Many
recent reports indicate a slowing of the growth rate of health care spending in
the United States (Furman, New Report from the Council of Economic Advisers: The Recent
Slowdown in Health Care Cost Growth and the Role of the Affordable Care Act
2013)
and (Kaiser Family Foundation 2013) . While this is good
news, the US still spends far more per capita than any other country in the
Organization for Economic Cooperation and Development (OECD) (Organisation for Economic Cooperation and Development 2010) .
The causes of health care cost growth include the
aging population, greater usage of new technology, and more wasteful spending
in the US versus other OECD countries (Kaiser Family Foundation 2012) (Bentley, et al. 2008) (Furman, Reducing Costs and Improving the Quality of Health Care 2013) (Pearson 2009) (Kaiser Family Foundation 2007) . Health care
spending in the US is particularly inefficient compared with other OECD
countries, when measured across many metrics. US life expectancy is
significantly lower per dollar spent (Organisation for Economic Cooperation and Development 2010) , despite our spending
far more than other OECD countries in actual dollars as well as by percentage
of GDP (Squires 2011) . Nearly all of the difference in health
care spending between the US and the rest of the OECD comes from private
expenditure, as the US spends about the same in public funds as a fraction of
GDP as the rest of the OECD[1] (Kaiser Family Foundation 2011) .
There is also a clear connection between high health
care prices in the US and poor health outcomes. Fifty percent of respondents in
the US to a 2011 Kaiser Family Foundation poll indicated that they had done one
or more of the following: “Relied on home remedies or over-the-counter drugs
instead of going to see a doctor,” “Skipped dental care or checkups,” “Put off
or postponed getting health care needed,” “Not filled a prescription for a
medicine,” “Skipped a recommended medical test or treatment,” “Cut pills in
half or skipped doses of medicine,” “Had problems getting mental health care” (Kaiser Family Foundation 2012) . While some of these
behaviors may not be cost-related, it is obvious that lower prices would
incentivize many people to modify these choices.
The Independent Payment Advisory Board (IPAB) was
created with the passage of the Patient Protection and Affordable Care Act in
2010 (U.S. House. 111th Congress, 2nd Session 2010) . The purpose of IPAB
is to slow the growth rate of Medicare expenditure and find savings inherent in
the current coverage, without compromising the standard of care. Before the
creation of IPAB, Congress made decisions about Medicare spending, with
non-binding input from the Medicare Payment Advisory Commission. The flaw in
this system has been that members of Congress are susceptible to outside pressure
from interested stakeholders, such as physicians’ and drug manufacturers’
pressure groups (Aaron 2011)
(Hill, et al. 2013) .
Many others have proposed alternate plans to curb
the growth of health care costs. The American Medical Association (AMA) has
called for a reduction of risk factors for preventable disease, the
encouragement of patient compliance, waste reduction, and an increase in
benefit-cost analysis in decision-making (American Medical Association n.d.) . While these are all
laudable goals, none constitute a concrete plan. Laurence Seidman advocates a
form of universal coverage he calls “Medicare for all.” Under Seidman’s plan,
all Americans would automatically qualify for comprehensive health care, much
in the way that all seniors now qualify (Seidman 2013) . Holly Stockdale outlines many other advisory-board
plans that were considered prior to the creation of IPAB. Many of these
proposals were structurally similar to IPAB, but varied as to the specifics of
authority, and the mechanisms for implementation of board recommendations (Stockdale 2010) .
IPAB has been controversial since the planning
stage. One of its foremost critics is the AMA, which argues that IPAB removes important
decision making authority from Congress (Madara 2012) .
The AMA has consistently backed efforts to
eliminate, or reduce the scope of IPAB (Lazarus 2013) . Henry Aaron writes that removal of
health care expenditure decision-making authority from lawmakers susceptible to
outside influence is precisely the goal of IPAB. He contends that the
objections of interested parties with great political influence, such as the
AMA, are a sign of the plan’s effectiveness (Aaron 2011) .
The ability of IPAB to cap the growth rate of
Medicare expenditures will be tested as the instruments of its mandate come
into effect between 2015 and 2020 (Marciarille and DeLong 2012) . Since much of the
“extra” spending in the US consists of private money, the US should consider
using mechanisms from the public sector to help control spending in the private
sector. If IPAB proves successful, the implementation of a board like IPAB to
regulate all health care spending would significantly reduce total health care
costs in the US.
One area in which the US outpaces the rest of the
OECD is in prescription drug usage. A higher percentage of the US population
uses at least one prescription regularly than in every other OECD country. A
higher percentage also uses at least four regularly. While the US allots the
median percentage of health spending to drugs, it also has the highest
per-capita drug spending. In most of the other OECD countries, drug prices are,
at least in part, set by the government. This has clearly shown to be a useful
technique to keep drug spending under control. Similar spending relationships
are observed in medical imaging (Squires 2011) .
One of the goals of IPAB, as a part of PPACA, is to
reduce health care spending growth by way of “spillovers.” The hope is that
reducing prices paid for services to Medicare patients will reduce the overall
market price of those services. Whether or not these secondary effects are realized,
the Congressional Budget Office projects a significant decrease in the rise of
Medicare and Medicaid expenditures as a fraction of GDP over the next ten years
(Council of Economic Advisers 2013) . The goal of my
policy is to harness these savings from reduced inefficiencies across the broad
health care financing system.
