Healthcare spending cuts, Democrat style. Healthcare spending cuts, Republican style

The cut to federal Medicaid spending that CBO estimates would result from the BCRA -- $750 billion over ten years -- superficially recalls ACA cuts to Medicare spending, estimated by CBO in 2010 at $455 billion. As Democrats raise the alarm about deep damage to Medicaid, so Republicans screamed for years that Democrats were cutting Medicare. But of course there are fundamental differences:

• Democrats cut the growth in Medicare spending and spent the savings to extend health insurance to the uninsured. Republicans want to cut Medicaid to fund tax cuts for the wealthy and for healthcare companies.


• The ACA specifies that the reductions it mandates in spending growth are not to reduce services provided to Medicare beneficiaries, but only payments to providers. The "Medicare guarantee" that has been stable in traditional (fee-for-service) Medicare for decades -- premium-free hospital coverage, 75% premium subsidy for physician services, actuarial value a bit over 80% for these services, and (since 2006), somewhat weaker drug coverage -- remained intact, and in fact strengthened on the drug front. 

In which "strategic advisor" Howard Dean attacks IPAB

Why would Howard Dean -- physician, former governor, former meteoric presidential candidate and current "strategic advisor" to healthcare clients at a lobbying firm, stick a knife in IPAB, the Independent Payment Advisory Board created by the Affordable Care Act to rein in the federal government's Medicare spending?

In a Wall Street Journal op-ed published this morning, Dean first pays lip service to core aspects of the ACA before launching into a perfunctory, mail-it-in attack on  IPAB:

What would Simpson-Bowles 2.0 do to Medicare?

Liberals are up in arms about the new Simpson-Bowles deficit reduction framework because, in brief, it calls for about $1.4 trillion less in revenue over ten years than Simpson-Bowles 1.0  (let's call it SB 1) along with roughly another $1.8 trillion in spending cuts, counting interest savings. That's more cuts than those mandated by the looming sequester, but more back-loaded, and with $600 billion coming from Medicare and Medicaid, which the sequester doesn't touch.

The shock comes from the reduction in proposed new revenue compared to the original plan, a change that simply reflects Obama's more limited revenue goals ($1.2 trillion over ten years at last ask, compared to $2.6 in SB 1). Spending cuts remain approximately the same, making the whole package proportionately more cut-heavy.

I want to look for a moment at the $600 billion in savings SB 2 proposes for "health care reforms" -- $200 billion more than SB 1 laid out, but  no more than Obama put forward in his last "grand bargain" offer to Boehner.  Simpson and Bowles envision bending the health care curve in ways that overlap with those envisioned by Obama -- though BS 1 cuts benefits in ways that Obama would not approve, and BS 2 would presumably cut benefits still more. Their rather sketchy new framework takes an "all of the above' approach to reducing healthcare costs -- hitting providers, beneficiaries, and drug companies:

Reduce Medicare and Medicaid spending by improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for population aging, reducing drug costs, and getting better value for our health care dollars (Feb-Dec 2013)

David Goldhill, consider our dental dystopia

David Goldhill, long an advocate of shunting all but catastrophic health care costs onto consumers (pairing super-catastrophic insurance with mandatory HSAs) offers, I must admit, a compellingly negative view of what's likely to become of cost controls embedded in the ACA or favored by the health care experts I like to read. It's a kind of mirror image of Atul Gawande's thousand flowers vision:

Through private insurance, Medicare and Medicaid, our health system relies on centralized cost control and clever adjustments to payment formulas to try to tame the beast. Traditional health experts may repackage their ideas, but they are never discouraged by past failure. So the new Accountable Care Organizations are a reinvention of H.M.O.’s. The Independent Payment Advisory Board is the new Medicare Payment Advisory Commission, or MedPAC. Bundled payments are the new Prospective Payment System.

We often see some early benefit from the introduction of new ideas, but over time such initiatives are always subjugated by our system’s nefarious economic incentives. Implement cost control reforms and watch providers circumvent new rules and guidelines. Reduce reimbursement rates for procedures, and witness providers expand the definition of required services. Convert fee-for-service reimbursements into bundled payments, and soon more severe diagnoses are given. Attempt to use government buying power, and see providers turn to lobbyists to keep prices up. We are approaching a half-century of fighting this losing battle.

