At the December 2 Alliance for Health Reform briefing, "Inside Deficit Reduction: What Now?," a panel of experts with diverse perspectives discussed the potential impact on health policy of the failure of the Joint Select Committee on Deficit Reduction to reach agreement on a plan to reduce the federal deficit. The briefing was cosponsored by The Commonwealth Fund, Kaiser Family Foundation, SCAN Foundation, and Robert Wood Johnson Foundation.
The briefing was moderated by Ed Howard of the Alliance for Health Reform and the panelists were Katherine Hayes, J.D., of The George Washington University, Dan Mendelson of Avalere Health, Stuart Butler, Ph.D., of The Heritage Foundation, Len Nichols, Ph.D., of George Mason University, and Sheila Burke of the Bipartisan Policy Center.
The Budget Control Act
The Budget Control Act of 2011 raised the debt ceiling by $900 billion to avoid a government shutdown this past summer, in exchange for $1.2 trillion of promised deficit reduction over the next decade. The law enacted two strategies for achieving these savings. First, a 12-member bipartisan, bicameral Joint Select Committee on Deficit Reduction, known as the "super committee," was tasked with developing a plan that Congress could vote on by December 23, 2011. After more than a month of deliberation, the committee was unable to come to an agreement.
Katherine Hayes opened the briefing with an explanation of the second strategy of sequestration, which was triggered by the failure of the committee to find consensus. This provision of the Budget Control Act, which is to go into effect on January 2, 2013, would require $1.2 trillion in spending reductions split between defense and nondefense programs. The cuts would be applied to discretionary programs that must be appropriated each year by Congress and mandatory programs, such as Medicare, that do not require reauthorization.
Several mandatory programs are exempt from cuts through sequestration: Medicaid, refundable income tax credits, premium support for low-income individuals and families under the Affordable Care Act, Social Security, and other programs that support low-income individuals and families. While Medicare is not exempt, cuts to the program cannot exceed 2 percent. Programmatic cuts would be the largest during the first year of sequestration because it starts in the second quarter of the fiscal year.
Options for Spending Reduction
In the provocative discussion that followed Hayes' explanation, all of the panelists agreed that there is no historical precedent for across-the-board spending cuts of this magnitude, and that it is therefore unlikely that sequestration would be implemented in its current form. Instead, the panelists said they expected Congress would pass an alternative plan before the automatic cuts go into effect, perhaps during the lame duck session after the 2012 election. A range of ideas was offered on what Congress could do.
Dan Mendelson, who previously served at the Office of Management and Budget, pointed to the need for new payment structures to cover postacute and long-term care, the importance of coordinating care for low-income, elderly populations who are eligible for both Medicare and Medicaid, and a new approach to physician payments in Medicare that rewards quality and accountability. He acknowledged, however, that these types of reforms are difficult for the Congressional Budget Office (CBO) to score for savings, particularly in CBO's 10-year budget window.
Stuart Butler insisted that the only way to fix the immediate problem of federal budget deficits and growing long-term debt is by restructuring Medicare and Medicaid and setting strict budget caps. This process would allow for more predictive budgeting and guaranteed federal savings and, with a defined amount of federal money and fewer programmatic restrictions, could allow additional flexibility for states to run their Medicaid programs.
Len Nichols was wary of any solution that could shift more financial burden onto the states but was equally wary of implementing programs on a national level that have not been shown to produce savings. He called on state and private sector demonstration projects to meticulously record and report their results to speed the spread of delivery system innovations. He asserted that the problem is not the scoring procedure that CBO uses, but the need to produce better evidence upon which CBO can base scored savings related to new payment and delivery system approaches.
This led the discussion to an additional key theme: the importance of distinguishing between short- and long-term budget solutions. In the short term, the federal budget deficit must be addressed, probably requiring reduced program spending; in the long term, broader reforms are required that reduce the pressure that drives up health spending. Understanding this distinction is essential to finding an approach to deficit reduction.
Sheila Burke pointed to the need to find common ground despite fundamental ideological differences between the political parties about the relative importance of increased revenue and cuts in entitlement programs in reducing deficits and how and how much entitlement programs should be restructured. She referred to a recent article in the New England Journal of Medicine in which David Blumenthal, M.D., chair of The Commonwealth Fund Commission on a High Performance Health System, lays out the implications of various potential outcomes of the 2012 elections, which he believes will determine whether and how the Affordable Care Act is implemented. Burke pointed out, however, that there will be opportunities to find consensus on ways to reduce health care spending growth after the election.
When asked about the specific options for bending the health care cost curve, the panelists offered different but surprisingly complementary solutions. Len Nichols said that if financial incentives were realigned, savings from more-efficient care could be shared between payers and providers. He also noted that standardizing health insurance claims forms would help reduce costs. Dan Mendelson was not as optimistic, but said it would be possible to reduce costs in the short term by aggressively eliminating inefficiencies in public and private programs and moving toward quality-based payments.
Stuart Butler agreed with many points made by the other panelists, but felt that without decreased utilization and lowered provider payments, savings in one area would be offset by increases in others. Building on this idea, Sheila Burke stressed the importance of rethinking the responsibilities of health care professionals, such as utilizing providers like community health workers and case managers to improve care and reduce cost growth.
The panelists strongly agreed that all the major stakeholders in the health system understand that things need to change, but the challenge is to find a way to balance those changes so that spending growth slows, quality is improved, patients are protected, and everyone feels that they are contributing their share—but no more than their share—to the solution.
For more information, please visit the Alliance for Health Reform Web site: http://www.allhealth.org/briefing_detail.asp?bi=227