Health Reform

HEALTH REFORM: The Cost of Doing Nothing... Part 984,039,825

Allison Levy — Fri, 20 Nov 2009 21:49:00 -0500

As we have discussed several times, doing nothing is simply not an option. We need to reform our health care system -- not despite our economic crisis, but because of the significant impact health care has on U.S. workers and businesses.

In an article for the Washington Post this morning, Peter Orszag, Director of the Office of Management and Budget, stresses that "as we enter the homestretch, the greatest risk we run is not completing health reform and letting this chance to lay a new foundation for our economy and our country pass us by."

He states that if we do not do anything to slow the rising cost of health care, the federal government will end up spending more on Medicare and Medicaid than all other government programs combined. And our country could not afford to let that happen.

We have established that the cost of doing nothing is high, yet, as Orszag notes, some still have their reserves. These are the people wondering whether it is truly possible to achieve comprehensive health reform in a fiscally responsible and sustainable manner.

But just in time for the Senate vote, Orszag takes the time to explain why in fact we do not need to fear the fiscal impact of health reform.

First, he emphasizes that the nonpartisan Congressional Budget Office has concluded that both the House and Senate bill would reduce the nation's deficit over the next ten years (and by more in the following decade). And the CBO's analyses, he stresses, are "based on hard, tangible savings -- not on the harder-to-quantify, yet very real steps that hold the most promise of transforming health care." This is good news.

What should also come as good news is this letter to President Obama. And the fact that the four elements that this group of 23 economists (consisting of Republicans, Democrats, former Bush administration officials and Nobel laureates) believe are absolutely critical to keeping the cost of health care under control -- can all be found within the pages of the legislation currently being reviewed.

The economists argue that responsible health reform legislation must include deficit neutrality, an excise tax on high-cost insurance plans, an independent Medicare commission and delivery system reforms:

Including these four elements ... will reduce long-term deficits, improve the quality of care, and put the nation on a firm fiscal footing. It will help transform the health care system from delivering too much care, to a system that consistently delivers higher-quality, high-value care. The projected increases in federal budget deficits, along with concerns about the value of the health care that Americans receive, make it particularly important to enact fiscally responsible and quality improving health reform now.

To all of you losing sleep over the impact of health reform on our budget -- rest easy tonight.

HEALTH POLITICS: Everybody's Working For The Weekend

Meredith Hughes — Fri, 20 Nov 2009 18:28:00 -0500

Or, at least, the Senate will be working this weekend. The Senate plans a rare Saturday night vote on a motion to proceed with Senate Majority Leader Harry Reid's $848 billion health care reform bill, released earlier this week. The pressure is on for Senate Democrats, who need 60 votes to ensure the bill makes it to the floor to begin debate.

Reid melded the Senate Finance and HELP committee's reform bills, but his "deep personal involvement in assembling the overhaul of the health care system," makes it "Reid's bill," writes Carl Hulse in The New York Times. If Reid successfully guides the health care reform bill through the Senate, it could be the biggest victory his career, and a huge boon for Obama and the Democratic Party, writes Hulse, but if he fails, it could mean disaster for the Democrats and an even tougher re-election battle for Reid in his home state of Nevada. Many Democrats expressed faith in Reid's skills as a legislator and a tactician, according to the Times,

Colleagues say Mr. Reid's extensive knowledge of Senate tactics and well-honed understanding of what drives and divides his Democratic colleagues leave him well positioned to pull off a legislative coup that has eluded seasoned and determined lawmakers for decades.

"I don't think there are many people in the whole world other than Harry Reid who could do this," said Senator Mary L. Landrieu, Democrat of Louisiana.

Landrieu however is one of three Democratic centrists who Reid is still wooing, along with Ben Nelson (D-NE) and Blanche Lincoln (D-AR). Moderates cite concerns about the cost to states and the abortion language. Nelson has now said he will vote with Reid on the first procedural motion. Lincoln told Reid her plans, but hasn't made them public. But as CongressDaily noted,

...the fact that Democrats aren't backing away from the weekend vote suggests that Lincoln has accepted the argument from leaders that Democrats should vote to move the bill, even if they oppose it and might vote against it in the end.

As we've mentioned before, Senator Joe Lieberman (I-CT) has threatened to block the final bill if it contains a public health insurance option. But for now he's agreed to vote with Democrats to get the debate started.

