Wednesday, March 24, 2010

Health Reform: Let the Reforming Begin

An unfortunate consequence of all the media focus on partisan health reform politics is that it masks the real work that needs to happen. The new law is a broad promise to cover the nation's uninsured without raising insurance premiums and without increasing the federal deficit. These are good goals, but hard to achieve.

To guarantee universal coverage the law requires everyone to buy or have qualifying health insurance, state governments to expand their Medicaid programs to cover more low-income people, health insurers to offer coverage to anyone who applies no matter how sick they are, and the federal government to offer subsidies to help the middle class afford insurance. So far so good, except perhaps that the penalty for not having health insurance is quite low. But if universal coverage were the law's only promise, its implementation would be a simpler matter.

Keeping the other two promises will be the real challenge because of the way universal coverage is structured and financed. For instance, when those who have been unable to obtain insurance because of pre-existing conditions join the pool of insured persons, premium costs for everyone will rise. The new law assumes that this will be offset by having more young and healthy persons insured, but the combination of a weak penalty for being uninsured and newly mandated premium discounts for older persons at the expense of others will price the young and healthy out of the market. Most of the new taxes that fund universal coverage are imposed on the health system itself, which is a new cost that will also raise prices. Private premiums will further rise through provider cost-shifting when the federal government ratchets down Medicare payments. Federal subsidy costs will rise along with private premiums. State costs for Medicaid will rise with expanded eligibility.

The only sure way to avoid the above scenario is to begin to do something about medical costs that typically rise at two to three times the rate of inflation. This is work that needs to happen. Otherwise, the currently insured, the states, and the federal treasury will foot the bill for universal coverage.


  1. The states are spooked over Medicaid. The Fed Gov will only cover the cost for the next 3 years. Then, the states are on the hook, and most of them are already out of cash. ATT took a 1 billion charge for anticipated health care reform costs. Does that sound like a job creater? Yikes! The only definite outcome I see is that costs will continue to rise.

  2. Good blog. Not surprisingly, I follow your posts and appreciate the clarity of your insights.

    So it seems we may have a new head of CMS. That's big news since CMS sets the baseline for provider reimbursement, for better or worse. See the NYT article link. The rhetoric sounds good. What would you suggest that he focus on to make a real difference?

  3. Michael: Unfortunately, I agree. The only possible way to avoid increased costs would be through a fully collaborative (and successful)effort to reduce medical trend.

    Dana: Thank you for the comment. Don Berwick was once a Harvard Community Health Plan physician and is someone well known in Massachusetts and nationally for his commitment to quality improvement and efficiency. The CMS job is a bit of a departure for him however. The challenges will be the same as they always are - how to focus on quality improvement in the face of a $60 trillion Medicare deficit (Do we think state insurance departments would allow Medicare to sell insurance in the private marketplace?) - how to deal with Medicaid and the states - how to have enough time for policy changes given the constant fire drill atmosphere and lack of staff at CMS - and most importantly how to keep Medicare from shifting costs to the private sector. Implementing health reform will be the major task. Good first steps would be to try to assuage the states' fiscal fears about the Medicaid expansion by taking a participatory and measured approach (i.e. start a process to listen to the states)and to have Medicare coordinate with providers and private health plans in an effort to lower medical trend. If Medicare unilaterally cuts payment rates or adopts new payment incentives, even if the objective is quality improvement, the result will be to cost-shifting to the private sector. Medicare is just too big a player in the health care marketplace to go it alone.

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