Must Revisit Obamacare
by John C. Goodman and Devon Herrick
Issue 216– November 28, 2012
Regardless of whether they are supporters or opponents of the Affordable Care Act (ACA, or ObamaCare) members of Congress will have to revisit the legislation soon to correct some serious flaws. Over the next 10 years, more than half the cost of ObamaCare ($716 billion) is to be paid for by reduced Medicare spending. The Obama administration had hoped to achieve these reductions by increased efficiency, based on the results of pilot projects and demonstration programs.
The problem: The Congressional Budget Office (CBO) has said in three consecutive reports that these projects are not working as planned and are unlikely to save money. If the necessary savings do not materialize, the Independent Payment Advisory Board, a bureaucracy established by the ACA, has the power to reduce doctor and hospital fees to such an extent that access to care for the elderly and disabled will be severely impaired. Thus, it is imperative to delay the scheduled Medicare cuts.
There is also a reason to delay the starting date for offering subsidized coverage for uninsured nonseniors through state-run health insurance exchanges: almost no state is ready for the scheduled 2014 opening of the exchanges and a majority have not even tried to get ready.
The facts are these. Over the past two decades, Medicare has conducted demonstration projects for disease management and care coordination, and for value-based payment. Disease management and care coordination demonstrations consisted of 34 programs that were designed to save money by reducing hospitalization. The CBO found:
– On average, the 34 programs had little or no effect on hospital admissions.
– In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program.
– There were four value-based payment demonstration programs under which Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries. The CBO found that “only one of the four…yielded significant savings for the Medicare program” and in that one Medicare spending only “declined by about 10 percent.”
These findings are consistent with private sector studies as well as the experience in other countries. The latest survey of the academic literature found that report cards on hosptial quality don’t improve quality and they may do more harm than good. The latest study of provider pay-for-performance initiatives found these don’t work either. In addition, the most recent results show no reason to be hopeful about Accountable Care Organizations established under the health reform law, and the most recent survey of all the academic literature found that electronic medical records don’t improve quality or reduce costs. Even when they work, Medicare pilot programs are often not applicable to every doctor and hospital across the country. One reason: what works for one group of doctors and hospitals may not work for another.
Scholars associated with the Brookings Institution identified 10 of the best hospital regions in the country and then tried to identify common characteristics that could be replicated. There were almost none. Some regions had doctors on staff. Others paid fee-for-service. Some had electronic medical records. Others did not.9 A separate study of physicians’ practices found much the same thing.10 There were simply not enough objective characteristics that the practices had in common to allow an independent party to set up a successful practice by copycat alone.
Then what? When nothing else works, ObamaCare has a fall back mechanism: reduce fees paid to doctors and hospitals. Yet the Medicare actuaries tell us that squeezing the providers in this way will put one-in-seven hospitals out of business in the next eight years, as Medicare fees fall below Medicaid’s. As Harvard University health economist Joseph Newhouse predicts, senior citizens may be forced to seek care at community health centers and in the emergency rooms of safety net hospitals, just as Medicaid recipients do today.
Consider people reaching the age of 65 this year. Under the ACA, the average amount spent on these enrollees over the remainder of their lives will fall by about $36,000 at today’s prices. That sum of money is equivalent to about three years of benefits. For 55 year olds, the spending decrease is about $62,000 — or the equivalent of six years of benefits. For 45 year olds, the loss is more than $105,000, or nine years of benefits.
In terms of the sheer dollars involved, the planned reduction in future Medicare payments is the equivalent of raising the eligibility age for Medicare to age 68 for today’s 65 year olds, to age 71 for 55 year olds and to age 74 for 45 year olds. But rather than keep the system as is and raise the age of eligibility, the reform law instead tries to achieve equivalent savings by paying less to the providers of care.
What does this mean in terms of access to health care? In most places around the country Medicaid patients already have extreme difficulty finding doctors who will see them. In a few more years seniors will have even greater access problems than welfare mothers on Medicaid. Once admitted, they will certainly enjoy fewer amenities (no private room, no meal choices and no cable TV perhaps), as well as a lower quality of care. We will have a two-tiered health care system, with the elderly getting second class care.
Finally, the state exchanges are not ready. Beginning in 2014, state health insurance exchanges are supposed to be up and running for individuals and families who lack access to health coverage through their job and do not qualify for Medicaid and other public programs. Up to a certain income level, the health insurance will be subsidized by the federal government. But more than one-third of states — 16 — have done almost nothing to prepare for the 2014 scheduled opening of the state-based exchanges. Another 20 states have made some progress but not enough. Health insurance exchanges will require significant investments in information technology. However, cash-strapped states are hesitant to spend scarce cash.
A two-year delay in implementing coverage expansion provisions would protect seniors for five years from the inevitable rationing that will occur once the cuts to Medicare provider fees take place. In the interim, Congress could consider a slew of reforms that will work — by empowering patients, freeing doctors and allowing competition in the market place. The net effect of both measures on the deficit would be a small surplus of $16 billion over 10 years.
Bottom line: Delaying the start of these two major provisions will protect seniors, save taxpayers money and allow lawmakers time to enact health reforms that actually work.
John C. Goodman is president of and Devon Herrick is senior fellow at the National Center for Policy Analysis.