Below are my highlights of and notes on the commentary “Slowing Medicare spending growth: Reaching for common ground,” by Michael Chernew, Richard Frank, and Stephen Parente (AJMC, 2012). The whole thing is short, ungated, and worth a full read. All block quotes below are from the paper.
Some stakeholders would like to limit total Medicare spending growth to the rate of GDP growth, thereby stabilizing the share of GDP consumed by Medicare. During a period of rapidly rising Medicare enrollment due to the aging of baby boomers, such a target would require per-beneficiary spending to grow at a rate below GDP growth. For example, holding Medicare growth to GDP growth rates would require an update in the per-beneficiary payment rate of GDP minus about 1.25 percentage points (the subtraction of 1.25 is required to offset demographic trends). Enacting such real cuts for older and disabled adults is viewed by many as undesirable. This issue highlights the fact that stabilizing the share of GDP devoted to Medicare is very challenging.
Previously, I explored various interpretations of the GDP+1% growth cap in the Wyden-Ryan plan. The interaction of federal health care spending growth and other areas of government spending is illustrated beautifully in Charles Roehig’s “triangle of painful choices.”
Yet because payment is bundled—at least in the global-payment model, and maybe in the premium-support model—introduction of new technology may not be as adversely affected as some fear. If there is considerable waste in the system, the clinical and administrative flexibility in the bundledpayment arrangements gives providers incentive to capture savings from increased practice efficiencies and elimination of low-value care. A new approach to payment may shift medical innovation toward cost-reducing technologies and processes. Such savings could help finance high-value medical innovation.
I keep putting off my post on the extent to which technology drives health care costs and spending. I’ll try to work it in next week.
Most voucher schemes assign new risk bearing to a mix of insurers and beneficiaries. Global payment places the new risks largely on providers. There are advantages and disadvantages to each strategy. […]
[T]he track record of insurers in this realm is poor. Therefore, failure to control costs means that beneficiaries will be liable for an increasing share of program spending over time. […]
Providers need to perform better than they did in their last largely failed experiments in managing shared finances within 1970s and 1980s demonstration health maintenance organizations.
I will have much more to say about those past, failed experiments next week.
[S]ome innovative insurers in the commercial sector already accept a fixed premium and pay provider groups a global payment. Medicare could allow both approaches to coexist.
You would not get this impression from the political debate, which frames the two approaches as being at odds. At TIE, I have explored this false choice.
[W]e must recognize that even under ideal conditions, increasing the level of consumer risk and responsibility will likely result in access becoming more related to income than it already is. How to harness the power of consumers while minimizing market imperfections and income disparities is perhaps the central challenge facing reform. […]
The distinction between assigning responsibility to plans or providers is less important than deciding the extent to which beneficiaries should bear risk and responsibility.
Once again, that this is (perhaps) the central challenge does not come through in the political or even wonkier, technocratic debate. What tends to dominate is a focus on spending and on insurers and providers. That’s not to say there aren’t many people writing about more “skin in the game.” There are. But, even there, the focus does not seem to be on the question of how to make that work “while minimizing market imperfections and income disparities.” Yes, we have a FAQ on the consequences of increased cost sharing.
Many alternatives, including the PPACA, are just variations on the theme. Recognizing the commonalities may help us focus on, and resolve, the differences.