Original links are included though some may have expired.

In This Issue:

1.) We Have Lift Off
2.) Another Huge Opportunity Opens Up for Health Care Reform: Cost Restraint without Price Controls
3.) The Fiscal Challenge: Health Care Reform that Pays for Itself
4.) Restraining Health Care Costs State by State

1.) We Have Lift Off

The release of President Obama's budget marks the first critical step in the legislative journey for reform. The budget allows for $630 billion over 10 years for health care reform. That comes close to what's needed, especially since two-thirds of that spending would come in the second half of the 10-year period. More may be necessary but it's enough to make a big dent in the problem of the uninsured and to start a legislative and implementation process that will play out over the next decade.

Just as importantly, the budget lays out a strategy to help all Americans with rising health care costs without cutting benefits or necessary care:

One of the other big drains on family budgets and on the performance of the economy as a whole has been the increasing costs of health care. Yet the evidence suggests that substantial reductions in costs could be achieved without sacrificing the quality of health care delivered. And in part because of the high costs of the current system, too many Americans remain uninsured or underinsured -- causing them to forgo needed care and to bear unnecessary financial risks.

The budget also lists the president's principles for reform, all of which are right on target and echo PPI's stand on reform:

• Protect Families' Financial Health. The plan must reduce the growing premiums and other costs American citizens and businesses pay for health care. People must be protected from bankruptcy due to catastrophic illness.
• Make Health Coverage Affordable. The plan must reduce high administrative costs, unnecessary tests and services, waste, and other inefficiencies that consume money with no added health benefits.
• Aim for Universality. The plan must put the United States on a clear path to cover all Americans.
• Provide Portability of Coverage. People should not be locked into their job just to secure health coverage, and no American should be denied coverage because of preexisting conditions.
• Guarantee Choice. The plan should provide Americans a choice of health plans and physicians. They should have the option of keeping their employer-based health plan.
• Invest in Prevention and Wellness. The plan must invest in public health measures proven to reduce cost drivers in our system -- such as obesity, sedentary lifestyles, and smoking -- as well as guarantee access to proven preventive treatments.
• Improve Patient Safety and Quality Care. The plan must ensure the implementation of proven patient safety measures and provide incentives for changes in the delivery system to reduce unnecessary variability in patient care. It must support the widespread use of health information technology and the development of data on the effectiveness of medical interventions to improve the quality of care delivered.
• Maintain Long-Term Fiscal Sustainability. The plan must pay for itself by reducing the level of cost growth, improving productivity, and dedicating additional sources of revenue.

In short, health care reform has passed its first critical stage. The months ahead will be a wild ride, but every bump along the way will actually help define a successful course with President Obama's continuing leadership.

For more information:

"Budget of the United States Government: Fiscal Year 2010,"
Office of Management and Budget:
http://www.whitehouse.gov/omb/budget/

Back to the Table of Contents

2.) Another Huge Opportunity Opens Up for Health Care Reform: Cost Restraint without Price Controls

A tectonic shift in the political landscape of health care policy is underway. Since the enactment of Medicare, the political left has had one approach to restraining health care costs: price controls. During the 1980's, the left pushed and won support for letting Congress set the reimbursement rates for hospitals and doctors (ironically, with the support of President Ronald Reagan). In the 1990's, the left actively opposed using competition to restrain costs. Its insistence on price controls in health care reform under President Clinton led to the demise of reform. Price controls threatened choice and access to innovative coverage and treatments, and patients rightly feared them.

At Monday's White House summit on fiscal responsibility, price controls were nowhere to be seen. Instead, the discussion focused on reforming the price control regime in Medicare as the single most important remedy for the nation's gloomy fiscal outlook. The noted liberal analyst, Bob Greenstein, Executive Director of the Center on Budget and Policy Priorities, opened a huge opportunity for progress by making two key points:

First, if we want to slow the rate of growth in healthcare costs system wide, then Medicare needs to help lead that effort. To institute payment and delivery system reforms that the private sector then picks up. And second, because healthcare costs are rising mostly due to advances in medical technology, many of which do improve health and prolong life, we almost certainly won't be able to slow health care cost growth so much that it rises no faster than the economy, and that means we also need to make other significant changes in budget and tax policy to avoid a debt explosion.

It is hard to overstate the importance of Greenstein's comment. As PPI has argued for over a decade, the path to cost restraint is through reforming the payment and delivery of health care. Health care throughout the United States needs to perform as effectively and efficiently as the Mayo Clinic and other integrated health care systems that today are scattered in various states. At the same time, reform shouldn't undermine innovation, which depends on people paying extra for it. Price controls cripple innovation because they prevent patients, doctors, employers, and health plans from making the decision about whether a new treatment or service is worth the cost. Rejecting price controls in favor of public action that bolsters private decisions about cost and benefits opens up the debate to a large variety of politically feasible solutions to the problem of runaway health care costs.

There are also signs of shifting on the political right. After President Obama's speech to a joint session of Congress, Sen John McCain told Reuters that a deal on reform is possible "'because I think that the inflation associated with health care is so severe, as the president correctly stated, it's affecting all of our economy.'" Even more poignantly, Former HHS Secretary Mike Leavitt rejected free market ideology as a solution to health care according to the Kaiser Daily Health Report:

In an interview with National Journal staff, Leavitt warned that lawmakers should initially reject "three fake cures" before progress can be made on an overhaul: one is that "the market will fix this and everything will be fine, the second is that bureaucrats will fix it, and the other is that we just need to spend more money."

