Finding Resources for Health Reform and Bending the Health Care Cost Curve

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In February 2009, President Obama sent his first budget to Congress. The budget outlined the new Administration’s priorities for health reform:

  • protecting families’ financial health;
  • ensuring that health coverage is affordable;
  • aiming for universality in coverage;
  • providing portability of coverage;
  • guaranteeing consumer choice;
  • investing in prevention and wellness;
  • improving patient safety and the quality of care; and
  • maintaining long-term fiscal sustainability.

Consistent with the president’s belief that health reform should be financially sustainable, he included a $634 billion reserve fund to advance reform over the next decade, 2010–19. The budget proposal builds on the $150 billion investment included in the American Recovery and Reinvestment Act (ARRA, or economic stimulus package) enacted in February 2009.

In a departure from the past, the Administration has left the details of the health reform legislation to Congress, looking largely to the committees of jurisdiction to develop legislation consistent with its goals. The Administration has set an ambitious timeline—calling for action on legislation during its first year.

This report examines several policy options that could improve the value of the nation’s investment in the health care delivery system and help finance federal support of coverage expansions. To illustrate the importance of the structure and details of the policy options, it presents a range of estimates from three different sources: 1) estimates prepared for The Commonwealth Fund by the Lewin Group and published in a recent report, The Path to a High Performance Health U.S. Health System (the Path report); 2) estimates by the Office of Management and Budget (OMB) for the president’s budget proposal, the economic stimulus bill, and additional savings proposed in June 2009; and 3) estimates by the Congressional Budget Office (CBO). The discussion and comparisons focus on policy options that were examined by the three sources. All estimates consider the potential impact over 10 years, 2010–19.

The estimates of the potential impacts different policies would have indicate that there is potential for significant gains. As shown in this report, the available estimates differ primarily in terms of the scope of the policies and particular elements of the proposals.

As the health care reform debate unfolds, it will be important to keep in mind that there are various options for financing the necessary federal investment and stimulating change throughout the care system. The challenge will be building consensus to move forward and implement policies that have the potential to simultaneously address health care access, quality, and costs.

Comparing the Budget Impact of Select Policy Options

Changes to Medicare Advantage

  • OMB budget estimate: $175 billion federal savings
  • CBO estimate: $157 billion federal savings for setting benchmark at local fee-for-service rates; $158 billion federal savings for competitive bidding
  • Path estimate: $135 billion federal savings

Achieving Lower Drug Costs in Public Programs

  • OMB budget estimate: $104 billion federal savings
  • CBO estimate: $110 billion federal savings
  • Path estimate: $93 billion federal savings, $62 billion total health system savings

Bundle Payments for Hospitals to Include Post–Acute Care and Productivity Adjustments in Medicare Updates

  • OMB budget estimate: $26 billion federal savings for bundling acute and post-acute care payments, $110 billion federal savings for incorporating productivity adjustments into Medicare updates 
  • CBO estimate: $19 billion federal savings for bundling acute and post-acute care payments, $102 billion federal savings for incorporating productivity adjustments into Medicare updates  
  • Path estimate: $123 billion federal savings, $182 billion total health system savings

Changes to Home Health Reimbursement

  • OMB budget estimate: $37 billion federal savings
  • CBO estimate: $50 billion federal savings
  • Path estimate: Not available

Modify Updates for Non-Acute Care Facilities

  • OMB estimate: Not available
  • CBO estimate: $24 billion federal savings
  • Path estimate: Not available

Hospital Pay-for-Performance

  • OMB budget estimate: $12 billion federal savings
  • CBO estimate: $3 billion federal savings
  • Path estimate: $43 billion federal savings, $55 billion total health system savings

Patient-Centered Medical Homes

  • OMB budget estimate: Not available
  • CBO estimate: ($6 billion federal budget)
  • Path estimate: $83 billion federal savings, $144 billion total health system savings

Primary Care Payment and Physician Payment Reform

  • OMB budget estimate: Not available
  • CBO estimate: $5 billion federal savings
  • Path estimate: $23 billion federal savings, $56 billion total health system savings

Health Information Technology

  • ARRA estimate: $13 billion federal savings
  • Path estimate: $70 billion federal savings, $180 billion total health system savings

Comparative Effectiveness Research

  • ARRA estimate: Not available
  • CBO estimate: ($1 billion federal budget), $8 billion national health expenditures
  • Path estimate: $174 billion federal savings, $480 billion total health system savings

High-Cost Area Update

  • OMB budget or ARRA estimate: Not available
  • CBO estimate: $51 billion federal savings
  • Path estimate: $100 billion federal savings, $177 billion total health system savings

Reduce Subsidies to Hospitals for Treating Uninsured as Coverage Increases

  • OMB estimate: $106 billion federal savings
  • CBO estimate: Not available
  • Path estimate: $9 billion federal savings in 2010 alone, 10-year estimate not available

Manage Physician Imaging

  • OMB estimate: Not available
  • CBO estimate: $1 billion federal savings for requiring prior authorization for imaging, $3 billion federal savings for increasing the equipment utilization factor in payment updates
  • Path estimate: $23 billion federal savings, $29 billion total health system savings

Reduce Waste, Fraud, and Abuse

  • OMB estimate: Not available
  • CBO estimate: $0.5 billion federal savings
  • Path estimate: Not available

Select Population Health Options

  • ARRA estimate: Not available
  • CBO estimate: $205 billion federal revenues (2009–18 period)
  • Path estimate: $247 billion federal savings, $583 billion total health system savings

Downloads

Publication Details

Publication Date:
July 2, 2009
Authors:
Rachel Nuzum, Stephanie Mika, Cathy Schoen, Karen Davis
Citation:

R. Nuzum, S. Mika, C. Schoen, and K. Davis, Finding Resources for Health Reform and Bending the Health Care Cost Curve, The Commonwealth Fund, June 2009.


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