It's true that power industries and interest groups are very successful at gaming new regulations. It's also true that today's reforms bear some resemblance to prior efforts.

Morning in, ah, Medicare?

Well, it's a sunny pre-holiday Friday morning, and I am cheered by Ezekiel Emanuel in today's Times heralding the bending of the healthcare cost curve, as it now seems over the past ten years. On the cost control front, perhaps the ACA will look in retrospect something like the surge in Iraq, giving a jolt of indeterminate magnitude to a st of processes already in motion.

In any case, perhaps superficially, I am riffling through my mind the hopeful signs that have emerged on the healthcare front in recent weeks. If I want to go head over heels in caffeinated optimism, I might imagine that Atul Gawande's vision of a kind of venture capital process of reform stimulated by the ACA -- dozens of simultaneous experiments, a handful of which will yield dramatic results -- may actually occur over the next ten-odd years.

Hopeful signs include the fact that, for all the GOP's caterwauling about "bureaucrat-controlled" and "government-controlled" healthcare, beneath the radar some Republicans are looking at cost control measures that are indeed government-imposed, and likely to be effective.  For example, as I noted recently, two long-term "doc fix" bills are currently circulating in Congress, one bipartisan (but mainly Democrat), one Republican. While the GOP bill accords far more input to healthcare providers, both purport to either end or radically curtail fee-for-service payments.

A second sign of some nonideological thinking on the Republican side emanates from a bipartisan initiative, the Partnership for the Future of Medicare, co-chaired by former CBO head Douglas Holtz-Eakin and Ken Thorpe, a professor at Emory. The pair this week distilled a  PFM report in a post on the Health Affairs blog. I think of Holtz-Eakin, former economic adviser to the McCain campaign, as an intensely partisan critic of Obamanomics and the ACA, an impression gleaned mainly from quotes in news articles.  I was therefore somewhat surprised to learn that he is preaching the futility of simple cuts to benefit formulas, and calling for more systemic reform that does not simply rely on the Competition Fairy:

The real budget battle: voucherize Medicare, or IPABize it?

Noting that the emerging Republican budget strategy seems to be stalemate -- refuse to approve any new taxes, consequently give up on entitlement reform, and blame Obama, Jonathan Chait notes that this strategy makes a kind of sense. That is, it locates the long-term budget battle where it belongs, on the means of controlling healthcare costs:

This may sound like a cynical strategy. And it is. But it’s not a purely cynical strategy. It reflects an important intellectual development on the right. Capretta is advocating not just the classic no-taxes-ever approach that has defined the party for years, but also its newer (or newly fervent) belief in privatizing health-care services.

The main driver here is Paul Ryan, whom Capretta advises. (Yuval Levin, another Ryan favorite, makes a similar, though less openly cynical, no-deal argument for the Weekly Standard.) Ryan has accepted the argument, traditionally pushed by Democrats, that the main driver of long-term budget deficits is not the aging population but skyrocketing health-care costs. Ryan has decided that the only possible answer to the problem is to turn Medicare into a system of subsidized private insurance, and that the wonders of competition between insurance firms will dramatically suppress cost inflation (“the way it always works when the consumer is in charge,” he says).

What's truly cynical is not Ryan's ideological faith in the competition fairy, but his demonization, in the illustrious McCaughey-Bachmann-Palin tradition that is now general GOP dogma, of other more proven means of controlling healthcare costs. Chait continues:

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.

Giving Ryan undue credit for Wyden-Ryan

I had a faint expression of interest in response to a letter I sent the Times a week-plus ago, responding to Steven Rattner's call for some form of healthcare rationing. Frankly I can see now why they didn't run it, as I concerned myself with a tangential point, while several letters the Times did publish went for the heart of Rattner's argument (and are well worth reading). Still, mine had some political relevance, as it took Rattner to task for giving Ryan credit for cost control mechanisms he dropped from his 2013 budget.  Here it is:

From Palin to Ryan: a short history of demonizing IPAB

The battle between the parties over Medicare reform is a battle about how best to control costs.  Ryan and Romney rely exclusively on the Competition Fairy, -- the notion that if private insurers are induced to compete for Medicare policyholders, they will find ways to hold down costs.  If that fails, Ryan/Romney would most likely shift costs to seniors, with some ostensible protections for low-income beneficiaries.  The Obama administration, via the Affordable Care Act, seeks to use the government's market clout to change the rules of the payment game for providers, creating new incentives to reduce unnecessary care and new rewards and penalties focused on patient outcomes.

