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Controlling the Medicare Budget — Time to Fast Forward to 1999?

The Congressional Budget Office estimates that the government deficit will exceed one and a half trillion dollars this year, with federal health care annual expenditures expected to hit the trillion dollar mark by 2012. The largest federal health care program is, of course, Medicare, with costs projected to be close to $600 billion in 2012, and growing at around seven percent a year thereafter, although forecast to drop to a mere six percent annual increase if and when the Accountable Care Act is fully implemented.

Republicans and Democrats have each offered proposals to reduce projected Medicare expenditures, Republicans by shifting much of the cost of the program to beneficiaries, Democrats by passing responsibility to the already hobbled and politically endangered Independent Payment Advisory Board. Neither proposal has any realistic chance of passage.

Maybe it’s time to blow the cobwebs off the 1999 proposal from the National Bipartisan Commission on the Future of Medicare.

The Commission, co-chaired by Democratic Senator John Breaux and Republican Representative Bill Thomas, was created by Congress as part of the Balanced Budget Act of 1997, back when bipartisan cooperation was still sometimes possible. The Commission spent nine months examining Medicare’s program structure and costs and alternative approaches to reform, with the two co-chairs issuing their joint recommendation in March 1999. The co-chairs’ recommendation was, however, supported by only ten of the seventeen Commission members, one short of the number required for formal adoption, with the more liberal members generally opposed to the proposal’s cost control approach. Ironically—in the light of subsequent economic events—one key reason for the failure of the co-chairs’ proposal to gain more support was the booming economy of the later Clinton years, combined with the success of already enacted program changes dictated by the Balanced Budget Act.

Despite its failure to achieve the two-thirds majority needed for adoption, the 1999 proposal includes some recommendations that together look more practicable and potentially more politically acceptable than those of either Representative Ryan’s Republican plan or President Obama’s Democratic proposal:Continue reading…

IPAB — The New Punching Bag

Remember death panels? Politicians have found a new way to use health care reform as a punching bag.

The Independent Payments Advisory Board (IPAB) will be a 15-member expert panel appointed by the president and approved by the Senate that is charged with coming up with ways of cutting Medicare spending when payments grow significantly faster than the rest of the economy.

Last week, President Obama, in his speech outlining his long-term plan for cutting the deficit, upped the ante for IPAB by ratcheting up the level of cuts the board could impose if the senior citizen health care program grew too fast. Congress, under the law, would have to substitute comparable cuts of its own, or the IPAB’s plan would go into effect.

It didn’t take long for the fireworks to start. The New York Times reported this morning that politicians from both sides of the aisle are lining up not only to deep-six the president’s latest IPAB proposal, but to get rid of it entirely. Republicans like Paul Ryan of Wisconsin cried rationing. Democrats like Pete Stark of California said such decisions are better left in the hands of Congress.Continue reading…

Controlling the Medicare Budget – Two Infeasible Proposals

How to slow Medicare’s escalating costs has been the big health care policy issue this month, with Republicans and Democrats offering competing proposals, each part of broader plans for reducing the federal deficit—projected to be $1.5 trillion this year, with the government borrowing 40 cents for every dollar it spends.

Unfortunately, neither the Medicare proposal of Representative Paul Ryan’s House Budget Committee, nor that offered in response by President Obama, can be considered realistic.

Both proposals do have some merits. Representative Ryan’s plan for switching Medicare to a quasi-voucher premium support program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers. President Obama’s proposed strengthening of the Independent Payment Advisory Board provision of the ACA by lowering the trigger point for IPAB action would force further efforts to reduce costs, while doing much to remove Medicare policy from lobbyist-vulnerable political considerations. Both, if implemented, would effectively guarantee that federal Medicare expenditures would drop dramatically from current projections.

Neither, however, has any chance of enactment. The Congressional Budget Office’s projection of the average 65-year-old paying more than two-thirds of the cost of Medicare coverage by 2030—and more than twice as much as under the present program—almost certainly dooms Representative Ryan’s proposal. (The CBO’s assumption of the continuation of the differential between traditional Medicare and insurers’ equivalent offerings can be questioned, but it’s the forecast of the unfortunate 65-year-old’s 68 percent share of the tab that will resonate for seniors, their lobbyists, and their political supporters.)Continue reading…

The Incredible and Wasteful Complexity of the US Healthcare System

During the health care reform debate, we wrote that most people’s attitudes to it were “confused, conflicted, clueless and cranky.”  A major reason was that the American health care “system” is fiendishly complicated and few people really understand it.   As a result hardly anyone knows much about what is actually in the reform bill (but that does not prevent them from having strong opinions about it).    Sadly, the reforms, whatever their merits, will make the system even more complicated, the administration more Byzantine and the regulatory burden more onerous.

System complexity.

The American healthcare system is already by far the most complex and bureaucratic in the world.  We were once asked to spend ninety minutes explaining American health care to a group of foreign health care executives.  Ninety minutes?  We probably needed a few weeks.  Most other countries have relatively simple systems, whether insurance coverage is provided by a government plan or by private insurance or some combination of these.  But in the United States insurance coverage, for those who have it, may be provided by Medicare Parts A, B, C, and D, 50 different state Medicaid programs (or MediCal in California), Medicare Advantage, Medigap plans, the Children’s Health Insurance Plan, the Women, Infants and Children Program, the Veterans Administration, the Federal Employees Health Benefits Program, the military, the hundreds of thousands of employer-provided plans and their insurance companies, or by the individual insurance market.  This insurance may be paid for by the federal or state governments, by employers, labor unions or individuals.  Some employers’ plans cover retirees, others do not. The result is that the system is pluralistic, mysterious, capricious and impossible for most patients and providers to understand.

