“Health Care Reform in Trouble”: that was the headline above Ezra Klein’s post on his excellent Washington Post blog yesterday. Klein then linked readers to Jon Cohn post on TNR’s The Treatment : “This CBO Projection Should Worry You,” There, Cohn referred to reports that the Congressional Budget Office was projecting that the Senate Finance Plan for reform would cost $1.6 trillion over 10 years—about $600 billion more than the Committee had projected. Cohn, usually an optimist, sounded worried, very worried: “Universal coverage will rise or fall based on the money. And right now, I worry, falling seems all too plausible.”
Late yesterday, Klein broke more bad news. In response to the CBO estimates, the Senate Finance committee has scaled back its rough draft of a plan for healthcare reform: “Specifically, subsidies have dropped from 400 percent of the poverty line to 300 percent. Medicaid eligibility has been tightened to 133 percent of poverty for children and pregnant women and 100 percent of poverty for parents and childless adults. The plans being offered in the exchange have seen their actuarial values sharply lowered. . . . Sen. Kent Conrad's co-op idea is up for discussion. There's no public plan mentioned anywhere in the document.”
Over at The Health Care Blog, Matthew Holt sounded characteristically glum: “This one is barely worth passing. We might be better off leaving the system and having a proper collapse before we start again in the next recession (which at the rate we’re going might be this one).”
I am a long-time fan of Klein’s insightful, incisive blogs, and greatly admire Cohn’s always timely reporting on TNR. Matthew is not only the dean of health care bloggers; as an Englishman, he possesses the enviable ability to be glum and witty at the same time. But, with all due respect, I just cannot agree that health care reform is in trouble.
Much more importantly, White House Budget director Peter Orszag isn’t concerned. Late yesterday afternoon, Orszag replied, via e-mail, to my question about the brouhaha over CBO’s estimate of the cost of the reform outlined in the Senate Finance Committee’s preliminary proposal–and the number of people who would be covered under that proposal:
“The legislative process is ramping up, and throughout the process there will be many proposals, amendments to those proposals, and budget scores,” Orszag wrote. “This is natural. What’s important is that, ultimately, we work together to get health care reform done – and done in a way that not only is entirely paid for with real, scoreable offsets but also that moves toward a system in which best practices are more universal throughout the entire country.”
By “best practices” Orszag is referring to the evidence-based efficient care that protects patients while providing value for our health care dollars. Until we make those changes and realize those savings, we will never have high quality care—let alone, an affordable and sustainable health care system.
Before turning to Orszag’s argument, let me re-cap the story that has been roiling some of the most progressive regions of the blogosphere this week.
The Background to the Story
Tuesday, the word spread that the Congressional Budget Office had given the Senate Finance Committee an early estimate of what its health care reform bill would cost: $1.6 trillion over 10 years. The Finance Committee had hoped its bill would cost $1 trillion.
Even worse, CBO reckoned that the bill would cover only two-thirds of the uninsured.
“The final number changed everything,” Klein reported, “Max Baucus, the chairman of the committee, pushed markup back behind the July 4th recess. He has promised to get the bill below $1 trillion over 10 years.
“That’s very dangerous,” Klein continued. “There are two ways to make a $1.6 trillion bill a $1 trillion bill. The first is to do less reform. The second is to do more reform.
“Right now, he added, “I'm told Finance is going down the road of less reform. They're cutting the subsidies, cutting the generosity of the basic benefit package and cutting the number of people who will ultimately be insured by their proposal. This reflects a simple reality: If you're going to try to leave the central features of the health-care system untouched, you can't get to universal coverage, or even anywhere near it, on $100 billion a year.”
There are alternatives, Klein pointed out. For instance, a robust public sector plan “with the ability to bargain to Medicare rates” could save, “20 percent to 30 percent against traditional private insurance” according to the Commonwealth Fund.
Nevertheless, Klein concluded, “health reform has just gotten harder. The hope that we could expand the current system while holding costs down appears to have been just that: a hope.”
I have always thought that reform would be very hard. I knew that conservatives and lobbyists would fight with every weapon at their disposal—and that they wouldn’t mind distorting the truth, which is what they have done by making a mountain out of CBO’s preliminary mark-up of the Senate’s rough draft.
And I am not at all surprised that Baucus’ first response to the reports on CBO’s estimates was to panic and cave. In fact, he was probably looking for an excuse to do just that. As I wrote in April: “progressives fear that Baucus might bend too far as he stoops to make a deal with conservatives. ‘He’s been doing that for years,’ a senior Senate Democrat told The Hill, noting that Baucus cut a pivotal deal with Republicans that allowed former President Bush’s 2001 tax cuts to pass Congress.
“Critics also point to the fact that Baucus brokered a deal with Republicans to pass landmark prescription drug legislation, an accomplishment that some political analysts say helped Bush win reelection in 2004. (‘Kennedy originally supported the legislation,’ The Hill explained, ‘but became a vocal opponent after Senate Republicans changed it during negotiations with the House.’)
