Today, a group of progressive think tanks released their response to the deficit: Investing In America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility. As Naomi indicates below, the report represents a collaborative effort by Demos, the Economic Policy Institute (EPI) and The Century Foundation (TCF). Here, I’m focusing on how we can rein in health care spending, but I urge you to read the entire report. It makes it clear that we don’t need the austerity budget that the conservative Peterson-Pew Commission proposes. Instead, we should be focusing on jobs and growth.
Commenting on “Investing in America’s Economy” over at Think Progress, Matt Yglesias highlights a major theme: “No Cost Shifting.” He quotes the report: “Policies that simply shift costs from the federal government to individuals and families may improve the government’s balance sheet but may worsen the condition of many Americans, leaving the overall economy no better off.”
For example, the Peterson Pew Commission would increase cost-sharing under Medicare (see my earlier post on their report), which means that over ten years, it would shift $23 billion of Medicare costs to individual seniors, and over 20 years, Medicare beneficiaries would be asked to absorb an eye-popping $135 billion of the nation’s Medicare bill. The proposal would reduce total spending only if seniors can’t afford the co-pays, and cut back on essential care. This is a crude way to rein in Medicare inflation, rationing care by ability to pay. By contrast, the progressive plan would trim wasteful healthcare spending—such as overpayments to Advantage insurers.
Turning to the section on health care, Yglesias writes: “For the longer-term, like all long-term budget plans they need to rely heavily on fairly speculative assertions about health care costs. But I think that if you dig into it, you’ll find that [Investing in America’s Economy] offers the least hand-waving on this point of any plan I’ve yet seen, though that’s not to say there’s no hand-waving.”
I can see why Yglesias finds some of the analysis speculative. The body of the report talks about long-term savings that cannot easily be “scored” because they flow from unprecedented changes in the structure of our health care system–reforms such as “accountable care organizations” and “bundled payments” that have not been tried on a large scale. Some of these reforms already have succeeded in cities and medical centers across the nation. But it is impossible to predict which pilot projects will succeed, where they will flourish, or just how much they will save. Nevertheless, over time, what cannot be counted is likely to count most. These are the crucial reforms that will turn a fragmented cottage industry into a system that can provide coordinated, high quality care at a lower price.
It is important to recognize that the unprecedented reforms discussed in the body of the report would reap “additional savings” over the long term—beyond the nearly $1 trillion that the Affordable Care Act (ACA) provides between now and 2018 in order to fund the cost of reform. (You will find a short list of some of the ways the ACA funds itself by reducing spending and raising new money in Appendix E, toward the end of the report.)
Savings and Revenues that Can Be Scored
Below, a pie chart from the right-leaning Tax Foundation offers a fuller explanation of how the legislation generates $938 billion through a combination of new taxes and fees.
- $107 billion in fees that insurers, drug-makers and device-makers have already agreed to contribute, knowing that 32 million formerly uninsured Americans will bring them new business. These businesses have calculated that they can afford to pay these fees out of new revenues; if they try to raise prices to cover the fees, they will meet great resistance from insurance regulators and Medicare
- an estimated $69 billion that individuals and employers who decide not to purchase insurance will shell out
- as much as $32 billion in excise taxes that employers will pay in on super-expensive “Cadillac” health plans beginning in 2018
- $210 billion in higher Medicare taxes that individuals earning over $200,000 (and couples earning over $250,000 will pay.) The tax hikes apply only to those in the top 2%, and they are not too steep: an individual earning $250,000 would owe an extra $450.
These are not “hoped-for” savings that depend on someone responding in a positive way to new incentives. This is $454 billion that reformers can count on. (Granted, two numbers on the list are estimates: we can’t be sure how many employers will offer “Cadillac plans” in 2018, or how many people will decide to pay penalties rather than buying insurance. Revenues from these fines could be lower-or higher.)
