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A Glimpse of Common Ground on Health Care Spending?

By John Reichard, CQ HealthBeat Editor

August 16, 2006 -- Could Republicans and Democrats actually be listening to each other when they discuss how to tackle the growing national headache of rising health care expenditures? Remarks last week by economists of varying political persuasions fueled suspicions that might be the case.

Albeit it was a highly limited sample, three current or former members of the White House Council of Economic Advisors discussed the issue at a meeting sponsored by the American Risk and Insurance Association in terms that suggest the coming national debate over health care entitlement programs might be less hidebound than in years past.

Absent was the usual pattern of Republicans talking about chopping entitlements without addressing the impact on health care and of Democrats emphasizing the need to protect health status while saying little about how to cope with costs.

On the one hand, former Clinton adviser Peter Orszag talked about how "we could be wasting a lot of money" in Medicaid in the absence of standards of personal responsibility in the program. Orszag also talked about changing the way employer-provided health insurance is taxed, an idea identified more often with Republicans seeking to make individual consumers more sensitive to health care costs.

On the other hand, Bush economic adviser Katherine Baicker pointed to European health care as a measuring stick for the performance of the U.S. health care system, suggesting that the American system is sorely wanting in efficiency. And former Bush adviser Douglas Holtz-Eakin stressed the importance of ensuring the debate isn't just about dollars. "The worst way to do health care reform will be to cut the federal budget and just make sure we don't spend money," he said.

Their remarks come when the new Treasury Secretary, Henry M. Paulson, has named control of entitlement spending as one of his priorities and when the White House is increasingly talking about reining in Medicare spending.

If those efforts are going to go far, they may need to emulate the relatively nonpartisan tone of the Aug. 8 panel discussion.

Quality Versus Quantity
Baicker, a recently appointed member of the White House Council of Economic Advisors, helped set that softer tone by saying, "I would be much less concerned with how much money we're spending on health care if I thought that we were getting our money's worth."

Leading GOP advisers aren't known for comparing the United States unfavorably to European and other nations, but Baicker didn't shy away from noting findings that the United States spends more on health care than other nations, in some cases without better treatment results.

"We spend more than twice as much of our [gross domestic product] on health care as our comparable trading partners in the OECD [Organization for Economic Cooperation and Development], and it doesn't seem as though our health outcomes are twice as good," she said.

"In fact, our rate of health care spending is increasing just as quickly as theirs, so it's not that we've reached some plateau before they have. We're growing just as quickly, and we're starting out at a much higher level."

"There's ample evidence that our dollars could go further if you look at international comparisons," she summarized.

Baicker also emphasized that there are big geographic variations in spending within the United States with no apparent payoff in higher quality in higher-spending regions. The Medicare Payment Advisory Commission (MedPAC) has identified the elimination of such variations as a potentially fertile source of savings for Medicare, but academics more than politicians talk about the promise of ending those variations.

"There is dramatic variation in how much we spend per Medicare beneficiary," Baicker commented. "We spend more than twice as much for a Medicare beneficiary in Miami as we do in Minneapolis, even after you take into account age differences, gender differences, other demographic differences, even illness differences," Baicker said.

"They don't start out sicker. They don't end up healthier. And in fact they don't even report that they're happier with their health care. So it's really unclear what it is we're buying with those extra dollars. The areas where we are spending more money per Medicare beneficiary, they are less likely to get what is fairly universally acknowledged to be higher-quality care."

Beneficiaries in higher-spending areas use many more specialists, see many more physicians in general, and spend much more of their last six months of life in the intensive care unit, she said. "Each of those specialists that they see may be less likely to ask, 'Gee, did you get your flu shot? When was your last mammogram?' "

"It's a failure of coordination of care," Baicker continued. "So if we were to find a way in the Medicare program to coordinate care for their patients better, we might spend less" and patients would quickly be getting higher-quality care, she said.

Orszag, now a researcher at the Brookings Institution, agreed, "we spend a lot of extra money for things that don't bring significant health benefits." "That is the opportunity," he added, "because it suggests that we can constrain health care cost growth in ways that don't actually, materially, adversely affect health outcomes." Orszag also agreed that paying higher rates to higher quality providers who follow best practices "is part of the way forward."

Orszag also noted "West Virginia and some other states have moved toward a compact of personal responsibility in exchange" for certain Medicaid benefits—something he said should be explored. "Basically, you need to take steps to take care of yourself and actually show up for medical appointments and vaccinations and what have you, and in exchange, we'll provide health care. In the absence of the personal responsibility component, we could be wasting a lot of money."

Orszag also said that changes in taxation of employer-sponsored coverage should be considered. He noted that the current system gives higher-income Americans bigger tax breaks for the health benefits they get at work. Instead, a refundable tax credit should be considered for health care that doesn't favor higher-income Americans, he said.

Differences in Opinion
But fundamental differences remain in approaches to controlling spending. Orszag and Baicker parted company, for example, on the value of health savings accounts. Baicker said that the way employer-provided health care is taxed discourages people from comparing costs. She complained that if one buys a health policy that covers catastrophic costs with routine care paid out of pocket, routine care is paid with post- rather than pretax dollars. Traditional employer-provided insurance funds routine care with pretax dollars and discourages people from comparing costs, she said.

"If we had health care insurance that looked like other kinds of insurance, we would pay for routine care out of pocket and there would be no tax penalty for doing so," she said.

Baicker suggested that people might choose more efficient care under such a scheme. But Orszag said that approach would discourage people from getting important preventive care and would have limited impact on spending because so much of the nation's health care spending—80 percent, according to Orszag—goes to pay for services purchased above the deductible amounts of catastrophic coverage plans.

But Baicker said her calculations show that closer to 50 percent of health care spending is above the out-of-pocket maximums set by catastrophic coverage plans.

Holtz-Eakin stated that ending health care programs "is not a solution." "Instead, we have to make some fundamental policy decisions in the United States about the degree to which we want to continue to have pay-as-you-go social insurance-style systems, versus systems that look more like self-insurance," with prefunding and individuals responsible for their own end-of-life costs.

"To the extent that we move toward the prefunding model, it will help with our national savings, it will help with the ability to fund a standard of living that's satisfactory for our children, but it will come at the expense of exposing us to more risk at the individual level and we need to decide as a nation where we stand on that."

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