Health care reform advocates are now pointing out that yesterday’s CMS report projects that after the initial coverage expansion, the health care cost-curve does begin to bend very slightly. That’s true. But that projection relies on some rather unlikely assumptions. The first, as I’ve noted, is that Congress allows a major reduction in doctor payments at the end of this year, which is not at all likely. Next is that the so-called “Cadillac tax”—an excise tax on expensive health plans—is allowed to go into effect. Given that, under significant union pressure, the law’s authors already delayed the start of the provision until near the end of the decade, I’m not sure we can count on that either. It’s not impossible, but Congress isn’t known for its eagerness to allow new taxes that would negatively affect politically influential constituencies.
It also relies on the assumption that IPAB, the new board responsible for keeping Medicare growth in check, will be effective in its mission. But as James Capretta argued in May, the board is somewhat limited in terms of how it can achieve those cuts:
In the past, to hit budget targets, Congress has always preferred to impose across-the-board payment rate reductions to provisions which would punish or reward providers based on some measure of quality or efficient performance. Tellingly, that was also true in the bill Congress just passed. The big savings comes from arbitrary cuts in payment updates for institutional providers of care.
The CBO, in its careful evenhanded way, also thinks there’s a reasonably good chance the board won’t save money. Last summer, director Doug Elmendorf told Congress that "in CBO's judgment, the probability is high that no savings would be realized...but there is also a chance that substantial savings might be realized.” In other words, it’s not impossible that some savings could be achieved. But the high probability is that it won’t work.
Even Medicare’s chief actuary is skeptical of the board’s chances at meeting its optimistic spending targets, writing in April that “in general, limiting cost growth to a level below medical price inflation alone would represent an exceedingly difficult challenge” and noting that "the Board’s efforts would be further complicated by provisions that prohibit increases in cost-sharing requirements and that exempt certain categories of Medicare expenditures from consideration."
So fair enough: If the new health care law is implemented without minimal hiccups, and all of the cost-cutting measures work as well as planned, it has a chance to bend the curve very, very slightly during the final half of the upcoming decade. On that, health reform advocates are correct. I can't speak for anyone else, but betting that a decade-long coordination of a trillion-dollar program between bureaucrats in Washington, legislators in Congress, and policymakers in fifty different state governments will somehow go exactly as hoped doesn’t seem like a very good wager to me.