Reid even struck up a compromise of sorts with Republican opponents. According to Politico, Republicans agreed not to read the 2,074 page health reform bill out loud in its entirety. Instead, Reid offered them a full day of debate on Saturday before the evening vote. That means that everyone (even us!) gets a chance to head home for Thanksgiving.

Earlier this week, top Democratic strategists, such as pollsters Mark Mellman and Geoff Garin, White House communications director Dan Pfeiffer and White House deputy chief of staff Jim Messina, met with Senate Democrats to discuss the importance of health reform, reports TIME. Mellman urged senators to remember they are all in this together. A victory on health reform is important to the American people who are struggling with health care cost and coverage. But it's also important to the president's agenda and the Democratic Party's success in the upcoming midterm elections, said Mellman. Health reform wasn't the only element in the deep and wide Democratic losses following President Clinton's failure to pass health reform in 1994, but it was a big factor.

The battle could get uglier as the health reform bill moves through the Senate, but for now it looks like the Democrats are ready to get started on this debate. Time to make history. Time to make progress.

HEALTH POLITICS: A Fresh Look at Malpractice

Joanne Kenen — Fri, 20 Nov 2009 16:46:00 -0500

Over the past year or so, we began detecting some subtle changes in how Democrats were talking about malpractice. They weren't embracing the Republican tort reform agenda, weren't about to start limiting damages and saying "Sorry Charlie" to people who had suffered heartbreaking harm. But they weren't just changing the subject either. They were recognizing a problem, and considering solutions. Liability problems as well as larger obstacles to addressing serious patient safety problems.

We posted about it a few times (here and here). I started reading more about it, and I started talking (and listening) to what doctors had to say. Not just lobbyists for doctors, but doctors. Including some progressive docs in primary care who favor health reform or a single payer system. I have a piece online in American Prospect today, outlining some alternatives to traditional malpractice lawsuits that are worth trying. (Not to replace the current court system, but to test alternatives. And while we test alternative dispute resolution or other approaches, it should be voluntary.) One of my conclusions was that malpractice is getting in the way of all sorts of other things we need to do to fix our system. Getting in the way politically and economically. And getting in the way of some of the changes we need to make to create a system that is safer, evidence-based, and less wasteful. Some doctors will resist changes to the system -- because change is hard, or change is something that they don't think applies to them, or, for some doctors in some settings, change can sock them in the wallet. Getting the malpractice piece out of the way, or at least minimizing it a bit, may remove the legal smokescreens and let us get to the heart of the change resistance.

The CBO recently did its first estimate on the price of defensive medicine. I left out that figure from this article because it was based quite specifically on potential savings from Republican legislation ($11 billion a year). I don't think there is an agreed upon overall estimate that defensive medicine in the current system costs -- to federal health programs, the privately-insured, the doctors. But for readers who want a summary of some of the recent literature on this, Factcheck.org has a good wrap.

The approaches I mentioned -- health courts, "disclose and apologize" and certificates of merit -- aren't the only ideas floating around. As we do more comparative effectiveness research, and learn more about what doctors should be doing and why or why not, we may be able to weave more "safe harbors" into the legal system. Right now, as all the current confusion about prostate screenings and mammograms illustrates, we still have a lot of trouble agreeing on and comprehending best practices.

In the near future, we're going to post a bit more on patient safety (which we wrote about the other day) and have a bit more to say on the AMA's evolving views on malpractice and health reform. For now, we're going back to watching the Senate....

WORLDVIEW: Assume There's Morality

Joanne Kenen — Thu, 19 Nov 2009 21:16:00 -0500

Not many health writers -- not many writers of any ilk, for that matter -- can match T.R. Reid's ability to bring a light, witty touch to really serious topics. Like health policy around the globe.

Tom (that's what the "T" in "T.R." stands for) was the featured speaker at the Peterson Institute of International Economics today. Not the usual venue for the book tour for his best-seller, "Healing of America: A Global Quest for Better, Cheaper and Fairer Health Care." Before his talk, he told me he was planning to stress the moral case for covering everyone. Not the approach, perhaps, that this particular crowd was used to hearing. Go ahead, I told him. It is, after all, a roomful of economists eating a free lunch.

And that's what he did.

Every rich western democracy (and a few of the not so rich and not so democratic ones), he said, covers everyone. We don't.

None of their systems are perfect. Like us, they wrestle with the rising price of pharmaceuticals and medical technology, and with the needs of an aging population. But they all cover everyone. It's time, he said, for us to do the same. It's been time for a long time.

