Category Archives: health care spending

What Will True Healthcare Reform Look Like?

Posted on by
Reply

 

My last post, “Progress on Medicaid Reform,” discusses innovations that several states have adopted to improve the delivery of Medicaid and to make it more cost efficient. But what we really need is a complete overhaul of American healthcare, including the Affordable Care Act, as I have also recently discussed, in order to eliminate perverse marketplace incentives as well as to achieve real cost control.
CaptureAn excellent discussion of what real healthcare reform would look like is given by John Goodman in, “Healthcare Solutions for Post-Obamacare America.” Mr. Goodman gives six principles for commonsense reform:

  • Choice. People should be free to choose a health plan that fits individual and family needs, rather than one designed by bureaucrats in Washington. This means no mandates, either for individuals or employers.
  • Fairness. Any subsidy should be in the form of a fixed sum tax deduction or credit and everyone should get it as long as they obtained credible private health insurance. The amount of the subsidy would be comparable to the cost of Medicaid enrollment.
  • Universal Coverage. Since some people will turn down the offer of a tax credit, unclaimed credits can be used to reimburse safety net healthcare institutions.
  • Portability. Portability insurance should be available to employees in case they change jobs or become self-employed.
  • Patient Power. Health Savings Accounts need to be made more available and also more flexible so that they can wrap around any third-party insurance plan, as indicated in the above chart.
  • Real Insurance. Under ACA millions of people are losing access to out-of-network providers. People should be allowed to purchase “change-of-health-status insurance” in case they develop expensive-to-treat conditions.

The ACA addresses the access problem for healthcare but has little effect on the cost problem.  American healthcare, both public and private, is way too expensive.  This is why fundamental change is still needed.

Progress on Medicaid Reform

Posted on by
Reply

 

It is widely understood that the rapid increase in spending for entitlements (Social Security, Medicare and Medicaid) is the main driver of our debt problem.  Anything that can be done to get spending for these programs under control is of great value.
The problem with Medicaid is that a fixed percentage of each state’s costs is paid for by the federal government.  The more a state spends, the more that is contributed by the federal government which is a disincentive for states to control their own spending.  From 1989 to 2013, the share of state budgets devoted to Medicaid rose from 9% to 19%.  This upward trend is a problem for both state and federal government and is clearly unsustainable.
One way to change the spending incentive is to turn Medicaid into a block-grant program whereby the federal government contributes a specific amount of money to each state each year and gives states more leeway in designing their own programs.  States would then have a much bigger incentive to hold down costs and the flexibility to be able to do it.
CaptureProgress is being made in this direction with the use of waivers:

  • Rhode Island received a waiver in 2009 to try out various cost-saving measures such as wellness programs, co-payments, etc. It has been quite successful and very well received.
  • Last year Pennsylvania agreed to expand Medicaid to an additional 500,000 people along with a waiver allowing people above the poverty line to be charged premiums of up to 2% of their household income as well as being charged an $8 copayment for use of emergency rooms.
  • Now Indiana (http://www.wsj.com/articles/indiana-governor-to-expand-medicaid-coverage-1422371729) has agreed to an expansion with a waiver under which beneficiaries above the poverty level would be charged premiums of 2% of income and would be locked out of benefits for six months if they fall behind in their payments.
  • Additional states such as Idaho, Wyoming, Utah, Tennessee, Alabama and Florida are also considering Medicaid expansions and likely will be influenced by the possibility of receiving similar waivers.

Waivers are not as cost effective as block-grant funding but they are an improvement over the existing one-size-fits-all federal rules.  If more individual states are able to show that waivers really do work to reduce costs, this will increase the likelihood of implementing a block-grant system.

Status Quo on the Budget Is Not Good Enough II. Look at the Big Picture!

Posted on by
Reply

 

