In the coming months, Congress and the President will face a number of important decisions with significant fiscal implications. Specifically, they must decide how to address “Sustainable Growth Rate” (SGR) cuts, which threaten to significantly reduce Medicare physician payments next April, and 55 “tax extenders” that expired at the end of last year.
If policymakers address these two issues irresponsibly, they could add up to $1 trillion to the debt over the next decade. Yet policymakers could also use these moments to make a down payment toward tax and entitlement reforms that slow health care cost growth, speed economic growth, and help put the debt on a sustainable long-term path.
To responsibly address the Sustainable Growth Rate, policymakers should:
- Permanently replace the SGR with a value-based payment system
- Fully offset any costs relative to current law
- Enact offsets that bend the health care cost curve and are gimmick-free
To responsibly address the expired tax extenders, policymakers should:
- Address most tax extenders permanently in the context of tax reform
- Fully offset the cost of any continued extenders without undermining tax reform
- Include a fast-track process to achieve comprehensive tax reform
There are many ways to achieve these goals. The Paying for Reform and Extension Policies (PREP) Plan represents one such approach. We assume, but don’t endorse, the Tricommittee SGR bill and two years of tax extenders and propose $170 billion of SGR offsets that bend the health care cost curve, $83 billion of extender offsets that improve tax compliance, and a fast-track process for tax reform. Offsets would total $250 billion over ten years.
Summary of the PREP Plan (Costs/Savings over Ten Years)
|Enact Tricommittee SGR Reform||$170 billion
||Extend "Tax Extenders" to 2015
|Reform Provider Incentives
||-$80 billion||Improve Tax Enforcement||-$35 billion|
|Reform Beneficiary Incentives||-$80 billion||Close Tax Avoidance Loopholes||-$45 billion|
|Reduce Medicaid Costs||-$10 billion||Restrict Inversions||-$3 billion|
|Total Offsets||-$170 billion||Total Offsets||-$83 billion|
|Set Up Fast Track Process for Comprehensive Tax Reform||TBD|
|Ten-Year Deficit Impact : $0|
Read the full paper below, or download a printer-friendly version here.
Achieving Real Savings through Better Care: Policy Options for Improving Care and Slowing Cost Growth through Bipartisan Delivery System and Payment Reform
New England Journal of Medicine | June 27, 2013
Despite high national spending, health care in the United States is uneven in quality and often wasteful, uncoordinated, and inefficient. Leaders on both sides of the political aisle, and in the health and economic policy communities, recognize the urgency of improving the quality and effectiveness of care while slowing the growth of spending. Far too often, however, attempts to address our national health and budget issues have been fragmented and unproductive, frequently owing to partisan disagreements over how to approach these highly sensitive issues.
We, the four leaders of the Bipartisan Policy Center Health Care Cost Containment Initiative, came together to bridge this divide — to start a constructive dialogue on strengthening the U.S. health care system. A strong health care system, a stable federal budget, and a productive economy are complementary, not competing, priorities. On April 18, 2013, we released a report entitled “A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment” (see the Supplementary Appendix, available with the full text of this article at NEJM.org), which describes a comprehensive, coordinated set of recommendations to improve quality, reduce waste, and control cost. We think that solely budget-driven efforts to achieve health care savings will fail; public and private health care savings must be an outgrowth of health reform, not the underlying reason for it. We believe our policy analysis and recommendations reflect this principle, as well as a growing convergence of thinking across a wide spectrum of stakeholders.
In the long term, we envision health care that is value-driven and coordinated through organized systems, rather than volume-driven and fragmented. These systems will be developed and will evolve through a process of innovation and improvement that is based on collaborative structures of care delivery and payment with accountability, coordination, competition, and patient choice. The tools and incentives built into these systems will ensure that patients receive high-quality, coordinated care across multiple settings. They will avoid unnecessary or redundant treatments and services, engage patients in decisions about their care, and pay physicians for the services that patients need and want — including increased time consulting with their doctors. Our recommendations seek to align efforts in the public and private sectors to promote high-quality, coordinated systems of care. Our Medicare reforms include steps toward greater coordination in care delivery and payment, such as shared savings, bundled payments, and competitively bid, capitated health plans.
We are convinced that reforming the U.S. health care system to prioritize quality and value over volume will not only improve health outcomes and the patient experience but also constrain cost and produce systemwide savings. If enacted, our policies would reduce the federal deficit by an estimated $560 billion over the next 10 years, including nearly $300 billion in Medicare savings, which includes the cost of a permanent fix to the sustainable growth rate (SGR) formula for physician payments and the cost of increased assistance to low-income beneficiaries.
