Two Different Takes on Bending the Health Care Cost Curve

Today, The New England Journal of Medicine published an interesting contrast of health proposals from leading health policy experts representing the Center for American Progress and the American Enterprise Institute. As you can imagine, the approaches to cost-control differed at times, but the two plans shared many of the same goals and targets for health reform. Along with CRFB's recommendations, the two papers provide many options to deal with what has the potential to be a huge strain on our federal budget.

CAP's plan involved a number of steps to change provider and user incentives with regards to health care. Their big proposal is to have states set a global target growth rate for per capita health care spending (similar to what Massachusetts passed this week). Both public and private insurers in each state would negotiate payment rates for providers to adhere to that target, which would be binding for all payments made in that state. They recommend that an independent council composed of different participants in the health care market set and enforce the targets and that grants be made available to states to carry out the system.

Beyond this global budgeting system, CAP has a number of other recommendations, including:

• Accelerating alternatives to fee-for-service through policies such as bundled payments
• Using competitive bidding for health care equipment
• Requiring health insurance exchanges to offer "tiered products" whose benefit packages vary in generosity based on their cost effectiveness
• Requiring health insurance exchanges to be active purchasers, leveraging their bargaining power to obtain lower premiums and more cost-effective care
• Simplifying administrative systems by requiring the exchange of information be done electronically
• Requiring full transparency of prices for easier comparison of insurers and providers
• Making better use of nonphysician providers such as advanced nurse practitioners
• Expanding the Medicare ban on physician self-referrals
• Reforming the Federal Employees Health Benefits Program to align with Medicare on payment methods and quality assurance
• Reducing the cost of defensive medicine by establishing a safe harbor where physicians will have no liability if they follow clinical guidelines

A competing AEI paper by Dr. Joseph Antos, Dr. Mark Pauly, and Dr. Gail Wilensky had a similar approach but relied more on incentives and competition to control costs. Contrary to the CAP paper, the authors reject the idea of a global budget, instead opting for premium support. Under this model Medicare would adopt a fixed subsidy that would allow similar private plans to compete with traditional Medicare. More expansive coverage would be available if beneficiaries were willing to pay the higher premiums.

Other AEI recommendations included:

• Combining deductibles in Part A and Part B into a single deductible
• Better payment methods for traditional Medicare including bundled payments to hospitals, redefining physician payments, and expanding competitive bidding.
• Creating a high-option Medicare Plan
• Applying limits on Medigap coverage and helping beneficiaries get better information on full cost of plans
• Giving Medicare greater autonomy by subdividing into regional fee-for-service plans to promote innovation and reduced cost
• Eliminating the tax exclusion for health insurance while providing greater support to lower incomes
• Easing restrictions on health insurance exchanges
• Reforming medical liability system

While the two approaches may differ, there are also many features that they have in common. Both plans expand competitive bidding, include medical liability reform, and use alternatives to fee-for-service payments. It's also worth noting that policymakers do not have to pick between one set of ideas of the other; rather, a combination of CAP's and AEI's proposals could be the most effective in dealing with rising costs.

While the experts may disagree on how we should best control health care costs, there can be no disagreement that something will need to be done. All ideas must be on the table if we are going to be successful in controlling our federal debt and gradually reduce it.

Click here to read our paper on controlling health care costs.