Monday, December 03, 2012

You want real deficit reduction? Try this...

Like most progressives, I've been pleased to witness Obama thus far refusing to negotiate with himself in the fiscal cliff battle. With his tax proposals and modest proposed spending cuts on the table -- a package derived from his 2013 budget -- it would seem to make sense to let Republicans detail the deeper entitlement cuts they say they want. As Paul Krugman highlights today, the Republican leadership seems unwilling to go on record proposing deep, substantive cuts to Medicare, Medicaid, and Social Security. So the progressive consensus is clear: let them put up or shut up.

Nonetheless, there remain calls among some Obama supporters -- e.g., natch, Andrew Sullivan -- for Obama to "seize the center" and propose more thoroughgoing plans to restrain long-term spending.  And there may in fact be political opportunity for him in doing so -- on his own terms.
For progressives, it's been a mantra since at least 2009 that "healthcare reform is entitlement reform." That is, fixing social security requires relatively minor tweaks -- raise the cap a bit, shave the (already low) percentage of payback for average monthly earnings payback over $4.5k,  perhaps moderate the inflation calculation -- and you're done.  The real monster task is controlling healthcare inflation, mainly through federal payments for services billed through Medicare and Medicaid, and soon, indirectly subsidized through the Affordable Care Act.

Many progressives argue that the Obama administration effectively shot its wad on bending the healthcare cost curve in the Affordable Care Act, packed as it is with cost control measures, e.g.,  incentives to create Accountable Care Organizations and reduce hospital re-admissions, experiments with bundled payments, a cap on the employer tax deduction for health insurance, and empowerment of the Independent Payment Advisory Board to propose new controls when costs exceed targets. Jonathan Cohn has argued that we should wait to see how effective these reforms collectively prove to be before enacting deep cuts in entitlement spending: 
the long-term goal of fiscal policy should be to stabilize the debt-to-GDP ratio—in other words, to make sure federal debt isn’t rising out of proportion to the wealth that the nation is generating. As a recent report from the Center on Budget and Policy Priorities pointed out, it’s possible to achieve that goal for the next decade or so without dramatic cuts to entitlements. Stabilizing the debt-to-GDP ratio after the next decade would indeed require additional revenue or spending cuts, but, at this point, why not wait and see whether the Obamacare reforms do the job? It’s entirely possible they might. If they don’t, we can make further adjustments in the future, whether those involve agreeing to higher taxes, lower spending, or bigger deficits.

This approach may make sense. The fact is, though, that the ACA's ability to control costs was vitiated by the GOP's successful demonization of some of the most powerful proposed measures.  Republicans have only one response to healthcare inflation: shift more costs to patients. Before this negotiation is over, they will have to revive proposals to do so, such as those packed into the Ryan budgets for 2012 and 2013. The time may be ripe, then, for Obama to revive proposals that will not shift costs to Medicare and Medicaid beneficiaries, but rather find ways to avoid unnecessary treatment. These include:

1. Un-decouple IPAB (the Independent Payment Advisory Board) and PCORI (the Patient-Centered Outcomes Research Institute)

IPAB is a panel of 15 healthcare experts, appointed by the president and confirmed by the Senate (good luck with that...) and empowered to put forward a series of Medicare cost-savings measures in years when Medicare per capital spending exceeds a cap, currently set for 2018 and after at GDP growth +1%.  By statute, IPAB is prohibited from "rationing care" or restricting benefits. PCORI, like IPAB a creature of the ACA, is a second advisory board created to support comparative effectiveness research -- that is, to determine which treatments for any given ailment are most effective or most cost-effective.

IPAB, however, cannot use PCORI data to recommend that Medicare only reimburse treatments found to be effective, or reimburse more effective or cost-effective treatments at preferred rates. All the screaming about 'rationing care' ensured that. This is tricky ground, because much outcomes research is far from definitive, and a treatment that may be less cost effective than a comparable one on average may be appropriate for a given patient.  But that doesn't mean that outcomes research can't be used responsibly -- for example, by providing incentives for patients to use treatments found to be more cost-effective, or by raising the approval bar for treatments clearly found to be ineffective.

I love the dictum of former British health minister John Reid: "we cover everyone, but not everything." Some distant day, Medicare will adopt that mindset.

2. Bring back the 'death panels' - that is, encourage more "end of life" counseling.  Treatment to prolong life when life is no longer worth living accounts for an enormous share of Medicare costs. A Wall Street Journal analysis found that in 2009, the 1.6 million people who died in hospitals -- 6.6% of those who received hospital care --  accounted for 22.3% of total hospital expenditures. The Journal also found that "the top 10% of Medicare beneficiaries who received hospital care accounted for 64% of the program's hospital spending."

Recognizing these costs, the House version of the ACA originally specified that yearly Medicare checkups include coverage for end of life counseling, in which a doctor simply discusses with patients the circumstances under which they would want care to continue -- or end -- if they are not in a condition to make decisions, and to create living wills laying out those conditions. Cue the death panel demagoguery, and the guidelines spelling out coverage for such discussions were pulled back. HHS briefly reinstated them at the end of 2010, then retreated when the world noticed.

End of life counseling never has been and never will be coercive. The more it is emphasized in coverage guidelines, the more people will avoid unnecessary, invasive and futile life support that's often an agony for relatives -- and a budget buster for Medicare.

3. Bring back the public option -- 'strong' variety.  Why does healthcare in the United States cost 50-100% more per capita than in virtually every other wealthy country, with generally inferior outcomes? Mainly because every other wealthy country, whatever its method of delivering universal health insurance (as all but the U.S. do), allows the government monopsony pricing power.  A "strong" public option -- that is, a government-run health insurer that pays Medicare rates for service -- would be a giant step toward giving the federal government that essential control.

None of these price control measures would have a prayer of passing in the 113th Congress. But all could be scored by the CBO, yielding substantial projected savings (the public option more than the first two, which the CBO would doubtless score conservatively as it has most other untested cost controls).  Together, they would stand in dramatic contrast to Republican measures that will dramatically increase seniors' costs.

Of course, such proposals would stir up a new tsunami of demagoguery. But circumstances have changed. The ACA is passed, the Supreme Court has ruled, the election is won. And Obama is better primed to win a messaging war than he was in his first term.

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