Reid argued that health care is a basic human right -- a controversial notion in the United States, but received wisdom elsewhere. He threw in some economic lingo as well. Covering everyone (and everyone, he said, means everyone) also brings about efficiencie that make the system work better. He talked about "distributional ethics." Every American -- both Bill Gates and the guy who mows his lawn -- each have one vote. But they don't each have one yacht. Health care, he said, should be more like a vote than a yacht.

Nor does he believe (as some Americans seem to, judging from decibel level of our national health reform debate) that expanding coverage is a zero sum game. I get more, you get less. He argues that we can all get more. More efficiency. More morality. If we find the will, other wealthy industrialized countries can show us a plethora of ways.

Two New America colleagues have reviewed his book. Phil Longman in the Washington Post called the book " a service to his nation," Shannon Brownlee in the Washington Monthly wished he had written more on the lack of evidence behind some of the treatments widely used in the U.S. We liked the film Reid did for Frontline last year, "Sick Around the World" and we liked the book, a readable account of different national health systems interspersed with his own amusing but enlightening global search for a fix for his bum shoulder. How can you not like a book that has sentences like:

France [is] a mirror image of the United States when it comes to health care: Americans strongly dislike their national health care system but haven't found the political will to change it; the French are highly satisfied with theirs but change it all the time."

Or, after having his shoulder treated (quite successfully) by traditional healers in India, when he wrote:

When the front office at the Arya Vaidya Chikitsalayam handed me a detailed accounting -- dozens and dozens of pages listing every navarakizhi, every poojah, and ever ancient herbal medication I had experienced -- I realized instantly that my U.S. insurance company was never going to pay this bill.

He didn't care. His shoulder was better -- and he had lost nine pounds.

Reid's message is not always wry or witty. Far from it. At the beginning of his book, and again near the end, he writes about Nikki White. She died of lupus at age 32. Not because her disease was so severe or untreatable. But because once she became too sick to work, she lost her insurance. And once she lost her insurance, she got sicker. She could not get the treatment she needed until she was so sick that it was too late.

"No other rich country would have tolerated the inequality that left Nikki White dead," he wrote. Designing a health system is an economic question, a medical question, a political question, he acknowledged. But in the end, he concluded, " the primary decision to be made is a moral one."

COVERAGE: Evaluating the Public Plan, Man

Paul Testa — Thu, 19 Nov 2009 20:23:00 -0500

Slate's Timothy Noah provides a thoughtful overview of the intellectual origins and political evolution of the public option's place in health reform.

It's a complicated case, the public option. Lotta ins. Lotta outs. But Timothy Noah is the Big Lebowski of health writers, and is the man for the job to keep all these strands together. (Yes, we know we've made that joke before, but like our living room rug it really ties the blog together.)

Noah's goal was to understand why the CBO and others estimated that premiums for a so-called level playing field public option would cost more than private plans. Noah spoke with New America's Len Nichols, whose paper with John Bertko helped outline how a public option with negotiated payment rates could compete on a level playing field with private plans.

At the heart of Noah's question are the assumptions these estimates make about the nature of the public option and the potential for adverse selection between insurers (in this case more sick people choosing the public option over private plans). Noah nicely illustrates the intricacies of this debate, and we'd like to add a few more points to consider.

First, we would argue the fears that a public option will necessarily attract a less healthy (higher cost) population are overblown. Health reform legislation encompasses new insurance market regulations (community rating, affordability standards tied to actuarial values, guaranteed issue and renewal). Coupling those new rules with the requirement that all Americans purchase health insurance removes much of the ability and incentive for private insurers to engage in the kind of cherry picking and lemon dropping that the Slate article addresses. Insurers will still try to attract healthier customers through advertising and marketing, but their ability to actively select customers based on health status and other risk factors would be limited. Risk adjustment will further address variation that might arise through this sort of "soft" risk selection.

Second, it seems unlikely that sicker individuals will drop existing coverage and flock to the public option. If they're offered coverage through an employer and that coverage is deemed affordable relative to their income, they're ineligible for the exchange. Furthermore the transition costs of switching plans when you've already set up a network of providers to care for your conditions are such that if you like what you have, you will probably prefer to keep it.

