Code Red: Two Economists Examine the U.S. Healthcare System

July 26, 2011

Vermont’s Bold Experiment

Filed under: Budget,Health insurance,Health Reform,Health spending,Integration — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 9:02 am

I was delighted to see the lead article in Health Affairs describing Vermont’s new single payer health care financing system. Harvard Professor William Hsiao and his coauthors describe this as a “Bold Experiment” and I couldn’t agree more. It is also a very welcome experiment. For over thirty years I have heard the rhetoric that a single payer system would never work in the United States. For that matter, I have heard that a true market-based system (with vouchers) would never work either. Why not let the states experiment and find out what will and won’t work? Thankfully, the Vermont legislators and Governor Shumlin had the courage to take this leap of faith.

The biggest obstacle to implementation appears to be ERISA, which limits the extent to which states can regulate self-funded plans. Apparently, self-insured employers could object to having their tax payments used to support the plan. But Vermont can apply for an ERISA waiver under terms in the Affordable Care Act and the state hopes to begin its bold experiment in 2015.

As bold as the plan might be, Hsiao et al. might be even bolder in projecting the potential cost savings, which they peg at 25.3 percent. Academics rarely go out on a limb with projections like this that can easily be assessed in a few years time. And academics are rarely so optimistic. I wish I could share that optimism.

Let’s take a close look at the projections. Hsiao et al. expect a 2 percent reduction in expenditures from malpractice reform. This is plausible, but malpractice reform is easily severed from health financing reform – many states have already done so – and I do not see why we should attribute any resulting savings to the implementation of a single payer system.

Hsiao et al. also projecta reduction in administrative expenses of 7.3 percent, stemming from “the consolidation of insurance functions” and “reduced administrative costs for providers stemming from uniform claims administration.” This also seems plausible and the actual savings could be even higher, inasmuch as the state will be doing away with all of the marketing and medical underwriting functions of private health insurance.

From here, things get dicier. Hsiao et al project another 5 percent savings from reduced fraud and abuse. How so? The “comprehensive claims database” is supposed to make detection easier. The authors cite a 2007 FBI report as the basis for their 5 percent estimate. That report states that fraud and abuse amount to as much as 3-10 percent of total U.S. health spending, but it makes no mention of the potential cost savings from creating a comprehensive claims database. Hsiao et al. also cite a study of fraud and abuse in Taiwan but do discuss its relevance to Vermont. Will consolidating claims help stop fraud and abuse? Medicare is not a comprehensive claims database but it is awfully big, yet Medicare fraud and abuse is rampant. Large private insurers also fall victim to fraud and abuse. If Hsiao et al believe that Vermont’s state employees will do a better job fighting fraud and abuse than private insurers, good luck to them!

Hsiao et al project the biggest cost savings, 10 percent, will come from payment reform and integration of delivery systems – essentially, moving everyone into an Accountable Care Organization. (Hsiao and colleagues acknowledge that the shift to ACOs is not mandated yet include the projected cost savings as if it was a fait accompli.) As I have previously blogged, any cost savings projected from ACOs are truly speculative. And in a small state like Vermont, the shift to ACOs may backfire. To understand why, consider that single payer systems in Canada and Europe largely hold down costs by bullying the medical community into accepting low wages and restrictions on access to medical technology. The bullying works – the proof is in the cost savings. But Vermont is not large enough to support more than a handful of ACOs, each with a local monopoly. If anyone does the bullying, it will be the monopoly ACOs demanding higher rates and funding for more technology. Dominant ACOs may have even more bargaining power than the state; legislators can always be fired. (I realize that Vermont is perhaps the most liberal state in the nation and I suppose that goes for their physicians. But let’s see how liberal they are when the state decides to slash their fees by 10 percent.)

Lastly, Hsiao et al. project a savings of 1 percent in governance and administration, apparently due to “insulating major spending decisions from the political process.” They expect to keep politics out of the single payer system?

