NEJM: Americas Medicare choice is key to deficit reduction

With the introduction of Congressman Paul Ryan's (R-WI) “Roadmap for America’s Future,” Congress has now been presented with distinct alternatives for tackling Medicare reform. But as the debate heats up along increasingly partisan lines, an April 20 New England Journal of Medicine perspective article argued that savings and costs are uncertain under both plans.

Congressman Ryan’s Roadmap for America’s Future, introduced early this year, targets deficit reduction largely by centering on reforms to Medicare and Medicaid. With the two services now comprising 20 percent of the U.S. government’s budget and growing at a disproportionately higher rate than other federal expenditures, the plan would generate savings by fixing the future growth rate of Medicare expenditures.

President Obama’s plan, as outlined in the Patient Protection and Affordable Care Act of 2010, aims to control healthcare spending by moving away from the fee-for-service model of reimbursement and eliminating wasteful services and costs.

“Medicare and Medicaid must be key to any deficit-reduction plan, since their growth outpaces that of the overall economy,” argued Meredith B. Rosenthal, PhD, of the department of health policy and management at Harvard School of Public Health in Boston. But Rosenthal insisted that the medical literature questions the ability of both programs to bring about the desired savings while producing the intended patient outcomes.

Roadmap for America’s Future

Congressman Ryan’s plan proposes eliminating Medicare and Medicaid’s current reimbursement scheme by providing beneficiaries with tax credits, with which they could purchase private insurance, while disbursing block grants to states for Medicaid enrollees. The proposal would fundamentally limit spending by fixing the growth of the government’s Medicare and Medicaid spending at a rate somewhere between that of the Consumer Price Index and that Index’s healthcare component, thus ensuring that government spending on healthcare grows at a slower rate than the healthcare spending of the rest of the U.S.

“From one perspective, the beauty of Ryan’s plan is that by fixing the federal government’s contribution to Medicare and Medicaid to a formula unrelated to the growth of overall healthcare costs, it would be guaranteed to control federal spending growth,” Rosenthal offered.

The premise underlying this change is that shifting financial risk from the federal government to state governments, and to beneficiaries themselves, is a more effective way to control healthcare costs. The plan’s “advocates argue that consumers with ‘skin in the game’ will become smart shoppers, and insurance companies will compete to deliver lower-cost, higher-value plans,” Rosenthal wrote.

“The evidence regarding this notion is mixed at best,” the author continued. Although Ryan’s plan is in part based on the already existing Federal Employee Health Benefit Program, Rosenthal noted that costs for this plan have risen on a par with those of private payors.

In response to the plan’s contention that shifting costs and risk to patients will create more efficient payors and more prudent American spenders, Rosenthal argued, “Research shows, however, that consumers faced with higher cost sharing cut back on both effective and ineffective care—and that the most vulnerable patients have poorer health outcomes as a result.”

Back to the Affordable Care Act?

The President’s plan takes a different approach. Through the creation of accountable care organizations (ACOs) and other programs, the government would move toward sharing risk—and savings—with providers, an incentive for providers to eliminate wasteful services and improve patient outcomes.

This scheme runs the risk, however, of encouraging providers to avoid high-risk (and high-cost) patients in order to guard the organization’s own savings. According to Rosenthal, certain schemes of risk adjustment and auditing could minimize this effect.

Another looming uncertainty with the President’s plan is how keen providers will be to adopt this new cost-saving structure. Moreover, although the nonpartisan Congressional Budget Office (CBO) scores many of the plan’s provisions as generating savings, “the [medical] literature provides less certainty about the degree to which these mechanisms would reduce federal outlays than it does about the probable effects of vouchers or block grants,” Rosenthal held.

“The cost-control potential of the administration’s proposed reforms is more complicated to evaluate, in part because the multiple reforms would probably interact with one another.”

Rosenthal contrasted the principal concerns for either plan. On the one hand, Congressman Ryan’s plan seems to guarantee federal savings at the risk of leaving lower-income and elderly individuals with inadequate care; while the president’s plan is shrouded in greater uncertainty about how reforms will play out.

“Debate over these options should recognize the inherent trade-offs among the certainty of cost control, the likelihood of achieving cost savings while preserving as much high-value care as possible, and the risk that the most vulnerable Americans will pay the highest price for fiscal discipline,” Rosenthal concluded. She added, “Reducing growth in Medicare and Medicaid spending will be painful, however we achieve it.”