So let me take this post to respond to some of the main questions raised.

 

First, how are we going to pay for health care reform?

 

I have posted on this previously, but it’s worth repeating.  The Administration is committed to the principle that health care reform must be deficit neutral over the next decade.  That means that every dollar spent on this effort must be paid for – with real savings or revenue proposals that can be scored by the Congressional Budget Office (CBO).  The offsets are not in any way theoretical; they are specific proposals that have been determined by CBO to reduce spending or raise revenue.

 

In particular, the President has already put forward in his budget specific proposals to generate $635 billion for health care reform – with roughly half coming from Medicare and Medicaid efficiencies and half from limiting the itemized deduction rate for the wealthiest Americans to what it was when Ronald Reagan was President.  In addition, last week in a letter to Senators Baucus and Kennedy, the President wrote that he will be laying out an additional $200 billion to $300 billion in Medicare and Medicaid savings.  That will take our total "pay-fors" to approximately $900 billion or more, and put us in a good position to fully fund health reform in a deficit neutral way.

 

Let me stress again: these are not "speculative cost savings."  We are not "hop[ing]…that the $120 billion annual cost will not have to be funded at all, but instead will be offset by various reforms that the Administration proposes."  What we are proposing are real, scoreable proposals that have been deemed by CBO (which has a good reputation for analytical rigor and a healthy skepticism about such proposals) to save money or raise revenue.

 

In addition to insisting that reform be deficit neutral based on these CBO-scored proposals, we also embrace a set of initiatives that will help transform health care and mitigate the increase in health care costs – steps such as health IT, research into what works and what doesn’t, prevention and wellness, and changes in incentives so that Americans get the best care not just more care.  These "game-changers" are critical to the sustainability of health care reform; without them, cost growth will eventually creep back up.  But they will not pay for health care reform; that is from the Medicare and Medicaid savings and new revenue.  Instead, they should help to lower the rate of health care cost growth and sustain reform over time, and thereby help us achieve a more efficient system.

 

Second, will we be stifling innovation if we remove regional variations in health care practice and expense? 

 

It’s certainly true that medical innovation is essential to improving treatment – and thus health outcomes – for us all.  And it’s also true that we need to encourage doctors and researchers to explore and experiment in ways that lead to medical advances that save lives and improve their quality.  But, today, the American health care system doesn’t always reward the best medical innovations – and one need look no further than McAllen, Texas to see that this is so. 

 

Despite having a demographic profile similar to El Paso, Texas, and despite having had similar Medicare expenditures as El Paso as recently as 1992, McAllen’s spending grew about five times faster in the years since than in either El Paso or the United States as a whole.  In return, McAllen got more medicine (more tests, more surgeries, more time in waiting rooms), but it didn’t get better health – McAllen scores lower than El Paso (and the U.S. average) in measures of health care quality.  McAllen "innovated," and certain doctors and hospitals were financially rewarded, but I think we can all agree that this isn’t the kind of innovation we desire. 

 

To get the most from innovation, we need to align incentives toward quality rather than intensity.  The Mayo Clinic, synonymous the world over with cutting-edge medicine, has among the country’s lowest Medicare costs per beneficiary.  Smaller medical markets, too, have managed to achieve such results: Grand Junction, Colorado is one of the lowest-cost and highest-quality places in the country to be treated.  We need to reform the health care system so that it rewards the right kind of innovation – the Mayos, not the McAllens.  And the Administration’s proposals aim to do precisely that through bundling of payments, incentives to reduce hospital readmission rates, and (as discussed below) a process through which MedPAC’s recommendations would enjoy fast-track protections in Congress.

 

Third, won’t the system be unable to respond to changes in health care because of the intensity of health care politics?

 

This is a very valid concern.  And that’s why the President has expressed his openness to proposals that will give MedPAC, a Medicare advisory commission established by a Republican Congress, more power.  Currently, MedPAC – a non-partisan, highly technical body – issues pages of recommendations to make Medicare more efficient, and these reports are read by wonks like me but tend to gather dust on bookshelves.  One proposal would require Congress to give an up or down vote on MedPAC’s proposals similar to how the defense base-closing commissions have worked in the past.  This kind of solution could help to insulate highly technical MedPAC recommendations from undue political influence, while keeping policymakers accountable.  This approach could help us keep up with an evolving health care market and continually re-orient it toward quality.