Our initiative is unique in that we have brought bipartisanship to the table, dedicating nearly a year to reasoned negotiations to break through the partisan rhetoric surrounding health care. We sought policy options around which both sides of the political aisle could realistically coalesce, and we prioritized political and economic realities over discrete options that achieve budget savings in the near term. We have been encouraged by the responses to these recommendations from representatives of both political parties.
We would engage both beneficiaries and providers with incentives to pursue a more coordinated, accountable, and sustainable health care system. These recommendations span four broad categories: improve and enhance Medicare to create incentives for quality and care coordination; reform tax policy and clarify consolidation rules to encourage greater efficiency and competition; prioritize quality, prevention, and wellness; and encourage and empower states to improve care and constrain costs by means of delivery, payment, workforce, and liability reform. The recommendations described below are highlights from the report but are not an exhaustive list of all the issues addressed in our report.
Improve and Enhance Medicare
Recommendation: Promote quality and value through an improved version of accountable care organizations — Medicare Networks — that encourage providers to meet the full spectrum of their patients' needs. Replace the SGR formula for physician reimbursement and offer all Medicare providers strong financial incentives to participate in new payment models.
Our policies would engage beneficiaries in choosing the coverage that best suits their needs. In addition to fee-for-service Medicare and Medicare Advantage, providers within traditional Medicare would be able to form Medicare Networks. Beneficiaries could choose to enroll in a Medicare Network and would receive a premium discount if they did so. They and their providers could share in savings that result from greater quality and efficiency of care. We believe that these organized systems would provide patients and families with better, more coordinated care while reducing overall spending growth.
Beneficiaries would also be free to remain in an improved fee-for-service Medicare. Our report identifies inefficiencies, misaligned incentives, and fragmented care delivery in the current fee-for-service reimbursement system that have both undermined quality and increased costs. Fee-for-service Medicare would be modernized by means of a greater commitment to competitive bidding, bundling, and other reforms that make provider health systems more accountable and affordable.
To encourage providers to move from fee-for-service Medicare to Medicare Networks, we offer carrot-and-stick incentives. Full payment updates (based on the Medicare Economic Index, which reflects the cost of medical practice) would be available to providers who form or join Medicare Networks. Payment rates would be frozen at current levels for physicians who remain in fee-for-service Medicare and temporarily frozen for other providers who remain in the fee-for-service program. The SGR formula for physician reimbursement would be eliminated. For geographic areas of the nation that could not set up alternative delivery systems, the secretary of health and human services would be authorized to ensure adequate reimbursement levels to fee-for-service providers.
Recommendation: Establish a standardized minimum benefit for Medicare Advantage plans — including all services covered by traditional Medicare, a cost-sharing limit to protect against catastrophic expenses, and slightly lower cost sharing for services than in traditional Medicare — and pay plans with the use of a competitive-pricing system.
We also propose to bring market forces to bear on Medicare Advantage by implementing a competitive-bidding structure. Today, many Medicare Advantage plans compete for beneficiaries by offering extra benefits, leading to higher costs. We propose a more rational system, in which Medicare Advantage plans would bid on a standardized Medicare benefit package and compete on the basis of price. Thus, beneficiaries would be able to make clear comparisons and choose the plan that offers the best value. This system would be phased in over time and include transitional protections for beneficiaries. Competitively bid payments to plans would take effect only in regions where the payments are lower than those under current law. Therefore, this policy will guarantee savings for the Medicare trust funds in regions where the new competitively bid price takes effect. Initially, a portion of the savings would be allocated to finance a reduction in beneficiary cost sharing. To help beneficiaries navigate plan selection, we propose a user-friendly, up-to-date Medicare Open Enrollment website.
Recommendation: In 2016, improve and strengthen the traditional Medicare benefit structure for Parts A and B by simplifying existing deductibles and providing protection against catastrophic costs. At the same time, restrict first-dollar supplemental coverage, increase support for low-income beneficiaries, and reduce subsidies to higher-income beneficiaries.
We propose to improve the Medicare benefit by providing long-overdue protection against catastrophic costs. We also would offer a modernized cost-sharing design, including a single annual deductible and predictable copayments. Our proposal would ensure that beneficiaries could visit a doctor for a reasonable copayment, even before meeting a deductible. In addition, we would prohibit first-dollar supplemental coverage that leads to greater use of services without necessarily producing better outcomes. We pursue further balance by providing new, substantial cost-sharing support to approximately 8 million low-income beneficiaries while reducing federal subsidies for higher-income persons.
