Preliminary Thoughts on the CBO Report

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I think it's pretty clear at this point that no bill from our Congress is going to meaningfully "bend the cost curve".  Every time I argue that cost control seems unlikely, I hear that no, the Senate bill is going to make some serious inroads into delivery system reform.  Well, according to the CBO, the savings achieved by Subtitle A, the main delivery system reform part of the bill, are trivial--not really distinguishable from zero, when you consider the uncertainties inherent in the estimates.

What passes for delivery reform consists mostly of slashing reimbursement rates to providers, and then putting Medicare Advantage on the same plan.  There are two problems with this.  The first is that there's no reason to believe that providers will find ways to efficiently provide care at the new, lower rates, rather than just stop serving Medicare patients.  That was the core point of the recent report from the Centers for Medicare and Medicaid Services--and though a lot of bloggers developed sudden suspicions about the integrity of government reports, in fact, this pretty much jibes with the warnings that Doug Elmendorf has been issuing, and also, reality.  There are already shortages of geriatricians which can be substantially attributed to the fact that Medicare has ensured it is one of the lowest-paid specialties.  When the guy who oversees your provider payments says that your new payment scheme is probably going to lead to providers dropping out of your program, you need to take that seriously.

The second is that the treatment cuts--and any further cuts recommended by the cost effectiveness commission--can be undone by Congress.  Not only can, but almost certainly will.  There's some attempt to get around this by forcing Congress to do only an up or down vote on the recommendations.  By bundling the really unpopular stuff with other reforms, the hope is that they'll be able to push them through.

Unfortunately, the commission's recommendations do not save much in any one year, which means it's not actually going to be all that difficult to vote "no" in any one year--and by the time it actually is hard to vote "no", we'll face the same problem we have with the Sustainable Growth Rate cuts for physicians--the cuts needed are so big that it has become impossible to vote "yes", because the providers can't deliver those kinds of cost savings. 

So while the bundling might ease the passage of controversial cost-control measures, it might also ensure that no-brainers fail.  There's also, as far as I can tell, nothing to stop Congress from passing the whole package--and then amending the health care bill in order to guarantee coverage of anything that gets voters excited.

The current brouhaha about the new mammogram treatment guidelines is very instructive.  There are good reasons for doing as few mammograms as possible:  they're uncomfortable; radiation causes cancer; and false positives take a huge toll on the patient with invasive procedures and emotional anguish.  I follow this issue pretty closely, because I have a family history of breast cancer, and the new guidelines don't seem unreasonable to me.

But some of the criticisms of the guidelines are valid, particularly the fact that they don't take digital mammography into account.  And they've activated a very real fear that people will die because they put off having a mammogram until they're fifty.  It seems virtually certain either that the task force will revisit this decision, or that any agency or insurer actually acting upon their recommendation will be overridden by legislative action.

I expect that if we do get guidelines with teeth, we'll see this play out over and over.

I don't think it's any good to say, well, we have to hold down Medicare costs eventually, so we might as well hope.  That's as fuzzy and dangerous as some of the thinking that got us into the Iraq war.  If the mechanism for holding down costs is not realistic--and neither the head of CMS, nor the head of the CBO, seem to think that it is--then in all likelihood, you're planning to increase the budget deficit, whether you want to or not.

Aside from the panel recommendations, the only other substantial attempt at real delivery system reform is the excise tax on high cost plans, which the CBO and the Joint Committee on Taxation are projecting will reduce health care spending.  In fact, it's projected to reduce health care spending so much that companies will save a bunch of money, pass that money onto their workers in the form of higher wages, and thereby generate a bunch of new tax revenue to help pay for reform.  Maybe.  Of course, if they're wrong, and it ends up just being a heavy tax on a random group of people who happen to have expensive health insurance, then it won't cut health care costs, and also, will probably end up being repealed.

Ultimately, the excise tax is just another version of the provider payment reductions:  take some money out of the private sector, and hope that they figure out how to make do with less.  If they can't, Congress probably decides to give them their money back.

None of these make any real changes to the incentives of either the providers of health care services, or the people who consume them.  All they do is tinker with the level of the third party payments.  That's not reform.  It's wishful thinking.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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