I will first note the claims associated with the method in question and then follow with my own take.
(1) Bundled Payments - Payments associated with an entire episode of care (i.e. if you come into a hospital with a heart attack, the total cost of the examination, any diagnostics or lab work, hospital stay, etc.) rather than hospitals billing for each service individually. This way, hospitals have an incentive to try to do more with less.
At first glance this seems like a no-brainer. However, this assumes that all cases are uniform and that the details of individual episodes of care (and associated costs) can be reliably anticipated ahead of time. For example, this assumes that a hospital could offer a standard "stroke package" but that they simply don't in a scheme to drive up costs. Though there may be a kernel of truth here (perhaps cost-shifting from lower to higher payment-to-cost ratio payers), this disjointed payment system (and the necessity of cost-shifting in the first place) is the direct result of past efforts by the government to reign in costs.
In the past, hospitals were reimbursed through what was called the cost-plus system. Hospitals would simply determine what was necessary for a patient, do it, and then submit a cumulative bill later on. For instance, if Medicare cases took up 40% of a hospital's budget in a given year, Medicare would reimburse them for 40% of their costs. This, predictably, led to runaway costs, and an effort was made to slow the trend through the implementation of Diagnosis-Related Groups (DRGs). These broke up cases into about 500 different groups thought to have similar hospital resource use. Next, Congress tried the Resource-Based Relative Value Scale (RBRVS), which further split hospital practices into about 7,000+ distinct services thought to require similar resources and could thus be controlled in a less heavy-handed manner. An intended byproduct of the RBRVS was to encourage more use of primary care as opposed to specialist services, something we are hearing a lot about again today. Needless to say, the results of these efforts have been disappointing, and have brought about their own slew of unintended consequences.
More to the point, this is not any novel idea. Most, if not all, private insurers already bundle payments for entire episodes of care, where appropriate. Medicare, due to its very nature, is simply unable to respond to market realities in any timely or efficient manner, which is why it took until 2003 for the program to have a prescription drug benefit when private insurers have been offering it for more than 30 years.
Back in January, I managed a compound fracture of my tibia. My insurance paid one flat rate to both my hospital and surgeon for the entire episode, including follow-up visits, physical therapy, several months of diagnostics and medication. Why? Mending bones is a fairly straight forward thing, and potential complications and costs can be reasonably predicted ahead of time. However, if I had shown up at the hospital with a heart attack brought on by elevated blood pressure from a high-sodium, high-cholesterol diet and a malfunctioning liver associated with chronic alcoholism, who is to say in advance how much it might cost to treat me? Remember, we are talking about insurance, which is insuring against unlikely but ultimately fairly predictable events. Coverage for any and all eventualities can be included in all insurance premiums via government mandate, but it would be prohibitively expensive, as insurers (be they private or public) will be unable to reliably predict their potential liabilities.
Given a legitimately competitive environment however, providers would most certainly explore creative ways of billing for their services. Take Geisinger Health System in Pennsylvania, for example. In addition to accepting bundled payments from insurers, the hospital also offers a warranty on certain heart surgeries and other complex procedures, whereby readmissions due to complications are free of charge. However, given the absence of competition, and the fact that other hospitals can actually make money on their mistakes, there is no real reason for anyone to follow suit or experiment with other novel ideas. As hospital reimbursements are already likely to decline, putting added pressure on margins, fixed, episodic payments could result in skimping on potentially life-saving services to keep the episode of care within expected reimbursement levels. After all, it doesn't matter if you are the government or a private hospital, you can't keep using resources you don't have indefinitely. Hospitals, fortunately, don't take entire economies down with them when they make this mistake.
(2) Prudent Purchasing - Insurers can't enter, or stay, in the exchanges unless regulators are satisfied that they're doing a good job. If an insurer wants to hike premiums they have to submit a justification to the Exchanges and post that justification publicly on their website. If the Exchange isn't convinced, the insurer can be dropped from participation and would forfeit all customers and profits. Further, the prohibition against "destructive advertising" [e.g. an insurer advertising solely in a fitness magazine to "cherry pick" the healthiest individuals] would ensure that insurers offer a product for everyone.
This assumes that the answer to a lack of proper market competition is even less of it. How can a company be expected to keep up with evolving industry/consumer/regulatory needs if it is legally constrained as to what it can do? In the exchanges of the future, insurers will be told what services they must cover, how much they can charge and who they must sell their policies to. If all deviations from these established norms must first be publicized to both competitors and regulators alike, with the latter granted the authority to ban the insurer from market should they disapprove of the move, where is the incentive for innovation? Who would take on the risk of change? Public utilities operate in this fashion, and no one would consider them to be bastions of market innovation.