Can the Competition Fairy control healthcare costs?

As I've explored in the last three posts, the Medicare reform plan in Ryan's 2013 budget blurs Democratic attack lines because it looks very much like an Affordable Care Act for seniors (who, er, already have affordable care) while staking an at least ostensibly credible claim to preserve the Medicare guarantee.

The simplest counterargument was just voiced by a Florida voter to Washington Post reporter Felicia Sonmez: if it ain't broke, don't fix it. The counterargument is that Medicare is broken insofar as its cost to taxpayers has wildly outrun inflation and threatens to bankrupt the federal government.  The debate boils down to the best means to control costs while preserving the Medicare guarantee.

How Ryan duped Wyden, cont.

In my last post, I noted that

1. Senator Ron Wyden, by partnering with Paul Ryan last December in a proposal to convert Medicare to a premium-support program, seriously blurred Democrats' line of attack on Ryan/Romney Medicare reform proposals.
2. Wyden himself is having difficulty articulating the differences between that joint proposal and the Medicare reform plan included in Ryan's 2013 budget ("Ryan 2013").
3. Those differences are real, pertaining to the ways in which costs are controlled and the degree to which increased costs are passed on to seniors.

The key differences are that 1) Wyden-Ryan caps overall Medicare cost growth at GDP +1%, vs. GDP +.5% under Ryan 2013; 2) Wyden-Ryan does not abolish the ACA's Independent Payment Advisory Board, which is mandated to furnish Congress with proposals to keep costs under the cap, mainly by reducing payments to providers in various ways; and 3) Wyden-Ryan caps seniors' yearly  out-of-pocket costs while Ryan 2013 does not.

That comparison was based on a report by Kaiser Family Foundation.  I have since compared the texts of the Wyden-Ryan proposal and the Medicare reform section of Ryan's 2013 budget.  The latter comparison shows that while the differences inferred by Kaiser are real, the earlier report -- surely at Ryan's impetus -- fudges the key distinction, which is whether cost increases in excess of yearly targets can be passed on to seniors. In fact, while Wyden-Ryan emphasizes controls on payments to providers as a means to keep costs below its GDP +1% cap, it leaves the door open to increases in premiums for higher income seniors as a way to cover cost increases in excess of the cap.  Moreover, while Wyden-Ryan does not demonize the Independent Payment Advisory Board (as Ryan 2013 does at length), it does not mention IPAB at all -- and dances around IPAB's function when laying out the means of keeping costs under the cap. Wyden-Ryan also takes one Ryanesque slap at IPAB-in-absence, listing as one the authors' principles,  "Build a strengthened program around the needs of patients, not bureaucrats" (p.8 )

How Wyden muddled the Democrats' attack on RyanCare

Senator Ron Wyden, D-Oregon, is upset that people are casting the Medicare reform plan he put forward with Paul Ryan last December with the Medicare reform plan incorporated in Ryan's 2013 budget:

Flashing an anger and a willingness to counterpunch that’s rarely seen, Sen. Ron Wyden on Monday denounced suggestions that his ideas for reforming Medicare mirror those of Republican Mitt Romney and his new running mate Rep. Paul Ryan.

His protestation below strikes me, however, as a self-cancelling statement:

Hey, Romneycare may get a 'death panel'

Not really. But legislation is afoot to create an IPAB (Independent Payment Advisory Board) on steroids -- Trenbolone to the ACA's Creatine. The WSJ's Jennifer Levitz and Anna Matthews report:

Key state legislative leaders unveiled a bill Friday that proposes setting a target for the rate at which overall health spending should rise—a step that would once again put the state in the forefront of efforts to remake the American health-care system...

"MedPAC on steroids" is toxic to many...

Hey, we're having a real debate about controlling healthcare costs.

Some "responsible" conservative commentators, a.k.a. New York Times op-ed writers, who expressed queasiness about Paul Ryan's plan to convert Medicare into vouchers of ever-shrinking value nonetheless praised Ryan for opening up discussion of how to control Medicare costs specifically and healthcare costs generally. The same is true of Obama's counter-proposal, a centerpiece of which is strengthening the mandate of the Independent Payment Advisory Board (IPAB) created by the ACA to limit the prices Medicare pays for various treatments.  A strong IPAB was one of Obama's chief priorities in the legislation. He would not fight for a public option, but he fought for IPAB.

Surprise surprise: the Wall Street Journal editorial board does not like IPAB:

Mr. Obama, by contrast, is relying on the so far unidentified technocratic reforms of 15 so far unidentified geniuses who are supposed to give up medical practice or academic research for the privilege of a government salary. Since the board is not allowed by law to restrict treatments, ask seniors to pay more, or raise taxes or the retirement age, it can mean only one thing: arbitrarily paying less for the services seniors receive, via fiat pricing.

Obama's baby: the Independent Payment Advisory Board for Medicare

In two recent posts, here and here, I noted that Obama's long-range budget thinking tends more toward tax hikes than radical budget cuts -- or more accurately, more toward tax hikes than short-term cuts.

The key to Obama's thinking on the structural deficit, again, is bending the health care cost curve. Two stories in today's Times point toward how that may be done over time -- and why Obama fought so hard to retain a strong Independent Payment Advisory Board (IPAB) for Medicare in the PPACA, along with a host of pilot programs to test new payment systems.

First, David Leonhardt spotlights a not-so-modest proposal:

In the new issue of the journal Health Affairs, two doctors [Dr. Bach and Dr. Pearson], both former Medicare officials, have laid out a plan to do so. It would give expensive new treatments three years to prove that they worked better than cheaper treatments, or their reimbursement rates would be cut to that of the cheaper treatments.

To illustrate the need and possible workings of such a plan, Leonhardt returns to a topic he covered in depth during the health care debate (cited by Bach and Pearson): treatment for prostate cancer. Briefly, three forms of radiation are now available, costing, respectively, $10,000, $42,000, and $50,000 on average (naturally, the oldest is the cheapest; the newest, the most expensive, requiring massive new equipment investments from practitioners). There is no evidence that any of these treatments is more effective than the others. Medicare pays for all three without distinction. Providers' profit margins, needless to say, are much higher on the more expensive treatment.  Under the Bach-Pearson proposal, if the newer treatments were not proved more effective within the three years, Medicare would only reimburse $10,000 for each treatment.

Such proposals might ultimately prove to be within the power of IPAB to implement, though there are severe constraints. James C. Capretta of the Ethics and Public Policy Center explains how IPAB works:

To hit its budgetary targets, the IPAB is strictly limited in what it can recommend and implement.  It can’t change cost-sharing for covered Medicare services.  Indeed, it can’t change the nature of the Medicare entitlement at all, or any aspect of the beneficiary’s relationship to the program.  The only thing it can do is cut Medicare payment rates for those providing services to the beneficiaries. 

This wasn’t an accident.  It reflects the cost-control vision of those who wrote the bill. They believe the way to cut health care costs is with stronger federal payment controls.  They envision the IPAB coming up with new payment models which will push hospitals and physicians to emulate today’s most efficient delivery models.   Call it “government-driven managed care.”

A second White House Seder? Larry Summers sings Dayenu to Martin Wolf over health care reform

100-odd years ago, early in 2009, Obama and Peter Orzag were heavy on the mantra that "healthcare reform is entitlement reform"-- i.e. that "bending the cost curve"on healthcare would be the single most important step to erasing the country's structural deficit.  Here's how Peter Orzag put it in Obama's fiscal summit on Feb. 23, 2009:

Health care is the key to our fiscal future.

So to my fellow budget hawks in this room and in the rest of the country, let me be very clear: health care reform is entitlement reform.

The path of fiscal responsibility must run directly through health care.

We also must recognize that reforms to Medicare and Medicaid will only succeed in the context of slowing the spiraling growth of overall health care costs.

In an interview published in the online Financial Times today, Larry Summers, asked by Martin Wolf how other nations could have confidence that the U.S. will put its long-term fiscal house in order,  suggested that the Administration has already laid the most important cornerstone  -- again, that healthcare reform is entitlement reform, and that the cost controls in the Patient Protection Act have teeth.

Perhaps Summers was fresh from a Seder: his litany of the virtues of the Medicare Individual Payments Advisory Board (boldfaced below) swings with the repetitive glee of the Passover song  "Dayenu," which marvels at the extent of God's mercies in making the Exodus happen: