The Cost Control That ObamaCare Doesn't Try

Alice Rivlin founded the Congressional Budget Office and served as its first director. She ran of the White House Office of Management and Budget under President Bill Clinton. Today, she's a senior fellow at Brookings, and one of the most respected policy minds in Washington. Like many policy experts associated with the Democratic party, Rivlin is on record as supporting the Patient Protection and Affordable Care Act. But she's also open about saying that its Medicare reforms may not work as well as advertised. 

At a Congressional hearing on Medicare this morning, Rivlin reiterated her support for the president's health law and said she believed that many of its Medicare reforms—Accountable Care Organizations and multiple health system research institutes—"can help to assemble solid evidence about cost-effective approaches to delivering health care." She cautiously suggested that the Independent Payment Advisory Board (IPAB), the cost-control bureaucracy created by the law to hold down Medicare spending growth, might also produce savings: "If [IPAB] functions as intended, it will design regulations that encourage more cost-effective delivery of care in traditional Medicare."

But that's a big if. And as Rivlin further argued, the success of these reforms is hardly guaranteed. "It remains to be seen how well these new institutions will perform," she said. And that's why Rivlin has teamed up with former Senator Peter Domenici to endorse a Medicare premium support plan that relies on competition between private insurers, in conjunction with a government-run Medicare fee-for-service plan, to hold spending in check.

Rivlin spoke this morning in front of the House Ways and Means Committee about the plan she authored with Domenici, and why she believes that it's a good idea to bring private competition into the system:

Under the current system, with Medicare savings achieved largely through simple reductions in reimbursement rates, cost shifting has been a major concern.  However, our proposal is driven differently.  If competition works to produce more cost-effective delivery, Medicare can be a leader here. Plans and providers that have incentives to serve their Medicare patients more cost-effectively will do the same for their other clients.

…We think it only prudent to strengthen competition as an additional tool. Under our proposal,competing health plans all over the country would have strong incentives, not only to implement innovative ideas coming out of the federally-supported institutions created by the PPACA, but to seek every possible way to provide higher-quality care at a lower costin their own local area.  The PPACA attempts to reward Medicare providers that meet the conditions set in regulations. Enhancing competitive incentives to achieve savings and improve outcomes could prove the more effective approach. Our proposal is to try both.

One could argue that Rivlin is merely proposing to actually do what Democrats have long said they're committed to doing: trying all the health care cost and spending controls available.

When the health care overhaul passed in 2010, Obama administration officials offered assurances that they were doing all they could on cost control. Former White House budget director Peter Orszag and health policy advisor Ezekiel Emanuel insisted that the health law "puts into place virtually every cost-control reform proposed by physicians, economists, and health policy experts." But virtually every reform is not the same as every reform. And the one potentially transformative reform that the law's authors declined to include is the one that relies more on competition and market forces than the introduction of more bureaucratic payment reforms. 

Leaving a government-run, fee-for-service Medicare option in the mix is not ideal by any means. But Rivlin's approach is vastly preferable to the current administration's insistence on crossing its fingers and hoping that a largely technocratic approach to cost-control will work.