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Witness: Delegating Health Cost Crisis Won't Help

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Many current proposals for trying to control U.S. health care costs call for giving private health plans an impossible task, according to Len Nichols.

Len Nichols, a health policy professor at George Mason University, testified today at a health spending hearing organized by the Senate Budget Committee.

Nichols said he thinks some of the health care provider reimbursement provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA) could help the situation, by giving doctors, hospitals and other providers better incentives to hold down the cost of care and improve the quality.

But many other proposals, including many “Medicare privatization” proposals, would simply put dump the health care cost burden onto the shoulders of private health plans, Nichols said.

The proposals suffer from “the fatal flaw of essentially just telling all beneficiaries they must join private health plans and then telling health plans that we (the government) will pay this much and no more for health insurance and we expect you (the plans) to figure out how to make this work for beneficiaries and providers,” Nichols said, according to a written version of his testimony posted by the committee. “This common version of premium support is essentially a system of hiring plans to fix our health care woes while containing the financial risk to the government.”

The pure privatization strategy would hold growth in government payments to an arbitrary, fixed rate but do nothing to change the current counterproductive incentive structures, Nichols said.

“Therefore, it cannot and will not work,” Nichols said. “Not because plans wouldn’t try (and some have more potential than others, to be sure) but because they do not have sufficient market power. If they could do this alone, don’t you think they would have already?”

PPACA, on the other hand, already has led to some early structural changes by putting hospitals on notice that they must become more efficient, Nichols said.

Another witness, James Capretta, a fellow at the Ethics and Public Policy Center, Washington, who once served on the staff of Sen. Pete Domenici, R-N.M., said he thinks that cause of the current problems is clearly growth in Social Security, Medicare and Medicaid entitlement spending, and that the best cure is market forces.

Some blame the current budget problems on tax cuts, Capretta said.

But tax revenue now amounts to about 18% of U.S. gross domestic product (GDP) — about what it has amounted to for the past 40years.

Spending on Social Security, Medicaid and Medicaid now amounts to about 10% of GDP, up from 4.4% in 1972, Capretta said.

“So, in other words, today the government is spending an additional 6 percentage points of GDP on just these three programs compared to 1972,” Capretta said. “To put that in perspective, spending on defense and other security-related functions of the government totals only 5.6 percent of GDP in 2012. This trend toward devoting more and more resources to entitlements is only going to accelerate as the baby boom retires. Over the next 25 years, CBO expects spending on these programs, plus the new entitlements created in the health care law, to push total spending on these programs over 16% of GDP.”

The rules has used for accounting for PPACA mean that PPACA will make the federal budget deficit much worse than it would be otherwise, not better, Capretta said.

Some say the United States can bring down health care costs by eliminating the current Medicare fee-for-service payment system, and by shifting to some kind of bundled payment system, or a coordinated “accountable care organization” (ACO) system, Capretta said.

“But Medicare’s administrators have been trying for many years to change the dynamic in the traditional fee-for-service program and have failed,” Capretta said.

The Congressional Budget Office recently showed that scores of care coordination and reimbursement pilot programs failed to do much to improve care or control costs, Capretta said.

“The basic problem is that the only way to build a high-quality, low-cost network of care is to exclude those from the network who are low-value and high-cost,” Capretta said. “And that’s something Medicare has never been able to do because that involves picking winners and losers.”

If Congress doesn’t have the nerve to have regulators pick the winners and losers, then the best alternative is to have cost-conscious consumers pick the winners, Capretta said.

Senate Budget Committee Sen. Byron Dorgon, D-N.D., said introductory remarks that he would like to see Republicans propose ideas for lowering health care costs that don’t involve dismantling PPACA.

“We believe we need to build on reforms already in place and find further savings in health care,” Dorgan said.

Trying to repeal PPACA “would take us, I believe, in the wrong direction,” Dorgan said.