• What the Super Committee can really do: a response to critics

    Though my memo to the Super Committee on Medicare spending reductions was well received by bloggers across the political spectrum, some commenters weren’t terribly happy with it.* I’ll focus on two critiques and then offer one of my own.

    Critique 1: We can’t fix Medicare without making beneficiaries have more skin in the game. This is a very popular point of view, perhaps because some variations on this idea have the virtue of guaranteeing reduced federal health costs. The more beneficiaries pay the less taxpayers have to. The other virtue of the idea is that the more beneficiaries have to pay for care, the less they’ll use. I am sure it is possible to reduce the growth rate in health care costs this way. And, even if it isn’t, if people want to spend more and more of their own money on care, why should that bother me? In fact it does not bother me.

    So what’s wrong with this idea?

    The principal problem is that studies have shown that beneficiaries can’t distinguish between effective and ineffective care. Studies have also shown that the more something costs, even health care, the less people buy. So with more skin in the game people will cut back on care, but they’ll do so indiscriminately. Thus, even if the health care spending problem is in some sense solved by this approach, it likely will do nothing to improve health outcomes.

    The other problem with massively shifting costs to beneficiaries is that they hate the idea. The debate over Rep. Ryan’s plan showed that. That’s what saps it of political viability, despite its overwhelming popularity among current congressional Republicans.

    The only way additional cost sharing makes sense is if it is imposed on things that offer no additional value. Well, that’s exactly what I was suggesting in item #4 on my list (reference pricing). Wonks will recognize it as a flavor of value-based insurance design, which relates cost sharing to the effectiveness of therapies. So, there is room for additional cost sharing, but it should be imposed in a targeted fashion and informed by comparative effectiveness research.

    Critique 2: This is a lot of tweaks to a broken system. Why not just nationalize the whole health system? This reason is simple: Congress and America won’t stand for it. Not now. Maybe never. For fun I could suggest the Super Committee consider nationalizing the health system (it’s not like they’re going to read my post anyway), but it sure would look politically naive. I may be politically naive, but not that naive.

    That brings me to my self-generated …

    Critique 3: Get real Frakt! The Super Committee has to come up with CBO score-able cuts under immense political pressure and in a few months. Do you really believe they will do anything more complicated than whack hospital rates, reduce Medicare Advantage payments, insert some more means-testing into premiums, and tinker with cost sharing? In fact, I fully expect the committee to do, at most, just this. My ideas, as great as I or others may think they are (or not), are relatively complex and/or controversial among key stakeholders. The committee will aim for simpler things. Cutting hospital rates is controversial too, in the sense that the hospital industry will be putting the screws to committee members, but it is the standard way to milk the Medicare cash cow. Same goes for reducing payments to Medicare Advantage plans.

    In contrast, all-payer rate setting is a huge change and for that reason alone, among others, would be opposed by many stakeholders. It’s also probably near impossible for CBO to score and likely very complex.

    Stepping back, what we’re experiencing is a years-long series of half-measures. I would not expect massive changes to the health care payment or provision systems until after 2014 for two reasons. First, most of the politically viable, relatively simple, and decent ideas are in the ACA. There’s just not that much left that can work and also pass Congress. We will need to see the ACA-mandated approaches in action before we conclude that we must do more.**

    Second, after 2014, universal coverage will be nearly achieved (or that’s the ACA plan). At that point, the nation will be in about the same position as Massachusetts is now. It is only now, several years after Massachusetts achieved near universal coverage, that political and industry leaders in that state are beginning to make some serious sounding noises on cost control. Like Democrats in Massachusetts, the base of the Democratic party nationally is not willing to give up universal coverage in the name of cost control. So the latter must wait until the former is (nearly) achieved.

    Make no mistake, we will get to the point that some serious reforms will be made. But that point is not going to occur in the next few months. The Super Committee will not do anything like the items listed in my memo. Still, it is some comfort to know the ideas are there in waiting. The shelf is full of ways to shave health care costs without harming health. Someday Congress will be ready to actually open one of the books.

    * Fun fact! There does not exist a health care or Medicare reform plan that pleases everyone.

    ** Fun fact! In health care policy, as in many things, easier ideas must fail before harder ones are considered.

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    • A starting point: CBO Budget Options, Health Care, Vol. I, 2008

    • “This is a lot of tweaks to a broken system. Why not just nationalize the whole health system? This reason is simple: Congress and America won’t stand for it. Not now. Maybe never.”

      I don’t buy this at all. Which will Americans go for first: 25-50% higher revenues, much smaller healthcare subsidies, or national health insurance? Something like half of all Americans have insurance from the government so it’s hardly a quantum leap. No country has reasonable healthcare costs with a health insurance market like our own — containing healthcare costs means fundamentally changing health insurance and healthcare to the extent that they’re no longer the sort of growth industries whose equities grow much faster than the economy: there’s little untapped market in the States, and the rest of the world has shown no patience for subsidizing healthcare companies with high margins.

      You don’t even need to nationalize healthcare — you get most of the way there with optional national insurance. Make a national insurance plan that competes on an even playing field with private insurance: receives exactly the same level of subsidy, has to follow the same state regulations and provide the same minimum benefit, etc. This wouldn’t even be as strong as the proposed public option in Obamacare, which would have had some advantages over private insurers. As folks turn 65, offer them a tax refund in exchange for staying in this public insurance option instead of Medicare.