October 20, 2011

Hard times continue for the Affordable Care Act (a.k.a. Obamacare). The administration has scrapped the law’s long-term care insurance program covering nursing homes and home health care. The program was deemed unrealistic. This is a harbinger. As the law is implemented — assuming the Supreme Court doesn’t declare it unconstitutional or Republicans don’t repeal it — disappointments will mount.

Nursing homes are expensive; typical costs can run up to $80,000 per patient annually. Home health care averages almost $22,000. The Affordable Care Act (ACA) mandated that the Community Living Assistance Services and Supports (CLASS) long-term care program be self-sustaining. Private insurance premiums would cover costs without government subsidies. Impossible, the administration found.

Premiums would be high, at least $235 a month and perhaps as much as $3,000. People wouldn’t sign up, and those who did would be very sick. Huge deficits would eventually emerge. Maybe CLASS supporters cynically hoped the administration would justify artificially low premiums. Government would then have to cover the ultimate shortfalls or throw thousands of elderly into the streets. The administration wisely rejected that path.

This setback heralds others. Controlling health spending was a major promise. After all, it’s called the Affordable Care Act, and boosters argue that it will subdue runaway spending. It almost certainly won’t. One prominent skeptic is Arnold Relman, the former editor of the New England Journal of Medicine.

Writing in the New York Review of Books, Relman says that “the law does very little or nothing to address some of the most important causes of the high cost of care and its rapid inflation.” Note: Relman isn’t a conservative crank. He’s a critic of insurance companies and advocates a single-payer, government-run health-care system.

The ACA, Relman writes, doesn’t alter fee-for-service reimbursement that gives “all physicians strong financial incentives to provide more services than needed.” The resulting “fragmentation of medical care,” he adds, “ . . . allows specialists to practice in isolation without restraints on cost, causes duplication and disorganization of services, and discourages the use of primary care physicians.”

Relman is unimpressed with the ACA provisions intended to control costs: for example, the Independent Payment Advisory Board (IPAB), a group of 15 experts who would recommend changes if government health spending rose too rapidly.

“However, the law stipulates that the IPAB cannot reduce Medicare benefits or increase Medicare premiums, and it defers any proposed reductions in payments to hospitals for a few years,” Relman writes. The board would mainly cut Medicare reimbursement rates for physicians, he says. But doctors could “easily” offset these cuts “by providing more services, such as performing more diagnostic tests.”

Relman also dismisses “accountable care organizations” that supposedly save money through coordinated care by doctors and hospitals. The regulations governing such organizations will be so complicated that there won’t be many of these groups, he writes.

“Restructuring the delivery of medical care” is essential, Relman says. He takes hope in the growth of multi-specialty groups that include primary doctors and specialists. Nearly 200,000 doctors, about a quarter of practicing physicians, now belong to these groups, he says. On paper, they can better control costs by limiting duplication, fostering cooperation and eliminating wasteful services. But this isn’t likely as long as fee-for-service prevails.

Something needs to force change. Republicans have a strategy. Rep. Paul Ryan (Wis.) would convert Medicare — the nation’s largest insurance program — into a voucher system. Medicare beneficiaries would receive a fixed amount and would shop for the most appealing health plan that their money would buy. Government spending would be limited by the size of the vouchers. To attract patients, doctors and hospitals would be compelled — so the theory goes — to combine in ways that lowered costs and improved quality. Through tax credits, the same approach would apply to the under-65 population.

Relman’s solution is not entirely dissimilar. He would replace fee-for-service with an annual per-patient payment to doctors who would be responsible for the patient’s “comprehensive care.” Both Ryan’s voucher and Relman’s lump sum are what health experts call capitation or “global payments.” The big difference is that Relman would have government administer the payments directly, with attendant regulations. A single-payer system, he thinks, would extract savings from the overhead and profit of the insurance industry. In 2011, those together are estimated at $152 billion, 5.6 percent of health spending.

Despite profound differences, both these radical proposals proceed from common premises: Limiting health-care spending requires an explicit ceiling on the dollars put into the system, and changing incentives for doctors and hospitals will create a superior delivery system. We should be debating ideas like these, because overhauling the health-care system is important in its own right and for controlling federal spending. Instead, the ACA skews the agenda. Many of its promises rest, like CLASS, on unrealistic assumptions. Disappointments loom, and the needed debate is deferred.

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