These new opportunities are arising from the previous tectonic shift in the political landscape for health care. Over eight years ago, the major Democratic presidential candidates all adopted the Federal Employees Health Benefits program as a model for expanding health care coverage. That stance, which has held up through President Barack Obama's campaign, rejects a single-payer approach to reform and preserves a role for the private sector. It enables Democrats to have a debate with Republicans that can end successfully because both sides will be able to share in the victory.

Health care reform will now proceed along the two key fronts: restraining costs while improving quality and expanding access to coverage and care for those lack it today. The debate will not avoid questions about the exact amount and role of government in health care. For example, price controls on prescription drugs continue to have a significant political following. But in general, the extremes in the debate that want all government or no government won't dominate it.

For more information:

"Opening Remarks at Fiscal Responsibility Summit,"
transcript, The New York Times, February 23, 2009:
http://www.nytimes.com/2009/02/23/us/
politics/23text-summit.html

"Improving Health Care -- By 'Spreading the Mayo' (the Mayo Clinic Model, That Is),"
By David B. Kendall, PPI's Memos to the New President, January 15, 2009:
http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=450020
&subsecID=900204&contentID=254811

"Obama Reaffirms Commitment to Healthcare Reform,"
by David Alexander et al., Reuters UK, February 25, 2009:
http://uk.reuters.com/article/worldNews/
idUKTRE51O1H120090225?pageNumber=2&virtualBrandChannel=0

"Former HHS Secretary Leavitt Discusses Overhauling U.S. Health Care System,"
Kaiser Daily Health Policy Report, Kaiser Family Foundation, February 25, 2009:
http://www.kaisernetwork.org/daily_reports/
rep_index.cfm?DR_ID=57160

Back to the Table of Contents

3.) The Fiscal Challenge: Health Care Reform that Pays for Itself

President Obama's budget makes it clear that he wants to pay for covering the uninsured in large part from the savings of reforming the reimbursement and delivery of health care. That's the right strategy, but it needs to confront a major obstacle: the Congressional Budget Office (CBO).

CBO is typically very conservative about estimating savings from reform. That's not bad, in fact, because if its estimates were overly generous and those savings didn't materialize, then the federal government would spill a lot of red ink.

But under a more likely scenario, what happens if savings come in higher than CBO predicts? Under current budget rules, the Obama administration cannot apply unpredicted savings to covering the uninsured. That would leave millions more Americans uninsured than necessary. Looking back to the 1990's, had President Clinton's health care reform passed, CBO would have missed the tremendous savings from managed care that held the nation's spending flat for seven years. Congress would have had to raise more taxes than necessary or rely on government controls on health care prices and spending in order to cover the uninsured.

PPI has proposed a federal health budget for public health care spending that allows for any and all savings from reform to count toward coverage of the uninsured. Congress and the administration would set a baseline projection for health care spending. If more savings accrued than expected, then they would automatically go to the uninsured. If savings were lower than expected, then tough measures would apply unless Congress changed course. For example, a tight limit on the tax break for job-based health care coverage would automatically take effect, thereby creating the necessary revenue for reform and increasing economic pressure on health insurance companies and providers to restrain their costs.

A federal health care budget would also help with entitlement reform that can preserve Medicare, Medicaid, and coverage for the uninsured over the long haul. It would allow Congress to set goals for public spending based on best practices. For example, the Mayo Clinic provides high-quality health care for substantially less money than the national average. A federal health care budget would set spending goals based high-quality care like Mayo's along with enforceable consequence if the other providers don't meet Mayo standards for cost and quality.

The president is absolutely right to call for health care reform that pays for itself. Now it's time to figure out exactly how to implement that idea.

For more information:

"Health Reform that Pays for Itself,"
By David B. Kendall, PPI's Memos to the New President, January 15, 2009:
http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=450020
&subsecID=900204&contentID=254872

Back to the Table of Contents

4.) Restraining Health Care Costs State by State

Now that the Obama administration has put the issue of cost restraint front and center in the health care debate, the question is how to do it. One answer: Put the states to work.

That's what reinventing government guru and senior partner at the Public Strategies Group, David Osborne writes at Real Clear Politics. States have a big stake in controlling health care costs. Under current trends, health care will consume half of state revenues in 10 years.

States can help by seeing all their health care programs -- Medicaid, the Children's Health Insurance Program, and state and local employees -- as one big bargaining block to push for new ways to reimbursement providers that can lower costs and improved quality. A three-way relationship with employers and the federal government would create an unstoppable force in the fight against medical inflation.

As Osborne writes:

We need to replace fee-for-service reimbursement with price competition between integrated providers that are paid by the year, not the procedure. They, in turn, should pay their doctors and hospitals lump sums for cycles of treatment for medical conditions -- such as nine months of obstetrical care and delivery, or a year's treatment of diabetes.

In a PPI memo to the new president and the nation's governors, Osborne argues that states can also make significant progress on other key health care issues ranging from prevention, to end-of-life care, to malpractice reform. The federal government needs to take the lead on reform, but it can't do it all by itself. The states are well positioned to be partners in reform.

For more information:

"Reinventing Health Care: The Role of the States,"
By David Osborne, Real Clear Politics, February 25, 2009:
http://www.realclearpolitics.com/articles/2009/02/
reinventing_health_care_the_ro.html

"Reinventing Health Care -- The Role of States,"
By David Osborne, PPI's Memos to the New President, January 15, 2009:
http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=450020
&subsecID=900204&contentID=254877

Newsletter compiled and written by David B. Kendall, PPI's senior fellow for health policy.