Reform Tax Policy and Clarify Consolidation Rules
Recommendation: Replace the “Cadillac tax” on high-cost health insurance plans with a limit on the income-tax exclusion for employer-sponsored health insurance.
We propose to target the limited financial resources of our nation on health care coverage and services that are valuable. The nation cannot achieve affordable care with an open-ended, overly generous subsidy for the purchase of private health insurance that predominantly benefits higher-income persons. The tax exclusion for employer-sponsored health insurance makes providing health benefits cheaper than paying cash wages, thereby encouraging high-cost benefit designs and blunting incentives to deliver care more efficiently. We propose to reform and rationalize the current tax exclusion for employer-sponsored health insurance and make it less regressive. We recommend replacing the flawed Cadillac tax on high-cost health insurance plans with a limit on the income-tax exclusion for employer-sponsored health benefits in 2015 at the 80th percentile of employer-sponsored–plan premiums. We also support replacing the current excise tax on fully insured plans with a paid-claims tax, to remove the current distortion that favors self-insured plans and to encourage all plans to adopt alternatives to fee-for-service payment.
Recommendation: Streamline and clarify the application of existing federal legal and regulatory guidance for private-sector entities seeking to form integrated, coordinated systems of care delivery.
Another strategy for aligning incentives to support high-quality, coordinated care delivery and payment is to ensure that private-sector payers and providers who want to form integrated delivery systems have clear guidance on how to do so without violating antitrust or fraud and abuse laws. We believe that guidance should be provided in this area and that there should be strong enforcement against consolidation that leads to anticompetitive behavior and to increases in cost.
Prioritize Quality, Prevention, and Wellness
Recommendation: Prioritize, consolidate, and improve the use of quality measures by consumers and practitioners.
Effective quality metrics are essential to accountability in organized systems of care. Quality-performance metrics must be precise and clinically relevant to create incentives for better delivery, to show providers how their performance relates to that of their peers, and to facilitate the real-time design and implementation of strategies to improve quality and safety. Quality metrics must also provide the meaningful data needed for patients and families to make informed choices. Although providers have pursued quality-metric design, evaluation, and reporting, as well as the identification of different quality metrics, the quality-reporting roles and responsibilities of organizations such as health plans and accrediting bodies are ill defined, leading to confusion and inefficiency. We would strengthen the quality-reporting system and the validity of available metrics by identifying redundant or inefficient metrics and by promulgating minimum requirements that are clinically relevant and useful to providers and also understandable and accessible to consumers.
Recommendation: Advance our understanding of the potential cost savings of prevention programs, by means of support for research and innovation on effective strategies to address costly chronic conditions.
We recommend exploring the potential of prevention in improving health and containing cost, as well as eliminating barriers to the wider implementation of preventive approaches, such as workplace wellness programs, that are found to be effective. Helpful strategies include support for better collection, analysis, and dissemination of data from prevention programs, and incentives that will engage small businesses in comprehensive worksite health promotion.
Encourage and Empower States
Recommendation: Adopt a broad strategy to deliver Medicare and Medicaid services to persons with dual eligibility through a single program.
The Medicaid program provides coverage to approximately 60 million low-income Americans, including pregnant women, low-income parents, children, and persons with disabilities. Approximately 9 million persons are dually eligible for both Medicare and Medicaid coverage. Persons with dual eligibility constitute a diverse population with many complex care needs. Historically, distinct federal law, regulation, program administration, and financing for Medicare and Medicaid have constrained opportunities to better integrate care between the two programs. We recommend that state and federal leaders work toward a more streamlined and coordinated approach to deliver care to persons with dual eligibility. In addition, we recommend several ways to strengthen demonstration projects that are currently under way for persons with dual eligibility.
Recommendation: Offer a federally funded financial incentive to states that enact reforms to the scope of practice for health professionals, medical liability systems, and insurance laws.
We support resources and incentives, rather than top-down mandates, to engage state leaders in supporting coordinated and accountable models of health care delivery and payment. To this end, we recommend policies to strengthen the primary care workforce and make greater use of nonphysician practitioners, to create safe harbors for physicians to improve the medical liability system and reduce the practice of defensive medicine, to address consolidation in the financing and delivery systems, and to promote price and quality transparency for consumers, families, and businesses.
We believe that the vision and recommendations articulated in our bipartisan report, if enacted together, would help to put our national health care system, as well as our economic outlook, on a more sustainable, healthful path for the future.
Project Syndicate | April 30, 2013
Over the last five years, the growth of health-care spending in the United States has slowed dramatically – to the lowest rate in the past 50 years. The slowdown is not a surprise. It is a predictable result of the recession and slow recovery that have left millions of Americans without health insurance and dampened household spending.
