JONATHAN COHN AUGUST 3, 2010
Note: Here is my latest column for Kaiser Health News.
The effort to repeal health care reform, all in one fell swoop, seems to be stalling. Instead, the opponents of reform are trying to dismantle it piece by piece. The latest effort came last week, when a group of Republicans in the Senate proposed abolishing the Independent Payment Advisory Board. And therein lies a lesson about the future of American health care--and the two different shapes it could take.
The IPAB will consist of 15 members, appointed by the White House and confirmed by the Senate, who will serve staggered six-year terms. Starting in 2015, if Medicare spending exceeds targets set in the reform law, the IPAB will recommend changing the way Medicare pays for services, in order to reduce spending. The president and Congress will have the power to reject those recommendations, but only if they come up with equivalent reductions of their own.
Architects of the IPAB, and health reform more generally, hope that it can help achieve two goals. First, they hope it will allow the government to reduce spending on Medicare, which--in the long run--is going to gobble up more and more of the federal budget, requiring infusions of more and more taxpayer dollars. Second, they hope that changes in Medicare ripple through the rest of the health care system, so that as the government spends less on medical treatment the rest of the country does, too.
Wait, don’t these Republicans critics want to stop Medicare from growing so fast? And don’t they also want to reduce overall spending on health care? Why, yes they do. But they think IPAB is the wrong way to do it, because it means government--i.e., “unelected bureaucrats”--are the ones who should be deciding how to cut spending.
When you put it that way, it definitely sounds unappealing. Who likes unelected bureaucrats?! But take a step back and consider what these critics of IPAB, and health reform more generally, are really proposing.
Spending on health care has been rising for the last few decades, thanks to market inefficiencies, an aging population and the development of expensive new tests and treatments for disease. Today, we spend around 16 percent of gross domestic product on health care. If nothing changes, tomorrow we could find ourselves spending 20, 25 or 30 percent. Every dollar we spend on health care is a dollar we have to take from some other place. As Medicare gets more expensive, we have to give up more tax dollars to pay for it. As private insurance get pricier, employers and employees have to divert more wages to cover the premiums.
All of this creates pressure to reduce health care spending. The question is how to do it. On those infrequent occasions when the opponents of health care reform are being honest, they say they their strategy is to let the market reduce spending on its own: Turn Medicare into a voucher program and then expose all Americans, old and young, to significantly larger out-of-pocket expenses. Advocates of this strategy claim that individual consumers will seek out the best deals and that the resulting competition will make the entire health care system provide more care for less money.
But that outcome seems unlikely. Highly unlikely. For one thing, multiple studies shown that, dollar for dollar, government-run Medicare is more efficient than private insurance, thanks to greater market power, economies of scale, and the ability to piggy-back on existing government programs. (Medicare handles a lot of its revenue collection through the IRS, which would exist and be collecting money even without Medicare.) Shifting over to a voucher system would, if anything, reduce the dollars going into actual patient care.
More important, a great deal of evidence suggests that, as cost-sharing goes up, many people do not economize in ways that leave them better off. In a famous set of experiments from the 1970s, conducted by the Rand Corporation, low-income people who faced higher cost-sharing ended up in worse cardiovascular health--because they cut back on the medication they needed to keep blood pressure under control. More recent studies of cost-sharing among seniors have confirmed that result.
Market-focused cost control also shifts the burden of health expenses within the population, in ways that actually make the vulnerable even more vulnerable. The idea of insurance is to spread risk--that is, to insulate sick people from crippling medical expenses by having healthy people share some of that burden. But the more cost-sharing falls on individuals, the less insulation sick people get. Sick people end up in more trouble financially; to the extent they really do end up spending less, it’s often because they’re going without care they actually need.
That’s not to say there’s no place for market forces in controlling health care costs. Far from it. Particularly if there’s more information about prices and quality, many people can--and should--make intelligent decisions about which insurance plans to buy, which doctors and hospitals to trust, and even which treatments to choose. But given the enormous potential for higher cost-sharing to impose real harm, it’s important to make this transition carefully and alongside other reforms that temper market power.
You want to make sure everybody has insurance, guarantee free access to preventative care and put a cap on overall out-of-pocket spending--so that everybody gets the basic care they needs and nobody faces medical bills that are truly crippling. You also want to take advantage of existing efficiencies in Medicare, but then use the program and its huge bargaining power to introduce system-wide financing changes--like paying more to providers that offer better quality or moving away from fee-for-service payment--that the private sector hasn’t, and can’t, do on its own. In other words, you want an approach that strikes a balance between government and the market.
There’s room to argue about whether the new health care reform gets the balance right. (I’d have preferred a balance tilted a lot more to the government side.) But it is still a balance--and the IPAB, which will help introduce those changes to Medicare, is a key reason why. When critics say they want to repeal it, or any other part of health care reform, just make sure you consider what their alternative is--and whether it’d really be better.