Finally, there is the question of how a public option would operate -- specifically, how would it employ methods of utilization management. Utilization management is ungainly jargon even for health policy. It should not be conflated with the cherry picking and lemon dropping of risk selection. When practiced correctly, utilization management is about delivering value for our health care dollar. It's about paying for what works, reducing unnecessary tests and procedures, and encouraging healthy behaviors. It's about avoiding the MRI when an X-ray will do, or making it easier for a diabetic to manage her blood sugar and avoid crises and complications that could send her to the ER -- or the OR. Or the ICU.

There are many real world examples where utilization management done right both saves money and improves patient care. But the CBO and others in their estimates basically assume that a public option would ignore the examples of plans like Group Health or Kaiser, and keep paying providers along the lines of fee-for-service Medicare. Why would the Secretary of HHS design a public option to perpetuate broken payment models, when it could be a driver for innovation in payment and delivery system reform? So for all the hand wringing over a public option, when it comes to estimates of adverse selection and utilization, remember, that "yeah, well, you know, that's just, like, your opinion, man." Cost estimates are important, but implementation is what really matters.

COST: The Price is Right for Health Reform

Paul Testa — Thu, 19 Nov 2009 18:50:00 -0500

After weeks of anticipation and speculation, Senate Majority Leader Harry Reid has unveiled the legislation that will bring health reform to the Senate floor in the coming weeks.

While waiting for the details of the bill to come out Wednesday, we created a little office pool, called the Price is Right for Health Reform. In an office-wide email, we asked our peers to guess the CBO's estimates of the gross costs of the bill. Showcase Showdown rules (closest without going over) applied. We were intentionally vague in our question because estimating the true costs of the bill is inherently a difficult process.

The number we were looking for was $848 billion. The CBO's estimate of the gross cost of the bill is essentially the total cost of coverage provisions over the next 10-years. This is the number most frequently reported in the media as the "cost" of the various health reform bills being discussed. But is this really the best indicator of the true costs of health reform? Maybe not. First, timing matters: $848 billion over ten years is a lot different than a $787 stimulus bill where 90 percent of the money is spent within the first 3 years. So do deficits. How much does a bill cost if it's fully paid for and in fact reduces the deficit as is the case for both the House ($109 billion) and Senate ($130 billion) bills?

We received plenty of calls from our co-workers asking just these questions. We tried to stay quiet, because we were interested in what the educated, non-health policy wonks think about the cost of reform. True to our think tank's "post-partisan roots" we got a range of answers from "too little" to "$600 trillion, Obama lies." We got a couple of "$1" which we assume was a reference to the bill's deficit neutrality, and $90 billion which seems like a reasonable estimate of yearly costs. But the majority of the answers clustered within the $800-$900 billion range, surprisingly close to the final answer. Few people seemed willing to go above $900 billion, suggesting the power of the official price tag President Obama put on reform during his September address to a Joint Session of Congress. So who won? The answer after this non-commercial break:

Marc Goldwein, the Policy Director, Committee for a Responsible Federal Budget and Policy, took home the prize for his guess of $845 billion. Lisa Guernsey, the Director, Early Education Initiative, came agonizingly close with pick of $850 billion. New America's President Steve Coll, was the next closest with a prediction of $837 billion.

Marc's prize potentially includes a Dodge Neon from 1996, a natural wood-like dinette set from 1982, or more likely a beer and some wings from the re-opened Black Rooster Pub (take that Peace Corps!). We suspect he'll also want us to plug the excellent work he and his colleagues do on all things budget. Congratulations Marc. Help control the pet population. Have your pets spayed or neutered.

As a side bet, we also asked contestants to name which current Senator looks most like Bob Barker. What do you think?

HEALTH REFORM: Highlights from the Senate Bill

Elizabeth Carpenter — Thu, 19 Nov 2009 16:04:00 -0500

The latest version of Senate health care legislation (pdf available here) crafted by Majority Leader Harry Reid is making its rounds. There is a lot to review, but an initial read shows the bill is close to the legislation approved by the Senate Finance Committee in early October with a few notable changes: more generous subsidies, a higher threshold for the excise tax on insurers who offer high-cost plans, an increase in the Medicare payroll tax for Americans making over $250,000, and the addition of a long-term care insurance program for people with disabilities.

