Opinion Column

Senate Dysfunction and Health Care Cost Control: In Private Sector We Trust?

There’s good news and bad news. The good news is that if cost-saving provisions of the new health reform law work, Medicare solvency will be extended by 12 years, according to the program’s trustees. The bad news is that the new law will only extend Medicare solvency by 12 years: it’s still predicted to go bust, in 2029. 

Worse yet, the Senate has reached such a level of dysfunction that it requires 60 votes under normal procedure to pass any significant bill or amendment (as George Packer documented in The New Yorker last week). The new health law that promises just a dozen more years of Medicare solvency only passed the Senate because Democrats had those 60 votes last December. They no longer do and likely won’t for the foreseeable future. Under these legislative conditions, can more health cost control legislation pass? 

This is not just about Medicare. States, business and family budgets are also straining from the high costs of care. Public and private health care costs are linked. In a recent article in Health Affairs, Harvard University health economist Joe Newhouse argued that there are limits to how far Medicare payments to providers can fall below those of the private-sector ones. If they are too low, providers may turn away Medicare patients, creating problems for beneficiaries’ access to necessary care. Given the political power of the Medicare constituency, that’s not something politicians are likely to get away with.

Thus, Medicare’s cost problems will not be solved without solving those of the entire system, which will involve paying providers less. It’s a daunting technical challenge and a politically difficult one. Nobody likes a pay cut. Can government be part of the solution?

Notice the sense of this question.  I am not questioning whether government should be part of the solution. I am not asking whether government can propose solutions. I am considering our government’s apparent inability to address serious, long-term problems (except in cases of historically rare levels of single-party control), and asking whether it can pass a solution, or part thereof.

If not, this leaves a vacuum for private-sector approaches. Employers and individuals are not going to stand for double-digit percentage premium increases for much longer. Gradually, they will begin to demand that something be done. Just as Americans turned toward managed care in the 1990s after Congress failed to vote on Clinton’s proposed reforms to the system, they will again seek innovative health plan designs that promise lower premiums.

The hottest trend in health plan design is the consumer-directed health plan, higher deductible plans sometimes coupled with a health savings account. Among the 700 firms that participated in a recent PriceWaterhouseCoopers survey, the proportion for which high deductible plans were the most popular plan type offered more than doubled from six percent in 2008 to 13 percent in 2010. In theory, shifting greater risk of health care costs from insurers to policyholders in exchange for lower premiums should lower those costs. When you have to pay out-of-pocket for something, you buy less and seek good deals.

Will this theoretical expectation work and, if so, for whom and for how long? To date the evidence is encouraging but not conclusive. Questions remain about long-term implications and the extent to which such plans can really control costs for severe and costly acute care (for which prices far exceed the deductible), whether they make sense for low-income individuals or whether they will lead persons with chronic illnesses or disabilities to forgo necessary care.

Equally important, however, is whether these consumer-directed plans (or whatever private-sector innovations that fill the cost control policy void) will enjoy a long-term embrace by Americans. