Health Reform's "Downpayment" in the President's Budget?
In his Address to the Joint Session of Congress last night President Obama committed to comprehensive health care reform as a “down-payment on the principle that we must have quality, affordable health care for every American.” The President said that reform will be funded in part by “efficiencies in our system that are long overdue.” Peter Orszag, head of the OMB and lead author of the President’s to-be-released FY 2010 Budget, is one of the Administration’s pointpersons charged with laying the groundwork for implementation of these efficiencies. Interestingly, while previously serving as Director of the Congressional Budget Office (CBO), Orszag lead the effort to develop budget options for health care reform.
Clues as to some of the “efficiencies” referred to by the President may be found in the CBO Report issued in December 2008. CBO developed cost and savings estimates for a range of policy options to expand coverage and save federal dollars in the Medicare, Medicaid and SCHIP programs.
CBO estimated budget savings of over $220 billion by limiting the annual update factor to 1 percent for payments made for hospital inpatient and post-acute providers, skilled nursing facility and home health providers. Savings of $157 billion would be realized if Medicare Advantage (MA) payments were based on fee-for-service costs. In addition, CBO estimated that $110 billion could be saved if the pharmaceutical manufacturers were required to pay the federal government a rebate of 15% of average manufacturer price (AMP). Taken together, these cuts could total $487 billion.
While these savings could be seen as a reasonable amount to invest in expanding access, they could almost disappear if the Administration were to propose CBO’s moderate fix to the Medicare’s physician fee schedule, estimated to cost $430 billion over a ten year period. CBO also estimated costs of between $42 billion and $134 billion to fix the “donut hole” provision of Medicare Part D, a Democratic Party priority.
The President’s Budget could also include between $12 and $28 billion in cuts which some may view as “low-hanging fruit” with significant impacts on medical imaging, clinical labs and manufacturers of viscosupplements. The biggest savings of this group of policy changes would subject clinical labs services to the Medicare deductible and coinsurance provisions.
The White House health agenda includes two health reform investments which are important to expanding access and reducing costs, although the federal costs will not be insignificant. A National Health Insurance Exchange could become an enrollment portal for almost 20 million individuals and the federal spending would depend on a series of decisions made during the health reform debate. Similarly, the costs of the reinsurance program related to catastrophic illness will depend on the design; however, a ten year cost estimate of $419.2 billion assumes that the federal government will pay for 75 percent of costs which exceed $140,000 for each plan member. If the President’s budget includes a physician fix, there may not be enough program efficiencies to pay for a National Health Insurance Exchange and a federal reinsurance program. However, the savings may be significant enough to fund the infrastructure which will be needed to operate the programs.
Beyond the few examples mentioned above, economists at the CBO have numerous other proposals which could challenge the components of the current healthcare system to become “high performing organizations.” Using Milliman’s vision for health system change, the U.S. could reduce healthcare spending from 16% to 12% of its GDP. Tomorrow, with the release of the FY 2010 budget, we will get a glimpse into the President’s roadmap for change in healthcare.
The Obama plan is the old Potomac Two Step played to a different tune. The government pays for all of health care today, either directly (Medicare, Caid) or through tax deductibility of health care plans. To reduce the cost of care, you have to reduce the cost of delivering care. Covering everyone with Medicare Part A, allows several things:
Reduction of administrative costs of doing business, Medicare operates on a 3% overhead, commercial operates on a 28% to 40% overhead (per Florida OIR, 2008 rate filings). Drop the DRG base rate by 20% and the hospitals still have a net gain.
Removes anti trust issues on health planning, so rationalization of services can be done.
eliminates the need to "bail out" legacy businesses, the current and retiree health issues go away, increasing taxes.
Saves state and local government budgets from devastation
And it can all be done within existing budgets.
Who gets gored? The political parties. Health care is the slush fund for the soft money that fuels the political parties. This is the reason they want to fix health care by stiffing the providers, and protecting their political contribution base. Sad very sad.