• The debt deal and the health system

    I could write many posts on implications of the debt ceiling deal for the health system. Consider the following list a down payment on some issues I might return to. Credit to Don Taylor for making the point, via tweet, that more Medicare cuts make all-payer more likely (which is not the same thing as saying it makes it likely).
    1. As I understand it, the debt ceiling deal precludes cuts to Medicare benefits. So Medicare cuts it requires will take the form of reduced payments (or lower payment updates) to providers.
    2. As providers gain market power relative to insurers (via ACOs and other integration/mergers) they can use it to drive private prices higher (read that as higher premiums for you sub-65 folks). They are more likely to do this as public prices fall. That’s the role of Medicare cuts in cost shifting. But market power is crucial too.
    3. With greater certainty, Medicare cuts will exacerbate price discrimination, the gap between what that program and private insurers pay providers. (Price discrimination and cost shifting are different.) That could lead to or increase Medicare beneficiary access problems.
    4. All-payer can address cost shifting and price discrimination either administratively (a la Maryland) or with a more market-based system (a la Germany).
    5. Note an interesting contrast with the ACA. If one wanted to save money in that program, the simplest way is to cut exchange subsidies. That hits individuals (raising out-of-pocket private premiums directly), not providers. It’s the opposite of what is being considered for Medicare. That’s the difference between a program that is designed to subsidize private coverage and one that, largely, pays providers directly (viewing Medicare’s fiscal intermediaries as pass-through entities, which they are, and ignoring Medicare Advantage, which is important but small relative to traditional Medicare).
    6. A corollary to #2 and #5 above is that the pressure seems to be all one way: toward increases in private premiums, or one’s out-of-pocket share of them. Yes, market forces (competition in exchanges or more generally) can lead to lower premiums. But even netting that out, cutting the debt by cutting health programs tends not to reduce private premiums and could increase them.
    7. If you’re wondering, “In terms of health care, what’s in this that is good for me?” you’re asking a politically-relevant question. It’s the same question that keeps health care spending on the rise.
    8. Like it or not, policymakers need the political cover of a debt deal to do any serious health care cost curve bending. Given how Medicare is used as a political weapon (still a third rail) and how closely the ACA is associated with one party, there’s no sign of any ability to get agreement on reshaping either in a direct way. But under the guise of cutting the deficit — if that is viewed as priority #1 — an opportunity arises for some serious work on health care spending. The question is, will policymakers actually take the work seriously or just whack in harmful ways?

    The last point is most interesting to me at the moment. It answers the question, how on earth will we ever get serious about health care spending and spending growth? The only way, it seems, is if we identify or even manufacture a greater enemy that requires it. I’m not saying we should do that or do that now. I’m just saying that’s the only mechanism that seems to work politically.

    UPDATE: I added a few more items to the list.

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    • The two parties cannot work together and have very different ideas about how to cut costs. I dont expect much this round.