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Health Reform Round Two: Cost Containment

The Committee for a Responsible Federal Budget reiterated an important point that can not be understated: Health Care Reform is a Continuous Process and Will Require Continued Vigilance from Policymakers. The legislation passed last week will eventually secure the long-sought goal of near-universal coverage, the moral imperative that was arguably the core of this year’s effort. But most recognize that the cost-containment methods are modest at best. Health reform round 2 will focus on this, because it must.

While the CBO predicts the Affordable Care Act will reduce the deficit ($154 billion by 2020, and $1.3 trillion in the second decade), CRFB recognizes that Medicare and Medicaid are still unsustainable and these savings are very vulnerable to repeal or watering down. The main drivers of deficit reduction (see graph below) are the excise tax and the Independent Payment Advisory Board, IPAB.

The excise tax (now delayed until 2018) is designed to put downward pressure on health spending by offsetting some of the effects of the employer provided insurance tax exclusion (which drives up costs). It does this by virtue of being indexed at general inflation, which is much lower than medical inflation, thus including more plans over time. Meanwhile, the IPAB will oversee Medicare cost growth and set savings targets in the program and suggest further reform. The authors note that the strengths of the two mechanisms are also the catalysts of opposition, but stress that they should not be weakened. The issue of the ‘doc-fix,’ or Sustainable Growth Rate (SGR) formula, was also removed from the legislation because of its high costs and will surely need to be addressed.

The CBO actually estimated the effect of health reform if it included a deficit-financed doc fix, a repeal of the excise tax and IPAB, and if insurance subsidies grew with the same formula after 2018 as before (under the current law, they are scheduled to slow after 2019). It’s not pretty.

The authors conclude that as this helps demonstrate, the very features that make these provisions difficult to sustain is also what makes them so important for bringing down costs. These provisions must be maintained or even expanded – rather than becoming victims of the political system. When policymakers move to “round two” of health care reform, they may need to start by revisiting some of the cost control proposals that were not included in the final package, including medical malpractice reform, broader cost sharing, and real reforms to the employer-sponsored insurance tax exclusion. Many important pilot programs in the legislation will offer important lessons as well, and comparative effectiveness research will indeed help guide needed value efficiencies.

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