In addition, the legislation generates $461.5 billion in savings by reining in Medicare spending—without cutting needed benefits, increasing co-pays and deductibles, or slashing physicians’ reimbursements. Medicare achieves more than three quarters of those savings by:
- Reducing over-payments to Medicare Advantage private insurers by $136 billion. As I explain here while some seniors might lose certain extra benefits such as free eye-glass frames, Advantage seniors themselves say that the extras are worth only about 14% of what Medicare is shelling out for them. And there is no evidence that the freebies offered by the vast majority of Advantage plans improve seniors’ health. Meanwhile, Secretary of Health and Human Services Kathleen Sebelius has used new authority given to her under the ACA to persuade Advantage insurers to lower average premiums. Despite dire predictions, the ACA has made Advantage plans more affordable for many, without reducing access for seniors who prefer Advantage.
- Trimming $22.1 billion from the support that Medicare and Medicaid provide for hospitals that care for a disproportionate number of uninsured patients ("DSH" payments). Because roughly 32 million formerly uninsured Americans will have coverage, hospitals won’t need as much help. Initially Medicare plans to trim these subsidies by 75%, and then adjust them as it becomes clear which hospitals still treat a large number of those who remain uninsured.
- Shaving annual increases to hospitals, nursing homes and home health agencies by 1%, saving the Centers for Medicare and Medicaid another $196 billion. The goal here is to spur these institutions to become more efficient by designing better systems, and reducing errors. In an upcoming post (“How Reform Law Funds Itself, Strengthens Medicare, and Cuts the Deficit: Part 2”) I will explain how hospitals can do this. Both the Medicare Payment Advisory Commission (MedPac) and the Institute for HealthCare Improvement (co-founded by Don Berwick, who now heads Medicare) have paved the way, showing where hospitals could lift productivity while offering safer, better-coordinated care.)
These three items alone represent $354 billion of the $416.5 billion in Medicare savings. In addition, Medicare is adjusting payments for Home Health Care by $39.7 billion and reducing Part D (prescription drug) subsidies for high-income beneficiaries by $10.7 billion, while spending an additional $42.6 billion to fix the “donut hole” in the prescription drug program.
Add that $416.5 billion to the $454 billion outlined above, and you can see how the Accountable Care Act pays for universal coverage, while putting Medicare on the path to financial solvency.
“Policies that simply shift costs from the federal government to individuals and families may improve the government’s balance sheet but may worsen the condition of many Americans, leaving the overall economy no better off.”
Yet that is what I see in the pie chart presented. Money simply does not grow on trees, when you tax a company more, it goes back into their pricing. When you reimburse a fixed cost hospital less in one area, they must make it up in another area to survive. When a medicare patient pays more, or a tax payer gets fined, or a pharma or device maker “gives” money it comes from somewhere.
All I can see if that more money is being poured into money driven medicine, and this is bound to make things worse.
Look, I respect all of these wonderful intentions to fix things, but these same intentions by good docs and nurses over the last 4 decades didn’t work to reduce costs, rather the costs spiraled out of control.
This is not a situation that can be band-aided or tweaked into alignment. Healthcare finance today is a great example of a problem that may be best addressed by creative destruction. Better to do this sooner rather than later.
Joe:
The cost-shifting should not come as a surprise. Afer all the article stated that progressive’s came up with these savings so there is no place for logic.
Joe–
You ignore the fact that under the Affordable Care Act (ACA) insurers cannot raise premiums without justifying increases to state or federal regulators.
In addition, this year, the Secreatry of HHS used the new authority that she has under the ACA to bring premiums for Medicare Advantage plans down by an average of 1% for next year. She also forced insurers to cut exorbitant co-pays for expensive drugs.
I understand that most people don’t have time to read the ACA. But please don’t assume that the ACA means business as usual.
Under the ACA, the rules of the game have changed– radically.
For the past 10 years, insurers have been paying drug-makers, device-makers and hospitals more and more–while passing the cost on in the form of higher premiums.
Now, that will be much harder. State regulators are not going to buy the argument that premiums must go up becaause brand-name hospitals are gouging the insurer.