“Baucus and Kennedy also disagree on whether the Senate budget should include a provision for ‘reconciliation’ that would protect health care reform from a Republican filibuster, allowing Democrats to pass it with only 51 votes.”
But the administration won. To pass the President’s version of reform, the White House needs only 50 votes in the Senate. They would like more. But they don’t need more. Meanwhile, Baucus needs the White House. As I observed recently: “Obama lost Montana by only 2% or a mere 12,000 votes. He didn't win the state but he had a tremendous base of support in every county statewide; support Senator Baucus cannot spit on if he hopes to get re-elected. He will need every one of those votes to keep his job . . . the situation is not all that different for many of the other key fence-sitters.” (Hat-tip to Watching the Watchers for this insight.)
Much Ado About Nothing: Why CBO’s Current Numbers Are Meaningless
CBO couldn’t “mark up” the Senate Finance Committee plan because the Senate Finance Committee plan doesn’t yet exist. Yesterday, I spoke to Peter Orszag’s Office of Management and Budget and they confirmed that there are many blank lines in the draft CBO is looking at.
What was missing included a public-sector insurance option. President Obama has made it clear that the public sector option is, in his view, essential. Progressive Democrats (many of whom would prefer a single-payer plan) have said they won’t vote for health reform unless it includes a robust public sector plan. So it seems very likely that it will be part of any final Democratic proposal—and that it will, as Ezra Klein notes, cost 20% to 30% less than the average private-sector offering. But CBO wasn’t factoring that in when projecting the cost of reform. A public-sector option will lower the need for subsidies—and make insurance affordable for many more Americans.
The Senate’s draft of a plan also assumed subsidies for families earning up to Five times the poverty level – that’s roughly $110,000 for a family of four. The House outline proposed subsidies only for families earning up to just Four times the poverty level ($88,000) for a family of four. In the end, the House proposal is likely to win out. (Massachusetts offers subsidies only to families earning up to only Three times the Federal Poverty Level. Four Times would be a good compromise. And, assuming a truly affordable public sector option, families earning between $88,000 and $110,000 should be able to afford insurance without help from taxpayers. So when it comes to subsidies, the Democrat’s final plan is likely to be significantly less expensive than the Senate’s preliminary draft appeared when CBO first looked at it.
There are many other questions left open in the Finance Committee’s first draft: For example, it doesn’t spell out what “basic comprehensive coverage” will include. How then, can anyone possibly estimate what the insurance will cost?
It also doesn’t specify penalties for those who don’t honor the mandate to buy insurance, or what it would take to qualify for a “hardship exemption.” It doesn’t explore what “employers’ responsibility for sharing in the costs” will mean, in practice. How, then, can anyone project how many Americans will or won’t be covered?
Finally, the Senate plan did not include the $300 billion that can be saved by squeezing waste and inefficiency out of Medicare and Medicaid. These are the savings that President Obama itemized last Saturday in his speech to the nation and again, in his talk to the AMA earlier this week when he detailed how we can save $313.billion. .
For example, the president suggested that Medicare should refuse to pay hospitals for “avoidable” hospital admissions. A public sector plan would almost certain follow Medicare’s lead, as would private insurers. (They have been following Medicare’s coverage rules since 2000). Inevitably, hospitals would become much more alert to reducing the rate of hospital-acquired infections, making sure that, when patients are discharged, they understand their medication schedule, and that they have a follow-up appointment with a physician.
President Obama pointed to savings that could be reaped by bringing down drug prices –especially for poorer seniors. The president also emphasized using comparative effectiveness research to steer doctors and patients toward the most effective treatments. This would make health care more affordable for patients– and subsidies less expensive for tax-payers. These savings were not included in the Senate Finance draft that CBO was looking at.
When it comes to using comparative effectiveness research, CBO itself pointed out how the system could capture “significant savings” in the Congressional Budget Office’s December 2008 report: “Rather than denying coverage,” for less effective treatments, Medicare could “tie its payments to providers” to effectiveness, lowering fees for those treatments that provide less benefit. Meanwhile, “patients could be required to pay for at least a portion of the additional costs of clinically less effective treatments,” CBO observed.
We now have a surprising amount of evidence about which tests and treatments work and which don’t. As the CBO noted in December of 2007, we’ve already seen comparative effectiveness studies “on a wide range of treatments, pitting angioplasties against drug regimens for heart patients, gauging the effectiveness of surgery for patients with emphysema, testing statins, and weighing mammograms against the combination therapy of mammograms and MRIs for breast cancer . . .”
Finally, as President Obama has pointed out, many of the savings that have not yet been scored by CBO are simply a matter of “common sense.” For instance, when the majority of the uninsured are covered under national health reform, Medicare can phase out the payments it now makes to hospitals to help compensate them for “eating” unpaid bills when they care for uninsured patients.
