Health Care Reform Will Lower Long Term Medical Costs

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This image from The Washington Post

There has been a lot of blathering about how the new estimates from the CMS actuary show that health care reform will increase the cost of health care.   In fact, the Wall Street Journal's headline is "Health Outlays Still Rising".

Here's the commentary in the WSJ:

The report by federal number-crunchers casts fresh doubt on Democrats' argument that the health-care law would curb the sharp increase in costs over the long term, the second setback this week for one of the party's biggest legislative achievements.


The graphic above is from a pithy post by Ezra Klein of the Washington Post, who points out that there is a cost spike from providing subsidies to cover 10% of the population.  It's striking that in the out years (and that's what counts), the costs are lower under health care reform even with the near-universal coverage.


The costs are lower because of diminished provider payments, which will extend the life of the Medicare trust fund, as well as make it possible to cover most of the currently uninsured while lowering the federal deficit.    The reform bill is far from perfect - but is looking like a very good deal indeed. 

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Health Care Reform Will Save Medicare Costs

Today’s Managing Health Care Cost Indicator is $575 billion        

The Washington Post reports that the health care reform bill will

• -       Save $8 billion in 2011
• -       Add 12 years of solvency to the Medicare trust fund
• -       Save $575 billion over the next 10 years

Where is this money coming from?  For starters, Medicare will continue to increase in cost – just not as fast as it would have without the passage of health care reform.   The biggest losers (Modern Healthcare, registration required) 

• -       Hospitals and other providers  $205 billion
• -       Medicare Advantage plans $145 billion

The estimate suggests that care improvement will result in savings of $13 billion over 10 years.

This won’t solve all the problems in health care finance (and savings in Medicare could result in cost shift to other payers).  But this demonstrates that health care reform does begin to address the cost problem.

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RAND Cost Saving Estimates, August (MA) and November (US)

(Click on graphic to enlarge)
The Mass Division of Health Care Policy and Finance sponsored an impressive review by RAND researchers of potential cost-saving opportunities in Massachusetts, which was published in August. I blogged about this late this summer, and have always felt that this extensive analysis didn't get nearly enough attention.

The NEJM last week published an article by same RAND researchers extending this analysis to the rest of the country.

This remains an important study - and I'm glad to see an extrapolation getting new press.

I'm also intrigued by the differences in findings.

Hospital rate setting: Maximum savings in MA 4%; US 2%
Healthcare IT: Maximum savings in MA 1.8%; US 1.5%; Maximum increase in costs in MA 0.6%; in US 0.8%
Expand scope of practice for NPs and PAs: MA range savings 0.6%-1.3%; US 0.3%-0.5%
Medical home: MA maximum savings 0.9%; US 1.2%
Disease management:  MA maximum savings 0.1%; US maximum savings 1.3%

It makes sense that rate setting might be more effective in Massachusetts to the extent that prices are higher. In fairness, this might not be a 1:1 comparison since the NEJM lumps a few different options together.  Scope of practice savings might be different based on supply of physician and non-physician providers.  I'm surprised to see higher projections of savings for medical home, since our specialist:primary care ratio is high in Massachusetts.  I also can't explain why disease management would have so much higher projected maximum savings in the US overall compared to Massachusetts.

This analytic work is especially important as we consider what cost-control mechanisms should be included in health care reform.

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