• So close, but yet so far

    We all agree that the cost of Medicare is increasing too quickly, and that it is adding to the deficit. In order to reduce the deficit, we must either (1) increase revenue or (2) reduce spending. So far, I imagine that everyone agrees with me.

    Most people seem to oppose raising Medicare taxes, so it’s difficult to do (1). This leaves us with (2). I still assume that I’ve not lost anyone.

    When you try and do (2), however, you appear to lose most of the country. When asked, “In order to reduce the national debt, would you support or oppose cutting spending on Medicare, which is the government health insurance program for the elderly?” only 21% supported it.

    I’ve seen a number of posts already this morning blaming the American people, but I’m not entirely sure it’s their fault. Many of them are busy, and don’t have the time to follow the intracasies of health care system reform. Therefore, they appoint people whose job it is to make those decisions for them in an accountable and public manner. It’s how a republic works, and most of the time, we like it just fine.

    I think it’s failing a bit here, though, because instead of leading, our elected officials seem to be all over the map.

    There are two schools of thought on how to reduce the amount that the federal government pays for Medicare. The first was put forward by Rep. Ryan a few weeks ago. Starting ten years from now, instead of giving people Medicare as it exists today, we give the elderly vouchers, or subsidies, or checks, or whatever you want to call it. They can then use those vouchers to go and buy private insurance. If it sounds like exchanges in the PPACA, that’s cause it is. The problem with his plan is that there’s no assurance that the private insurance sector has any interest in insuring this massively expensive population. More importantly, the rate at which the value of the vouchers rises is set way below the projected increases in the cost of health care. Therefore, over time, the vouchers will buy less and less insurance, and seniors will have to buy more and more of it themselves.

    This is a feature, not a bug, as it means that the federal government will be spending significantly less over time. That’s (2) from my first paragraph. It will reduce the deficit caused by Medicare. But it likely won’t reduce how much health care costs, or how fast it grows; it will likely just reduce how much of it the government is paying for. The rest will come from the pockets of those over the age of 65, which could lead to a bad risk pool, and many, many seniors unable to purchase adequate insurance.

    But, at its core, this represents a belief in the power of the consumer. If enough seniors mass together and demand cheaper prices, then they can drive the market towards reduced spending. It’s consumer directed health care, and it sounds fine in theory. In practice, I haven’t seen a lot of evidence for its success.

    The second school of thought is the one put forth by President Obama. It relies more on a panel of experts to determine from within what should and should not be covered. It’s the Independent Payment Advisory Board:

    [S]pending cuts recommended by the presidentially appointed panel would take effect automatically unless Congress voted to block or change them. In general, federal courts could not review actions to carry out the board’s recommendations. The impact of the board’s decisions could be magnified because private insurers often use Medicare rates as a guide or a benchmark in paying doctors, hospitals and other providers.

    This is meant to be scary, I suppose, but once again, it’s a feature – not a bug. This is how spending would be reduced. At its core, this represents a belief in the knowledge of experts. If a group of people can use explicit criteria to determine what works and what does not, then they can make decisions to reduce spending. People will have to pay more out of pocket for things they want that the government spends less on. It also sounds fine, in theory, and a number of countries use groups like this.

    I understand that the idea of this sounds scary to many Americans. They fear rationing and DEATH PANELS! and such. That’s understandable. That’s why the law specifically says that “the board cannot make recommendations to “ration health care,” raise revenues or increase beneficiaries’ premiums, deductibles or co-payments.” Moreover, this is how the board is appointed:

    Board members will be subject to Senate confirmation — no easy feat in the current political climate. Terms are six years. Members can serve no more than two full consecutive terms.

    That sounds a lot like appointing people whose job it is to make those decisions for us in an accountable and public manner. As I said before, most of the time, we like that just fine.

    It should come as no surprise to readers of this blog that I think considerable evidence exists to support the latter methodology of spending reduction as superior to the former, with respect to health care. As always, I’m open to new evidence, but so far that’s my read. However, I love good debate and, in a rational world, I would look forward to the two competing schools of thought duking it out.

    That’s not what we get, however. Instead, we have a public that opposes the former and leaders that oppose the latter.

    If you explain to people that the value of the vouchers is set to rise more slowly than the cost of health care (that’s a feature!), then 84% oppose the plan. Regardless of the merits, that makes it almost impossible that it could be implemented politically. Let’s also not forget that nearly every elected Democratic official (and a few Republican ones) don’t like it either.

