Why Obamacare's Health Care Cost Controls Won't Work

Our sad, failed history of technocratic cost controls.

There’s little question that what’s ultimately driving the nation’s long-term debt is entitlement spending—in particular spending on Medicare. Yet as the fiscal cliff negotiations have dragged on, many prominent Democrats and liberal analysts have made it clear that they oppose any and all reductions to Medicare’s benefit structure. House Minority Leader Nancy Pelosi warned against cutting Medicare benefits just this week. Earlier this month, a group of Senate liberals led by Sen. Jay Rockefeller (D-W. Va.) and Sen. Tom Harkin (D-Iowa) sent a letter urging the White House to reject any changes to Medicare or other entitlements that “cut benefits, shift costs to states, [or] alter the structure of these critical programs.”

Liberal wonks have coupled this argument with a reason to hold off on cutting or changing the program: Rather than pare back Medicare, they say, we ought to wait and see if a slew of promising health care cost-control measures passed in recent years work out, obviating the need for additional reforms. “Now’s the time to watch and evaluate,” wrote Center on Budget and Policy Priorities fellow and former Obama administration economist Jared Bernstein. “The real savings in health care will come from cost control measures enacted in the Affordable Care Act but nowhere near fully implemented," Bernstein continued, "and it’s just too soon to know if they’re working.” Some of the work of health care cost-cutting “is already underway thanks to the Affordable Care Act,” wrote The New Republic’s Jonathan Cohn earlier this month. “Among the most common criticisms of the law is that it did very little to address the cost of health care. That’s nonsense. It’s arguably the most ambitious effort to reduce the cost of medical care in history.”

The most ambitious cost-control effort ever? That’s a low bar to begin with. And at least one of Obamacare’s own authors has described the law differently. What’s even more important, though, is that we already have a fair amount of evidence about the efficacy of the Obama era’s cost-control measures. And so far, it’s not very promising.

Was Obamacare intended as a cost-control bill? Some Democrats have portrayed it that way. But in a presentation to lobbying groups given just a few months after the law passed, David Bowen, who served as a Democratic health staff director of the Senate Health, Education, Labor and Pensions Committee while the law was being written, suggested otherwise.

“This is a coverage bill, not a cost reduction bill,” he told a group of K Street staffers in what was billed as a behind the scenes look at the law’s development, according to a report by The Washington Examiner’s Timothy Carney. “There is stuff here that will begin to address the issue of cost, but this is not a cost reduction bill with a bit of coverage on it—it is really trying to get coverage first.”

What about the handful of cost-control efforts the law did include? There’s little reason to believe that its cost control will have a significant impact on Medicare spending.

Cohn links to a Washington Post report on two of the law’s hospital payment reforms: One creates financial incentives for hospitals to avoid preventable readmissions. The other, labeled Value Based Purchasing, pays more to hospitals that perform better on certain quality metrics.

Both programs are riffs on the same basic idea: Change the way we pay for health care, and get better care and lower costs.

This is the primary insight at the core of Obamacare’s cost reforms. The problem is that there’s precious little evidence it works.

As an October backgrounder on performance pay programs published by the journal Health Affairs dryly notes, “Despite limited evidence of effectiveness, pay-for-performance remains popular among policy makers and public and private insurers as a tool for improving quality of care and containing health care costs.”

The two schemes noted in the Post report are useful examples. The Post describes them as “part of an effort to fundamentally transform the health-care system” so that it “pays for value.” But so far, evidence of either value or fundamental transformation is in short supply.

Early attempts to overhaul medical payment incentives focused on quality more than costs. But where costs were measured, there was little success. Nor have most studies shown quality improvement.

In one study of hospitals given incentive pay, a researcher at the University of Pennsylvania found a short-term increase in quality, but the effect disappeared after five years. Another researcher from the Harvard School of Public Health looked at 30-day mortality rates in the same hospital quality incentive demonstration project and found no difference between hospitals in the pilot program and those who weren’t participating at all. A similar pay-for-performance pilot program launched in Medicaid also found no quality improvement. A Dartmouth study found performance pay results in some quality improvement, but only “modest” savings. A few hospitals saw savings, but those were offset by costs at other institutions.

The prospects for Value-Based Purchasing look similarly unhelpful. A study by researchers at the University of Pennsylvania and the University of California found that the program is likely to have a “small impact on hospital payments”—probably not enough to incentivize better care or reduce costs.

Worse still, some of the intended cost-savings plans could actually end up costing us more. Another program created under the president’s health care law—the Medicare Shared Saving Program—is intended to provide bonuses to more cost-efficient care groups. Yet this program, too, seems unlikely to produce meaningful savings. A study by health care modelers at Archimedes projected that the program’s savings would be 1 percent or less, and could in fact become cost increases after a full accounting of all the work involved.

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  • ||

    There’s little question that what’s ultimately driving the nation’s long-term debt is entitlement spending

    Military spending was 699 billion in 2011 and nonmilitary discretionary spending was 600+ billion in 2011

    Over 1300 billion is not a little question.

  • ||

    I should also point out that the the reason a high debt to GDP ratio hurts growth is becosue governmetn pushes out private interests.

    In other words instead of inovating companies are looking for green jobs hand outs or like warren buffet instead of investing in companies that can turn a profit he is running after TARP money, or like GM instead of inventing the new light bulb is putting resources to its accountants and tax lawyers so it doesn';t have to pay taxes, or like wall street instead of investing in private enterprise is holding its money and getting interest payments from the federal government...the list goes on.

    Anyway the bulk of this government pushing out private interests is not found in entitlement spending but in fact found in discretionary spending.

    If you really want to get the economy going (which in turn would increase revenues) by reducing the Debt-to-GDP ratio the first place you should look to cut is discretionary spending...not completely ignore it like Suderman did in his article.