John Goodman, President of the National Center for Policy Analysis, summarized the point this way:
"Gone forever will be the ability of insurance companies to creatively and innovatively solve the core problems of cost, quality and access. [Concepts like] health status insurance will be completely illegal...Even more importantly, there will be no possibility of specialty health plans - plans that cater to the needs of heart patients, cancer patients or diabetics. Insurers will not be able to innovate in these ways because it will be illegal to charge patients or their employers a premium that reflects the value the innovation creates for the patients. Instead of a market for sick people, in which health plans compete to solve the problems of the seriously ill, health plans will do everything they can to avoid the sick...even worse than what we see under the current system."
The prohibition against "destructive advertising" has a similar consequence. If insurers are forbidden from tailoring policies to individual needs by, for instance, offering limited coverage options to healthy individuals, I suppose proponents would similarly favor the prohibition of more comprehensive cancer coverage, to say nothing of their advertisement in oncology journals or chemotherapy facilities. If every plan must be virtually identical, as the law suggests (save for varying degrees of cost-sharing), as surely as night follows day, you can expect innovation to slow and costs to rise, as every plan must of necessity be comprehensive as defined by the exchange and coverage of new technologies to be leaden, at best. One group of policy holders will be perpetually subsidizing another subset, and many of the former will choose to opt out of the arrangement altogether, precipitating a death spiral of ever-escalating premiums and an exodus of policy holders [more on this under (5) Individual Mandate].
(3) The Medicare Commission - This will streamline the process. The legislation will force a panel of experts to suggest a package of reforms in years when spending growth is too rapid and will force Congress to vote on the package. The Commission can take small demonstration projects that are working and convert them into system-wide reforms.
By admission of it's proponents, this Commission doesn't actually do anything to reduce costs, it just assumes that at some point in the future it will implement some good ideas that will have been shown to be successful in certain (as yet uncreated) pilot programs. The default, I suppose, should these savings fail to materialize, would be to ration out care to bring it back within budgetary limits, or further controls on prices. Likely a sequentially-implemented combination of both.
This line of reasoning for an "independent commission" is particularly interesting in that there already exists a statutory requirement for the consideration of Medicare reforms should spending get out of control, and it has already gone into effect.
As part of the Medicare Modernization Act of 2003, should two consecutive annual reports from the Medicare Trustees estimate that more than 45% of program financing for any of the following six years will have to come from general revenues rather than the so-called trust fund, a trigger (another word that has been resurfacing of late) would be pulled. This "Medicare Funding Warning" would require the President to submit, and Congress to consider on an expedited schedule, a set of reforms that would avoid the 45% mark. It just so happens that in 2008 such a funding warning was issued, and the President proposed a set of reforms. Congress voted to postpone their consideration for the 110th Congress and effectively killed the bill.
This has been the standard congressional response for significant funding problems. Why do today what you can blame on another congress tomorrow? Another prominent example is the yearly "doc fix" to the SGR. Congress will never openly and aggressively tackle this issue, which brings us to the real reason for this commission.
The experience of the trigger in the past and the argument for the Commission today is quite telling. It seems that, and you can take this to the bank, the Commission is not intended to streamline anything (at least not in any sense we would understand), but rather to make the politically unpopular decisions that Congress doesn't want to touch. This can have very significant consequences should (or when) more traditional cost-saving measures fail to materialize.
(4) Excise Tax on High Value Health Insurance - This is essentially a 40% tax on the unchecked growth in premiums. The threshold at which premium dollars start to be taxed [indexed at CPI + 1%] doesn't rise as quickly as premium costs generally do. Therefore any difference between insurance premiums above and below the threshold will be amplified (a premium $3,000 over the limit will really be $4,200 more than a competitor, giving insurers incentives to keep costs under control).
Again, this makes the assumption that the answer to a lack of free-market competition is even less of it. A competitive market would already have insurers trying to underbid each other and offer quality products and competitive rates. However, as we saw above, insurers have no reason to compete based on costs [nor, for that matter, do hospitals or doctors], and they will be effectively prohibited from doing so in the future. While it is certainly possible that a new tax could drive insurers to "discover" efficiencies nor previously explored, another consequence is far more likely.
