Economist Vs. Economist: Will Health Care Reform Lower Costs?

This month’s Health Affairs has sequential articles by David Cutler  and Douglas Holtz-Eakin  debating whether the health care reform bill will REALLY save money.  Cutler has been an advisor to the Obama campaign and the White House.  Holtz-Eakin was the director of the Congressional Budget Office, and was an advisory to John McCain’s Presidential campaign.

Cutler’s points:
1)       We can achieve a trend 1.5% lower than the current trend; we did it in the “managed care” era.
2)       The projected savings from health care reform increase in the second decade
3)       Administrative waste, clinical variation and medical errors are ripe for cost savings

Cutler argues that Medicare reductions will demand improved value from the health care delivery system.  He notes that bundled payments, accountable care organizations, pay for performance and better coordination can all improve care and lower costs. 

Holtz-Eakin’s points:
1)       We have a fiscal train wreck, with government spending out of control
2)       Tennessee had to reverse its broad coverage approach when TennCare proved vastly more expensive than expected; Massachusetts has maintained its high rate of insurance, but the cost has been far higher than expected.
3)       There are some unfunded provisions, including new dollars for the IRS to collect penalties, and $20 billion a year to avoid those 21% fee decreases for physicians under the Sustainable Growth Revenue targets, which have been reversed every year.
4)       We collect premiums for long-term community care in the early years, but that should be segregated to pay for benefits. (He notes the same concern about increased Social Security revenue projected by the CBO).

Holtz-Eakin and coauthor Michael Ramlet suggest that the federal government will likely back down on some Medicare fee decreases, and further suggests that the Feds will not collect the excise (“Cadillac”) tax at the projected levels.

Neither of these represents dispassionate analysis. Each represents a political point of view. Cutler might well be overoptimistic in some of his assumptions.  Holtz-Eakin and Ramlet appear to me to be overly pessimistic.  In fact, the physician fee decreases are the only Medicare cuts that Congress passed but that were never enacted. Here’s a link to a Commonwealth Fund  report showing that the CBO has historically underestimated cost savings from health care reform efforts.

I’m sure the actual financial results will fall somewhere between these two poles. The important thing to keep in mind is that the default of doing nothing was not viable.  Without action, we were likely to end up with premiums that were more and more unaffordable, and higher and higher portions of the GDP going to health care despite fewer people having benefits.   With health care reform, we have an opportunity to rethink health care delivery.   The bill as passed seems to me to be the “least bad” of many alternatives – including the alternative of not passing anything during this Congress.