Let me reiterate. The new Vermont law is terrific. I hope they implement it as soon as possible and that it succeeds beyond my wildest expectations. But I doubt it will succeed beyond Hsaio et al’s expectations, as those truly are wild. If Vermont can reduce administrative costs and expand coverage without sacrificing quality or creating shortages, the experiment will be a success. If and when that happens, I hope more states will follow suit.

Now which state will be bold enough to experiment with a fully market-based system?

October 23, 2010

Dear Mr. Smith

Filed under: Health insurance,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 8:32 am

John Smith of Chicago (not his real name) asked the following question in a recent letter to a local newspaper:

“Over the last several years my annual deductible has increased from $500 to $2000…With higher rates, I have had to limit key diagnostic services that my physician recommended at my physical. Does health reform cap deductibles…?”

The paper’s response mentioned that many preventive services are covered under the new law and mentioned something about risk pools – a decent enough answer I suppose. Here is what I would have written:

Dear Mr. Smith,

I understand that you are upset. No one wants to spend money on something when someone else has been buying it for them. Healthcare is no exception, and over the years we have gotten use to having our health insurance company buy everything our doctors ordered. The upside of generous health insurance coverage is that we are better able to avoid the risk of financial ruin. The downside is that we sometimes agree to receive medical services that we might not need. The latter is really true – the research evidence is overwhelming – and this has contributed mightily to the cost crisis you have been reading about.

I am sure you will tell me that you really need the diagnostic services ordered by your physician. Then you should find a way to pay for them. I understand that these services can cost hundreds of dollars, but I would imagine that there are other things in your life that are equally costly – car payments, vacations, new clothing, and so forth. Don’t you give equal or higher priority to your health? If so, then perhaps by next year you will set aside the extra money you will will need for these tests. If not, then how can you say that you really need them? If you are unwilling to pay several hundred dollars for medical tests, then you must not hold your life dearly. Why then should others pay for you?

I know that I sound excessively harsh, and if your financial situation is such that purchasing these services will push you over the financial brink, I apologize. You are in a rough situation for sure. But consider that if your employer offered a more generous health plan, the premiums would have been thousands of dollars higher. Think of how this would have affected your job situation. Many employers, perhaps most, have to hold the line on wages when health insurance costs increase, so you may well have seen a substantial wage cut. If your employer could not reduce wages, then your very job might have been threatened. I doubt you would have preferred either of these outcomes to the present situation. The real problem isn’t that your deductibles increased; the problem is that healthcare is so darn expensive.

All of this rational economic analysis may leave you cold, and I understand that you cannot possible like the present situation. There are alternatives that you might prefer. Under a government-run system, you wouldn’t have to pay for many diagnostic services. But to keep costs under control, the list of free services would be chosen by the government, not your doctor. The new health law moves us in that direction and many Americans like the new direction we are taking. Others would prefer to let market forces work to control costs. Part of that solution would require us to face more of the financial consequences of our healthcare decisions while still having protection against financial ruin.

There is no going back to the old days. Pick your poison.


David Dranove

August 17, 2010

Avastin, Rationing, and Death Panels

Filed under: Efficiency,Health Reform,Health spending,Medicare,Rationing — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 9:39 am

President Obama’s health reform legislation empowers a new Independent Medicare Advisory Board (IMAB) to curtail spending. Republicans fear that IMAB restrict access to costly technologies, going so far as to call IMAB a “death panel.” The appointment of Donald Berwick, an advocate of cost-effectiveness research, to run Medicare has fanned the fires of discontent. But most everyone thought that this would remain a theoretical issue for political talking heads, at least for a few more years. Until yesterday.

Yesterday, an FDA advisory panel recommended rescinding approval of Avastin for treating metastatic breast cancer. The recommendation followed new research showing that Avastin extended the time until cancer worsened by one month; previous research had showed benefits of five months on average. That is right, Avastin is efficacious, but the benefits are small. Citing the high monthly cost ($8000), the panel ruling was nearly unanimous.