Insurers will be expected to do their job–push back, and refuse to overpay.
Drug-makers and device-makers are going to have a much harder time shifting costs by raising prices.
Meanwhile, under the Affordable Care act, increases in Medicare payments to hospitals will be reduced by 1% a year.
We’re talking about billions of dollars. This will force hospitals to become more efficient.
In addition, if Medicare spending rises by more than the consumer price index (inflation in the cost of most consumer goods) plus 1% in a given year, the Independent Payment Advisory Board is required to cut spending –without reducing benefits or increasing co-pays.
This will mean cutting payments for waste– products and services that put patients at risk while providing little or no benefit as well as hospital errors that hurt patients while hiking the cost of care.
Private insurers have said that they will follow Medicare’s lead. They don’t want to overpay either. But they want Medicare to provide political cover.
Congress won’t be able to interfere with what the Independent Payment Advisory Board decides to do unless legislators can come up with equal Medicare savings –without raising co-pays & deductibles or cutting benefits.
Since most people haven’t read the ACA, they don’t realize how radical it is. The ACA shifts a huge amount of power from Congress (where lobbyists interfere with reform) to the HHS>
Wisely, those crafting the bill wove these radical changes into the details of the bill. During the debate over the bill, these details never made headlines. (Most journalists didn’t read the whole bill either. In an era when newspapers and magazines have been down-sizing, those who still have jobs don’t have the time.)
But the cumulative effect of these details will change the system: reining in spending, while lifting the quality of care.
Henry–
Your comment offers no information, no research no analysis.
Dear Maggie,
Just saying it doesn’t make it true. Throughout your answer to me you just say things will be different when there is no factual basis to believe it. Your flat statement that “State regulators are not going to buy the argument that premiums must go up …” stuns me in its naivety. I say simply ‘as if.’
In my humble opinion, you have fallen prey to wishful magical thinking. If state regulators had the interests of the citizens paramount, we wouldnt have such a large problem today.
Putting your hopes on the activities of the Secy of HHS does not sound like it will work to the rest of us. You may believe that “Congress won’t be able to interfere with what the Independent Payment Advisory Board decides.” But I see that as a misunderstanding of who makes the rules in a representative democracy.
Indeed, believing that the PAB will be above the potential of being lobbied or cajoled by their buddies to hand out favor to some, many, and then all is directly at odds with what we have seen in similar bodies in the past.
Self policing of doctors by doctors (or lawyers by lawyers or business folks by business folks for that matter) has never ever ever worked. It is structurally unsound.
Through the ACA, we are pouring more and more money into a hog trough already feeding an army intent on eating as much as possible and making the trough bigger.
I understand that you believe a law can control things. I simply don’t believe the same thing.
The basic problem remains that there is a misalignment between the self interest of the providers, insurance cos, and drug/device maker employees and societal interest. I favor changing the system such that the self interests are more aligned with societal interests. This would work much better than believing that legislating a change to counter self-interest will work when it never has.
And just because you and I disagree, that doesn’t mean I should be ridculed, treated like I can’t read or have no understanding or have my post deleted.
I have seen all of this from the inside not as a journalist or a policy maker. I know exactly how bad things are in US healthcare today. I have talked to the PR and lobby folks before and after they talk to journalists and lawmaking. I know how they are buffaloing things.
As I have said before, this is pop guns toting do-gooders vs high tech special forces mercenaries with big incentives. Only changing the landscape can win this battle.
Joe-
As they say, everyone has a right to his own opinions, but not to his own facts.
The legislation states very plainly that IPAB’s recommendations automatically go into effect unless Congress can find equal savings in Medicare without cutting benefits or increasing cost-sharing. And Congress has a limited window. If memory serves, it’s 60 days.
The same process (circumventing Congress) has been used in the past to close military bases.
Please at least Google a subject like “Independent Payment Advisory Board” before using this blog as a platform for false statements.