    And, when it comes to a powerful IPAB, you have leaders saying things like this:

    Representative Allyson Y. Schwartz, a Pennsylvania Democrat prominent on health care issues, said: “It’s our constitutional duty, as members of Congress, to take responsibility for Medicare and not turn decisions over to a board. Abdicating this responsibility, whether to insurance companies or to an unelected commission, undermines our ability to represent our constituents, including seniors and the disabled.”…

    Representative Pete Stark of California, the senior Democrat on the Ways and Means Subcommittee on Health… [said] “But, in its effort to limit the growth of Medicare spending, the board is likely to set inadequate payment rates for health care providers, which could endanger patient care.”…

    “Relying on arbitrary spending targets is not a good way to make health policy, especially when decisions may be left to the unelected and unaccountable,” said A. Barry Rand, chief executive of AARP, the lobby for older Americans.

    Those are Democratic elected officials and an AARP CEO. Also noted opposing the IPAB were prominent Republican officials Rep. Ryan and Sen. Cornyn.

    Back to the beginning of this post. (1) is out. Now, it appears, any effort at (2) is out. Yet, we are told, again and again, that our elected officials are serious about all of this. I can’t tell you how frustrating it is for someone who works in health policy.

    “Why have legislators?” asked Representative Pete Stark of California

    Was that question rhetorical?



    • “the board cannot make recommendations to “ration health care,” raise revenues or increase beneficiaries’ premiums, deductibles or co-payments.”

      This is what still leaves me scratching my head: what sorts of things (other than provider payment cuts) CAN the board recommend? The original post states that one option is “People will have to pay more out of pocket for things they want that the government spends less on.” Wouldn’t that be seen as a co-pay increase, and hence off limits? Similarly, couldn’t almost any attempt to not cover services shown to be ineffective by well-designed trials of comparative effectiveness studies be spun as rationing (prohibited) or a reduction in benefits (ditto)?

      I really like the idea of the Board, but would love to hear everyone’s thoughts about what the Board actually could do given the restrictive language of the legislation.

      • Richard Hirth,

        There are always ways. For instance, doctors and hospitals can bill above the Medicare reimbursement level. If the co-pay is 20%, the amount the consumer pays is 20% of the billing, not the Medicare payment.

        Also, I favor a more powerful IPAB above what the law currently says.

        • Creativity is certainly to be expected, but if the mechanism to increase patient co-pays to discourage less effective care is to allow providers charge even more for that care, providers’ incentives are being changed in exactly the wrong direction.

        • Aaron,

          I think you are wrong about this. I manage an ER physician group. We bill medicare at the “contracted” rate and the co-pays are based on that, not billed charges. Say a patient’s gross charge is $500, but the medicare allowable is $250. The statement reflects an adjustment of ($250) and the co-pay is applied to the remaining $250. we are actually prohibited by law from trying to collect anything above the medicare allowable.

          Hospitals, I think, work the same way.



          • I think you may be right, as Medicare functions today. Still, I’m fine with Medicare paying less for some things but allowing people to pay for them if they want. That would require new regulations.

    • IPAB seems like a huge black box to me. Maybe it will work, but maybe it won’t. How will it reduce costs? Will it lower reimbursements, which seems to drive doctors away from Medicare? A lot of people say they’ll just fund what works versus what doesn’t. Are those outcomes really that clearcut? I imagine these treatments work better for some than for others, ie there’s a lot of heterogeneity. Where’s the cutoff? What if Congress, as it has done many times in the past, overrules the cost goals?

      • Jeremy N,

        We have to start somewhere. The new law makes Congress overrule recommendations rather than improve them. That makes them more likely to happen.

    • As I understand it, IPAB will be authorized to set spending cuts only for Medicare, not directly for Medicaid or for privately funded health care. Am I correct on this point? If so, will that not tend to drive health care providers out of the Medicare market and into solely the privately funded health care market where health care costs will continue to skyrocket?

      Let me emphasize, I’m not opposed to IPAB; I’m asking only how much it can contribute to the overall goal of controlling health care costs across the economy, not controlling just Medicare or other federal government costs.

      • Adam Washington,

        For the elderly, which are a big group and a huge source of income for the health care system, It’s really Medicare or nothing. If you don’t accept Medicare, there’s only so many other patients to see.

        You’re correct that it would be more powerful to have such a board for the entire health care system, but that’s not the system we have.

    • “Why have legislators?”
      Indeed, this is the question. The legislators want to keep the right to interfere with the IPAB when it makes decisions which would cost their campaign donors money.
      Keeping legislators in the loop deciding about health care is a recipe for disaster since they are not health care experts and are subject to bribes from the health care industry. We have already seen this in action with many examples such as prohibiting the government from negotiating for lower drug prices and requiring services which are not effective and/or are overpriced.
      The IPAB as an independent board can make the tough decisions about overpriced and ineffective medical care. I don’t see a better way to do this than having health care experts make these decisions.

    • I read the poll you cited and other recent polls as supporting (1) raising taxes, especially on those making over $250,000/year and (2) not changing Medicare.

      What polling do you have that shows people are unwilling to have taxes go up if that’s the price of continuing Medicare unchanged?

