Bending the Cost Curve Up
...
...One of the reasons that healthcare is so expensive in the United States is because, paradoxically, it’s so cheap – with Americans paying just 13 cents on every health dollar directly, they tend not to economize. They opt for a brand-name drug when a generic is as good; they get the extra test when it isn’t indicated; they demand specialist consults when good primary care would suffice.
Obamacare does little to address this fundamental economic problem. It would allow millions of Americans to join Medicaid (essentially, a zero-dollar insurance) and lavish subsidies on millions more; it would demand first dollar coverage for many health services and dictate the size and scope of insurance. In other words, it would address a system plagued by subsidies and regulations with more of the same.
The White House touts various aspects of the legislation as being consistent with future cost savings. Director Orszag, for example, is a big proponent of “game changing” new ways of delivering health care. He is particularly excited about the House and Senate bills including the rewarding of Accountable Care Organizations. ACOs are the flavor of the month – even a New Yorker essay waxed poetic about their potential – but little evidence supports the benefits of their widespread implementation.
Of course, the White House pushes other “pillars” of cost saving. Director Orszag writes about them in a recent Washington Post essay.
First and foremost: deficit neutrality. But the House and Senate bills are effectively gaming CBO scoring – both bills collect tax for years before actually achieving program implementation, thereby skewing the numbers to look more responsible than they are. It’s difficult to see how this actually has anything to do with “bending the curve” for a sixth of the national economy.
Next: a tax on high-cost insurance plans. A tax on “Cadillac” plans, as they have become known, isn’t necessarily a bad idea and does have the potential to encourage people to get lower-cost insurance policies; the basic proposal is not unlike what President George W. Bush proposed in a later State of the Union address. Follow the logic: if the issue is that people are over-insured, in part because the tax code allows employer-sponsored health insurance to be paid in pre-tax dollars, we’ll target the gold-plated plans.
But Obamacare has a gross limitation: it also sets up a bureaucratic structure to define what is a basic insurance policy. In the House bill, for instance, all insurance policies will have to cover orthotics. Mandated services and providers push up the cost of coverage. In other words, yes, the tax on Cadillac plans would encourage people to shop for more basic coverage, but would basic plans really exist? Looking at states like Massachusetts and New York, the answer seems to be potentially no.
Finally, Director Orszag favors the idea of a commission to temper and steer Medicare spending. He originally called it IMAC (The Independent Medicare Advisory Commission); the Senate bill establishes IMAB (The Independent Medicare Advisory Board). Semantics aside, the Commission would use a “comparative effectiveness analysis” to direct how doctors prescribe treatments, restraining health inflation by imposing cost-cutting decisions on doctors. IMAC will have the power to reject treatments, devices or drugs for Medicare coverage unless specifically vetoed by Congress. In theory, IMAC’s guidance on Medicare costs will then be adopted by other government agencies and the private sector.
IMAC sounds bold; both the Senate and the House have been busy watering down the idea. See, for example, the excellent article by Time’s Karen Tumulty – among other exemptions that Senators have been working into proposed legislation: hospital funding would be untouchable before 2019.
There’s a larger issue here, though: is the IMAC idea even practical? It assumes that government management results in cost savings.
Now, granted, it’s long been established that countries with government-run healthcare systems have ended up with rationed care. On a per capita basis, for example, Canada has half the number of CAT scanners and a third the MRIs of the United States. One result: waiting lists for practically any health service. And the quality of care suffers, witness the superiority of American cancer outcomes.
But do these systems actually restrain costs? Historically the answer has been yes. Countries like Canada and Britain spend a fraction of their GDP on health care, compared to the United States. But, in recent years, the spending trend has been quite similar – government-run healthcare, like American healthcare, has seen significant health inflation. Between 2000 and 2006, the average real annual growth rate for health expenditures for OECD member countries was 4.9%; American health inflation over the same period was 4.95%. Thus, the general point about cost control is debatable.
Britain is a good example. Even with top-down management, the annual budget of the National Health Service grew 5% to 10% faster annually than inflation through most of the decade. Here though is a more important observation: government planning committees are exceptionally unpopular and impractical. Britain, for instance, tried to contain the surge by creating NICE – the National Institute for Health and Clinical Excellence, an agency empowered to save money by delaying or rationing “cost-ineffective” treatments. The White House hopes to cut countless billions from Medicare with the same approach, passing tough decisions to an independent commission separate from Capitol Hill.
Unfortunately, sick patients have a funny way of ignoring tidy lines on government charts. Time and again, NICE ruled against drugs, only to find doctors and families were more persuasive than its reports. An anti-blindness drug – rejected unless patients had already lost one eye – was later approved after a public outcry; NICE dismissed a life-extending kidney drug until a PR campaign forced a reversal. American lawmakers are familiar with such reversals: Congress has often overturned Medicare cuts it enacted. NICE – or an American version like IMAC or IMAB – can’t restrain costs because people rebel.
Many of us who study American healthcare will acknowledge that we need to “bend the curve.” At this point, though, the Obama White House has engineered a reform package that would seem to bend the curve – up.
frumforum.com |