  • ||

    "GM"

    Meant to write GE

  • Brandon||

    Right. Why would Suderman not talk about discretionary spending, which even according to your math is only 1/3 of federal spending, in an article about expanded entitlements? He must just be a racist, right?

    BTW, you do have some good points sandwiched in between your idiocy, but at least learn how to spell if you want to have any credibility. You misspelled GE, a two letter word, for Christ's sake.

  • GILMORE||

    you do have some good points sandwiched in between your idiocy

    really?

    i think i choked on idiot-bread before i found the pony in there.

    there's plain stupid....? then there's Run On stupid.. king of em all

  • ||

    What crawled up your ass and died?

  • ||

    He must just be a racist, right?

    Huh?

  • wareagle||

    If you really want to get the economy going (which in turn would increase revenues) by reducing the Debt-to-GDP ratio the first place you should look to cut is discretionary spending.

    because in a country with an aging population and an entitlement mentality, focusing on federal spending that is actually in keeping with the Constitution makes perfect sense.

    If you want to argue we spend too much on defense, no one here is going to complain. If you want to further argue that things like education don't even belong in the federal budget, ditto. But when you leave our THE drivers of ever-increasing federal spending, talking about the credibility of others is not very smart.

  • ||

    The fact that we had no recovery therefor no growth in revenues is a driver of debt.

    Stimulus and TARP and the continuation of that baseline spending into 2011 and 2012 are the reasons we have such a high debt to GDP ratio and why we did not have a recovery and prevents any recovery.

    Don't believe me that this is not a long term driver of concern?

    wareagle may i introduce you to japan's lost decades, japan's lost decades meet wareagle.

    I am sure you two have much to talk about.

  • ||

    We're pulling in record revenue and it's only enough to fund roughly 2/3 of our budget. That's a spending problem, not a revenue problem. Entitlements represent 1/3 of the immediate budget, but tens of trillions in future unfunded liabilities that will really be the drivers of future budgets. Failing to fuck enough people to pay for profligacy isn't a problem unless you're an amoral twat.

  • Red Rocks Rockin||

    wareagle may i introduce you to japan's lost decades, japan's lost decades meet wareagle.

    Japan's level of discretionary spending isn't the reason they can only bring in enough revenue right now to pay for interest on the national debt and their social security system.

  • Anton2013||

    Well I would like to say that, military spending is something important part but yes Medicare is on big concern these days and our President must look after it.

  • Brutus||

    They won't work because they weren't designed to work. They were designed to fail, so a benevolent Central State can ride to the rescue when the whole thing implodes.

  • scareduck||

    ^^^ THIS ^^^

  • Sevo||

    "Why Obamacare's Health Care Cost Controls Won't Work"

    They claims were lies from day one, that's why.

  • C. S. P. Schofield||

    Obamacare's Health Care Cost Controls won't work because, as far as I know, no attempted government cost controls have EVER worked as intended. Going back thousands of year. Which tends to explain why the history of China is such a mess.

  • ThomasJK||

    The first step--and most times the most important step--for controlling cost is a recognition that controlling costs and controlling prices are two very different tasks.

    The various yahoos that we have in Washington could easily, by fiat, control prices. They could also control costs if they were not such hopelessly lost yahoos. If our governments collectively took measures to keep all costs of all governments at all levels out of the operating costs of the healthcare delivery system and out of the operating costs of health and medical insurance providers then the PRICE of providing health insurance and medical care to the consumer could be reduced by more than fifty percent.

    What percentage of the money that is used to pay for the healthcare that is paid for by way of the various government programs do you think is paid for using money that is being collected from the healthcare delivery system or from the healthcare insurance industry as taxes, fees, fines, etc.? Just as important, what percentage of other government spending is being funded with money that is being collected from the healthcare delivery system, including as personal and household taxes that are being paid by system employees using money they are receiving as wages and salaries that come in by way of the system revenue stream?

    If our governments truly want to control COSTS, not just PRICES, then their opportunities to do so are immense.

  • Bill||

    Are you suggesting wage and price controls in the healthcare industry?

  • waaminn||

    One thing is for sure, greedy American Corporations will ALWAYS find ways around things like this. Its the American way!

    www.GetzAnon.tk

  • ΘJΘʃ de águila||

    This is not an attempt to control "costs". It is an attempt to institute a complete fascist health-care system to go with the fascist war state and fascist surveillance/police state.

  • Sarah Conner||

    Right on.

  • Kroneborge||

    This book actually does a very good job in explaining how to lower healthcare costs. The short answer is the expand the supply faster than the demand this will ship the price point lower (econ 101)

    http://www.amazon.com/American.....n+gridlock

    Obamacare on the other hand increases demand but not supply, this ensures higher prices

  • Sarah Conner||

    Working as intended.

  • nikea||

    A similar pay-for-performance pilot program launched in http://www.cheapbeatsbydreonau.com/ Medicaid also found no quality improvement.

  • uythsb||

    Merry Christmas

  • chenzhong||

    The prospects for Value-Based Purchasing look similarly unhelpful. A study by researchers at the University of Pennsylvania and the University of California found that the program is likely to have a “small impact on hospital payments”—probably not enough to incentivize http://www.sparklebaileybowuggsclearance.com/ better care or reduce costs.

  • zhonga||

    The prospects for Value-Based Purchasing look similarly unhelpful. A study by researchers at the University of Pennsylvania and the http://www.cheapbeatsbydretrad.....dio-1.html University of California found that the program is likely to have a “small impact on hospital payments”—probably not enough to incentivize better care or reduce costs.

  • Anton2013||

    I believe that government has to look Medicare on serious note and they must consider it as one important part of people life and they also needed it very much. Medicare Benefits is right of every American.

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