Throwing Darts: Americans’ Elusive Search for Health Care Cost Control

By Jonathan Oberlander
Journal of Health Politics, Policy and Law, June 2011

During the 2009 – 2010 health reform debate, secretary of Health and Human Services Kathleen Sebelius contended that “every cost-cutting idea that every health economist has brought to the table is in this bill” (Gregory et al. 2010).

That assertion had considerable merit. The Patient Protection and Affordable Care Act (ACA) contained numerous items on health services researchers’ and health economists’ wish lists, including policies to promote accountable care organizations (ACOs), primary care medical homes, bundled payment, pay for performance (P4P), comparative effectiveness research (CER), and health information technology (HIT). Even economists’ longtime holy grail — limiting the tax exclusion for employer-sponsored insurance — made it, against the political odds, into the ACA. So too did proposals to create an independent Medicare commission and an innovation center, while the Obama administration additionally promised to authorize an Institute of Medicine study on reducing the geographic disparities in Medicare payment made (in)famous by Dartmouth researchers (Wennberg, Fisher, and Skinner 2002).

Not surprisingly, many policy analysts lavished praise on the new law’s promise to “bend the cost curve.”

Is there, then, reason to believe that the ACA will decisively rein in U.S. medical care spending? Alas, probably not. The enthusiasm for the cost-containment provisions in health reform is striking precisely because so many of those provisions are tepid. Put simply, the Affordable Care Act lacks systemwide, reliable cost control. It is in fact a retreat from the cost-control ambitions of the 1993 – 1994 Clinton plan, which had, whatever one thinks of managed competition, a serious theory of how to slow health care spending, and, beyond that, a National Health Board and a budget to enforce expenditure targets. That some analysts believe the new law encompasses all available cost-containment ideas says more about the parochialism of U.S. health policy and its inattention to international experience than it does about the robustness of the ACA’s spending limits.

But slowing federal expenditures on Medicare is not the same as controlling spending in the broader U.S. health care system that encompasses private insurance and other public programs (Marmor and Oberlander 2009). Outside of asserting Medicare’s powers, the ACA has three major policies that purport to control costs. The establishment of health insurance exchanges is expected to generate savings by concentrating purchasing power, reducing administrative costs, and promoting competition among health insurers. Yet the scope of the exchanges, and consequently their likely impact on national health expenditures, is limited: the Congressional Budget Office (CBO 2010) projects 24 million Americans will participate in them by 2019 (though enrollment could expand significantly over time). Moreover, Massachusetts’s experience to date with its Health Connector program provides little ground for believing that the exchanges will slow spending in the broader health system.

The second major cost-control instrument is the 40 percent marginal tax that will be imposed on high-cost insurance plans (policies exceeding $10,200 for individuals and $27,500 for families). The so-called Cadillac tax reflects many economists’ deeply held belief that insulating patients from costs leads to overconsumption of and higher spending on medical care (Vladeck and Rice 2009). That other nations spend much less than the United States on health care despite having comprehensive benefits and, in some cases, no cost sharing has so far not disturbed the view that moral hazard is the root of our high costs. Tax health insurance, advocates believe, and insurers and employers will trim overly generous benefits, patients will consume less medical care, and national health spending will slow.

The final piece of the ACA’s cost-control strategy is delivery system reform. Here the idea is to “modernize” U.S. medical care (Buntin and Cutler 2009) by providing better information and new incentives (CER, HIT), reorganizing how care is delivered (ACOs, medical homes), and changing how it is paid for (bundled payment, P4P). In addition, the law embraces prevention, including a new requirement that insurers must cover recommended preventive services without any cost sharing.

However, little evidence exists that any of these reforms — as politically appealing as their promise to improve health outcomes and health care delivery may be — will generate sizable savings in the short term (Marmor, Oberlander, and White 2009; Tanenbaum 2009). Moreover, in many cases the reforms are initially envisioned only as Medicare pilots and demonstrations, with the hope that they would spread throughout the program and then to the rest of the health system. This strategy for controlling costs is akin to throwing darts. Evidently, the idea is that since we don’t know how well any of these policies will work, we should try them all at once and see which ones actually stick.

There is good reason to be skeptical that delivery system reform will by itself provide reliable cost control. After all, other Organisation for Economic Co-operation and Development nations that spend less on medical care than the United States do so largely through concentrated purchasing, budgeting, and price regulation (Jost, Dawson, and den Exter 2006; Marmor, Oberlander, and White 2009; Vladeck and Rice 2009; White 1995, 2010). The ACA does not move the United States closer to that international standard (White 1995) as much as it maintains the American tradition of searching for technical fixes to the fundamentally political problem of slowing the flow of income to the health care industry (Barer and Evans 1992; Morone 1990; Reinhardt 1990; Vladeck and Rice 2009).

Thus many American policy analysts continue to lament fee-for-service payment and argue for the “necessity” of switching to a “fee-for-value” system if costs are to be controlled — never mind that other nations that pay doctors fee-for-service, including Canada, control costs much better than we do. The American debate has lost sight of a crucial fact: it is not just about how you pay for medical care, but how much you pay for services. Rather than emulating policies that actually work to constrain spending abroad (e.g., global budgets, fee schedules) the United States seems intent on reinventing and reorganizing its way out of the cost crisis. Yesterday’s conviction that capitation and integrated delivery systems held the key to stemming medical costs has been resurrected in the current fad for accountable care organizations and bundling, with scant acknowledgment that we have been down this road before. An ever-increasing list of abbreviations (HMOs, HSAs, HIT, P4P, and so on) bear witness to Americans’ elusive, and now four-decade-long, search for magic bullets.

Proponents of the ACA have attempted to turn the absence of reliable cost control into a strength. The law is, they contend, diverse and flexible. By trying many approaches, “it does not rely on just one policy for effective cost control” (Orszag and Emanuel 2010: 603). Yet combining a series of potentially ineffective reforms does not make them any more effective. Moreover, the rationale for experimenting with an array of delivery systems and payment reforms reflects a sort of policy agnosticism, since, as Jon Gruber argues, “health policy experts can’t really say for sure how governments should best go about slowing cost growth” (Gruber 2010: 189). But international experience suggests that other nations do know how to slow medical spending; the United States is simply unable or unwilling to adopt those policies. Americans are, in other words, determined to try all available cost-control options — except those that actually succeed elsewhere. Ultimately, the insistence that the United States has to try everything because nothing is certain to contain medical costs sounds less like agnosticism or intellectual curiosity and more like ignorance.

Read these excerpts from Jonathan Oberlander’s article, and you’ll understand much better why the Affordable Care Act will fail to control health care costs. Has our reform been driven by ignorance, as he suggests? With the great body of health policy literature available to us, how could that be? It seems more likely that ego and greed are much more powerful policy drivers.