August 2, 2009
Editorial
Curbing Runaway Health Inflation
This year’s effort to reform health care revolves around two powerful, conflicting imperatives. One is to cover tens of millions of uninsured Americans. The other is to absorb the enormous cost of that plan — which could reach $1 trillion over 10 years — without increasing the budget deficit in the next decade or setting the nation on a course that will drive up deficits later.
It is easier to see how to accomplish the first task than the second. But Congress should not slow the push for near-universal coverage while it looks for ways to apply the brakes to the growth in costs. We can be virtually certain that the reforms enacted will be deficit-neutral over the first 10 years. President Obama and Democratic leaders will find cuts in Medicare and raise sufficient taxes to offset the initial cost of insurance expansion.
It is much harder to find ways to slow inflation in health care costs. Peter Orszag, Mr. Obama’s budget director, has been searching for what he calls “game changers” that can “bend down the cost curve” in coming years. The question is how well he and Congressional champions of health care reform have succeeded.
WHY IT’S IMPORTANT The skyrocketing cost of health care is driving up federal deficits, threatening to bankrupt Medicare, forcing employers to cut or drop benefits, and leaving workers and their families with unaffordable bills. Even a relatively small reduction in the average annual growth rate over the next decade — from, say, 6.2 percent to 4.7 percent — could save more than $2 trillion for the health care system and hundreds or thousands of dollars for the average family. There is an enormous amount of money in the health care system, much of it spent on tests and procedures that do not improve health. It should be possible to wring out some of that spending.
HOW CAN WE JUDGE SUCCESS? Douglas Elmendorf, director of the Congressional Budget Office, testified in mid-July that he saw no fundamental changes offered by the bills then emerging that would reduce the trajectory of federal health spending significantly. The implication was that the pending bills could actually make deficits bigger after the initial break-even decade. That’s because covering the uninsured would increase federal spending and a high rate of medical inflation applied to that larger base would make future deficits worse. However, Mr. Elmendorf was looking only at bills that had cleared committees, which did not include one still being fashioned by the pivotal Senate Finance Committee.
Senator Max Baucus, the Democrat who heads that committee, revealed last week that the C.B.O. had evaluated a draft of his bill and concluded that it would cover 95 percent of all Americans, for a cost below $900 billion, and would actually start reducing the deficit in 2019. That is better than the administration’s goal of being deficit-neutral in that final year, but we will not know for sure until the C.B.O. issues a verdict on a final bill.
The budget office provides vitally important guidance to Congress, but focuses primarily on how new legislation might affect federal spending and federal deficits. The office gives only a cursory glance at how reforms might cut costs for the overall system and yield savings for employers, families and state and local governments, the issue that concerns most people.
Moreover, the office makes middle-of-the road estimates of cost and more pessimistic estimates of savings. That makes sense (lawmakers and government agencies routinely exaggerate the virtues of their proposals), but it makes it harder to evaluate proposed innovations.
Respected analysts who are not bound by the C.B.O.’s conservatism have projected significant savings from reforms that the C.B.O. scores poorly. The Commonwealth Fund, a research organization, and David Cutler, a Harvard health economist, separately estimate that an array of reforms could save the government hundreds of billions of dollars in the first decade and the health care system even more. These estimates, coming from advocates of reform, may be too rosy, but underscore the point that the C.B.O. may undervalue savings.
POTENTIAL GAME CHANGERS It seems hard to believe that over the long haul the introduction of electronic medical records will not save substantial money. It would help eliminate the costly repetition of tests, and prevent medication errors that harm patients and lead to costly hospitalization. But it takes money to get started (Mr. Obama’s stimulus package calls for $50 billion over five years) and time to overcome physicians’ reluctance. Savings in the first decade, if any, are likely to be small.
So, too, it seems likely that a stimulus investment of $1.1 billion in comparative effectiveness research to gauge which medicines and procedures work best is likely to pay off in future decades.
The approach has been wrongly portrayed as an effort by government bureaucrats to dictate “cookbook” medicine that will prevent doctors from doing what’s best for their patients and lead to rationing of care. More than 60 physicians’ groups have urged Congress to make comparative effectiveness research an important component of reform. They believe the information would help doctors and patients understand which treatments work best. In some cases, the better treatments might be more expensive, in others less. Either way, patients benefit.
And so it goes, through such ideas as changing Medicare’s payment incentives to encourage better care not just more care, and to encourage new arrangements of doctors and hospitals that might control costs and provide more coordinated care than the fee-for-service system does. All will take time to bear fruit.
TAXES One way to keep deficits in check would be to impose taxes within the health care system instead of more broadly, which should ensure that revenues increase at the rate of health care inflation. A tax on the value of an employer’s contribution to insurance could lead beneficiaries to choose cheaper policies and think twice before undergoing costly tests. We have been leery of recommending a tax that would affect many workers, but a tax on very expensive plans might make sense.
OTHER IDEAS The administration seems to have scoured the health policy literature for ideas, and its proposals reflect the thinking of the nation’s leading experts. Most of these ideas would first be tried on a small scale in Medicare — to see if they reduced costs while improving or at least maintaining the quality of care — before being adopted on a wide scale in government programs. Ideas that work for Medicare would presumably migrate out to the private sector.
We believe that some of the reforms in pending legislation could be strengthened. Both public and private insurance plans, for example, should be allowed — not forbidden — to base reimbursement policies on comparative effectiveness findings. But for the most part, the nation is embarking on a long-term experiment to see what works, so small-scale tests and pilot programs seem appropriate.
THE OVERSEER With so much uncertainty, it seems imperative to ensure that the government can change course rapidly to drop approaches that do not work and expand approaches that do. Proposals have been made to create an independent commission of experts, responsible to either the president or Congress, to perform this function at a step removed from the distorting influences of political lobbying.
It is a good idea, if the commission has sufficient power and resources to do an effective job. The panel should be directed to pursue both cost reduction and quality improvement. It should be given cost reduction targets to meet and a mandate to impose across-the-board cuts in Medicare if it falls short. It should have sufficient resources to evaluate and sponsor studies, a membership beholden to no special interest, and be insulated from political pressure by requiring Congress to approve or reject recommendations as a package, without fighting over individual items of interest to lobbyists.
WRONG-HEADED CRITICISM The Republican Party has started a campaign charging that President Obama is conducting a dangerous and reckless experiment in health care reform that will damage the economy, kill jobs, drive up health care costs, and harm patients. That is a bit hard to take after the Bush administration’s reckless squandering of government surpluses with tax cuts for wealthy Americans that cost $1.7 trillion over 10 years and an expensive Medicare drug benefit that is projected to cost almost $1 trillion over the next 10 years, without making provisions to cover their costs.
The Obama administration is paying meticulous attention to the need for offsets and new revenues. Most important, it seems headed in the right direction to finally slow the rate of growth in health care spending — a beast that has defied past efforts to tame it.
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