      • Increasing taxes to President Clinton-era levels on those making more than $250,000 is not enough to cover all our deficit problems. I have said before that I think this is a perfectly acceptable option as part of a deficit reduction plan, but it can’t be the entire package.

        Medicare taxes are payroll taxes applied to all income at all levels. I have heard no one advocate for increasing those taxes, although that would be a viable option to cover the Medicare shortfall.

    • Not to be picky here, but you said

      ” In order to reduce the deficit, we must either (1) increase revenue or (2) reduce spending. So far, I imagine that everyone agrees with me.

      “Most people seem to oppose raising Medicare taxes, so it’s difficult to do (1)”

      The first paragraph is fine. In the second, are you talking about Medicare taxes or general taxes?

      In either event, the public seems fine with raising taxes to save Medicare. I’m certainly not aware of any polling that says they would oppose it. What support do you have for your second paragraph, which says they are opposed? Your reply suggests you don’t have any polling support, but maybe I’m misinterpreting.

      As an aside, the WaPo poll you cite does not ask about raising taxes to Clinton-era levels, it asked about raising taxes.

      • They seem fine raising taxes on those making more than $250,000, which is what the poll asked. That’s real money, but not enough on its own to solve our deficit issues.

    • I am skeptical of the Ryan plan, but still I think it deserves a fair hearing. One of the assumptions we make when we attack the Ryan plan is that demand pressure created by consumers shopping around will not affect medical cost inflation. In a perfectly functioning market the competition will drive medical inflation down to CPI. But in the real world there is always going to be market failure caused by unaligned incentives and information asymmetry. We should at the very least question the assumption that medical cost inflation will not go down. Any thoughts on that?

    • How do I get Dr Nortin Hadler appointed to such a panel.

      He would cut spending down considerably and quickly.

      BTW I strongly support such a panel for medicare and medicaid. Conservatives are ignoring that you can pay out of pocket when they speak of death panels.

    • “In a perfectly functioning market the competition will drive medical inflation down to CPI.”

      For potatoes. At least as far back as Arrow, people have written about why markets do not work so well for controlling health care costs. I think that there are parts of the medical system that could respond to market mechanisms, but in total I dont see it happening. The information asymmetry, the creation of new tech and the emotional involvement in medical decisions makes things difficult for markets. Most of all, insurance distorts everything, but I dont see how we can work w/o insurance.


    • A few points in this discussion.

      First, the paranoia about allowing experts and science to decide how health care should work is interesting, since nearly everyone does that already without thinking about it. Most people have no idea how their doctor makes decisions about how to manage their care. How many people (including an unfortunate number of doctors) understand the research about the appropriate use of coronary artery bypass and coronary artery stenting? Suggesting that congress is better positioned to manage detailed choices about medical management is a lot like suggesting that congress is better positioned to decide the day to day operation of a nuclear power plant.

      Call me cynical, but when I read about congress’ desire to insert themselves into this argument, I tend to see the long hand and deep pockets of large stakeholders trying to buy their way our of any cuts, regardless of merit.

      Second, the IPAB is not such a strange idea if you look at most other developed countries. Almost all of them use a similar – often much more powerful – approach. Plus they generally get substantially better results for a lot less money.

      Third, although the IPAB will have no direct power over private insurance, it will have a powerful indirect influence if it is allowed to function. Since the collapse of the managed care movement in the late 90’s, private insurers have largely shadowed Medicare in payment policies. Plus private insurers will be very eager, in the current environment, to find rational ways they can cut their own claim levels.

      • I hope you’re right about the influence of IPAB on private insurers, and I’m somewhat optimistic about that.

        • I think it will take some time, but in a contest among insurance plans that offer coverage without regard to efficacy and cost $30,000 or more per year for family plans, insurance that features very high shared costs for insured/employees and that discourages use of preventative and early intervention care, and insurance plans shadowing an IPAB managed Medicare, the third choice will soon be clearly the best. Insurers, at least since the late 90’s, are willing to offer any plan customers will buy, but the disadvantages of very high cost for the first type of plan and very high risk both for money and health for the second type will make the third type of plan more and more attractive.

          The promise that a plan is “just like Medicare” will also be an easy selling point, and eventually many people will be able to tell the difference between real and fictitious value once they see it in action.

    • I’m definitely a market guy, but instead of arguing about it WHY NOT HAVE BOTH an IPAB and a Ryan option to take your voucher and purchase private coverage? If the special interests can be held at bay to allow the IPAB to have the intended bite, making Medicare relatively less attractive, then people would be incentivized to get the private coverage. If the private coverage is too expensive, people would have the option of going back to Medicare. The IPAB could also set the minimum coverages of the private policies eligible for the voucher. (I suspect they would be more generous anyway) It could even prescribe the terms and language of the entire policy.

      The Achilles Heel of either alternative is cutting off the special interests: the beneficiaries, physicians, pharmaceutical industry, etc, that are riding the gravy train of ever-increasing prices.