If the FDA follows the panel recommendation, this would be the first time to my knowledge that cost effectiveness trumped efficacy and safety. The U.S. would join other nations in saying that there is a price that we are not willing to pay in order to improve health. Republican Louisiana Senator David Vitter wasted no time in saying that the FDA was rationing healthcare. “I shudder at the thought of a government panel assigning a value to a day of a person’s life,” he said.

Such hypocrisy. Republicans have wasted no time trying to trim Medicaid budgets, nutritional programs, housing subsidies, and other expenditures that improve the health and happiness of low income Americans. They do this on the grounds of affordability. If we can’t afford to keep low income Americans healthy, sheltered and well fed, how are we supposed to afford Avastin?

Despite what Mick Jagger says, we can’t always get what we need, let alone get what we want. We ration all the time, making implicit judgments about benefits and costs. The FDA advisory panel is making these judgments explicit. I haven’t seen all the data and I don’t know what benefit/cost threshold was used by the panel. And I wonder if the panel valued the hope that Avastin gives patients and loved ones. But these are accounting issues and should not deflect from the fact that resources are scarce and we are always rationing.

I would much prefer to see the market ration access to Avastin. Perhaps Senator Vitter does as well. (If he truly believes that all Americans should have unfettered access to all health care services, regardless of cost, then he must believe that the sky is the limit for health spending.) The FDA should stay the course with Avastin and let individuals decide whether they want to purchase it themselves (or sign up for a health plan with very generous drug benefits.) But those who can’t afford it, or who choose a health plan that does not cover it, will not be able to receive the drug. This is rationing, but it is through private choices rather than government coercion.

If we don’t privatize Medicare (and I am not holding my breath), then we will still have to face up to government rationing, because Medicare is publicly funded and will therefore require public decisions about how to spend scarce dollars. Why demonize those who understand the reality of rationing and want to openly debate how to do it?

Senator Vitter and all of your Republican colleagues, stop the demagoguery. You are big supporters of traditional Medicare, an indemnity insurance program in which tens of millions of Americans spend other people’s money with little direct financial accountability. So please answer this simple question: How do you propose to rein in Medicare spending? You oppose cutting payments to providers. Your only other choice is to cut the quantities of services they provide. Isn’t that rationing?

August 6, 2010

Howard Dean: Who Are You Crapping?

Filed under: Health insurance,Health Reform,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 1:43 pm

Democratic honcho Howard Dean wants to do away with the insurance mandate. Why? Because purchases of private insurance enrich evil insurance company executives. Here are his own words:

“The bill was supposed to give Americans choices about what kind of system they wanted to enroll in. Instead, it fines Americans if they do not sign up with an insurance company, which may take up to 30 percent of your premium dollars and spend it on CEO salaries — in the range of $20 million a year — and on return on equity for the company’s shareholders.”

Let’s fact check this a bit. Total private health insurance premiums in the U.S. approach $1 trillion. A lot for sure. Dean wants you to believe that a big chunk of this, as much as 30% or $300 billion, goes for CEO salaries. This would require 15,000 insurance CEOs each making $20 million annually. With all the consolidation that has occurred, I am not sure there are even 150 insurance companies (and perhaps not even 50), let along 15,000. Let’s be generous to Dean and suppose that there are 150 CEOs and other top industry executives making $20 million. This works out to $3 billion.

Dean suggests that whatever doesn’t go to CEOs goes to shareholders. In a good year, health insurers enjoy returns on sales of about 3%. (Returns on assets are strong because assets are relatively small.) With annual revenues of $1 trillion, this translates into aggregate profits of about $30 billion.

If we add together CEO salaries and insurer profits (and ignore the fact that a lot of plans are nonprofit Blues plans that do not have shareholders), we can account for about $33 billion out of Dean’s $300 billion. Thus, Howard Dean has overstated his case by a factor of 9. In the immortal words of Da Coach, Mike Ditka, “Howard Dean, who are you crapping?”

(Liberal bashers take note, in an earlier blog I take to task highly paid insurance executives. But let’s not pretend that we fix anything merely by cutting their pay and trimming profits. $33 billion represents about 1.6 percent of total U.S. health spending.)

