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Today, a group of progressive think tanks released their response to the deficit: Investing In America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility. As Naomi indicates below, the report represents a collaborative effort by Demos, the Economic Policy Institute (EPI) and The Century Foundation (TCF). Here, I’m focusing on how we can rein in health care spending, but I urge you to read the entire report. It makes it clear that we don’t need the austerity budget that the conservative Peterson-Pew Commission proposes. Instead, we should be focusing on jobs and growth.

Commenting on “Investing in America’s Economy” over at Think Progress, Matt Yglesias highlights a major theme: “No Cost Shifting.” He quotes the report: “Policies that simply shift costs from the federal government to individuals and families may improve the government’s balance sheet but may worsen the condition of many Americans, leaving the overall economy no better off.”

For example, the Peterson Pew Commission would increase cost-sharing under Medicare (see my earlier post on their report), which means that over ten years, it would shift $23 billion of Medicare costs to individual seniors, and over 20 years, Medicare beneficiaries would be asked to absorb an eye-popping $135 billion of the nation’s Medicare bill. The proposal would reduce total spending only if seniors can’t afford the co-pays, and cut back on essential care. This is a crude way to rein in Medicare inflation, rationing care by ability to pay. By contrast, the progressive plan would trim wasteful healthcare spending—such as overpayments to Advantage insurers.

Turning to the section on health care, Yglesias writes: “For the longer-term, like all long-term budget plans they need to rely heavily on fairly speculative assertions about health care costs. But I think that if you dig into it, you’ll find that [Investing in America’s Economy] offers the least hand-waving on this point of any plan I’ve yet seen, though that’s not to say there’s no hand-waving.”

I can see why Yglesias finds some of the analysis speculative. The body of the report talks about long-term savings that cannot easily be “scored” because they flow from unprecedented changes in the structure of our health care system--reforms such as “accountable care organizations” and “bundled payments” that have not been tried on a large scale. Some of these reforms already have succeeded in cities and medical centers across the nation. But it is impossible to predict which pilot projects will succeed, where they will flourish, or just how much they will save. Nevertheless, over time, what cannot be counted is likely to count most. These are the crucial reforms that will turn a fragmented cottage industry into a system that can provide coordinated, high quality care at a lower price.

It is important to recognize that the unprecedented reforms discussed in the body of the report would reap “additional savings” over the long term—beyond the nearly $1 trillion that the Affordable Care Act (ACA) provides between now and 2018 in order to fund the cost of reform. (You will find a short list of some of the ways the ACA funds itself by reducing spending and raising new money in Appendix E, toward the end of the report.)

                 Savings and Revenues that Can Be Scored

Below, a pie chart from the right-leaning Tax Foundation offers a fuller explanation of how the legislation generates $938 billion through a combination of new taxes and fees.

•    $107 billion in fees that insurers, drug-makers and device-makers have already agreed to contribute, knowing that 32 million formerly uninsured Americans will bring them new business.  These businesses have calculated that they can afford to pay these fees out of new revenues; if they try to raise prices to cover the fees, they will meet great resistance from insurance regulators and Medicare

•    an estimated $69 billion that individuals and employers who decide not to purchase insurance will shell out

•     as much as $32 billion in excise taxes that employers will pay in on super-expensive “Cadillac” health plans beginning in 2018

•     $210 billion in higher Medicare taxes that individuals earning over $200,000 (and couples earning over $250,000 will pay.) The tax hikes apply only to those in the top 2%, and they are not too steep: an individual earning $250,000 would owe an extra $450.

These are not “hoped-for” savings that depend on someone responding in a positive way to new incentives. This is $454 billion that reformers can count on. (Granted, two numbers on the list are estimates: we can’t be sure how many employers will offer “Cadillac plans” in 2018, or how many people will decide to pay penalties rather than buying insurance. Revenues from these fines could be lower-or higher.)

In addition, the legislation generates $461.5 billion in savings by reining in Medicare spending—without cutting needed benefits, increasing co-pays and deductibles, or slashing physicians’ reimbursements.  Medicare achieves more than three quarters of those savings by:
   

•     Reducing over-payments to Medicare Advantage private insurers by $136 billion. As I explain here while some seniors might lose certain extra benefits such as free eye-glass frames, Advantage seniors themselves say that the extras are worth only about 14% of what Medicare is shelling out for them. And there is no evidence that the freebies offered by the vast majority of Advantage plans improve seniors’ health. Meanwhile, Secretary of Health and Human Services Kathleen Sebelius has used new authority given to her under the ACA to persuade Advantage insurers to lower average premiums. Despite dire predictions, the ACA has made Advantage plans more affordable for many, without reducing access for seniors who prefer Advantage.

•    Trimming $22.1 billion from the support that Medicare and Medicaid provide for hospitals that care for a disproportionate number of uninsured patients ("DSH" payments). Because roughly 32 million formerly uninsured Americans will have coverage, hospitals won’t need as much help. Initially Medicare plans to trim these subsidies by 75%, and then adjust them as it becomes clear which hospitals still treat a large number of  those who remain uninsured.

•    Shaving annual increases to hospitals, nursing homes and home health agencies by 1%, saving the Centers for Medicare and Medicaid another $196 billion. The goal here is to spur these institutions to become more efficient by designing better systems, and reducing errors. In an upcoming post (“How Reform Law Funds Itself, Strengthens Medicare, and Cuts the Deficit: Part 2”) I will explain how hospitals can do this. Both the Medicare Payment Advisory Commission (MedPac) and the Institute for HealthCare Improvement (co-founded by Don Berwick, who now heads Medicare) have paved the way, showing where hospitals could lift productivity while offering safer, better-coordinated care.)

These three items alone represent $354 billion of the $416.5 billion in Medicare savings. In addition, Medicare is adjusting payments for Home Health Care by $39.7 billion and reducing Part D (prescription drug) subsidies for high-income beneficiaries by $10.7 billion, while spending an additional $42.6 billion to fix the “donut hole” in the prescription drug program.

Add that $416.5 billion to the $454 billion outlined above, and you can see how the Accountable Care Act pays for universal coverage, while putting Medicare on the path to financial solvency.

Read More: http://www.healthbeatblog.com/2010/11/how-the-aca-saves-money-raises-revenues-numbers-you-can-count-on.html