Five cost controls in the Senate health-care bill
One of the impulses you have to resist as a writer is the desire to say things that are new, as opposed to things that you've already learned. A lot of this post will be stale to longtime readers, but in my chat today, someone asked after the cost controls in the Senate. A bit later, I was on the radio and heard Darcy Burner say that this bill lacked any real cost controls.
Herewith, a partial list of the cost controls in the Senate bill:
1) Bundled payments: A lot of the focus has been on cost controls that work through the insurance system. But costs aren't rising because insurance is expensive. They're rising because health care is expensive. The experiments with bundled payments are an attempt to begin addressing those drivers directly. Right now, hospitals get paid for each procedure they conduct. If you come in with symptoms of a stroke, they get one check for the diagnostic, one check for the stroke medication, one check for the surgery, etc. And if you have to come back in two weeks, they get more money for that, too.
Under bundled payments, the hospital would receive one check for everything related to your stroke over a single period of time. That means they make more money from doing less, rather than more money from doing more. It also gives them an incentive to coordinate care when you're out of the hospital, as it's cheaper to get a nurse to call and make sure you're taking your medicine than it is to have you in for a follow-up procedure. For more on the bundled payments system, and Sen. Mark Warner's efforts to strengthen it, see this post, or this article.
2) Prudent purchasing: Howard Dean gave this prominent play in his op-ed this morning, and he was right to do so. The only problem is that he said it's not in the bill, and it is.
Prudent purchasing means that insurers can't enter, or stay, in the exchanges unless regulators are satisfied that they're doing a good job. That works both to ensure a good product, but also to hold costs down. If an insurer wants to hike premiums, for instance, they have to submit a justification to the exchanges and post that justification publicly on their Web site. If the exchange isn't convinced, that insurer can be dropped from the exchange, losing all customers and profits they were making.
Do this to one or two insurers, one or two times, and the message will be pretty strong. Moreover, it will go a ways towards countering the status quo bias that current infects insurance purchasing, wherein people don't change because, well, it's a pain to change insurers, and so insurers aren't forced to provide products as good as a competitive market would ordinarily demand. It also gives regulators a way to tamp down destructive marketing (an insurer can be dropped for using their marketing to try and cherrypick healthy customers -- say, by advertising exclusively in Runner's Monthly) and seed quality reforms.
3) The Medicare Commission: One reason there's so much packed into this iteration of health-care reform is because it's so hard to overcome the status quo outside of a massive reform effort. Common-sense delivery system reforms don't attract sufficient interest to muscle pass interest group opposition. The Medicare Commission streamlines the reform process, forcing a panel of independent experts to suggest a package of reforms in years when spending growth is too rapid and forcing Congress to vote on the package -- no amendments, and no filibuster.
The Medicare Commission enjoys a catalytic interaction with other elements of the bill, as it offers a process to take small programs and convert them into systemwide reforms. A pilot program that's working well, for instance, might be included in the next year's reform package, making it a policy that makes Medicare work better. This policy could be made a lot better if the Senate passes the Rockefeller-Lieberman-Whitehouse amendment.
4) The excise tax on high-value health insurance: This is, essentially, a tax on the unchecked growth in premiums. The key here is that the threshold at which premium dollars begin getting taxed at 40 percent doesn't rise as quickly as premiums costs generally rise. Now imagine two insurers: One holds costs down quite well, and one holds costs down quite poorly. Within a couple of years, the costlier insurer's plan is $3,000 over the threshold, while the cheaper insurer remains under it. The tax amplifies the difference between the two. The costlier insurer is suddenly $4,200 more than the cheaper insurer. In this way, plans with more successful cost-control mechanisms get an even larger market advantage. This makes the insurance market even more competitive in terms of price. For a longer explanation, read this post.
5) The individual mandate: In the last few days, an odd argument has arisen. The individual mandate, people say, must be sacrificed on the altar of cost control. The truth is quite the opposite. First, the individual mandate lowers average premium costs by bringing healthy people into the system. If the only people buying insurance are the people who expect to need to use it, the average cost will be prohibitively high. But second, the individual mandate is the political spur for future cost controls.
In a world without a universal health-care structure and an individual mandate, premium increases are a shame, but not much of a political problem. In a world with an individual mandate, large premium increases are Congress' problem. It focuses the mind on cost control. Given a choice between passively letting people become uninsured and taking on providers and insurers, Congress will choose the path of inaction. But given a choice between voting to take people's insurance away and taking on providers and insurers? That's a harder decision. Right now, the pressure in the political system comes from organized interests. The mandate levels the playing field. More on that here.
And that's not all, of course. There's the interaction of comparative effectiveness review and health information technology. There's the hope that regulations on insurers force them to innovate on price and quality, rather than on denying coverage to sick people. There are the good points Jon Gruber makes in this interview.
Will it all work? Define work. Will it be enough? Almost certainly not. Is it more than we've ever done before? Absolutely. And does it do more for cost control than the continuation of the status quo? Again, absolutely.
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