June 14, 2010

In the News

Filed under: Health services research,Health spending,Research methods,Uninsured — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 8:31 am

I have been away from my blog for a couple of weeks but I have been busy. More on that in a moment.

There are several health related news stories this morning. Price Waterhouse Coopers released a study forecasting a 9 percent increase in health insurance premiums, with deductibles exceeding $400 in the median plan. The nation’s news media took the premium increase in stride but was apoplectic about the size of the deductible. I guess it okay if “employers pay” $15,000 per employee for medical care but it is big news if workers have to pay a few hundred dollars annually. (I scoff because we all know that higher premiums mean lower wages.) I think the bigger news is that despite these big deductibles, health spending keeps going up. I think consumer directed health plans have their place, but they are clearly no panacea.

The other big health stories pertain to the uninsured. A new survey finds that uninsured cancer patients forego some medical care because of the cost. I am guessing that if uninsured cancer patients purchased all the medical care their doctors recommended, they might have to forego housing expenses, food, and other necessities of life because of the cost. The circumstances facing uninsured cancer patients are dire. But is the best solution to provide more medical care? The surveyors are silent on this seemingly essential point. Another study reminds us that the uninsured die sooner. Like similar studies before it, this one fails to determine whether the problem is a lack of insurance, or other individual characteristics unobserved by the researchers.

Let’s stipulate that it stinks to be uninsured and that like it or not, Obamacare might do something about this. With this stipulation, can we stop funding poorly designed studies that attempt to show what we already know?

I confess to being missing in the blogosphere. In the past few weeks, my friend and co-conspirator Will White and I have written a proposal for a new book. Northwestern University Press seems willing to publish it and so we have embarked on this new adventure. The tentative title is “The 17 Percent Solution” which refers to the percent of GDP spent on healthcare and indirectly to an old Sherlock Holmes film. The book will explain why we remain unbridled optimists about the future of private sector healthcare delivery. We will explore past and ongoing attempts to radically restructure the delivery of care and explain why this time may really be different. “Efficient healthcare delivery” may not be an oxymoron much longer.

The important point is we will be blogging excerpts from draft chapters. We want you to understand the ongoing sea change in healthcare delivery and describe what we believe to be best practices worthy of imitation. And we look forward to your feedback. Let us know if we are on target, or half crazy. Give us your examples of best practices. We look forward to sharing our adventure with you.

May 20, 2010

We’ve All Got the Blues

Filed under: Competition,Health insurance,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 10:29 am

My late colleague, Walt McNerney, was president of the Blue Cross and Blue Shield Association in the 1970s. I miss him, but I am sort of glad that he doesn’t have to hear all the commotion being made over the profits reaped by today’s Blue plans. I wonder if he would say it was their own damn fault.

Founded during the depression, the Blues represented a win/win for patients who could prepay for their medical care and providers who received a steady source of revenue. The Blues were owned by the providers and Blue coverage was always the most comprehensive (the better to boost demand for medical care.) State laws granted the Blues tax exempt status and in exchange the plans community rated. This allowed for-profit insurers to cherry pick healthy enrollees but the Blues always kept dominant market shares in their territories.

When Walt McNerney took over the leadership of the association, Americans were upset about rising costs. The Blues were still respected insurers and Walt used his position to education Blue plan leaders about managed care. Blue HMOs became some of the most successful in the nation, paving the way for other insurers to offer managed care plans of their own. The Blues also experimented with payment rules and utilization review.

And then the HMO backlash hit. About the only feature of managed care that survived intact is selective contracting. Hospitals and insurers understood the importance of clout and hospitals in many markets merged to suffocate competition. But the largest insurers – the Blues – did not have to merge. Most Blues had market shares in their territories of 40 percent; many had shares above 60 percent. These shares have held steady over the years. With this leverage, the Blues can pay providers among the lowest rates while offering customers the widest networks. That alone guarantees market success, and huge profits.