While this legislation also delays the implementation of insurance market reforms and subsidies (when compared to the Senate Finance legislation) there are a number of provisions that would start helping Americans immediately. In particular, the legislation:

Provides $5 billion to enact a temporary insurance program for those who have been uninsured for several months and have a pre-existing condition. Financial assistance would be available for the purchase of such coverage until the exchanges (or new insurance marketplaces) are established.
Prohibits insurers from selling insurance products that have lifetime or annual caps on benefits and from rescinding coverage except in the case of fraud or misrepresentation.
Requires health insurance companies to report publicly the percentage of total premium revenue spent on patient care and quality versus administrative costs. Health insurance companies will be required to refund enrollees if costs not related to patient care exceed a certain threshold.
Establishes small business tax credits to help small employers afford coverage for their workers starting in 2011.
Extends dependent coverage to require all insurers to allow young adults to remain on their parents' insurance until the age of 26.

The fiscal picture of the legislation should also give moderates a lot to cheer about. CBO not only says the legislation would reduce the deficit by $130 billion over the next decade, but it also expects that:

Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades -- well below the roughly 8 percent annual growth rate of the past two decades...Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decades -- much less than the roughly 4 percent annual growth rate of the past two decades.

In other words...curve benders rejoice!

HEALTH REFORM: CBO Score in ... 5... 4...

Allison Levy — Wed, 18 Nov 2009 17:36:00 -0500

It's Wednesday (Sunday's football dissapointments seem so long ago) and there is a lot going on in the health care reform world. Where to start?

Reid will unveil his healthcare bill to Democratic Senators today at 5 pm at a special caucus meeting.

Senator Reid is "cautiously optimistic" that he will be able to secure the 60 votes he needs in order to defeat GOP procedural objections and move forward on the bill by this weekend.

But what can we even expect to see included in his bill?

Politico's Chris Frates tells us that:

Reid's bill is expected to include a national government insurance plan with a provision for states to opt out. Reid is also expected to adjust a 40 percent excise tax on high-value insurance plans by raising the threshold at which insurers would pay the fee. He's expected to make up for that lost revenue by proposing an expansion of the Medicare payroll tax.

And the Wall Street Journal's Janet Adamy and Greg Hitt insist that:

The Senate's sweeping health bill is expected to call for a new long-term-care insurance program ... People familiar with the legislation said Tuesday that it would include the long-term-care program, which would pay cash to people if they become disabled. The late Sen. Edward Kennedy pushed to include the provision in the health bill that passed though the Senate health committee, and the House included a similar provision in its bill. Employees would have a choice of whether to participate in the long-term-care program, and those who did would have premiums deducted from paychecks.

Reid expressed that he would like to keep the price of health reform around $900 billion. Fortunately, Democratic aids got a sneak peek at the CBO data.

The Washington Post's Shailagh Murray and Lori Montgomery report that:

Preliminary estimates by the nonpartisan Congressional Budget Office, the legislation's official scorekeeper, have indicated that the Senate measure would cost far less than the bill the House approved last week, while lowering the federal deficit further over the long term.

But not so fast.

We can expect a hold up in the Senate from three Democrats: Nelson, Landrieu and Lincoln.

Carl Hulse of the New York Times tells us:

Senator Ben Nelson, Democrat of Nebraska, says he is not sure he is ready to help a Democratic health care proposal clear even the most preliminary hurdle: gaining the 60 votes his party’s leaders need to open debate on the measure later this week. Two of his fellow Democrats, Senators Mary L. Landrieu of Louisiana and Blanche Lincoln of Arkansas, are proving tough sells as well, raising the prospect that one or perhaps all three of them could scuttle the bill before the fight over it even begins on the Senate floor.

Each senator has their own concerns. (The three submitted a letter requesting a 72 hour delay so that they have ample time to read the bill once the CBO scores are released.) Hulse notes that "Some senators who were previously considered potential obstacles to starting the debate have made clear that they will vote with the party at this point, drawing a distinction between this initial advance and later votes of more consequence."

Stupak, too.

The Hill's Eric Zimmerman writes:

Rep. Bar Stupak (D-Mich) pledged on Tuesday morning to defeat healthcare reform legislation if his abortion amendment is taken out, saying to 10 to 20 anti-abortion-rights Democrats would vote against a bill with weaker language. ‘They're not going to take it out,' Stupak said on ‘Fox and Friends,' referring to Senate Democrats. ‘If they do, healthcare will not move forward.'

And, of course, the Republicans offer their own two cents.

Click here to read the letter Jeb Bush, Newt Gingrich, Mike Huckabee, Michael Leavitt, Mark Sanford and several other lawmakers sent this morning to Obama, Pelosi, and Reid.

But the dismal scientists are optimistic.

