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Wanted: Cost controls

Ruth Marcus has a sensible column on cost controls in the Senate health-care bill today. After running through some of the estimates -- some say the bill will save a lot of money, some say it will save a bit of money, and some doubt the proposed savings will materialize -- she concludes:

Let's hope the higher savings materialize -- but include a backup plan if they don't. The Senate measure already contains a mini-version of such an approach: A new Independent Medicare Advisory Board that would recommend changes, subject to an up-or-down congressional vote, if costs grow faster than a preset target. Virginia Democratic Sen. Mark Warner has usefully proposed expanding the board's mandate to include recommendations for controlling private-sector health costs -- though these, unlike the Medicare proposals, would not have a fast track to congressional approval.

Right now, the best cost-control measures on the table are Warner's package and the Rockefeller-Lieberman-Whitehouse improvements to the Medicare Commission. I don't know of much else on the table that will lead to serious curve-bending. But there's still a bit of time.

But from the perspective of consumers, the insurance regulations will be very important in keeping average premiums low and product quality high. That means you need a strong individual mandate, a tight cap on what insurers can spend on things that aren't medical payments, sharp limits on their ability to discriminate on the basis of age, really good risk adjustment (so there's no incentive to cherrypick), and aggressive oversight of annual limits, rescissions, and similar practices (none should be allowed). This discussion has been impeded by the fact that new insurance regulations were sent to CBO as part of the compromise proposal, but we don't know what they are yet.

By Ezra Klein  |  December 16, 2009; 2:22 PM ET
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Next: The importance of the individual mandate


Regardless of what we want, here is what we get, what we're giving a trillion dollars to:
"The company has notified individual policyholders that their coverage could be immediately dropped if they miss a single payment -- or so it seems. Blue Shield says in a letter to customers that they can reapply for insurance, but with potentially higher premiums and stricter conditions. This represents a significant change from Blue Shield's former practice of giving customers two special grace periods annually to make up for missed payments without any change to coverage or premiums."
Not to mention how Dr. Dean points out pre-existing conditions can cost up to 300% premium.

Posted by: AZProgressive | December 16, 2009 2:42 PM | Report abuse

No I'm confused Ezra... didn't you just link to a Atul Gawande article in the New Yorker about the hundreds of pages of cost controls in the Senate bill?

Isn't the problem that we just don't really know *how* to control costs? (Other than just demanding that doctors and hospitals just take less money, that is)

Posted by: JWHamner | December 16, 2009 2:55 PM | Report abuse

Ezra - I applaud your optimism. But really, the CBO already said that the bill will increase insurance premiums for individuals vs doing nothing. the bill will do next nothing to lower insurance premiums in the small and large group markets. The fact that the bill will provide subsidies to some people to help them buy insurance mitigates this to a degree. But CBO does not expect this bill to lower costs.

It seems like you disagree with the CBO. Although i'm not sure you've come right out and said it.

I'm curious as to whether you think Warner or the other amendments can get added to the bill. didn't the hospital sector reach an agreement with the Obama administration in return for supporting the bill and wouldn't further cost controls on hospitals negate this agreement?? Do you see a w ay around this?

Posted by: MBP2 | December 16, 2009 2:55 PM | Report abuse

The thing to remember is that the US citizens pays 2 to 3 times as much as other developed countries for health care. Current measures will do nothing to remove that inequity. The reason is that we pay everyone involved in health care except orderlies far more than any developed country. Medicare rates for all would be a start.

Posted by: ncaofnw | December 16, 2009 2:57 PM | Report abuse

But from the perspective of consumers, the insurance regulations will be very important in keeping average premiums low and product quality high

Insurance regulations don't keep premiums low they raise them. Mandates for requirements of coverage RAISE prices (costs). Infertility is required to be covered in my state for employers with over 50 employees unless you're self-insured and bound by ERISA. That RAISES costs 4-5% for ALL in that market segment whether you use that benefit or not.

Insurance is already one of the most highly regulated industries out there (aside from public utilities).

It should read more regulations will raise prices but it is a necessary evil to keep the system uniform and product quality high.

Posted by: visionbrkr | December 16, 2009 2:57 PM | Report abuse

AZProgressive, do you know what long grace periods result in? Free insurance. Wait until the last possible day to pay your premium, and if nothing happens you just let it lapse, but if something does happen you just pay the late premium and voila, you're insured again. In the former case you've gotten the piece of mind that you're covered if you become ill, but you haven't paid for it. It's not dissimilar from the free-riding that takes place when you have guaranteed issue with a weak mandate.

What exactly is wrong with an insurer no longer allowing longer than the state-mandated grace period (a mandate that itself already allows this same free insurance phenomenon to take place)?

Posted by: ab13 | December 16, 2009 3:05 PM | Report abuse

"the insurance regulations will be very important in keeping average premiums low and product quality high.... the fact that new insurance regulations were sent to CBO as part of the compromise proposal, but we don't know what they are yet"

So it's safe to say that the regulations are (i) important and (ii) not the product of extensive public debate to ensure we get them just right. Figures.

Posted by: ostap666 | December 16, 2009 3:06 PM | Report abuse

I think the biggest problem with this bill, a bill I generally support, is the addition of so many people into the Medicaid program. This is the blunt instrument the Congress is using to control some costs is by putting people into a horrible insurance system that under-reimburses doctors.

As anybody with any passing knowledge of state government budgeting and operations goes, Medicaid is a horrible, not a poor, a horrible foundation to build health insurance reform on.

Posted by: lancediverson | December 16, 2009 3:20 PM | Report abuse


Can you please let me know where Dr Dean got his actuarial degree?

If Dr Dean said the earth was flat would you believe him?

And I'm sorry how many times should someone be allowed to default on something before its not Ok for them to do so? If insurers are being held to a higher standard shouldn't everyone? What about those that currently "game the system" are they allowed to continue.

YOu know in my state Horizon BCBS just instituted a rule that says that you need to submit revisions to your plan at least 5 business days prior. YOu know WHY they did that? Because they're losing millions from people changing their plan at the last minute and being subjected to (for the first 15 days of a new plan year) to last year's BETTER benefits. Its a whole new world out there and you better be ready.

Posted by: visionbrkr | December 16, 2009 3:25 PM | Report abuse

Is anyone talking to hospitals and doctors about ways they can lower their fees to insurance companies and patients? It seems to make sense that you start at the point of service and work your way backward in order to cut costs more effectively. You don't just start with the middle man. Is this a taboo subject?

Posted by: carlbezanson | December 16, 2009 3:31 PM | Report abuse

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