View from Washington – Roadmap to Reform

A “how-to” for the upcoming health reform debate.
It was Pericles (430 B.C.) who said it best “Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you!”

There appears to be some type of foregone conclusion reached among so many health policy makers that 2009 will be the year we finally begin the great health reform debate. Given the significance of the various proposals, it is wise to pause to consider how to wrestle this thing called health reform.

While many talk about the “what” few are speaking about the “how”. One of the most thoughtful of these few is the current Secretary of the Department of Health and Human Services Mike Leavitt. Secretary Leavitt has been speaking to Congress and throughout the country about how we might tackle the “great reform” debate and has proposed a roadmap for its achievement.

Whoever takes the oath of office in January 2009 will recognize four key concepts that seem universal among federal healthcare policymakers, regardless of party affiliation:

  • Rising healthcare costs are the major policy problem – not access.
  • Medicare is in the policy driver’s seat – you fix it and you fundamentally change all healthcare.
  • Medicare Trust Fund is insolvent by 2019.
  • Policy decisions moving forward involve trillions of dollars and lives of hundreds of millions of people.

Core problems
In addition, there are two core problems that are upon us whether we like them or not. The first is that costs are rising faster than costs of economy. In 1950, healthcare was 4 percent of GDP. By 2000, healthcare was 12.5 percent of GDP. In addition, for 2008 healthcare is estimated to be 16 percent of GDP. It is becoming evident that healthcare is eating our economy. If you do not believe it, just ask employers.

This problem is compounded by the second core problem that is demography and the hard truth that as society ages medical expenses go up. The numbers are startling – in 2008, 12 percent of population is 65 or older. By 2030, 20 percent of population will be seniors.

How about some additional straw for the proverbial camel’s back? Total U.S. healthcare spending in 2007 was $2.3 trillion – or $7,600 per person. Total U.S. healthcare spending is expected to increase to $4.2 trillion by 2016. The insurance premiums for employers – who still pay for the lion’s share of healthcare expenses for the non-elderly – increased by 6.1 percent in 2007. An average annual growth of 6.5 percent is predicted through 2017. This translates into an annual premium for a family of four at $12,106 and single coverage at $4,400. A back of the envelope estimate in today’s dollars would mean $19,974 for a family of four and $7,260 for single coverage in the year 2017.

Our government made the decision with the creation of Medicare that the cost of senior’s healthcare would be born by younger workers. However, birthrates are falling relative to replacement population levels – which means for purposes of supporting Medicare a diminishing number of workers per senior. This becomes even more acute around 2011 as the bulk of “Baby Boomers” hit the Medicare roles.

In 2019, when Medicare is supposed to go broke, the generation behind this one – our kids and grandkids – will be asking why our generation did not act decisively. Without action on reform now, many believe that the intergenerational conflict in the U.S. will be immense. The traditional political alternatives, i.e. raising taxes, cutting benefits to seniors, raising eligibility age, reducing payments to providers – will not be enough to avert this public/generational backlash and conflict.

As Secretary Leavitt has spoken before business groups, he has repeatedly posed a tough business question. How are the foreign countries that currently hold U.S. debt going to feel about further investments in a country where one of its main entitlements, as well as its overall federal deficit, is out of control? The HHS Secretary asks, “What would happen if these foreign investors lose confidence in our economy over our inability to reform Medicare specifically and health care in general?”

As the private sector primarily bases their billing and reimbursement policies on Medicare, federal policymakers have concluded that the key to reforming healthcare in the United States is the reform of Medicare. However, given the circumstances, how can this reform be accomplished?

Solutions, anyone?
If a politician tells you they have a solution for all of this, then put your hands in your pockets and take three quick steps backwards. All alternative solutions to the reform of Medicare will be seen as hateful for someone or some interest group. Having said that, there is a roadmap for going forward. The model is how the military was ultimately successful in reducing the number of military installations in the United States – adopting a Defense base closure mechanism. This model ultimately worked for this very difficult policy issue. Secretary Leavitt argues utilizing a similar model could assist Medicare in becoming solvent.

What would a base closure process for Medicare include? Here are some guesses. First, it would include “Automatic Growth Triggers”. This would provide political cover by allowing Congress not to vote as predetermined measures are triggered as certain growth points are reached, i.e. if Medicare exceeds more than a defined percentage of GDP triggering some combination of automatic program actions and/or cuts. At specified times, Congress can only stop the measures by votes of super-majorities of both the House and Senate.

One of the hot buttons for Secretary Leavitt is that to achieve reform, the United States must do something fundamental to change incentives so that providers are rewarded for producing the best care as opposed to the most care. Many policy experts believe that the change of the value of care as a replacement for the volume of care as an incentive for providers will have a profound affect on the ultimate cost of care. Concurrent with this, something must be done about reforming the system to provide transparency regarding true costs as well as quality.

Finally, to reform Medicare and thus to affect the entire healthcare system, we have to “fess up” with each other. To solve this problem, each generation will be asked to up their share of the financial support. Retired and working age individuals will both face greater financial participation and reduction of benefits. Boomers have to expect less and pay more while the generation behind them pays more but ultimately gets a healthcare system under manageable control.

Whoever gains the White House next year will face enormous issues. Not least of the monumental issues, waiting at the Oval Office will be what to do about healthcare in general and Medicare in particular. I think Secretary Leavitt has done a great service by laying out the base closure model as one that would answer the “how” we proceed question. The truth is both political parties recognize the problem despite their deferring solutions. Proposing a base closure framework for the reform of Medicare will provide the structural means for the wrenching decisions, which have to be made to address one of the most difficult policy challenges of this generation or frankly of the next.

Robert Betz Ph.D. About Robert Betz Ph.D.

Robert Betz, Ph.D., is president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit www.robertbetz.com.

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