A group of 20 economists sent a letter to the President this morning reminding him of the four key elements they believe are critical components of health reform legislation.These measures are in the Senate Finance bill, and they hope that they will also be included in Reid's bill.

And a PowerPoint presentation created by McKinsey & Company, titled "Health Care Reform and Implications for Key Stakeholders: What this Could Mean for Client X" leaked. Their analysis may please worried health care CEOs.

McKinsey argues that in light of health reform, "The medical-care industry would need to make significant, and socially beneficial, changes in response to the bills currently moving through Congress; but such changes won’t come remotely close to destroying the industry’s profitability." Larry Levitt, vice president for special projects at the Kaiser Family Foundation, says that, “One generally comes away with the sense that [McKinsey] sees reform as changing incentives, first more modestly and then, potentially, in a more fundamental way in later years. That’s a good sign.”

So health reform by December 18?

Politico's Jake Sherman reports:

Senate and House leaders are hoping to close up shop for the year by Dec. 18, even though neither chamber has figured out the end game for health care reform and must-pass appropriations bills. And that doesn't even take into account a sudden push by House Democrats to start work on some sort of "jobs" legislation. Nonetheless, House Majority Leader Steny Hoyer (D-Md.) said Tuesday he and Senate Majority Leader Harry Reid (D-Nev.) are "focused on December 18" as a last day for this session of Congress.

Boy, have they got a lot to do in the next few weeks.

HEALTH POLITICS: Steady as She Polls

Paul Testa — Wed, 18 Nov 2009 14:13:00 -0500

If polling on health reform were a band, we'd call it The Hold Steady.

Several new surveys out this week show the public remains as conflicted as ever on health reform -- convinced of the need for change, but worried about the impact on their lives and the lives of their family.

A Washington Post-ABC News poll released Tuesday shows 48 percent of those surveyed supported the proposed reforms; 49 percent opposed them. An AP poll released Monday found a similar split, with 41 percent in favor; 43 percent opposed and 15 percent undecided.

These even divides are consistent with past polls, suggesting that the uproar in August was more of a bump in the road than turning point. However beneath the topline questions are some interesting trends.

First, as the Washington Post points out, while public approval of President Obama's handling of health reform has declined he still holds a double digit lead over Republicans. Possibly more importantly, support for reform among seniors -- the group most critical of current proposals -- is up 13 percent from September, suggesting that some of most offensive scare tactics directed at seniors, such as death panels and socialized medicine, may be losing their edge.

As we've noted before, support for the major policies of health reform legislation remain generally strong. But the answers to these questions often depend on how the question is framed. In the AP poll 67 percent favor requiring all Americans to have some form of insurance, but 64 percent opposed a law that "would require every person to have health insurance and pay money to the government as a penalty if they did not, unless the person is very poor." The fluidity of such answers reinforces the points made by Robert Blendon in a recent column for Kaiser Health News:

[P]olls show countervailing concerns about the congressional plans. These involve the potential impact of the bills on Americans' health costs and affordability, their taxes, the extent of government interference in their health care decisions, and worries that health care for those receiving Medicare will deteriorate. Regardless of public enthusiasm for health reform as a principle, and support for many policy elements in the House bill itself, most Americans do not see their healthcare situation as getting better if this legislation is signed into law, and some see their situation as getting worse.

In the weeks ahead, Americans are unlikely to read the 2000-page House bill. Rather, they will form their judgment about the final legislation based on others' assessments. They will rely on those whom they trust as intermediaries to clarify its impact on them.

That impact is unclear as the Senate stages a sort of modern adaption of Samuel Beckett's classic work, with it's current production of "Waiting for CBO." The release of a bill and CBO cost estimate, which could come later Wednesday, should help lessen our existential unease, but the real challenge for proponents of reform will be explaining the bill in a way that makes its benefits clear and its costs worthwhile. The jury of public opinion is still out, but its verdict may come quickly.

