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Health Care Financing Reform: (82) Karen Ignagni on Reducing the Cost of Health Care

By Wilson Huhn Published: December 7, 2009

     Karen Ignagni, President of AHIP (America's Health Insurance Plans), has issued a clarion call to reduce the overall cost of health care in the United States.

     On December 3 AHIP, the trade association for health insurance companies, posted a number of entries on its blog quoting experts who criticize the pending health care legislation on one fundamental point - that while the proposed laws would extend access to health care and lower the expected federal deficit, they do not reduce Americans' overall spending on health care.  I have made this point as well in previous postings, here, here, and here.

     To recap, if we do nothing, spending on health care will double over the next decade, just as it doubled over the last decade.  Unlike many others on the left, I do not believe that the increase in the cost of medical care is due to "greed" on the part of health insurers or medical care providers.  Almost everybody in this world is just honestly trying to do their job, working within the existing economic and social system.  But the absence of personal fault or moral culpability does not mean that we should be content with the existing structure for the delivery of goods and services.  It may be that we can, either by removing, amending, or adding regulations, or by altering our existing institutions, develop a more efficient allocation of resources.

     The Democrats proposed legislation achieves some amazing goals.  It extends health care to an additional 30 million Americans, and improves the health care that will be available to even more citizens, without spending any more money on health care overall.  It achieves these savings by eliminating some waste like the 14% premium that the government pays for Medicare Advantage plans and by pooling the purchasing power of individuals and families who purchase insurance in the non-group market through the creation of "exchanges" that will both regulate non-group health insurance and foster competition in that market.  There is also economic redistribution within this program.  The very wealthy will pay more either by means of a surtax on income, a reduction of the tax exemption for health insurance, or an increase in the Medicare tax.  However, there will be no net increase or decrease in the amount of money that Americans spend on health care as a result of this bill.

     And therein lies the problem.  Under the Democrats' proposed legislation, while the federal deficit will go down, the cost of health care will still double over the next decade.  The Republican plan is no better, and in my opinion is a lot worse.  The legislation proposed by the House Republicans would, according to the CBO, control only 10% of the expected growth in medical spending by adopting a smattering of the cost-saving mechanisms from the Democratic bill and none of provisions extending coverage to uninsured and underinsured Americans.  In my opinion this is utterly unacceptable.  Too many millions of Americans are suffering and dying simply because they cannot afford medical care.  As a more-than-middle-aged man, I am acutely aware of the need for reliable medical care, and I am grateful that it is available to me.  As an American, I am unwilling to see my fellow citizens have to go without it.  We cannot continue to control costs by maintaining a system in which more and more Americans are denied access to medical care.

     And herein enters AHIP.  On December 3, Karen Ignagni, President of AHIP, delivered this address outlining five points that should be followed to control the cost of medical care - to "bend the curve downward."   Just as I urge my friends on the right to jump on the bandwagon of universal health care, I urge my friends on the left to listen to industry experts who have spent their professional lives trying to control the cost of medical care.  As the government assumes more and more responsibility for delivering health care or at least regulating health care industry, it will have to confront the elephant in the room - the 800-pound gorilla that seeks to do what it wants - the tiger hidden in the grass - the fly in the ointment - that is, the long-range trend of the explosive growth in the cost of medical care.  Ignagni has some valuable advice on that score.

     Ignagni says that the health care reform legislation has to do three things:

1. Bring all Americans into the system ' because going without coverage is a medical and financial time bomb;

2. Ensure that there is portability of coverage ' so that no one will be left out of the system if they change or lose their job, have a pre-existing condition or get divorced; and

3. Ensure that the nation's investment in expanded coverage is matched by a commitment to improve quality and bring down costs.


     So far, so good - the three goals relate to access, quality, and cost.  Igangni also states:
To expand access without constraining costs is not sustainable.

     That is absolutely true.  It does little good to extend coverage to all Americans if we aren't going to be able to pay for it.  As Ignagni says:
You don't have to be an economist to understand the consequences. If the gap between health care cost increases and economic growth continues, it will continue to exert downward pressure on workers' wages, add more stress to already strained family and business budgets, and crowd out other important investments that our nation urgently needs to make in energy, infrastructure, and education.

     The core problem, according to Ignagni, is the "cost structure" of the current health care delivery system. 
Today, our health care system has an unworkable, unsustainable cost structure.

     Ignagni adds that the current legislation does little to address the inefficient cost structure of American health care.
     ...  the bills before Congress settle for timid pilot programs, rather than requiring major changes; creating incentives that apply only to Medicare, rather than across the board; and establishing a new oversight body, but severely limiting its scope of review. At best, this approach misses the opportunity to focus on the forces that drive up health care costs for the 200 million Americans with private coverage as well as for Medicare and Medicaid. At worst, the pending legislation actually creates incentives for those cost increases to accelerate.

