable health care alternative experiment that had just passed both houses of the state legislature and had been signed by the governor?
It is notable that more liberal states like Vermont and Oregon look like they are ready to take up this challenge by crafting even more liberal health plans for their states. You have to give the liberals credit--at least they walk their talk.
By embracing Wyden-Brown, President Obama has offered the Republicans a put up or shut up political challenge: Show me how you can cover as many people as well as we did.
The Republicans are afraid of this challenge? The Republicans don’t think they know how to cover two-thirds of the uninsured for the same money the Democrats are spending? The don’t think they can craft a consumer-driven plan with a health savings account for the same money it will take to provide the “Silver Plan?” They think telling a family of four making $65,000 a year that still has to pay $6,175 for a plan with a $1,000 deductible that they are still too “heavily subsidized”?
If I had been advising the Republicans this week I would have told them that focusing on criticizing the benefit side of the new health care law, as they all did, was the wrong strategy.
Where they could have been critical of the President’s challenge, and still been consistent with their past arguments and objections to the new law, would have been to point out that the $1 trillion Democratic money pot they would have to use to fund their alternative comes from the new law’s tax increases and Medicare cuts they opposed last year. In essence, they could have pointed out that they still oppose having to fund their version of health care with the “fruit from an objectionable tree.”
I still think it’s tantamount to immoral to raise $500 billion over ten years in taxes to pay for this, and not go after the real problem of cost, when about everyone believes there will be many trillions of dollars of waste in our health care system over those same ten years.
But for one Republican after another to admit that they couldn’t take their state’s share of a trillion dollars and use it to craft a health care system that covered their portion of the 32 million more people, using the new law’s modest “Silver Plan” as the standard of coverage, and still leaving big gaps in premium support for the middle class, that was startling to watch.
They better have a health care plan they believe in come 2012.
They also had better be able to explain it.
Last weekend, President Obama endorsed the Wyden-Brown bill that would give the states the opportunity, in 2014, to take their share of the almost $1 trillion the new health law collects and use it to craft an alternative health care plan to their liking.
With Republicans now controlling the “trifecta” in 16 states—the governorships as well as the state legislatures—it is a very interesting offer.
I found an editorial this week in the Wall Street Journal criticizing the offer puzzling.
In an editorial titled, “Obama’s Health Waiver Gambit—the White House offers the mirage of state flexibility," they wrote:
Mr. Obama's new faith in federalism is trailed by his customary rhetorical asterisk. Any state that the Administration decided deserved a waiver would still need to cover the same number of uninsured, and its coverage would still need to include the same comprehensive benefits and be as "affordable" as the Administration says it should be. That is, it must be as heavily subsidized.Say what? Getting rid of the individual mandate—the thing Conservatives are focusing their Constitutionality challenges on—is only an offer to jettison “a minor release valve?”
So perhaps states could opt out of some consumer or employer mandates, which is a minor release valve. But they would still need to find other mechanisms to achieve the same liberal priorities, which in practice leaves little room to innovate—especially for a straight tax deduction or credit to purchase individual coverage or alternative insurance designs like high-deductible or value-based plans.
It looks to me like the WSJ is saying conservatives would not be able to cover as many people as well as the Democrats are on their way to doing under the Affordability Act.
First, let me remind you that the CBO has estimated that the new law would only cover about two-thirds of the uninsured. And, that the standard of coverage demanded by the new law sets the “Silver Plan” as the standard—essentially a typical comprehensive major medical plan with a $1,000 deductible. And, let’s not forget that the Affordability Act would require a family of four making $65,000 a year to pay $6,175 in out-of-pocket annual premiums net of any federal subsidy—hardly what the WSJ called, “heavily subsidized” premiums.
The WSJ laments that there isn’t enough “room to innovate” with tax credits and high deductible plans.
Why not? Why can’t a Republican tax credit plan be devised using the Democrats money pot? I see no reason an actuarially equal conservative high deductible plan that gave any excess Democratic cash to consumers in the form of deposits to Health Savings Accounts can’t be crafted that is financed with tax credits. And, all of those Republican governors’ complaints about Medicaid? Here is the block grant of all block grant offers!
Could a Democratic HHS Secretary play games and deny a state an actuarially sound conservative alternative? Sure but after the offer the President put on the table this week, suffer lots of political consequences doing it.
Could the Democrats rig the game by demanding things like too rich a definition of the standard benefits? Sure. But a Republican governor could also put a more reasonable plan on the table and dare a Democratic HHS Secretary to reject it.
Just how would a Democratic HHS Secretary deny a state any reasonable health care alternative experiment that had just passed both houses of the state legislature and had been signed by the governor?
It is notable that more liberal states like Vermont and Oregon look like they are ready to take up this challenge by crafting even more liberal health plans for their states. You have to give the liberals credit--at least they walk their talk.
By embracing Wyden-Brown, President Obama has offered the Republicans a put up or shut up political challenge: Show me how you can cover as many people as well as we did.
The Republicans are afraid of this challenge? The Republicans don’t think they know how to cover two-thirds of the uninsured for the same money the Democrats are spending? The don’t think they can craft a consumer-driven plan with a health savings account for the same money it will take to provide the “Silver Plan?” They think telling a family of four making $65,000 a year that still has to pay $6,175 for a plan with a $1,000 deductible that they are still too “heavily subsidized”?
If I had been advising the Republicans this week I would have told them that focusing on criticizing the benefit side of the new health care law, as they all did, was the wrong strategy.
Where they could have been critical of the President’s challenge, and still been consistent with their past arguments and objections to the new law, would have been to point out that the $1 trillion Democratic money pot they would have to use to fund their alternative comes from the new law’s tax increases and Medicare cuts they opposed last year. In essence, they could have pointed out that they still oppose having to fund their version of health care with the “fruit from an objectionable tree.”
I still think it’s tantamount to immoral to raise $500 billion over ten years in taxes to pay for this, and not go after the real problem of cost, when about everyone believes there will be many trillions of dollars of waste in our health care system over those same ten years.
But for one Republican after another to admit that they couldn’t take their state’s share of a trillion dollars and use it to craft a health care system that covered their portion of the 32 million more people, using the new law’s modest “Silver Plan” as the standard of coverage, and still leaving big gaps in premium support for the middle class, that was startling to watch.
They better have a health care plan they believe in come 2012.
They also had better be able to explain it.
Tuesday, March 1, 2011
Defined Contribution Health Care—The Conservatives' Silver Bullet
Conservatives are in a full court press these days telling us the answer to America’s out-of-control health care costs—and our fiscal crisis—is to move Medicare, Medicaid, and the tax code subsidy for private insurance to a defined contribution system.
Instead of the federal government defining a benefit and then shouldering the cost of whatever that promise leads to (today’s defined benefit plan), many conservatives are suggesting that we gradually move to a system where the government only promises an annual payment (or tax credit) for health care in the form of a voucher and then the consumer uses it (arguably more efficiently) to buy one of many health plans competing for their business.
First, let me tell you that I think defined contribution health care is generally a good idea. For too long the federal tax system and Medicare policy has subsidized careless health care spending.
Many worry that defined contribution health care would lead to poor people getting second-class health care because they would not be able to afford more than the voucher allows them. That is a legitimate concern and while that outcome can be tempered it cannot likely be eliminated. But that also occurs today, as many seniors have nothing more than a combination of Medicare and Medicaid while the wealthier can afford much better supplemental insurance. And, it will occur in the future under the Affordability Act because the new federal health care subsidies are based on the more limited plans available.
But I will also tell you that it is naïve to think the way to control health care costs is to simply move to a more market-oriented defined health care system.
We’ve had forms of defined contribution health care in the health benefits business for at least 20 years. It has long been common for employers to fix their contribution and then offer a cafeteria-like set of health plan choices. Not only has that approach not controlled costs, it has become somewhat passé as many employers have been disappointed with the results and more recently gone back to consolidating their health plan offerings.
Many conservatives cite the Federal Employees Health Benefit Plan (FEHBP) as an example of a defined contribution program that has worked. It is very well run. But just where is the full cost of a federal worker’s health benefits under control, sustainable, and affordable or measurably lower than any other large employer?
The argument goes that if consumers have vouchers then health plans will compete with each other to control costs and make health care more affordable. Well, isn’t that what has been going on in all of these defined contribution employer plans over the years? And, just where are the affordable plans?
And, isn’t this what the Medicare Advantage program of private choices has been about? It has been operating in one form or another for more than 20 years. And, once again, where are the private plans that are less costly than Medicare? Hasn’t the recent health care debate been about the extra payments, above the cost of standard Medicare, that these plans have been receiving?
The health care industry actually took a pretty impressive run at offering health plans that worked hard to control costs back in the post-Clinton Health Plan period of the mid and late 1990s. The insurers did such a good job of screwing down the provider costs and limiting “unnecessary” care that we got the “Patient Rights Rebellion” (or maybe it was the “Provider Rights Rebellion”).