Blue plan executives see the dollar signs. But nonprofit executives are banned from “inurement” (essentially, compensation based on profitability.) And so Blue executives convinced their boards to convert to for-profit status. They preached the mantra of economies of scale, but the evidence for such economies is minimal. They preached the mantra of capital but they mostly used their capital to enter new markets, and acquire existing plans, and gain even more clout. There was little in it for consumers.

Gone are the days when the Blues did well by doing good. Walt McNerney would hardly recognize many of today’s Blues, with names like Wellpoint, Excellus, and the utterly unimaginative Healthcare Services Corporation. (The latter is a “mutual” –it gets to call itself a nonprofit while paying its CEO about $10 million annually.) These Blues earn returns on assets that dwarf returns in most industries. (In fairness, some Blue plans remain nonprofit, realize minimal returns on assets, and honor the ban on inurement.) And while their total profits are a drop in the ocean of overall healthcare spending, the profit-seeking Blues have settled into a comfortable status quo where market power has become the overarching business strategy. Innovation in healthcare delivery? Forget about it. Payment reform? Forget about it. Let others take the risks. The Blues rake in the profits.

If market clout is their raison d’etre, why tolerate them?

May 18, 2010

What if Medicare Cut Physician Fees?

Filed under: Budget,Health spending,Medicare — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 9:57 am

Congress must decide before June 1st whether to override scheduled cutbacks in Medicare physician fees. The cutbacks are the result of a complex formula that automatically schedules fee reductions in response to increases in physician “productivity” (i.e., physicians are billing for more remunerative procedures) and the need to balance the Medicare budget. This is an annual affair and thus far Congress has never failed to undo the cutbacks and keep doctors and seniors happy.

This time is a little different. For one thing, the stakes are a lot higher – fees are slated to fall by 21 percent and blocking the cutbacks will cost $20 billion annually. This is also a test for Obamacare; future cutbacks in provider fees are the main source of the projected cost savings. If Congress won’t fulfill its cost cutting obligations now, why should we expect it to do so later? It is much easier to keep fees intact and grow the deficit just a little bit higher.

The main argument for keeping fees intact is simple: lower Medicare fees may compromise access. If we ignore the extremists who claim that lower fees will drive doctors out of business (there is little if any evidence to support this), it is still true that some doctors may choose to see fewer Medicare patients or provide them with fewer services.

Where’s the harm? At most, a small percentage of doctors may close their doors to Medicare while others make modest cuts in the number of services they provide. (Some theorists worry that doctors may increase Medicare services to offset the fee reductions, although the evidence suggests that any such “inducement” would still yield a net reduction in Medicare spending.) But haven’t we been told that we are over-doctored? That we have too many specialists doing too many procedures? Lower fees combined with fewer procedures sounds like a win/win proposition. Better still, why not restore cuts to primary care fees and leave the specialist fee reductions intact?

Physicians who curtail access to Medicare patients may try to see more privately insured patients. Had there not been a backlash to managed care, private insurance fees would not be much higher than Medicare fees and physicians would not be so eager to abandon Medicare. Thus the demonization of HMOs makes it difficult to save traditional Medicare.

But suppose managed care mounts a comeback as employers and individuals seek out lower cost insurance options. Insurers would assemble smaller networks and reduce physician fees. If this happens, then Medicare could lower its fees without sacrificing access. Ironically, the future of Medicare may be tied to the success of HMOs!

Physicians will be the big losers in this scenario. But if we are to spend less money on medical care without fundamentally changing how it is produced (see my previous blogs), then providers must necessarily receive less money. It’s a zero sum game. So we are left with an age old question in health economics: Do physicians make “too much money?” There is no good answer. But as much as I admire physicians, who sacrifice ten years of post-undergraduate earnings before finally earning their six figure salaries, I wonder if the Medicare budget must ultimately be balanced on their backs.

May 8, 2010

The Health Police

Filed under: Budget,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 5:38 pm

The federal government wants to limit salt content of prepared foods. States want to cut sugar out of school lunches. Santa Clara County wants to take toys out of Happy Meals as a first step towards doing away with them altogether. Taking care of your family’s health used to be your own business but not anymore. But all of a sudden, your elected officials have taken a keen interest in your health.

