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Report Suggests Reform Bills Will Cost Less Than CBO Projects

By December 24, 2009Commentary

Proponents of health reform rely not only on the ethical reasons for expanding health coverage, but claim greater access will lower health costs.  CBO and the CMS Office of Actuary have rejected this notion.  Researchers sponsored by the Commonwealth Fund and the Center for American Progress Action Fund reach a different conclusion in a new issue brief.  (Commonwealth Brief) They find that the bills would save $683 billion and slow the growth rate from 6.4% to 6% over ten years.

The brief initially acknowledges that covering more people will likely increase health spending significantly, but claims that CBO and others are underestimating the effect of provider payment reforms and cuts.  To the CBO estimate of savings they add $160 billion in reduced administrative expenses and $530 billion from “health system modernization.”  No real evidence is given for either estimate.  In the case of administrative savings, it is based on the notion that enhanced competition and greater scale will force coverage administration costs down.  Forcing administrative costs down usually means health care costs go up, because a lot of that administration is aimed at managing utilization and provider payments.  Medicare is a great example of a program with low administrative costs and no health cost management, except provider payment reductions by fiat.

Health system modernization refers to payment changes like bundling, more wellness, etc.  The brief takes the largest guess about potential savings, shaves it a little and assumes all these measures would be in place by 2012 across the entire system.  That is simply not going to happen.  Overall the researchers justify their findings by saying that while there are no peer-reviewed, carefully controlled trials supporting them, there is an equally important body of work that does, largely essays about how inefficient our system is and how it could be so much better.  It is discouraging to watch supposedly informed researchers create an advocacy piece masquerading as an issue brief.

Massive pieces of legislation, particularly one as ill-understood as this one that was cobbled together Frankenstein-style, always have unexpected and unintended consequences.  One of the consequences of this legislation which is fairly predictable is that everyone in the system has a major incentive to raise prices before the various parts of the bill become effective.  This is what the drug makers did before Medicare Part D began.  In the face of uncertainty, having more revenue before insurance and payment reforms and coverage mandates kick-in is rational.  The next couple of years will likely see an uptick in the cost trend, one that will make this legislation cost far more than currently projected and that will create even greater public dissatisfaction with the “reform”.

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