Chiropractic Economics Blog

I received a really smart analysis of Obama’s proposed healthcare reform budget. It’s not chiropractic specific, but if somewhere down the line healthcare overtakes stabilizing the economy as #1 on the agenda, the system you work in now will have little in common with what you’re working with in 2020.

No credit to give as I was asked to keep it anonymous. (Sneaky, right?)

Obama’s budget calls for:

• Creating a $634 billion reserve fund over the next 10 years to finance a universal access proposal that will most likely cost at least $1 trillion. (ED NOTE: Sounds like a giant number, but as healthcare spending in America has hovered about $3 trillion for the last few years, I’d venture to say 1 trillion over 10 years is not as crazy as it seems initially.)

This fund would be filled from 2 major sources:
• $318 billion in new revenues from tax increases on families earning more than $250,000, and the remainder from cost-saving measures.
• The biggest part of the proposed cost savings would come from cut payments to Medicare Advantage plans, estimated around $177 billion, under a new competitive bidding process. (ED NOTE: Similar to the defense contracts bidding changes announced today)
• That leaves $139 billion in cost savings from a battery of smaller sources, some of which are well-defined and others we’re completely in the dark about.

These smaller sources include (dollars measured over a 10-year period):
• $37.1 billion from “improved Medicare home health payments”—the savings assumption here is not very clear, but maybe reflects acute care and nursing home care savings from better access to home health care
• $19.6 billion from higher drug company discounts—from 15% to 21%—on medications provided to Medicaid patients
• $17.8 billion from bundling Medicare payments to cover both the hospitalization and 30 days post-discharge (may see slightly longer ALOS to avoid readmission – mainly medical patients)
• $12.1 billion from Medicare hospital pay-for-performance
• $8.4 billion in penalties for hospitals that have high readmission rates (may see overall admissions decrease as hospitals try to avoid penalties)
• $8.1 billion by charging high-income Medicare beneficiaries a higher premium for Part D drug coverage

(ED NOTE: Translation: This money may not come directly from DCs or your practice, but you’re lying to yourself if you don’t think you’ll be affected)

There are a lot of items that are not on the list, but will have to be eventually, if President Obama is to reach his goal of universal coverage.  The President’s budget director, Peter Orszag, is aware of this.
As director of the Congressional Budget Office, in December he published a 221-page tome that quantified the value of 115 possible reform measures—basically pre-scoring the options available to legislators.
The document made clear where the money is in health care reform—which elements matter and which ones, from a budget perspective, do not.  This leaves little room for budgetary sleight-of-hand on either end of Pennsylvania Avenue as the reform debate progresses.

These unmentioned items that will be essential if universal coverage is to be achieved include:

• Slower growth in payments to hospitals and physicians—This could take a variety of forms, from simply lowering the percentage of fee increases to “flattening” out spending disparities across the country.  An article published in the New England Journal of Medicine today shows new data from the Dartmouth Atlas, documenting how regional variation continues to grow.  The authors estimate that reducing the rate of increase in Medicare spending from 3.5% to 2.4% (from the national average to the average for low-cost area San Francisco) would save $1.4 trillion through 2023.

• Change in the tax treatment of health benefits—By capping the amount of premiums that employers can deduct from taxes, capping the exemption from individual income taxes of employer-provided health benefits, or some combination thereof.

• Obama needs Republican votes on healthcare reform.  Do not be surprised if, as a way to reach out to Republicans, he endorses some version of Sen. John McCain’s campaign tax proposal:  Eliminating the corporate tax deduction and individual income tax exemption for employer-provided health benefits, and replacing them with a flat individual tax deduction.  Though Democrats would howl at the idea, it could be smart politics and plug a big budget hole.  Peter Orszag’s own math shows that this change would be worth in the neighborhood of half a trillion dollars over ten years.

The President focused his budget outline on financing.  He leaves to the legislative process the details of how to achieve universal access, minimum benefit plans, use of public vs. private options, etc.  This strategy reflects learning from the failed Clinton reform proposal of 15 years ago, which was encyclopedic in detail and developed mostly behind closed doors.

What will health organizations do?  Watch, wait and pump up their lobbying budgets.  If a sweeping health care reform measure does pass in the coming year or 2—and that is far from certain—it brings with it the potential to largely erase healthcare providers’ concerns about no-pay patients, but at a great cost in other ways.

ED NOTE:

And thats it. Good? Bad? Think it’s the end of the world as you know it? Let us know.