The reason for this is very simple. Now that Medicare and Medicaid are on the verge of paying 60 percent or more of our nation’s health care bills, and with no foreseeable way to meet these obligations, big government has a financial interest in your health. Your low salt broccoli soup with tofu salad (no dressing) and black coffee will help save Medicaid and Medicare from bankruptcy.

This is an easy sell among progressive legislators. Thanks to their benevolence, you will live a longer (if somewhat less enjoyable) life and they can avoid raising your taxes (or, more likely, raise your taxes and spend the money on something else besides healthcare.) Who could oppose that? In the spirit of the saving Medicare and Medicaid, here are some additional laws to consider:

– No bacon. Period. Not even the stuff at Whole Foods that comes from happy pigs.
– Baseball stadiums must stop selling nachos and cheese after the sixth inning.
– Any individual with a family history of heart disease must complete at least one marathon or one triathlon annually.
– Anyone with a family history of cancer must move to Canada.
– Your income will be taxed at a rate equal to your body mass index.

And one that I am especially looking forward to:

– Everyone must consume at least two ounces of dark chocolate daily. A glass of red wine is optional.

All kidding aside, the war on bad health habits is real. The assault on tobacco ads was the first early shot across the bow. As the Medicare/Medicaid crisis deepens, I predict we’ll see big taxes on fast foods and snacks, restrictions on food advertisements directed towards children, and all sorts of tax breaks for “healthy living,” including health club memberships and treadmills.

There are alternatives. Providing information can help individuals figure out to take care of their health without limiting options or picking government favorites. The mandatory posting of the nutritional content of restaurant meals in New York City is good example. But the health police are not content to create informed consumers. We might not use the information as they see fit.

Maybe our legislators are doing this out of some perverse kind of parental instinct. But most of us learn that to be a good parent you have to trust your children to make good choices. Otherwise your children will surely rebel. I guess our legislators haven’t learned this lesson. I hope it doesn’t take too much parenting from the health police before all of us rebel.

April 26, 2010

The Cambridge Cabal

Filed under: Competition,Efficiency,Health insurance,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 1:28 pm

It is hard to imagine that fifteen years ago the private sector seemed to have figured out how to contain health spending. One third of privately insured patients were in HMOs and nearly all the rest were in PPOs. While insurers were experimenting with tight networks and capitated payments, providers were responding by forming integrated delivery systems and offering capitated models of their own. Private health inflation was nearly flat, even as Medicare and Medicaid spending continued to grow by double digits annually.

Everyone should know what happened next. Americans rebelled against managed care (the Boston Globe quipped, “People hate its guts.”) HMOs fell by the wayside, PPOs expanded networks to include even the least efficient providers, and powerful hospital systems emerged to dominate markets from coast to coast. Providers struggled to implement integration and capitation due to a lack of performance data. Why make the effort when insurers had reinstated no-questions-asked fee-for-service payments? We now suffer through the purgatory that is managed care “lite.”

Today’s Wall Street Journal calls for the private sector to again take the lead on cost containment. I am afraid that ship may have sailed. Private insurers have been made out as the villains in this drama and are reluctant to do much more than implement pathetic pay-for-performance schemes while standing back and waiting for the government to act.

And act it will. Don Berwick, a Harvard professor who was just nominated to take the reins at the Center for Medicare and Medicaid Services, is a big admirer of the British National Institutes for Clinical Excellence. NICE is a rationing board run by academics who study cost effectiveness data before deciding what services the Brits can receive. David Cutler, the brilliant Harvard economist who is likely to head the Independent Medicare Advisory Review Board, is another scholar of cost-effectiveness methods and is philosophically opposed to price controls. So when it comes time for Medicare to trim spending, you can bet that they will ration a la NICE. This will provide cover for private insurers to do the same. (I predicted all of this in my 2003 book What’s Your Life Worth? which was read by about 25 people who were not family members. I also called for a public discussion of rationing methods; it appears that NICE-style rationing will instead be implemented by stealth.) Medicare is also experimenting with bundled payments and stronger quality incentives; expect the private sector to again follow suit.

