Thursday, November 12, 2009

The Curious Case of The Health Reform Cost Reduction Discussion

Everyone with any sense at all knows the present health reform bills expand coverage but fail miserably in reducing costs. In fact, the House and Senate reform bills estimate it will cost some $840 billion to $1.3 trillion over the next 10 years to cover the uninsured. And, everybody with any experience or knowledge of the history of entitlement programs know these are underestimates.

Tapes of President Lyndon B. Johnson reveal he maneuvered every step of the way getting the Medicare bill through Congress. One of the things he did was suppress talk and estimates of costs. Johnson advised a new Senator from Massachusetts, Ted Kennedy, to never project costs out too far. Such projections, Johnson said, would scare people and get them talking about socialized medicine, a sure loser among the American people.

This brings us to the current state of the reform discussion. Republicans warn of a “government overhaul,” i.e., socialized medicine in drag, and the American public is rightly concerned the projected costs will drag down a fragile economy and drag up the national debt, now projected to be $9 trillion by 2019. Furthermore, most sensible observers acknowledge that the current bill expand coverage but do essentially nothing to contain costs.

Given human nature, this state of affairs is easy to understand. It is easy to talk about caring for disenfranchised people. Health care is a social good. But it is quite another thing to discuss hard decisions to cut costs, for example, cutting $170 billion out of Medicare Advantage Plans or $500 billion out of Medicare.

That’s hard, so to glide over it, you talk glibly about long term “savings” through prevention, health information technologies, and coordinating care for chronic disease patients.

So where, you may ask realistically, do the true “savings” lie? I do not know, but a group of experts at the RAND corporation , using optimistic and pessimistic assumptions, have had a crack at the potential of cost savings.

Here is what the RAND experts came up with,

Estimated Cumulative Percentage Changes In National Health Care Expenditures, 2010-2109 , Given Implementation of Possible Changes.

Best Case, first number, Worst Case, second number

1. Bundled payment, -5.4%, -0.1%
2. Hospital rate regulation, -2.0%, 0.0%
3. Health information technologies, -1.5%, +0.8%
4. Disease management, -1.3%, +1.0%
5. Medical homes, -1.2%, +0.4%
6. Retail clinics, -0.6%, 0.0%
7. NP-PA scope of practice expansion, -0.5% -0.3%
8. Benefit design, -0.3%, +0.2%

Source: Peter Hussey, et al, “Controlling U.S. Health Care Spending – Separating Promises from Unpromising Approaches,” New England Journal of Medicine, November 11, 2009

What is curious about this list? Simply this. Other than retail clinics, there is no mention of market-based approaches - opening up competition for buying health plans across state lines, health savings accounts with high deductibles to lower premiums, individual tax credits allowing people to shop for plans that fit their needs, encouraging individuals to spend their own money as they see fit.

Current reform plans for reducing costs assume the only way to slow costs is from the top-down, from Washington, not from the bottom-up, by putting choice and dollars back in the hands of individuals. And the best way to discourage such talk is to suppress mentioning it, lest people come to their senses. As Alice in Wonderland might say, talk of reducing health costs gets curiouser and curiouser.

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