When employers and consumers actually had the chance to choose lower cost plans with more limited networks and tighter cost controls they rejected them. When that was all there was available to employees, they rebelled and employers ran from them. The result was a movement away from pure HMO plans in the late 1990s and a return to fee-for-service models.
What makes conservatives think the consumer/voter won’t rebel again when they figure out the voucher doesn’t give them the health care they think they are entitled to? What makes the conservatives think the politicians won’t chicken out and just keep increasing that voucher at unaffordable levels just like they now keep bailing out the less powerful physician lobby?
I think defined contribution health care is a productive tool that has a lot of potential to make consumers more careful purchasers and health plans more cost effective sellers of insurance—when it is part of a more comprehensive approach to unavoidable cost containment and value-based purchasing—when we also say no.
But then I guess I can be criticized for believing in “Death Panels.”
But defined contribution health care as a standalone strategy to fix what ails the American health care system without having to face real limits on what we pay and what we pay for? That is naïve.
But that argument does have some political appeal to the right (albeit not to the left) because it offers a somewhat painless solution—you still have the right to have whatever you want and no one is going to take away or limit anything you have today. Magically, we’ll all be enlightened purchasers happily cognizant of the health plan offering us both the lowest cost and the best brain surgery in town and everyone will have affordable health insurance.
To me, hearing a conservative say the answer to America’s health care (and deficit) problem is a defined contribution health care system that reinvigorates the markets is as naïve as hearing a liberal saying that a single-payer government-run health care system will magically give everyone the health care they need for an affordable price.
Instead of the federal government defining a benefit and then shouldering the cost of whatever that promise leads to (today’s defined benefit plan), many conservatives are suggesting that we gradually move to a system where the government only promises an annual payment (or tax credit) for health care in the form of a voucher and then the consumer uses it (arguably more efficiently) to buy one of many health plans competing for their business.
First, let me tell you that I think defined contribution health care is generally a good idea. For too long the federal tax system and Medicare policy has subsidized careless health care spending.
Many worry that defined contribution health care would lead to poor people getting second-class health care because they would not be able to afford more than the voucher allows them. That is a legitimate concern and while that outcome can be tempered it cannot likely be eliminated. But that also occurs today, as many seniors have nothing more than a combination of Medicare and Medicaid while the wealthier can afford much better supplemental insurance. And, it will occur in the future under the Affordability Act because the new federal health care subsidies are based on the more limited plans available.
But I will also tell you that it is naïve to think the way to control health care costs is to simply move to a more market-oriented defined health care system.
We’ve had forms of defined contribution health care in the health benefits business for at least 20 years. It has long been common for employers to fix their contribution and then offer a cafeteria-like set of health plan choices. Not only has that approach not controlled costs, it has become somewhat passé as many employers have been disappointed with the results and more recently gone back to consolidating their health plan offerings.
Many conservatives cite the Federal Employees Health Benefit Plan (FEHBP) as an example of a defined contribution program that has worked. It is very well run. But just where is the full cost of a federal worker’s health benefits under control, sustainable, and affordable or measurably lower than any other large employer?
The argument goes that if consumers have vouchers then health plans will compete with each other to control costs and make health care more affordable. Well, isn’t that what has been going on in all of these defined contribution employer plans over the years? And, just where are the affordable plans?
And, isn’t this what the Medicare Advantage program of private choices has been about? It has been operating in one form or another for more than 20 years. And, once again, where are the private plans that are less costly than Medicare? Hasn’t the recent health care debate been about the extra payments, above the cost of standard Medicare, that these plans have been receiving?
The health care industry actually took a pretty impressive run at offering health plans that worked hard to control costs back in the post-Clinton Health Plan period of the mid and late 1990s. The insurers did such a good job of screwing down the provider costs and limiting “unnecessary” care that we got the “Patient Rights Rebellion” (or maybe it was the “Provider Rights Rebellion”).
When employers and consumers actually had the chance to choose lower cost plans with more limited networks and tighter cost controls they rejected them. When that was all there was available to employees, they rebelled and employers ran from them. The result was a movement away from pure HMO plans in the late 1990s and a return to fee-for-service models.
What makes conservatives think the consumer/voter won’t rebel again when they figure out the voucher doesn’t give them the health care they think they are entitled to? What makes the conservatives think the politicians won’t chicken out and just keep increasing that voucher at unaffordable levels just like they now keep bailing out the less powerful physician lobby?
I think defined contribution health care is a productive tool that has a lot of potential to make consumers more careful purchasers and health plans more cost effective sellers of insurance—when it is part of a more comprehensive approach to unavoidable cost containment and value-based purchasing—when we also say no.
