Thursday, September 13, 2012

Bipartisan Health Care Cost Control By Diktat: Insurers or Providers or Both

According to the Kaiser Foundation, health care costs are continuing to go up. Assuming Uncle Sam is doing everything he can to "increase efficiency" and "reduce waste," what are the options that can quickly control costs?

It's simple: leverage the insurance companies or the providers or both.

1. Tell the insurance companies what they can charge: While the ability of the Feds to regulate insurance remains murky, the Affordable Care Act enables CMS to require that insurance companies "justify" a premium increase of 10% and keep their administrative costs below 15%.

What is less appreciated is that the Medicare premium support plan being championed by Republican Paul Ryan is a variation of this same strategy. Thanks to a voucher that is indexed to the rate of inflation, insurance companies would be essentially told what they can charge for the bulk of their insurance. If the health insurers need to charge more, they'll have to wrestle that out of the beneficiary.

2. Tell the providers what they can charge: For an excellent example of this at the state level, check out this article in JAMA that describes Massachusetts's just-passed law that aims to control the Bay State's $9278 per capita health spending. Large providers (with more than 15,000 patients or $25 million in revenue) are now subject to cost controls that are tied to the state's inflation rate.  Enforcement mechanisms will include "performance plan" reviews for violators, public reporting and the threat of civil penalties.

Of course, Medicare's fee schedule functionally dictates what providers can charge for their services at the federal level, but up until now, Congress has been unwilling to leverage that. While a softer and gentler approach of "upside risk arrangements" and "global fees" are being developed, the paranoid DMCB suspects that they'll be ultimately calculated to cover a predetermined charge that is supplemented with a small profit margin.

While Democrats and Republicans have been supportive of a limited number of options ultimately reflecting their ideology, the DMCB predicts that, over time and with a worsening fisc, both parties will converge on using all of the options described above.  That's because they'll have no choice.

Heluva way to achieve bipartisanship, but there you go.

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