Posted July 2, 2009
Health-Care Cuts Could Shift Costs
Private Sector May Face Greater Burden, Economists Say
President Obama’s plan to rein in federal spending on health care could end up shifting costs to the private sector, economists say.
Unless doctors and hospitals are able to respond to the government cuts by becoming more efficient, the result could be higher costs for insurers, employers, and people with private medical coverage, they say.
Historically, health-care spending has been a bit like a balloon: If it is squeezed in one place, it tends to bulge in another.
“I think there’s definitely risk that a portion of the reduction in hospital payments from Medicare will wind up as increased payments by private insurers,” said Paul B. Ginsburg, president of the Center for Studying Health System Change.
Depending on the circumstances, hospitals may have the motive and means to “transfer those charges to somebody else,” and “we’ll see costs increasing on the private side and not necessarily falling everywhere,” said Harold S. Luft, director of the Palo Alto Medical Foundation Research Institute.
The biggest health-care proposal that Obama announced last weekend is especially likely to move costs to the private sector, because it would cut Medicare payments without giving hospitals the tools to deliver care more cost-effectively, Luft said. The administration predicts that measure — adjusting Medicare payments to reflect productivity changes in the overall economy — would save the government $110 billion over 10 years.
Squeezing from the government’s end could make health care more efficient for everybody. “If you push on one side, you’re actually pushing on the whole thing,” said Kenneth Baer, a spokesman for the Office of Management and Budget.
But a report issued Tuesday by the Congressional Budget Office portrayed that outcome as speculative. There is no guarantee that the health-care system’s response to pressure would be greater quality or efficiency, according to the CBO analysis.
Throwing cold water on hopes for effective health-care reform, the CBO described a variety of problems that could make it hard to slow federal spending on care — and to do so without putting quality at risk.
“At this point, experts do not know exactly how to structure such reforms so as to reduce federal spending on health care significantly in the long run without harming people’s health,” the CBO said.
“Examples of efficient care certainly exist today. . . . Yet applying the methods of those efficient providers throughout the health-care system cannot be accomplished through fiat or good intentions,” it added.
The challenge is that the administration and Congress are trying to extend medical coverage to the uninsured without increasing the federal budget deficit over the next decade. As a result, they are bound by the budgetary scoring process — meaning they must come up with solutions that can predictably and measurably reduce federal outlays.
Some steps that might prove cost-effective over the long run do not necessarily mean savings for the federal budget.
Conversely, some steps that save the government money would not necessarily translate into overall reductions in national health-care spending.
If Medicare cuts payments to hospitals but the costs of treating patients stay the same, “then you have the potential for cost-shifting,” said Kenneth E. Thorpe, a professor of health policy at Emory University. But Obama is trying to implement policies “that would lead to hospitals reducing their expenditures,” he said.
One of the president’s signature proposals would reward hospitals for reducing readmission rates and penalize hospitals whose patients must return for another stay because they did not receive adequate treatment the first time. That proposal is unlikely to create a bulge in private medical costs, because it would lead hospitals to change the way they function, Thorpe said. The administration is counting on improved readmission rates to save the government $25 billion over 10 years.
Not all hospitals would have the ability to foist additional costs onto the private sector. Those most likely to make up elsewhere for cuts in government payments are major hospitals that are essential to local health networks and therefore able to wield more market clout, Ginsburg said.
The consolidation of hospitals in many communities limits private insurers’ ability to push back.
Cutting payments by Medicare, the federal program for the elderly, is a relatively blunt instrument of reform.
“Imposing slower growth in [Medicare] payments would create ongoing pressure on providers to identify and adopt efficiencies; it would also, however, create risks for providers and patients if the efficiency gains were not achieved,” the CBO said.
Part of the problem is what the CBO described as the difficulty in measuring the quality of care. If quality cannot be gauged, it is hard to reward doctors and hospitals for delivering it — and it is hard to penalize them for not doing so.
Various popular ideas about how to save money have limitations and downsides, the CBO reported.
Increasing access to preventive care, for example, is widely considered a powerful way to reduce spending, but “one study of health and economic effects of preventive services found that only 20 percent of the services that were assessed yielded net financial savings,” it said. In some instances, the cost of delivering preventive care to a large population would actually exceed the savings on the relatively few people who avoided illness as a result, CBO said.
Similarly, improving public health can reduce Medicare spending on particular problems. However, helping people live longer and healthier lives can increase the burden they put on the federal government, partly because they will spend more time collecting Medicare and Social Security benefits, the CBO reported.