You ignore what state regulators have already already done in response to insurers who want to raise premiums.
You ignore the Secretary of HHS’ victory in negotating with Medicare Advantage insurers.
Have you even looked at who is on the IPAB?
Have you considered the 3 or 4 years of non-partisan
extremely intelligent and hard-hitting recommendations that MedPAC has made?
IPAB has been described as “MedPAC on steroids”–it is modeled on MedPAC, but is able to go beyond making recommendations. Its recommendations become law.
And finally, no Joe, I’m not ridiculing you. I’m simply presenting the facts. You, on the other hand, make a fool of yourself by opening your mouth and talking without first checking your facts.
cough, Doc Fix, cough.
You conveniently left that out which is 300-400 billion over 10 years. When you add those imagined, cooked in savings in, it makes the numbers look absolutley rosy.
Jenga–
As you can see from the chart, the so-called “Doc Fix” savings (if the SGR formula were ever implemented) are not included in the roughly $1 trillion savings which cover the roughly $1 trillion cost of health reform.
(Please show me where the doctors’ fix appears in the pie chart from the right-leanining Tax Foundation. . The Tax Foundation’s analysis is very honest.)
Meanwhile the “dotor’s fix-“- a.k.a. the SGR formuala–calls for a 25% across the board cut in Medicare payments to physicans next yaer.. Everyone in DC. knows that this will never happen
. When President Obama took office, he didn’t even include those savings in the first budget that he presented to Congress—long before health care reform legislation.
Health reform does not depend on those mythical savings. Under the Accountable Care Act, some physicians’ fees will be cut, others will be raised. The legislation gives HHS the authoriity to raise payments for “undevalued serivces ” whiel lowering payments for “overvalued servciers.” And the ACA riases payments for primary care docs and others who proivde preventive care by 10%.
It doesn’t appear and that’s the whole point. You have said yourself the SGR will never take place. Which means you need to add 400 billion dollar bill to any projection you do for healthcare. Just because it’s not included in an estimate, doesn’t mean it doesn’t come due. If the ACA has savings “you can count on”, I guess the doc fix is a 400 billion dollar bill “you can count on” as well.
Do we really believe that state regulators can or want to stand in the way of their next employer?
“Blue Shield of Calif. to proceed with rate hikes
(AP) – January 14, 2011
SAN FRANCISCO (AP) — Blue Shield of California said Friday it was planning to go forward with scheduled health insurance rate increases for individual policyholders, despite calls from government regulators to delay the move.
The San Francisco-based insurer said that it has asked an independent actuary to review the increases and would issue refunds if problems were found with the rates.
California Insurance Commissioner Dave Jones had asked Blue Shield to delay planned increases on March 1 so his department could conduct a full review.
The insurer has implemented two rate hikes since Oct. 1. Some policyholders would pay 59 percent more in premiums cumulatively over the three increases.
Blue Shield CEO Bruce Bodaken said the increases were necessary because of rising health care costs.
“Our premiums are rising because of the rapid increase in health care expenses for our members,” Bodaken said. “Reducing medical costs must be an urgent national priority for health coverage to be affordable for the vast majority of Americans.”
In a statement, Blue Shield called its pledge to abide by the actuary’s conclusions “unprecedented.” Jones said the insurer was required by a state law that took effect at the beginning of the year to retain an independent actuary to evaluate any rate increase.
That law also required the insurance commissioner to review the reasonableness of rate hikes, but did not give him the authority to reject the increases.
“I do not have that authority now. I have been fighting to get that authority,” Jones said.
Jones called the Blue Shield hikes unsustainable at a time when many Californians are struggling financially.
Blue Shield said it had hired David Axene as the actuary who would review its rates. Axene last year uncovered errors in rate increases proposed by Anthem Blue Cross that had come under fire from President Barack Obama during the debate over his health care reform bill.
The discovery lead Anthem to reduce its increases to an average of 14 percent from proposed rate hikes as high as 39 percent.”