Much of the recent slowdown in health care cost
growth is attributable to savings achieved in Medicare through reduced
overpayments (Furman, New Report from the Council of Economic Advisers: The Recent
Slowdown in Health Care Cost Growth and the Role of the Affordable Care Act
2013) .
One reason Medicare is able to keep its administrative costs down is that the
Medicare system is not burdened with the administrative duplication of the
private sector. Every payment made in the private sector involves two specific
administrators. One works for the service provider and is tasked with
maximizing the billed amount. The other works for the insurer and is tasked
with minimizing the billed amount. The negotiation between these two competing
administrators determines, in large part, the final billed amount. Since
administrative costs in Medicare are already 70 to 80% lower as a fraction of
spending than in private insurance, utilizing these drivers of savings in the
private sector is prudent policy (Bentley, et al. 2008) .
Ezra Klein referred to IPAB as the “most promising
cost control in the Affordable Care Act” (Klein 2010) , because, like Henry
Aaron, he believes it will virtually eliminate legislative meddling (Aaron 2011) . The strong negative
reaction of groups like the AMA, which lobby for financially interested
parties, is an indication that the IPAB is a promising avenue for meaningful
reform (Madara 2012)
(Lazarus 2013) .
Former Senate Democratic Leader Tom Daschle,
President Obama’s first, but unconfirmed, choice to lead the Department of
Health and Human Services, has also advocated expanding IPAB to administer cost
savings more broadly. It remains to be seen however, if a board like IPAB could
realize decreased cost growth in the absence of the single-payer buying power
of Medicare. This is the crux of Seidman’s argument for “Medicare for all” (Seidman 2013) .
One survey of cost-impact studies of a move to a
single-payer system in the US found estimated savings that ranged from 89 to
280 billion dollars per year (Bentley, et al. 2008) . It is clear that
these savings would not be achieved in their entirety simply by regulating
prices paid by private firms, but these figures provide insight as to the
potential magnitude of cost savings from simplifying the payment process. It is
also important to consider the potential social welfare loss to patients that
could result from what some would crudely refer to as “price-fixing.” Social
welfare loss, in this context, usually occurs because normal market processes
are interrupted by the regulation of price. The market for health care is
clearly not efficient, chiefly because buyers and sellers) often lack the
necessary information to make rational decisions. The market is therefore
already operating at an inefficient equilibrium.
A potential cost of restricting the growth of fees
paid to doctors is that, under such a regime, there will be fewer practicing
doctors in the US. The US already ranks below the median in the OECD in
physicians per capita (Squires 2011) . The operative question is whether or
not, given the US lead in adopting new medical procedures, technologies, and
norms, this is simply part of a trend toward greater utilization of physician’s
assistants, nurse practitioners, and other paraprofessionals (Kaiser Family Foundation 2007) .
An obvious argument can be made that setting prices
through non-market processes can be inefficient. It is clear, however, that the
US health care market is both informationally inefficient and more
market-oriented than any other in the OECD. Perhaps it is time to expand a plan
that has worked well to curb cost growth in public health care finance to all
health care finance.
[1] US public spending on health care is 0.224 standard deviations above the mean in data collected from OECD countries, while US private spending is 2.999 standard deviations above the mean in the same data. (See Figure)
Figure
Percentage
of GDP
|
Private
Share
|
Per-capita Spending
|
|||||
Public
|
Private
|
Total
|
|||||
Japan
|
6.6
|
1.5
|
8.1
|
18.5%
|
$2,729
|
||
Australia
|
5.7
|
2.8
|
8.5
|
32.9%
|
$3,353
|
||
Norway
|
7.2
|
1.3
|
8.5
|
15.3%
|
n/a
|
||
UK
|
7.2
|
1.5
|
8.7
|
17.2%
|
$3,129
|
||
Spain
|
6.5
|
2.5
|
9.0
|
27.8%
|
$2,902
|
||
Italy
|
7.0
|
2.1
|
9.1
|
23.1%
|
$2,870
|
||
Sweden
|
7.7
|
1.7
|
9.4
|
18.1%
|
$3,470
|
||
Canada
|
7.3
|
3.1
|
10.4
|
29.8%
|
$4,079
|
||
Austria
|
8.1
|
2.4
|
10.5
|
22.9%
|
$3,970
|
||
Germany
|
8.1
|
2.5
|
10.6
|
23.6%
|
$3,737
|
||
Switzerland
|
6.3
|
4.4
|
10.7
|
41.1%
|
$4,627
|
||
France
|
8.7
|
2.5
|
11.2
|
22.3%
|
$3,696
|
||
US
|
7.4
|
8.5
|
15.9
|
53.5%
|
$7,538
|
||
(Minimum)
|
(Maximum)
|
||||||
Mean
|
7.2
|
2.8
|
10.0
|
28.2%
|
$3,842
|
||
Std Dev
|
0.8
|
1.9
|
2.0
|
10.8%
|
$1,291
|
||
US Deviation
|
+0.224
|
+2.999
|
+2.884
|
+2.348
|
+2.86
|
||
Table created by the author from OECD Health Statistics
Database data obtained via KFF (2011)
|
|||||||
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