But then I guess I can be criticized for believing in “Death Panels.”
But defined contribution health care as a standalone strategy to fix what ails the American health care system without having to face real limits on what we pay and what we pay for? That is naïve.
But that argument does have some political appeal to the right (albeit not to the left) because it offers a somewhat painless solution—you still have the right to have whatever you want and no one is going to take away or limit anything you have today. Magically, we’ll all be enlightened purchasers happily cognizant of the health plan offering us both the lowest cost and the best brain surgery in town and everyone will have affordable health insurance.
To me, hearing a conservative say the answer to America’s health care (and deficit) problem is a defined contribution health care system that reinvigorates the markets is as naïve as hearing a liberal saying that a single-payer government-run health care system will magically give everyone the health care they need for an affordable price.
Tuesday, February 15, 2011
Will the Congress Change the Health Care Law During the Next Two Years?
No. But I expect the Patient Protection and Affordability Act to be “relitigated” in 2013, to one degree or another.
I recently posted on the controversy over the individual mandate. I suggested a number of alternatives to the mandate—including my own ideas.
I was asked if I really thought the Congress would change the individual mandate in the short term.
As I have posted before, it will be the Democrats who will be calling for repealing the individual mandate and replacing it with an alternative—particularly the vulnerable Senators up for reelection in 2012.
Ironically, it will be the Republican opponents to the new health law and the individual mandate who will block them. The Republicans are not about to take the Democrats off the political hook the very unpopular individual mandate represents for them. Republicans are also not about to remove the potential ticking Constitutional time bomb the mandate presents—it could take the whole law down.
Until we hear from the Supreme Court and get the results of the 2012 elections we are going to hear a lot of rhetoric from both sides but I don't see any changes to core pieces of the legislation. Yes, the Congress will likely repeal the peripheral revenue raising 1099 provision and there could be some current budget cuts HHS is going to have to work around.
But the early provisions of the bill—things like keeping your kids on your policy until age-26—will continue until we at least here from the Supremes.
But in 2013, I see the potential to revisit the law:
But it looks to me like we are only two years away from some critical Congressional votes on the new health care law. In that context, the debate has begun and it isn't just a theoretical exercise.
In an earlier post, I outlined a number of areas where I thought Democrats and Republicans could eventually come to an agreement:
I recently posted on the controversy over the individual mandate. I suggested a number of alternatives to the mandate—including my own ideas.
I was asked if I really thought the Congress would change the individual mandate in the short term.
As I have posted before, it will be the Democrats who will be calling for repealing the individual mandate and replacing it with an alternative—particularly the vulnerable Senators up for reelection in 2012.
Ironically, it will be the Republican opponents to the new health law and the individual mandate who will block them. The Republicans are not about to take the Democrats off the political hook the very unpopular individual mandate represents for them. Republicans are also not about to remove the potential ticking Constitutional time bomb the mandate presents—it could take the whole law down.
Until we hear from the Supreme Court and get the results of the 2012 elections we are going to hear a lot of rhetoric from both sides but I don't see any changes to core pieces of the legislation. Yes, the Congress will likely repeal the peripheral revenue raising 1099 provision and there could be some current budget cuts HHS is going to have to work around.
But the early provisions of the bill—things like keeping your kids on your policy until age-26—will continue until we at least here from the Supremes.
But in 2013, I see the potential to revisit the law:
- If the Supreme Court throws it all out—not likely but not impossible—we will have to start over.
- If the Supreme Court overturns only the individual mandate—not likely but very possible—the imperative to fix that will open the entire bill up to changes as part of the bigger deal that will be required for both sides to come to agreement. The conservatives would want more in exchange for their votes than to just fix this one piece.
- Even if the Republicans sweep the elections—the White House and both houses of Congress—I can’t see how they will have 60 Senate seats and compromise will be needed for some critical non-budget changes with or without a Supreme Court ruling.
- If the Republicans only make modest gains or even lose seats (this election shouldn’t be taken for granted by either side), Democrats will still be facing an unpopular individual mandate and at least have some political incentive to do some fixing—most of those polled believe the law at least needs some improvement. Although, a big Democratic victory would likely mean no incentive for them to open the law up again in 2013 to any fundamental change.
But it looks to me like we are only two years away from some critical Congressional votes on the new health care law. In that context, the debate has begun and it isn't just a theoretical exercise.
In an earlier post, I outlined a number of areas where I thought Democrats and Republicans could eventually come to an agreement:
Improving The Health Law In 2011: Realistic Ways To Reach Bipartisan Compromise
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