Democrats want to cut our health-care budget. Here’s how they’ll do it.

August 1, 2012

"While we applaud the work of the Affordable Care Act ... we think there's still more to do," says Center for American Progress President Neera Tanden. (Marvin Joseph/The Washington Post)

On a chilly January day, dozens of top health policy experts sat down at the Center for American Progress' office for a four-hour meeting. It was only weeks after the Super Committee's failed deliberations and the ensuing sequester. With all the talk of deficit reduction, health-care cuts seemed inevitable.

That left this group of former Obama officials, university professors and industry leaders to answer one question: Which policies could reduce health-care costs without harming patients?

The Affordable Care Act takes some steps in that direction, changing how doctors get paid and reducing payments to some Medicare plans. As health-care costs continue to grow, however, there's a growing recognition that more cuts will be necessary.

"The basic thinking was that there's going to be another round of deficit reduction," says Bob Kocher, a former Obama adviser who attended the meeting. "As much as it pains us to say that, we should be coming up with ideas for the right cuts. We had a bunch of flip charts, whiteboarded it out and then voted on which ideas to approve."

They agreed on 11 ideas, all now published in a new New England Journal of Medicine paper. Taken together, the paper from 23 co-authors — including many who previously worked in the Obama administration — represents a liberal alternative to Republican budgets. The goal was to cut health-care costs without shifting them onto patients: Rep. Paul Ryan's (R-Wis.) budget, for example, would have seniors spending significantly more on their own Medicare benefits than the current scenario, according to the Congressional Budget Office.

"We agree with everyone who says that health-care costs are a challenge," says CAP President Neera Tanden. "People seem to feel the need to prove their commitment to deficit reduction by shifting costs onto Medicare consumers. We believe there are better ways to do that."

Their biggest proposal: Encouraging states to set a global target for health-care spending, leaving private industry to negotiate the rates that would get them to meet that goal. The rates would, theoretically, be lower than what gets paid right now — and a lot more standardized, too.

"Under a model of self-regulation, public and private payers would negotiate payment rates with providers," the paper suggests. "Those rates would be binding on all payers and providers in a state."

What could could get doctors on board to bargain down their own salaries? The authors here suggest that the federal government offer grants to lure states into launching such an initiative. Tandeen suggests that employers could also become a big downward pressure on health-care costs here. "There should be an incentive for the payers because they would like to reduce costs," she told me in an interview.

The paper also calls for moving away from Medicare's fee-for-service system, which reimburses Medicare doctors for each procedure they perform, to one that pays for quality metrics. They want to see fast movement, with 75 percent of Medicare payments moving out of fee-for-service within the next decade, and also encourage the Federal Employees Health Benefits Program — which covers millions of federal workers — to move in the direction.

The group also suggests one way to tackle the costs of defensive medicine: Providing "safe harbor" to doctors who adhere to evidence-based, clinical guidelines. That does tackle one policy area often of concern to Republicans, albeit it with a different strategy. They tend to look towards policies that cap the damages that patients can collect.

Some of the rest of the proposals — simplifying administrative systems and increasing transparency of medical prices — are likely to feel familiar to the health policy crowd. Others are specific to implementing the health-care law, such as how to set up the health insurance exchanges to ensure that they have the lowest possible premiums.

The goal for all of them, authors say, is to show policymakers how to make the health-care system more efficient, eliminating the need to push costs onto patients altogether.

"We know we're going to have another level of Medicare debate," Kocher says. "We want to be proactive, think of the strong policies to bend the cost curve and put those down on paper. Now we can invite Republicans and anybody else really, to build on these ideas and turn them into good policy."

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