COSTS: The Price of Pessimism -- What the CMS Actuaries Missed

Len Nichols — Tue, 17 Nov 2009 21:24:00 -0500

Last week, Medicare's chief actuary (formally known as the Office of the Actuary, or OACT) released an analysis of the financial impact of the health reform legislation recently approved by the House of Representatives (H.R. 3962). Here are a few thoughts:

Get familiar with the source. Remember their history. The Medicare and Medicaid actuarial team's job is to track and understand Medicare spending patterns. By design, it is also their job -- and their historical pattern -- to be skeptical about proposals for change. Just for context, the office's estimate of the cost of the Medicare Modernization Act in 2003 (the bill that created the Medicare prescription drug program, Part D) was $100 billion, or 25 percent, more than the Congressional Budget Office's (and CBO is also conservative by nature and design). Last year CMS's Chief Actuary testified to Congress that the 10-year cost of the Medicare drug benefit is 37 percent lower than originally projected in 2003, and 17 percent lower than the previous year's updated projections. Don't get me wrong. We need conservative estimators to prevent Pollyanna policy from being enacted into law. But we should take that conservatism for what it is: a useful check on the naturally optimistic expectations of reformers.

Incentives can change behavior. The actuary's office loathes predicting behavioral changes. It therefore underestimates the private sector's ability to adapt to new incentives. This is why the only real savings they score are direct and unambiguous price changes, like the House bill's reductions to yearly market basket updates. They discount and ignore the impact of the Center for Medicare and Medicaid Innovation, which is charged with implementing every reasonable payment reform pilot imaginable, including: accountable care organizations, medical homes, and bundled payments that give clinicians across organizations incentives to coordinate and improve patient care.

Further, the CMS actuaries express worry that the profitability of hospitals, skilled nursing facilities, and home health agencies would be so grievously harmed by the proposed payment cuts that they would cease to accept Medicare's business. This reflects a pessimistic belief that providers could not become more efficient. A recent McKinsey memo, described by Jonathan Cohn in The New Republic (subscription required), concludes the opposite.

"McKinsey seems convinced that this entire package of reforms will influence behavior," Cohn says. "McKinsey's analysis suggests that -- as long as they adjust to the new incentives -- doctors, hospitals, and insurers will be just fine."

The McKinsey memo also suggests that both CBO and the CMS actuary underestimate the ability and self-interested drive of providers to respond to incentive changes. That leads to these overly pessimistic estimates about the effectiveness (or ineffectiveness) of reform legislation. Now I ask you, dear reader: Who knows the health industry and their clients best -- McKinsey or the well-intentioned but relatively cloistered actuaries for Medicare?

Finally, when compared to the CBO, the CMS actuaries predict 5 million fewer people will get coverage and twice as much revenue will be raised from the individual mandate penalty under the House bill. This is another example of the CMS skepticism about behavioral effects. I think it is fair to say that CBO analysts spend a lot more time than do Medicare's actuaries thinking about people under 65 and their potential responses to changing insurance prices. I have to give more weight to CBO's estimate here.

Reducing overpayments will not deprive Medicare beneficiaries. The CMS actuary's memo states that the Medicare Advantage (MA) overpayment reductions in the House bill would mean fewer benefits in most MA plans. It neglects to mention, however, that it would not reduce benefits below the statutory benefit package guaranteed to our nation's seniors. In addition, the CMS actuary memo fails to mention that current Medicare Advantage payment levels overcompensate plans by quite a bit (14 to 18 percent, according to most independent analysts). Only some of this extra compensation translates into additional benefits for some of the one-fourth of Medicare beneficiaries enrolled in Medicare Advantage plans. In short, this analysis is overblown, especially since it does not mention that the competitive bidding approach to changing Medicare Advantage plan payment in the Senate Finance bill would preserve the incentive to provide extra benefits made possible by the efficiencies of some plans.

Small growth in National Health Expenditures is a good deal. The CMS actuaries estimate that after all is said and done, national health spending will claim 0.3 percent more of GDP in 2019 than under current baseline trajectories. They come to this conclusion despite being pessimistic about behavioral responses to delivery system reforms and despite assuming we will be covering 34 million more Americans by that time. In other words, even analysts who are pessimistic about savings assert that we can just about pay for covering most of the uninsured out of savings from elsewhere in the health system. Even a little more success than they project (far less than the percentage they were wrong about the Medicare Drug Benefit) and we will be covering the uninsured at lower cost than we would have spent without reform.

In sum, there are some fine analysts at OACT, and Rick Foster and his team serve our nation well as actuaries of the Medicare program. When it comes to knowledge of the delivery system and the under-65 population, however, they are perhaps less up to speed than McKinsey or CBO. People should not get hung up on their judgments about the potential for delivery system change. People should notice, however, that they estimate the savings provisions in the House legislation will generate $20 billion more over 10 years than CBO estimates. This is their area of relative expertise. Predicting behavioral responses, of hospital CEOs or of uninsured individuals, is not.