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Cost control and the ACA

One of the odder claims Republicans levy at the Affordable Care Act is that, yes, it does pay for itself and reduce the deficit, but we could've reduced the deficit even more if we had taken all of the policies the bill uses to pay for itself and passed them as part of a deficit reduction package. One answer to that, of course, is that then we wouldn't be covering the uninsured, but that's not a very persuasive argument to people who don't care about covering the uninsured. Another answer, as Jonathan Chait notes, is that there was no chance that would happen:

It's highly unrealistic to presume that the cost savings used to finance the Affordable Care Act would be sitting on the table if Obama hadn't scooped them up to cover the uninsured. Those savings were bargained for in exchange for covering the uninsured. Medical providers well be getting some thirty million new subsidized customers, so they're willing to make concessions elsewhere in exchange. Some of the cuts are literally not possible without covering the uninsured -- one of the largest cuts comes from reducing reimbursements to hospitals who treat the indigent, because there will now be fewer indigent patients.

In any case, there was no plausible path to extracting hundreds of billions of dollars in cuts from providers without offering an increase in coverage for the uninsured. If you want to cut Medicare, the most realistic option has always been means-testing. The Affordable Care Act has done nothing to foreclose this option.

I'd go further than Jon: It's not just that some of the cuts wouldn't have happened in the absence of the ACA. It's that the most important cost controls couldn't have happened in the absence of the ACA. The excise tax and the Independent Payment Advisory Board are, over the long run, much more important than any of the other cost controls in the bill. One taxes the value of health plans, falling particularly heavily on union plans and striking a serious (and, over time, larger and larger) blow against the employer-based health-care system. The other is a way to reduce congressional interference in efforts to cut costs in Medicare.

It's impossible to imagine liberals accepting either policy without the lure of universal health care. It's also impossible to imagine conservatives containing their glee over either policy outside the context of a universal health-care plan that they don't want to let themselves praise.

By Ezra Klein  |  July 19, 2010; 11:43 AM ET
Categories:  Health Reform  
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Comments

Cost control and the ACA is an oxymoron. Nothing that I can see speaks to effectively controling healthcare costs.

What Obama will do is ratchet back fee for service payments. The providers will respond by limiting the number of government funded patients they see.

All those uninsured will be saddled with "coverage" that few will accept.

Posted by: skipsailing28 | July 19, 2010 12:07 PM | Report abuse

skipsailing,

I don't know about that necessarily. I think what you may find is what's already started. A lower tiered system. Insurers are already setting up "lower cost" provider networks with limited networks of what one might expect to be "newer" doctors to keep costs down.

otherwise I have no issues with Ezra's statements other than the fact that he glosses over continuously the issues of the CLASS Act.

Posted by: visionbrkr | July 19, 2010 12:23 PM | Report abuse

What about the increases it makes on my tax rates? That would seem to be independent of the changes and we're needed without expanding overpriced coverage.

The biggest savings come from cuts in Medicare Advantage and payments to providers. Neither of those interests are helped by expanding coverage to more people at capped rates, so the argument here simply isn't logical. You guys are just rationalizing the fact that we have taken on a massive Medicaid obligation. It may be great thing, but it is a substantial cost that was imprudent until we accept a real way to reduce the cost of treatment.

Posted by: staticvars | July 19, 2010 12:52 PM | Report abuse

I guess this discussion should be compared with the one Samuelson offer through his column today (see http://www.washingtonpost.com/wp-dyn/content/article/2010/07/18/AR2010071802733.html).

Who are the Republicans who claim that the PPACA pays for itself and reduces the [federal] deficit??? The Medicaid burden is so huge that no state can pay its share!

Posted by: rmgregory | July 19, 2010 1:16 PM | Report abuse

"One taxes the value of health plans, falling particularly heavily on union plans ..."

I don't agree with this statement. According to Hewitt's testimony before the Ways & Means Committee last year (http://waysandmeans.house.gov/hearings/Testimony.aspx?TID=8157), less than 15% of employees in large employer plans have plans with actuarial values of at least 90%, and most of those plans are HMOs. Only 1.8% of employees enrolled in large employer plans have plans with actuarial values 95% or higher, and again, most are HMOs.

In other words, even with the exemptions, the excise tax is likely more to punish those employees with older, sicker workforces in high cost-of-living areas than unions. An organization like my own where the average employee age is much higher than the national average, which is disproportionately women, where there are a disproportionate percentage of smokers compared to the national average, and in a high cost-of-living are (Boston) -- that is where the excise tax will fall. With these factors, our HMO Blue New England Enhanced Value BCBSMA policy (no deductible, $20 office visits, $500 inpatient hospitalization, $2,000/$4,000 out-of-pocket cap where only hospitalization-tyep services count towards the OOP cap) costs a family nearly $21,000/yr. Who is going to be hit the most with this new excise tax? Those with chronic medical conditions (i.e., HIV), who hit the out-of-pocket cap every single year -- they will have to spend a greater percentage of their income every single year just to live.

I just think it's so much better policy to repeal entirely the employer tax exclusion, and put everyone on the Exchange with a much, much stronger community rating, minimum benefits package, individual mandate, and subsidies. Then at least those who are the sickest benefit from the community rating and the minimum benefits package. And those with lower incomes benefit from the subsidies -- if done correctly.

