Difficult choices

Physicians were heartened by the proposed budget deal to address the festering wound which is the SGR fix. Yes, good news. However, the path to gaining control of health care spending always must always involve one specific outcome... spend less. The disagreements are always regarding the how that comes about. The CBO report (http://www.cbo.gov/publication/44906) addresses these issues, some in detail, and some in broad terms. From the report:

Most of the 16 options in this report would either decrease federal spending on health programs or increase revenues (or equivalently, reduce tax expenditures) as a result of changes in tax provisions related to health care. Some options would result in a reallocation of health care spending—from the federal government to businesses, households, or state governments, for example—and most would give parties other than the federal government stronger incentives to control costs while exposing them to more financial risk.

Eleven of the options are similar in scope to those in CBO’s previous volumes of budget options. For each of those options, the text provides background information, describes the possible policy change or changes, presents the estimated effects on spending or revenues, and summarizes arguments for and against the changes. The other five options—Options 1, 6, 7, 10, and 15—address broad approaches to changing federal health care policy, all of which would offer lawmakers a variety of alternative ways to alter current law.

Note that items 1,6,7,10,and 15 make up the bulk of the savings and although they do not specifically state this in the executive summary (I have not had a chance to read the entire report in detail), I also suspect these items make up the bulk of the ongoing savings beyond 2023. Recommendation #1, imposing caps on Federal Medicaid spending, is a recommendation which could not be any less timely. States have been hesitant to expand Medicaid because of their concerns about sustainability. Their concerns were focused on what would happen three years from now when the Federal payments promises would need to be renegotiated. This has been countered by the argument that the Feds are picking up the tab.  The frequently wrong but never in doubt crowd suggested that no one in their right mind would turn down free money.

It seems that the concerns perhaps are warranted and perhaps they will come into play before that three year window. The CBO is suggesting this be rethought just as the Medicaid expansion is only staring! This will be a huge issue and one can figure the way Congress deals with this is to push the real savings out until a different election cycle. Any way ones looks at this and depending upon how the Medicaid caps are imposed, there is a big chunk of change involved ($600 billion). If no savings are garnered from capping Medicaid expansion,  it has to come from somewhere else if the bill is to work. Look for creative accounting solutions which might be considered fraud if done in the private sector.

The additional items (6, 7, 10, 15) all address cost control as noted above by

...reallocation of health care spending—from the federal government to businesses, households, or state governments, for example—and most would give parties other than the federal government stronger incentives to control costs while exposing them to more financial risk."

These will all be very politically unpopular because they do exactly what needs to be done. Health care spending is out of control because we have created financial tools which induce the public to consume more health care than they would if they had to assume even close to the cost of what they are consuming. If Medicare beneficiaries got actual cash money from the Federal government to purchase insurance, they would over time become more prudent as to what they purchased. Similarly, if the Medigap coverage was throttled back, Medicare beneficiaries would become more aware of the costs of what they are consuming.
The same goes for reducing the tax preferences for employer based health insurance (#15). It is almost universally recognized that most of subsidies go to waste. The tax preferences afforded to health care benefits have resulted primarily in increased cost over time with little or no increase in value.

No significant cost controls will come about until the consumer has skin in the game. All the big numbers in this table assembled by the CBO focus on this aspect of the problem. However, this is politically untenable. There is still the widely held belief that people can be insulated from the cost of health care and not be affected in terms of their consumption patterns. It is simply wrong. Structure insurance to provide discounted prices through subsidies and it should be no surprise that one drives consumption through the roof and simultaneously perverts the pricing mechanism. No headway can be made on this until the underlying financial drivers are addressed. Anything which purports otherwise is simply wishful thinking.