Given that premium cost growth has averaged between 5% and 12% over the last decade, it is almost certain that there is no elusive 11% of "waste" [assuming 12% premium growth, given that the tax is indexed at CPI + 1%] to be trimmed to bring borderline insurers underneath the cost threshold. However, even if there is, once it is discovered and cut, the problem of cost inflation (a byproduct of demand) is left unanswered, and there will be nothing left to cut next year. This is particularly true when one considers the enormous weight of new mandates/regulations/taxes that insurers/doctors/DME manufactures will be under. This being the case, you might as well just tag 40% to one of these premiums, as virtually all data shows that taxes of this sort are, without fail, passed along to the consumer.
If neither supply or demand are addressed, what is to keep that inflation from occurring in the first place? One can expect a steady deterioration of technological innovation as capital deteriorates due to the lack of coverage for "unproven" practices. This could also mean the denial of something as simple as a mammogram. In fact, this has already happened. Expect this to continue in the future.
Further, because the tax is indexed to remain below average medical inflation, more and more people will fall subject to the tax over time, much like the Alternative Minimum Tax (AMT), which Congress provides a "patch" for every year. Given the inevitable pressure that will follow when this tax makes its way into the middle class, we can expect insurance subsidies to be "tweaked" to make up for this unintended, yet wholly predictable, short fall. This "tweaking" could, ironically enough, produce the exact opposite of the intended results. Consider the experience of Pell Grants and the costs of college tuition. The two are self-reinforcing variables. The higher the level of grants, the higher colleges can hike up their tuitions, requiring grant levels to increase still more, and so on, and so on.
(5) Individual Mandate - Will lower average premiums by brining healthy people into the system. It is also the political spur for future cost controsl, as large premium increases will become Congress' problem so they will be more likely to take on providers and insurers.
This is the raison d'etre for many supporters of the current legislation, the coup de grace to the arguments of the unfaithful nay-sayers.
For an individual mandate to work as proponents hope, it must account for literally everyone, or, at least a critical mass of healthy people willing to pay high premiums for little in medical service returns. For this to happen, any tax penalty for failing to puchase insurance must, logically, be higher than the annual cost of an individual, non-group policy, which is several thousand dollars. As it stands now, the penalty for not buying insurance is just $750. Given the choice, would you rather spend, say $4,000, or $750? There is no great incentive here to join the pool. If anything, it can serve to discourage healthier individuals because the choice is so stark.
If you are expecting Congress to raise these tax penalties to truly punitive levels then I suggest you don't hold your breath, or, if it somehow does happen, brace for the inevitable public backlash.
Further, should problems of cost really be political problems? Is there anything in our past experiences with this problem to suggest that the government is the entity best equipped to address it? Should political appointees be in charge of determining service cuts to keep costs within pre-set boundaries? Will consumers have any choice in the matter? Will they be able to exercise their value preferences by purchasing coverage that works for them? The answer to all these questions is "no."
Summary -
One thing that all of these proposals have in common is this: audacity. The notion that insurers/doctors/hospitals are all things that the government has to "take on," rather than facilitate in their efforts, presupposes that they all have massive reserves of "waste" somewhere that they have neglected to address simply because there is no law requiring them to. Is it possible that some money-saving efficiencies can be squeezed out of providers if the screws are turned hard enough? Probably, but not in the quantity reform advocates are hoping for and this legislation requires.
Research showing "waste" in the medical system, or, spending that has no correlation to care, doesn't necessarily mean that doctors are just lighting hospital beds on fire or using CT Scans as high-tech personal polaroids. Waste, in this case, is more often than not referring to the costs necessary for providers to comply with the mountains of regulatory/insurance/legal/administrative issues they are required to negotiate. In fact, this aspect of health care ranks among the chief reasons given for physician job dissatistfaction. Much of the rest is attributable to malpractice insurance and the costly necessity of practicing defensive medicine. This legislation does nothing to address either of these issues.
The reality is that many hospitals and private-practice physicians are struggling just to say afloat. Hospital patient-revenue margins are historically negative (-1.0% to -4.3%), meaning it is actually a money-losing proposition to take care of sick people. Making it more difficult and expensive might be less than optimal policy. If hospitals fail to offset this loss through heretofore undiscovered "efficiencies," expect margins to shrink further and the provision of certain services to be put into jeopardy.
The audacity is compounded when one considers that the apparent assumption in this legislation is that reformers/politicians/panels of "experts" know how to provide health care better than front-line providers.
When considering this legislation, all Americans should be prepared to ask themselves some fundamental questions: Should rising health care costs be political problems? Why have we determined that politicians and political appointees are the ones best equipped to deal with the problems of market conditions that they themselves helped create? How is their track record on this score? Why is the sledge-hammer of political authority expected to be a more effective tool for our shared goals than the scalple of incentives, consumer demand and a proper functioning market?
The answers to these questions should really only lead to one conclusion.
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