Posted by: moronjim | July 19, 2010 1:22 PM | Report abuse

@sv:You guys are just rationalizing the fact that we have taken on a massive Medicaid obligation. It may be great thing, but it is a substantial cost that was imprudent until we accept a real way to reduce the cost of treatment.

Your solution would be to just cut those people off until we streamline the system, right? Allow thousands or millions to go without health care until we come up with cost savings? Doesn't that just cost more in emergency room costs, not to mention the suffering and premature death that untreated conditions often lead to? That was certainly the republican plan during the bush years when the # of uninsured went up. I think that bringing more people into the system is what we need to force some more rational ways to allocate healthcare resources so that costs do come down.

Posted by: srw3 | July 19, 2010 1:22 PM | Report abuse

@mj:I just think it's so much better policy to repeal entirely the employer tax exclusion, and put everyone on the Exchange with a much, much stronger community rating, minimum benefits package, individual mandate, and subsidies.

Well I agree that this is a much simpler, less market distorting, and more efficient way to organize health care, many of the right wingers here will no doubt point out that once everyone has to be in the system, it is no longer "insurance" is the classic sense of the word and becomes "social insurance" or some kind of mechanism where the healthy subsidize the sick. Of course this happens in traditional insurance too, but in the traditional case, insurers can play the system by only insuring those currently healthy, whereas social insurance takes the virtually the entire population as the risk pool, even though some people are sick when they start in the system. Still, not being able to exclude people with pre-existing conditions is very popular with people, so they are in effect stating their preference for social insurance over "traditional" insurance.

Posted by: srw3 | July 19, 2010 1:34 PM | Report abuse

"I'd go further than Jon: It's not just that some of the cuts wouldn't have happened in the absence of the ACA. It's that the most important cost controls couldn't have happened in the absence of the ACA."

Unless you had passed something closer to Wyden-Bennett or Paul Ryan's plan that changed the employer tax deduction to something that empowered individuals to comparison shop and thus leveraged market forces.

Posted by: jnc4p | July 19, 2010 2:29 PM | Report abuse

Ezra, this is indeed a good answer and I hope you continue to harp about it so that our Dem in Congress get some courage to rebut GOP attack along these lines. You know the stupid guy who argued like this - who else than 'empty brain' Charles Krauthammer.

Next, Robert J. Samuelson along with Tyler Cowen are making some serious arguments about how Fed would loose the battle in controlling costs. Reading those articles it still seems that MA has not been able to control provider costs and it is doubtful Fed can do anything there. Any insights there?

Posted by: umesh409 | July 19, 2010 3:55 PM | Report abuse

So you admit that part of the point of the ACA was to stick it to the unions who are the ONLY force in society that gives a damn about insuring everyone? Lovely.

Posted by: janinsanfran | July 19, 2010 5:47 PM | Report abuse

@srw3

I would rather have given people money in a health savings account to spend on health care combined with limited catastrophic coverage than create more price insensitive demand on the existing system where costs are already out of control. Of course, I could be wrong about this as many providers simply plan to not accept Medicaid payments.

I also was looking forward to improvements in the individual market, but it seems designed to rule out plans that could actually result in providers having to compete on price. We need to move towards a world where there is real price and value differentiation, not a world where we force everyone into the same narrow bands of available options.

Posted by: staticvars | July 20, 2010 12:22 AM | Report abuse

@srw3: "Of course, I could be wrong about this as many providers simply plan to not accept Medicaid payments."

Oh don't worry, the Democrats "fixed" that. They increased Medicaid reimbursement to Medicare levels since so few docs take new Medicaid patients. But the increase only lasts 2 years, after which they revert back to previous levels, because that kept the cost of the bill lower. So either the docs stop taking Medicaid again or Congress steps in to reverse the cuts. Medicaid "doc fix" anyone?

Posted by: ab_13 | July 21, 2010 10:31 AM | Report abuse

Ezra (and Jon C.)

An excellent argument.

A couple of reponses to other comments on this thread: The savings will come, not from lower fees but by moving away from paying fee-for-service. Medcare will begin paying for better outcomes, and greater efficiency (value), not volume. Private insurers will follow suit.

Paying for volume encourages docs to do more- a slew of unncessary tests and proceudres that, medical evidence shows, are not effective and put patients at risk.

Great savings will also come as Medicare uses financial carrots and sticks to force hospitals to pay much more attention to patient safety. Mmost hospital CEOs are focused on revenues, not patients.

Everytime a patient is injured in a hospital (medical error, mediation mix-up, infection, preventable complications following surgery) the patient has to stay longer, needs more care, and suffers more.

This is very costly. One of Berwick's main goals is to improve patient safety. His Institute has taught hospitals how to do this in the past. Now he'll be in a position to get alll hospital CEOs to pay attention.

Bottom line: we'll be spending less and getting better quality care for everyone. (No tiering.)

Finally: market forces don't work to lower health care costs or raise quality for reasons that health care ecocnomists have been explaining for decades.

Try to find an example of market competition lowering costs in the health care market.


Posted by: mahar1 | July 22, 2010 3:48 PM | Report abuse

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