The future of cost containment is no longer in the hands of the private sector. Instead, a few bright, well-intentioned academics will call the shots at Medicare, with private insurers playing Monkey See, Monkey Do. Only the academic community cannot agree on the best course of action. Many of my colleagues believe that the state of the art of cost-effectiveness analysis – what they do at NICE and are likely to do at IMAB – is rather pathetic. I tend to agree. Academics also disagree about whether and how to implement bundled payments.

So a few Harvard scholars will soon get to decide what is the best way to control health spending. Except they don’t know what is best, they can only guess. Whatever they do will be an experiment; the entire health system will be their petri dish.

In my world, private insurers and providers would conduct their own experiments. Some would succeed, others would, and resources would flow to those that worked in practice and not just those that made sense in the seminar room. But I afraid that world no longer exists. By demonizing private insurers, the Democrats have made sure that cost containment will be the sole purview of the federal government. I hope that Don Berwick, David Cutler and the rest of their Cambridge cabal get it right. Unfortunately, there will be no way from them or anyone else to know whether they did or not. We will soon find out where their ideas will take us. We can only imagine where else we might have gone.

March 30, 2010

Mr. Waxman’s Deception

Filed under: Health Reform,Health spending — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 8:47 am

Henry Waxman is apoplectic. AT&T, Caterpillar, and other big businesses that offer retiree benefits are complaining that the new reform legislation will cost them hundreds of millions of dollars. Mr. Waxman says this flies in the face of independent analysis showing that big business will benefit from reform and he wants these companies to explain themselves, under oath, before Congress. Oh, and President Obama cited this same independent analysis when touting the savings from health reform?

What exactly is this independent analysis? It is a report by the Business Roundtable laying out how much money might be saved by a variety of health reforms. Some of these reforms require government intervention. But other reforms require fundamental changes in how providers deliver care. Importantly, the Roundtable report does not analyze any specific healthcare proposal, let alone the one that the President just signed into law.

Here is what the Roundtable claims might help curb costs:

Delivery system reforms, such as value-based purchasing;
Innovation centers that identify alternative methods of provider reimbursement;
Accountable care organizations that realign financial incentives to improve the quality and the value of the care delivered;
Financial penalties for failing to avoid preventable hospital re-admissions;
Increased individual accountability for health care spending decisions, including health reimbursement arrangements and health savings accounts;
Cost and quality of care data that is easier for patients and providers to access and use;
Elimination of sharp regional variations in practice patterns;
Promote wellness and prevention programs and expand financial incentives to participate in specific programs to reduce lifestyle related illness; and
Insurance market reforms that promote competition and choice.

The new legislation does nothing beyond the status quo to facilitate these important changes. (One exception – the new “Independent Medicare Advisory Council” could impose care guidelines to reduce practice variations)

The report also notes that a number of potential changes threaten to increase health care spending, including:

Increases in the cost of health care to individuals from changes to consumer spending accounts or other actions that discourage consumer-engaged decision making; and
Cost-shifting to the private sector from reductions in federal reimbursements to providers and from a public plan option, if included.

Here at last are two changes that can be tied to the new law. The new law does nothing to encourage consumer-directed health plans and the Medicare and Medicaid provider fee reductions will give providers plenty of reasons to cost-shift.

It seems that it is Mr. Waxman and our President who have some explaining to do. The Business Roundtable report does not say that the new legislation will curb costs in the private sector. The new legislation has missed countless opportunities to save money and, if anything, it is going to drive private insurance costs higher.

Here is what I think is really going on. The left wing of the Democratic party wants a single payer system. The best way to achieve that goal is to totally destroy the market-based system. By focusing on insurance market “reform” and ignoring health care reform, they are well on their way to realizing their dream. And they know it.

Sometimes I would rather we had just skipped all this ugliness and went right to single payer.

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