But the size of the slowdown is surprising, as is the fact that it started several years before the 2008 recession – and not only in the private insurance system, but also in Medicare and Medicaid, the two major government health programs. (Medicare provides health coverage for retirees, and Medicaid provides coverage for low-income Americans and their children and those with disabilities.)
What explains this slowdown in health-care spending? How much of it is attributable to the weak economy, and how much is the result of changes in provider and consumer behavior?
Two recent studies offer different answers, but both predict that at least some of the slowdown will persist even after the economy recovers. That would be good news for the US economy, which currently devotes nearly 18% of GDP to health care, by far the largest share among developed countries. It would also be good news for America’s fiscal position, because Medicare and Medicaid are the two largest contributors to the long-term federal budget deficit.
The growth of health-care spending declined or remained unchanged in real (inflation-adjusted) terms each year between 2002 and 2011, falling to 3-3.1% in 2009-2011, the lowest rates on record since reporting began in 1960. Recent data indicate that after a slight acceleration in 2012, the growth of real health-care spending in 2013 has fallen back to its 2009-2011 average.
As a result of the recession and lagging recovery, health-care spending has also slowed significantly since 2009 throughout the OECD. Indeed, for the first time on record, real health-care spending stalled on average in the OECD in 2010, as developed countries, reeling from budgetary constraints, clamped down on health programs. Growth in health-care spending was slower in every OECD country in that year, with the exception of Germany.
A new study by Drew Altman, a respected health-care expert and President of the Henry J. Kaiser Family Foundation, concludes that slower growth in real GDP, along with a lower inflation rate, accounts for more than three-quarters of the slowdown in health-care spending in the US after 2001. The weak economy has caused people to postpone consumption of health-care services and has encouraged states and employers to restrain their spending on health.
But important cost-containing changes in the private health-care system, including more cost-sharing in private insurance plans and tighter controls in managed care, have also contributed to the slowdown. Altman conjectures that, overall, the growth in health-care spending between 2008 and 2012 was about one percentage point lower than predicted by deteriorating macroeconomic conditions alone. If this reduction continues after the economy recovers – as seems likely, given the cost-containment incentives in the Affordable Care Act (commonly known as Obamacare) – the US stands to spend $2 trillion less on health care over the coming decade.
Based on the relationship between changes in real per capita health-care spending and changes in unemployment rates at the state level, the recent Economic Report of the President concludes that the recession and lackluster recovery account for less than 20% of the slowdown in health-care spending since 2007 – and for an even smaller share of the slowdown that began in 2002. And difficult macroeconomic conditions explain little (if any) of the slowdown in Medicare spending per enrollee since 2001.
That is not unexpected, because the largely retired Medicare population is less vulnerable to macroeconomic fluctuations than is the working-age population. The Council of Economic Advisers, whose members write the president’s report, surmise that structural changes – including stronger incentives for efficiency by hospitals and providers, more cost-sharing in insurance policies, and the substitution of generic drugs for branded drugs – explain most of the deceleration in per capita spending growth. They also suggest that payment reforms contributed to the slowdown in Medicare’s spending growth after 2001, and that early responses to new Medicare regulations in the Affordable Care Act may have caused a further decline after 2010.
The long-term effect on the federal budget implied by a sustained reduction in the growth of Medicare and Medicaid spending to the rates of the last several years would be profound. These programs currently claim 21% of the budget, with Medicare accounting for two-thirds of that amount. Even a small reduction in the growth of these programs would save billions of dollars. Based on the unexpected slowdown in spending growth during the last few years, the Congressional Budget Office recently cut its ten-year projections for these programs by 3.5%, reducing the ten-year deficit by $382 billion.
In 2011, Medicare spending accounted for 3.7% of GDP. Based on current policies, the government forecasts that Medicare spending per beneficiary will grow at an average annual rate of 4.3% and will rise to 6.7% of GDP over the next 75 years. If, instead, Medicare spending per beneficiary grew by only 3.6% a year, the average rate of the last five years, Medicare’s share of GDP would remain unchanged. This would narrow the fiscal gap, a widely used measure of long-term budgetary imbalance, by almost one-third.
Trends in the US budget reflect an inconvenient truth: If the growth of spending on health-care programs cannot be slowed, stabilizing the federal debt at a sustainable level will require deep cuts in spending on other priorities and increases in taxes on the middle class. The recent slowdown in the growth of health-care spending is a promising sign that America’s budgetary tradeoffs may turn out to be less difficult than expected.