If You Want To Reduce The Growth In Health Care Costs, You Need To Reduce The Growth In Health Care Costs

Peter Orszag’s debut column for Bloomberg Views notes that while Paul Ryan’s plan to eliminate Medicare will reduce Medicare spending, it simply shifts those costs onto patients. Nothing is done to actually control health spending:

At the heart of the Ryan plan is a shift within Medicare toward consumer-directed health care -– which in turn is predicated on increasing beneficiaries’ “skin in the game” to make the health system more efficient. While more consumer cost-sharing would help reduce unnecessary care, the plan would not live up to its billing in cutting health costs for America. According to the nonpartisan Congressional Budget Office, it would do the opposite. That’s right: The CBO found that the Ryan Medicare proposal would substantially increase total health-care spending.

CAP’s plan, by contrast, is to reduce spending on Medicare by reducing inefficiency throughout the health care system:

To avoid that outcome, our plan brings down the costs of health care for everyone, not just those of the federal government. In this effort the Affordable Care Act, passed last year, is our most valuable tool. The new health care law has dozens of mechanisms, reforms, and pilot programs designed to bring down the costs of care, while improving the quality. The law also encourages the private sector to follow the public sector’s lead, and incentivizes public-private partnerships that bring down costs broadly. Backstopping all of this is the Independent Payment Advisory Board, whose mission it is to ensure that target savings are realized.


In our plan, aggressive implementation of the new health reform law, along with some enhancements to its existing cost-control mechanisms, will result in dramatically lower health expenditures, both for the federal government and overall. But predicting the exact effect of the myriad test programs and reforms in the new health law is fraught with uncertainty. Thus we also include a failsafe mechanism that would ensure significant savings.

Our failsafe would be triggered if, starting in 2020, total economywide health care expenditures grow at a rate faster than the economy. Should that happen then we would empower the Independent Payment Advisory Board to extend successful reforms in Medicare and other public programs to insurance plans offered in the health care exchanges and then potentially to all health care plans, such that the target is met. This will ensure that costs are constrained across the health care sector, preventing cost-shifting and maintaining access for all.

Now I think it’s unclear whether or not this will actually “work” in a procedural sense. Our collective political system, despite talking constantly about the need to lower health care costs, seems to me to actually be held hostage to health care providers who want to push spending up. But if congress does in fact want to slow the growth in health care spending, this or something very much like it is the way to do it.