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Jonathan Gruber, an MIT health care economist who has consulted for the Obama Administration and Congress, calls the reform legislation a "spaghetti approach" to cost control: "Throw everything against the wall, and see what sticks." The reform idea most likely to stick in the sense of acting to control costs is a tax on the country's most expensive insurance benefits, known as Cadillac plans. These insurance policies, which require minuscule or nonexistent co-payments and out-of-pocket spending, provide no incentive for patients to seek cost-effective care and in turn promote overuse of the health care system, all of which drives up costs. Faced with this new tax, employers and individuals will undoubtedly turn to cheaper policies, which economists say will save money in the system overall. In general, economists loathe any tax exemptions for health benefits, which currently cost the government some $200 billion in lost tax revenue per year. "They shouldn't just tax the Cadillac plans," says Alain Enthoven, another Stanford health care economist. "They should tax any plan that costs more than the standard Honda." (Indeed, when the tax on the most expensive benefits was first proposed by Senator John Kerry, it would have snagged more plans sooner, but political pressures weakened the provision in the reform bill's final days of debate.)
The second way reformers hope to rein in rising costs is to start rewarding doctors and hospitals on the basis of health outcomes such as chronic-disease management and effective treatments for injuries and not the volume of services they provide. In a system where providers are reimbursed separately for every procedure and service rendered, it's no wonder costs are skyrocketing. No piece of legislation could overturn this long-standing U.S. system, but reform will enable the federal government to experiment with ways to compensate providers for quality.
Pilot projects exploring various payment reforms will be launched within Medicare and, if successful, could be adopted by the entire program and possibly by private insurers as well. One of these demonstration projects, for example, would pay hospitals, doctors and other providers a set fee for a single episode of care say, bypass surgery. Then everyone involved would have to divide it up. Reformers are optimistic about the pilot projects' chances of success, but truly slowing the rate of spending growth won't happen until a successful experiment becomes widespread policy. That's where pilot projects have fallen short in the past. "It's going to be 10 years before you figure out which of these really work, and by that time, it will be too late," worries Mark McClellan, a doctor and economist who headed the Centers for Medicare and Medicaid Services during the George W. Bush Administration. "We'll be on to the next round of ideas of how to make health care better. We need much better measures of what is working and a much faster ability to implement them."
There's merit in moving slowly, however, says Linda Blumberg, a health policy expert at the Urban Institute, a nonpartisan think tank. "It could be very disruptive without a lot of gain if you're wrong. It makes sense to approach this stuff cautiously." The same may be true of comparative-effectiveness research, which is funded in the reform legislation and on which many economists and policy experts are pinning their hopes. The idea here is that the research hard data about which treatments work more efficiently than others will be adopted as standard protocol.
But there's no guarantee or requirement that this will happen. Lawmakers were careful to avoid giving any ammunition to those who say health care reform will substitute government decision-making for that of the doctor and the patient. Remember last summer's hysteria over "death panels"? The law explicitly prevents comparative-effectiveness research from being used to decide which services Medicare will pay for and how much it will reimburse. It was a victory for politics over science.