Administrative complexity

The administrative complexity is amplified by the multiplicity of insurance plans.  About half of all Americans with private health insurance are covered by self-insured plans, each with its own plan design.  Employers customize their plan documents, led by consultants who make a good living designing their plans and tailoring their contracts. As one prominent consultant told us recently, if all the self-insured plan documents were piled on a table they would not just exceed the 2,700 pages of Obamacare, they would probably reach the moon. For the rest of the commercially insured population, health plans may be traditional indemnity plans, Preferred Provider Organizations or Health Maintenance Organizations.

The coverage provided by different plans varies dramatically.  They may or may not include large or small deductibles, co-pays or co-insurance.  Beneficiaries may pay a large, small or no part of their health insurance premiums.  Some plans cover dependent family members and children, others do not.  The Medicare Part D pharmaceutical benefit plan involves a “doughnut hole,” which will disappear as health reforms are implemented.  Surveys have found that few people fully understand their own insurance plans let alone the bigger picture.  While health reform takes some steps toward standardization of insurance offerings and improving transparency, overall it is likely to increase complexity.Continue reading…

The Road to Wellville: Pilots and Demos?

As might be expected of reform legislation, the Patient Protection and Affordable Care Act places a lot of emphasis on innovation. Reasonably enough, most of the potential changes—at least in Medicare—are to be preceded by pilot or demonstration projects designed to test their feasibility. In fact, according to one health care blogger with time on his hands, PPACA includes no less than 312 mentions of demonstrations and 80 mentions of pilots.

Just how important are all these pilots and demos? Harvard’s David Cutler, who served as a key advisor to the Obama administration in developing the reform strategy, clearly believes they are vital. Writing in the June Health Affairs, he stresses the need for rapid implementation of the pilots and demonstrations in order to help achieve eventual savings of “enormous amounts of money while simultaneously improving the quality of care.”

How realistic are Professor Cutler’s expectations?

CMS’ Medicare chronic care demonstrations provide some clues. With data showing that the costliest 25 percent of beneficiaries account for 85 percent of total Medicare spending and that 75 percent of the high-cost beneficiaries have one or more major chronic conditions, the demonstrations were expected to show big benefits from care coordination—the major theme of PPACA’s proposed demos.

The outcomes were decidedly discouraging, as noted by MedPac’s 2009 report to Congress:

“Results suggest that some of these programs may have modest effects on the quality of care and mixed impacts on Medicare costs, with most programs costing Medicare more than would have been spent had they not been implemented….In almost all cases, the cost to Medicare of the intervention exceeded the savings generated by reduced use of inpatient hospitalizations and other medical services.”

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Myths and Facts About Health Reform Part III

MYTH #1: In negotiations over reform, hospitals were forced to accept sharp cuts in Medicare funding.

FACT: In those negotiations, hospitals come out winners. They “were inside the tent very early on, negotiated a decrease in their Medicare updates that they figured out was acceptable” the Urban Institute’s Bob Berenson explained in a recent Health Affairs roundtable. (Berenson is in good position to analyze the changes: he was in charge of Medicare payment policy and managed care contracting at the Health Care Financing Administration – now called the Centers for Medicare and Medicaid– from 1998 to 2000 )

“And now [hospitals] are off limits until 2020 from the new board that is supposed to [make sure] Medicare hits spending targets,” Berenson added referring to the Independent Payment Advisory Board (IPAB) that will recommend ways to trim Medicare spending if it continues to grow faster than the Consumer Price Index. IPAB begins its work in 2014, but hospitals and hospices are exempt from IPAB”s proposals until 2020.

Moreover, while annual increases in Medicare payments to hospitals will be trimmed slightly, these cuts will be offset by the fact that hospitals will be seeing an influx of paying patients. Beginning in 2014, millions of formerly uninsured patients will no longer need charity care. Granted, the “Disproportionate Share Funding” (DSH) that many hospitals now receive to help defray the expense of caring for a disproportionate share of poor patients will be sliced by 75%, but a portion of the 75% cut will then be distributed back to hospitals, based on how much uncompensated care a particular hospital is still providing.Continue reading…

Myths and Facts About Health Reform Part II

Lobbyists representing the many who profit from our $2.6 trillion health care industry spent millions in the war over healthcare reform. Yet National Journal Contributing Editor Eliza Newlin Carney suggests that “it’s unclear whether all that lobbying, advertising and check-writing yielded much.”

No question, the reform legislation that finally passed falls short of many reformers’ hopes. The public option is gone. Private sector insurers will scoop up all of the new business.  Meanwhile, by agreeing to support reform—and make some financial concessions—Pharma bought protection from generic competition, plus  a promise that it can continue to set prices, without worrying about Medicare trying to bargain for discounts.

Nevertheless, as I argued in part one of this post, Carney has a point. Lobbyists lost on many issues. Under the legislation, insurers who offer Medicare Advantage  are going to lose their windfall payments. Some relied on that corporate welfare to stay in the black.  In addition, insurers who cover large groups will have to pay out 85% of premiums to physicians, hospitals and patients, keeping only 15%. This rule kicks in next year, and makes raising premiums far less attractive. If an insurer lifts premiums by 10%, it will have to increase pay-outs by 8 ½%. Meanwhile a 10% hike means that it the company likely to lose market share, particularly in the more transparent new exchanges that open up in 2014.

Insurers will gain millions of new customers, but the majority will be expensive. Some patients suffering from pre-existing condition will need extensive care, and many others will come from low-income families who, as a rule, are not as healthy as more affluent Americans.  Moreover, between now and 2014, it’s likely that Congress will bring back the public option.

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