     In short, the Democratic bills have the right idea, but don't go nearly far enough in attempting to change the cost structure of the health care delivery system.  Ignagni identifies five basic problems with the cost structure that must be addressed:
First, consider the mixed incentives that drive American health care. Our system rewards doing more: more tests, more medicines, more specialists ' whether or not doing more improves the patient's outcome. And our system is further driven ' and burdened ' by a malpractice liability system that threatens to punish a provider for failing to do everything imaginable, regardless of whether it is medically necessary. Then there are these related factors: There is no systematic process to identify and remove ineffective or dangerous practices from the system; There is no systematic process to reward best practices; and We pay 50 to 60 percent more in unit costs than every other industrialized nation for medicines, technology, and professional services. In other words, we are paying more ' far more ' for every doctor visit, every procedure, and every diagnostic test than our global competitors.

     Ignagni proposals to bring down the overall cost of medical care for the American people.  I have editted these substantially. 
1. Set a National Goal and Measure Progress. It is imperative for Congress to set a national goal to bend the health care cost curve. ... Congress needs to be able answer the question: How do we know these savings will materialize? This will require accountability across the health care system so that families, businesses, and taxpayers know that health care costs will be brought under control.

2. Build on the Pilots and Incentives in the Senate Legislation with a Comprehensive Plan to Introduce Health Care Delivery Reforms Across the System.  ...  We need to bring together doctors and hospitals, along with patients, employers, health plans, and manufacturers to continually ask and address the hard questions: What practices yield the best outcomes? What steps will reduce post-hospital readmissions? What strategies would encourage more coordinated care? And how can these changes be best implemented quickly across public and private programs?

We need to jump start a transformation of the entire delivery system, with the objective of shifting the focus from counting processes and procedures and rewarding volume to incentivizing best practices and rewarding value. This would free clinicians from having to cope with conflicting standards and would ensure that they can focus on providing state-of-the-art care.

3. Reform the Legal System to Protect Patients and Allow Doctors and Hospitals to Deliver 'Best Practice' Medicine.  By reforming the malpractice system, we can change the incentives that force providers to order tests to protect themselves from lawsuits, rather than ordering the right test. This is one of the largest barriers to achieving an evidence-based system. At the same time, we need to ensure that a new system adequately protects patients and their families. There are precedents for achieving this balance, and we ought to get on with the job of addressing this issue.

4. Empower Patients and Their Doctors to Make the Most Informed Health Care Decisions.  The unfortunate reality today is that patients are not always getting the right health care treatments. ...  The current legislation makes a crucial down payment on comparative effectiveness research, but we need to do more. Patients and their physicians have a right to know not only which treatments work best, but also which treatments are cost-effective.

In fact, our entire health care system needs a major dose of transparency. Too often patients are making health care decisions in the dark ' without access to information about what hospitals and doctors provide the best care, the cost of treatments, and the effectiveness of medical technologies. Focusing on transparency will make the system more efficient, allow patients and their doctors to make the right decisions, and help to put our health care system on a sustainable path.

5. Avoiding 'Reforms' that Increase Costs. Policymakers need to avoid potential traps in the current proposals that will actually lead to increased costs for millions of Americans. Experience in the states has shown that insurance market reforms need to be paired with an effective coverage requirement if they are going to work and not provide rate shock for those currently with coverage. Unfortunately, the current Senate proposal provides a very powerful incentive for people to wait until they are sick to purchase coverage ' which unfairly penalizes current policyholders with higher costs. The current proposal also imposes technical rules that will raise the cost of coverage for millions of young families in more than 40 states, increasing the likelihood that they will stay out of the system until they are sick. The proposal also includes a series of new health care taxes and fees that will raise the cost of coverage for individuals, families, and employers across the country. This is the opposite of what health care reform is supposed to accomplish.


     To summarize: the Democratic bills should be amended to adopt goals for reducing the overall amount of money that Americans spend on medical care; the individual and employer mandates in the bills should be strengthened; the comparative effectiveness research proposals should be enhanced to develop clinical practice guidelines that are both more efficient both medically and financially; the pilot programs substituting managed health care in place of fee-for-service payment systems should be broadly expanded; tort reform measures should be adopted to reduce the potential liability of health care professionals while still protecting patients against medical error; and health care should not be burdened with excessive taxes.

     AHIP and the private health insurance industry may have gone on the warpath against the Democratic health care bills out of a sense of self-preservation, but that does not mean that the President and leaders in Congress should not listen to them.  Ignagni has much that is worthwhile to say to both Democrats and Republicans.  We can achieve universal care and reduce costs if we draw from everyone's experience.

Visit Professor Huhn's website on health care financing reform for links to information about proposed legislation, studies and reports, public agencies, and private organizations concerned with this issue. 

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