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Fifteen years ago, when Democratic Sen. Tom Daschle was running interference for the Clintons’ effort at health-care reform, his goal in life was to enlist Sen. Bob Dole, the hugely influential Republican leader, as a co-sponsor. Daschle never got him, and the enterprise crashed and burned.
When an interview was done with the two of them this week, Dole remarked that “we started out working together, and then it fell apart” — the victim of a massive lobbying campaign, a bunch of tactical errors by the president and first lady, and Dole’s presidential ambitions, which moved him into the camp of the Republican naysayers.
Now Daschle and Dole, along with another former Republican leader, Howard Baker, have come together with a report outlining the provisions of a possible bipartisan health bill and strong recommendations on how to pass it. (The fourth original member of this Bipartisan Policy Center board, former Senate Democratic leader George Mitchell, dropped out to become President Obama’s special envoy to the Middle East.)
In a phone conversation the day before their report was released, Daschle and Dole agreed that prospects for enactment of major reform are far better now than in 1994 — and better than they would have been even two years ago. “The situation is far more dire on costs and quality and access to care,” Daschle said. Added Dole: “You have business, labor and a whole cross section of people saying, ‘We have to have reform.’ ” But it will still be a heavy lift. Like Obama, Daschle and Dole estimate the cost of insuring the 46 million without health coverage to be $1.2 trillion over 10 years, and they say that at least half will have to come from new revenue, if the Obama goal of budget neutrality is to be met.
To raise it, they would assess large companies that do not offer employees health insurance a fee based on their payrolls — a mandate that Dole acknowledges would be hard for many Republicans to swallow. And they would impose taxes for the first time on the so-called Cadillac policies paid for by employers — a change opposed by many Democrats, by unions and by Obama when John McCain advocated it during last year’s election campaign.
But that is only the beginning of the bitter medicine Dole and Daschle are asking their fellow partisans to choke down.
Acknowledging that there is little chance for bipartisanship in the House, Dole urged Senate Republicans to give up any thought of filibustering the health bill. “We need a group of Republicans who will give an early demonstration that bipartisanship is possible,” he said.
Daschle, in turn, said he thinks the Democrats should not attempt to ram a health bill through the Senate by using the budget reconciliation device to pass it with 51 votes, rather than the 60 votes most legislation requires.
Daschle, who would have been Obama’s point man on health reform had his recent tax returns not caused him problems, made the point that a reform of this magnitude should not be forced through on a narrow majority. Australia, he said, “passed and repealed health reform several times before they got a strong enough vote to sustain it.”
It is significant that the Daschle-Dole plan sidesteps the raging controversy over whether there should be a government-sponsored plan to compete with private insurers. Obama and most other Democrats are demanding it; Republicans and conservative Democrats call it a deal-breaker.
Daschle reluctantly agreed that there would be no federal-government plan. Instead, states that want it could include such a plan on the menu for their residents, with technical help from the feds in setting it up. Five years from now, if a demand for such an option still exists, the president could recommend it, and Congress would have to vote on it.
It was damned hard for Dole and Daschle, neither of whom faces the voters or the lobbyists, to agree. It will be much harder to extract a bipartisan bill from Congress.
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Where did we get the idea that the only good health-care bill is a bipartisan bill? Is bipartisanship more important than whether a proposal is practical and effective? And if bipartisanship is a legitimate goal, isn’t each party equally responsible for achieving it?
This week, the health-care debate moved from general principles to the agonizing specifics of how much reform will cost, who will pay and which groups get what.
If this were a perfect laboratory experiment, Democrats and Republicans would enter such discussions agreeing on core goals and then argue over how to tweak certain provisions and spread the costs equitably.
That’s what Howard Baker, Tom Daschle and Bob Dole, the bipartisan trio of former Senate leaders, suggested in a report yesterday. Good for them. And Max Baucus, the Democratic chairman of the Senate Finance Committee, still hopes to be health care’s Great Compromiser, this era’s Henry Clay, even if the messy particulars slowed his efforts this week.
But there should be no illusions: On health care, the two parties are far apart on the fundamentals.
Most Democrats believe that fixing the system will require increased government intervention to guarantee universal coverage and to contain costs. Most Republicans oppose an expansion of government’s role and believe an even more market-oriented system would pave the way to health-care nirvana.
Trying to achieve full bipartisanship by squaring those two views is a recipe for incoherence.
