Cost control’s the key

Critics of the comprehensive healthcare reform bills pending in Congress have trotted out a number of hyperbolic arguments against the legislation, some of which are easy to refute. It’s not a government takeover of American medicine -- the bills retain the current system of private insurance and private-sector doctors and hospitals. And it’s not an assault on the elderly -- although Medicare Advantage plans would lose their extra subsidies, prescription drug benefits would increase substantially.

Another persistent and exaggerated critique is that the bills would do nothing to reduce the cost of medical care. At the bipartisan summit meeting on Feb. 25, Republicans cited a projection by the Congressional Budget Office that premiums for individual policies would likely be higher in 2016 than they would be without the bill, and another by the chief Medicare actuary that total healthcare spending would grow by an extra $239 billion. Those estimates assumed that the legislation would lead people who aren’t in group plans to sign up for better policies than they have today, and that almost 60% of the uninsured would obtain coverage.

These numbers tell only part of the story, however. The Democrats’ proposals would start the complicated but vital task of replacing the system’s current incentives, which encourage providers to spend as much as possible, with rewards for wellness, efficiency and high-quality care. By attacking the demand that leads to overconsumption of services, the bills should slow the growth of healthcare costs over the long term.

The House and Senate bills use a combination of approaches to change the way medical services are delivered and paid for, focusing mainly on Medicare (which, after all, truly is a government-run healthcare program). These include numerous demonstration projects that explore ways to better coordinate treatments among doctors, hospitals, pharmacies and other providers; deter medical errors; improve follow-up care; and promote procedures that are more valuable to patients over the long run. Should these projects be deemed successful, the Centers for Medicare and Medicaid Services would have the authority to apply the techniques systemwide without asking Congress for permission.

The Senate bill also would create an independent panel of experts to develop cost-cutting solutions if Medicare spending grew too rapidly. The panel’s recommendations would require lawmakers’ approval, but if Congress rejected them, other cuts would kick in automatically. This controversial proposal is running into stiff opposition from doctors, whose reimbursement rates would be first in line for the automatic cuts. But it’s a real improvement over the current system, which lets Congress ignore systemic problems by simply throwing more money at Medicare.

Perhaps the most fundamental change the bills would bring to the system would be the creation of exchanges where the uninsured could shop for policies. By grouping individuals and small employers into a single buying pool, the exchanges would vastly increase their bargaining power. The exchanges also would boost competition among insurers, aided by either a publicly run insurance plan (the House proposal) or at least two privately run multi-state plans (the Senate version).

The bills include a laundry list of other provisions to restrain costs, including efforts to promote primary and preventive care, give consumers more information about prices and quality, and discourage wasteful spending. The final version is also expected to contain proposals by President Obama to combat Medicare and Medicaid fraud more aggressively and help states reduce medical liability costs. There are so many different approaches taken to controlling costs that Obama claims that his proposal includes “every good idea” economists have offered on the topic.

That’s not quite true. Notably absent is anything resembling the effort to cap and privatize Medicare that House Republicans have proposed. Such a cap could certainly slow Medicare’s growth rate, although it’s hard to believe elected officials would be willing to enforce that kind of rationing. Nor do the Democrats’ bills take what many economists say would be the most effective step to make consumers more cost-conscious about care: trimming the tax break for employee health benefits, which would discourage workers from seeking more generous health benefits -- and consuming more healthcare services -- in lieu of higher salaries. Instead, the Senate took an indirect approach, proposing a tax on high-cost insurance policies -- a feature that Obama has proposed to delay until 2018, while also shielding workers in many high-risk fields.

We still believe the bill could be improved with an even more vigorous approach to controlling costs. In particular, providing a “public option” could promote the spread of more efficient and higher quality approaches to care, and adding fail-safe mechanisms could speed the adoption of delivery and payment reforms if spending were to grow faster than anticipated. But we also are confident that the comprehensive measure outlined by Obama would put the healthcare system on the right path. The Congressional Budget Office and Medicare actuaries agree; both estimated that the Senate-passed bill would reduce the growth in federal healthcare spending once it was fully implemented. Lawmakers may very well find themselves having to do more in the future to restrain healthcare costs. But that task will be significantly easier if they pass a comprehensive bill now.