CBO, OMB, MedPac and the President Are On the Same Page
When I spoke to the White House Office of Management and Budget (OMB) they told me they were not at all perturbed by CBO’s estimate of the cost of the Senate Finance Committee’s plan. Everyone understood that CBO was looking at a draft filled with holes. (It is my understanding that the CBO projections were leaked: CBO did not issue a formal report.)
OMB then referred me to the OMB website where White House Budget Direct Peter Orszag had blogged about the CBO mark-up. There, Orszag pointed to a letter that CBO released Tuesday afternoon, from CBO director Douglas Elmendorf to Senator Kent Conrad, Chairman of the Senate Committee on the Budget.
In that letter, CBO’s Elmendorf pointed to the savings that could be achieved by excising waste from our health care system—unnecessary care which, as Dr. Atul Gawande’s recent New Yorker article indicates, often is profit-driven.
As CBO put it: Significant savings seem possible because the available evidence implies that a substantial share of spending on health care contributes little if anything to the overall health of the nation." (These are savings that are not included in the Senate Finance Committee’s early draft.)
On his blog post, house budget director Orszag ponts out that the CBO letter then lists "Policy Options that Could Produce Budgetary Savings in the Long Run," highlighting a number of options, nearly all of which were included in the President’s Budget or have been subsequently included as part of his health reform package, that hold promise for reducing costs over the long term. “
- Creating Accountable Care Organizations. As CBO notes, "One prominent example of a structure that may function better would be accountable care organizations formed by physicians and other health care providers." Orszag’s comment : “The Administration has proposed a similar approach, which we call Bonus Eligible Organizations.
- Bundling Payments to Hospitals and Other Providers. Orszag: "CBO’s Budget Options volume included an option that would have hospitals receive a single bundled payment from Medicare for both the hospital services they provide and the care that their patients receive in a post-acute setting…this arrangement would provide hospitals with an new incentive to coordinate the care their patients receive after they are discharged and to economize in the use of post-acute care." The Administration also has a proposal to promote efficient provision of acute care through bundled Medicare payments covering hospital and post-acute setting.
- Providing Additional Information About Treatment’s Effectiveness. Orszag: CBO’s letter notes that "Many analysts believe that, because of the broad benefits that additional information could provide, the federal government should fund research on the effectiveness of treatments and should help disseminate the results to doctors and patients." The Administration strongly supports this position; this is why we provided $1.1 billion in the Recovery Act to develop and disseminate information on effective medical interventions.
These Are the Changes Needed for Meaningful Structural Reform
CBO, OMB, MedPac and the president all agree, these are the structural changes that we need to make in how we pay for health care, and what we pay for– to insure that we are not pouring money into a system that rewards providers for inefficient, ineffective care, while exposing patients to the risk of side-effects, complications and even death.
In his post, Jon Cohn pointed to the possibility of such savings ,but didn’t sound hopeful that liberals will be able to “live with” reforms that both lobbyists and interest groups will hate: “Will [liberals] embrace reimbursement changes for hospitals, despite the hospitals' own protests, to free up some more money? Will they go for serious comparative effectiveness research, something a lot of disease groups have been protesting?”
The answer is yes—if liberals step back and take in the fact that this these changes are essential if we want to make health care better and safer. When we pay hospitals for preventable readmissions we are, as Bob Wachter, Chief of the Division of Hopsital Medicine at UCSF, points out encouraging them to ignore the fact that “when it comes to post-discharge care, we [hospitals] suck. Despite powerful literature that shows that simple interventions – like post-discharge phone calls or the use of a transitions coach– can lead to impressive improvements in post-discharge care and decreased readmission and return-to-ED rates, few hospitals have put these interventions in place.” Yes, the lobbyists representing hospital trade groups will howl, but Wachter, who is a hospital administrator, is right.
Similarly, if health care reform provides financial incentives that steer patients and doctors away from exorbitantly expensive, ineffective and futile treatments, those disease advocacy groups that take contributions from drug companies will wail, but in fact, reformers are looking out for patients.
As for the fact that Baucus is postponing further work on the Senate Finance Plan until after the July 4 holiday— this is not a serious setback. We knew, all along, that hammering out health care reform would be, as Orszag puts it, a “process." That means that it will not proceed in a smooth straight line. Expect three steps forward, two steps back.That is how you make progress in a democracy. Last week, the headlines said Democrats were close to final agreement. It is not surprising that this week the pendulum had swung, and headlines were warning that reform is on life-support.
The headlines are correct in one sense: reform is not “inevitable.” This is not a Greek Drama where the final Act is written in the stars. As I have said all along, the battle will be fierce, and, in the end it will not be pretty.
Those who have been gouging the system will have to be be gored. Imagine a slaughterhouse with gobs of fat and pools of blood on the floor. But the White House understands that the alternative is to pour billions of tax-payer dollars into a $1.6 trillion dollar medical-industrial complex that, too often, provides profits for the industry, but no benefits for patients. This administration is too smart to let that happen. .