As it is, President Obama and the Democrats have already compromised a great deal. They are not proposing a government takeover of health-care financing, as single-payer advocates prefer. Instead, they are working within the confines of current arrangements.
That’s why White House Chief of Staff Rahm Emanuel can argue, as he told me recently, that any proposal Obama endorses will be “bipartisan” because “the policies in the bill will include Republican and Democratic ideas.” That’s another way of saying that any health-care bill that passes will expand government’s role but also build on the existing private health-care market.
This has not stopped Republicans from charging that Obama favors “socialized” health care run by “big government.” And even when the GOP is not using over-the-top rhetoric, the party’s own proposals make clear how far most Republicans are from Obama’s purposes.
Yesterday, House Republicans unveiled their own health-care principles, and Rep. Dave Camp of Michigan said in an interview that their willingness to do so belies the idea that he and his colleagues constitute “the party of ‘no.’ ”
Camp, a key architect of the Republican initiative, is the antithesis of the Rush Limbaugh-style shouters, a cheerful Midwesterner who has engaged in serious legislating, notably on adoption and foster care. And the Republicans’ wish list does include some less-than-sweeping but reasonable ideas (for example, making it easier for children to stay on their parents’ health plans up to the age of 25, and offering new incentives for doctors to go into primary care) that could well make it into a bipartisan bill.
But their core proposals — especially their call to expand health savings accounts and to overturn state regulations in favor of nationwide “association” health-care plans — push in exactly the wrong direction by further fragmenting the insurance market.
Doing so might cut insurance costs for those who are not ill, but at the expense of raising the already-prohibitive costs for the sick. The marketplace is good at providing options for the well-off and the healthy, but they are not the ones with problems. That’s why Obama wants the government to change the health-care market.
What this means is that most Republicans want to take themselves out of the health-care discussion altogether. For reasons of principle as well as politics, they want to rail against the costs of government action and assert — against what I would insist is overwhelming evidence — that somehow we can find a way for the market to solve our health-care problems.
Republicans have every right to do this. But they can’t refuse to play the game and then go on to condemn Obama and the Democrats for being insufficiently bipartisan.
It’s one thing to compromise to pick up votes, which, one hopes, is what Baucus is doing. It’s another to compromise in exchange for nothing at all. The first is bipartisanship with a purpose. The second is the bipartisanship of fools.
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With the Introduction of President’s “Pay-As-You-Go” Legislation, Democrats Continue Commitment to Fiscal Discipline, Budget Reform
“The deficits that my Administration inherited reflect not only a severe economic downturn but also years of failing to pay for new policies… Enacting Statutory PAYGO would…represent and important step toward strengthening our budget process, cutting deficits, and reducing national debt.”
- President Barack Obama, 6/9/09
Today, House Democrats introduced President Obama’s “Statutory Pay-As-You-G- Act of 2009.” This legislation is necessary to help reverse years of recklessness by the Bush Administration, which left out Nation in an unprecedented fiscal hole, facing a deficit of $1.3 trillion. A primary focus of the Democratic Congress, restoring PAYGO will help restore fiscal discipline, allowing us to invest in America’s most important priorities while making the tough choices necessary to cut wasteful spending, address the deficit, and reduce the national debt.
PAYGO Proposal Reflects Lessons of the Past, Challenges of Today
Building on the successful efforts of the past that turned deficits into surpluses while understanding the unique challenges of today, this proposal continues to lay a vision fro fiscal reform.
* In the 1990’s, PAYGO helped turn massive deficits from the Reagan era into a record surplus under President Clinton.
* President Obama’s proposal is very similar to the original PAYGO law in the 1990’s. However, instead of requiring that legislation be deficit neutral in each year, the President’s proposal would look at the ten year cost of legislation. If the net effect of all legislation enacted during a session of Congress was paid for over then years, there would not be sequester, even if the costs were not offset in some years.
* This legislation serves as supplement to the existing House PAYGO rule. It provides an enforcement mechanism that will hold both chambers of Congress, as well as the Administration, accountable for paying for legislation.
* This legislation builds on the fiscally responsible budges put forward by the President and agreed to by Congress, in which Democrats paid for the priorities like health care, energy, and education.
* This legislation allows for Congress and the President to respond to an economic crisis by designating and exempting the costs of emergency legislation. During the recession in the early 1990s, Congress and the President enacted legislation extending unemployment benefits without offsets by designating it as emergency spending.
As the process moves forward, Democrats will work with the Administration to resolve the differences between the President’s proposal and existing House rules.