In my last post, “Status Quo on the Budget Is Not Good Enough,” I discussed a report from the outgoing chair of the Senate Budget Committee, Patty Murray (D-WA), and explained how it epitomizes the lack of progress made on the massive debt problem which has developed since the Great Recession of 2008 -2009.
CaptureThe basic problem is that Senator Murray’s analysis simply does not recognize the seriousness of our debt problem as shown in the above chart.  Right now our public debt (on which we pay interest) is “sitting” at 74% of GDP for a year or two, before it continues its rapid increase.  This projection assumes an historically “normal” growth rate of 3% and no new recessions, neither of which assumption is assured.  It also assumes that the sequester budget cuts and new top tax rate of 39.6% stay in effect.  In other words it is a best case scenario based on current policy.
Breaking it down, the debt will continue to increase because annual deficits will continue to exceed the rate of growth of the economy.  The main driver of these increasing deficits is the cost of the health care entitlements of Medicare and Medicaid.  Medicare costs will increase rapidly because of the aging of the American people.  Medicaid costs will increase rapidly because: 1) more low-income people are being covered by the ACA and 2) since the recession there are more low-income people to be covered.  I certainly support expanded healthcare coverage but we have to figure out how to pay for it!
How do we contain the increasing costs of Medicare and Medicaid?  We do it by controlling the overall rapid growth (at twice the rate of inflation) of healthcare costs in general, i.e. for private healthcare. How do we do this?  See a couple of my recent posts either here or here.
Senator Murray, along with many other progressives, argues that we need more deficit spending in order to stimulate the economy and create new jobs.  More jobs are badly needed but more deficit spending is the wrong way to get them.  Then how?  With tax reform among other things.
Based on the outcome of the 2014 elections, I am optimistic that something along the lines of what I have just described will be tried by the next Congress.  We’ll soon find out!

America’s Best Health Care Practices

Posted on by
Reply

 

Peter G. Peterson is an 88 year old billionaire from Kearney NE.  His Peterson Foundation has just established the Peterson Center on Healthcare whose purpose is “developing a comprehensive approach to finding existing innovative solutions in healthcare that improve quality and lower costs, and accelerating their adoption on a national scale.”
Working with Stanford University’s Clinical Excellence Research Center (CERC), the Peterson team looked at 15,000 single and multi-specialty physician practices around the country and winnowed the list to those practices which were in the top 25% on quality measures and in the lowest 25% in cost.
CaptureThe second step was to identify the features of practices that help explain their exceptional performance.  This led to the identification of the 11 most exceptional physician practices (see above map) around the country.  The study found that total annual health spending was 58% lower for patients cared for by these exceptional practices compared to their national peers.  Further analysis finds that nationwide adoption of the observed features of these practices would conservatively save $300 billion per year.
These extraordinary high-performing practices shared three basic features distinguishing them from others as follows:

  • Their patient relationships are deeper: always on, conscientious observation, and complaints are gold.
  • They have wider interaction with the healthcare system: responsible in-sourcing, staying close, and closing the loop.
  • They have a team-based practice organization: upshifted staff roles, hived (highly collaborative) workstations, balanced compensation, and investment in people rather than space and equipment.

These findings debunk the myth that excellent value only exists by replicating methods used by very large health systems with an efficiency culture cultivated over many years.  For example, “an independent three physician practice in a low-income neighborhood can be among the best.”
The Peterson Center on Healthcare is in the process of showing that free enterprise health care can achieve remarkable gains in both high quality and low cost.  This is hugely important at a time when total U.S. spending on healthcare is already way too high and growing rapidly.
If private enterprise and the free market cannot figure out how to provide quality healthcare at a much lower cost, it is almost inevitable that the U.S. will eventually end up with a single-payer national healthcare system like most of the rest of the world.

Is Health Care Spending Really Under Control?

Posted on by
Reply

 

The New York Times has two recent articles about health care spending, “Good News inside the Health Spending Numbers” and “The Battle over Douglas Elmendorf – and the Inability to See Good News.”  These two articles focus on the fact, clearly evident in the chart just below, that the rate of increase in overall health care spending has slowed down since 2009.  In fact health care spending has been a constant 17.4% of GDP for the past four years, while it increased by 1.9% of GDP in the four years before that.  More precisely, health care spending rose by 3.6% in 2013, down from 4.1% in 2012.
CaptureIt is, of course, very good news that increases in health care spending have dropped dramatically since the recession in 2007-2009, but is it really surprising that this has happened in the midst of so much economic pain, with a very high rate of unemployment as well as stagnant incomes for most Americans?  In fact, even in these circumstances, health care spending is still growing at twice the rate of inflation, which has been under 2% during this same time period.
A more realistic view of health care spending has just been presented to the Health Subcommittee of the House Committee on Energy and Commerce by Marc Goldwein, from the non-partisan Committee for a Responsible Federal Budget, a Washington D.C. think tank focused on fiscal responsibility.  Mr. Goldwein makes the following points:

  • Despite the recent slowdown in health care spending, it remains incredibly important that policymakers pursue reforms to reduce future projected health care costs.
  • Policymakers should focus first and foremost on health care “benders” that would improve incentives in order to slow the overall growth of health care spending.
  • Policymakers should next look to health cost “savers” which reduce federal costs by better allocating resources within the federal health programs.
  • Given the aging of the population, health reforms will be necessary but not sufficient to put the debt on a sustainable long-term track.

Slowing down the rate of growth of health care is going to be a huge challenge for our national leaders.  I will elaborate on how to do this in forthcoming blog posts.