A “Belt and Suspenders” Approach to Fiscally Responsible Health Reform

As the debate about health care reform takes center stage this summer, more and more commentators will be focusing – rightly – on the impact of reform on the federal budget.

On Friday, I blogged about the fiscal effects of health care reform. Since then, the cost containment efforts we are undertaking and their potential impact on long-term health care cost growth have gotten a lot of attention. Our cost containment falls into two categories: Medicare and Medicaid savings that are key to achieving scoreable savings over the medium term but that by themselves would be unlikely to generate substantial long-term efficiency improvements in the health system, and "game-changers" that are unlikely to generate significant scoreable savings in the medium term but that are crucial to moving toward a health system that addresses the issues discussed in Atul Gawande’s compelling New Yorker article. (These game changers include, among other steps, items such as patient-centered quality research and re-orienting financial incentives through bundling and payment for quality rather than quantity of services delivered. After attending innumerable meetings of the Institute of Medicine and other gatherings of health policy types, I believe we are aggressively pursuing virtually all the game changers that have been put on the table by analysts. If anyone has ideas for what we’re not doing that could be done, please let me know! I also believe that since health care constantly evolves, it is impossible to specify today all the steps that will be necessary to reduce cost growth in a sustainable manner over the long term. Instead, cost containment must be a dynamic process, in which different processes are employed in an ongoing effort to make the system more efficient.)

What should not be overlooked in all these discussions of cost containment measures, however, are the backstop fiscal constraints we are demanding of a plan in the short to medium term: We are insisting that health reform be deficit neutral even over the next five to 10 years, through scoreable offsets such as savings within Medicare and Medicaid and (as necessary) additional revenue.

This belt-and-suspenders approach means we are not just banking on the long-term impact from the game changers to protect the budget. We also are demanding quantifiable cuts, efficiencies, and revenue-raisers so that the budget is not adversely impacted in the medium-term. That is to say, if the long-term savings from the game-changers materialize as expected, we wind up with a more efficient health care system and a better fiscal position. If they don’t, then at worst, we have a deficit-neutral plan that will not worsen our fiscal situation.

This isn’t the "voodoo economics" of supply-side tax cuts – not only because of the weak empirical basis for the claims behind such tax cuts, but also because proponents of supply-side economics were not willing to offset the cost of tax cuts through hard, verifiable offsets in the medium-term. Our approach, by contrast, not only attempts to address the key forces behind inefficiencies and rising costs in our health care system, but is also backstopped by hard-headed budget accounting and clear-eyed fiscal discipline.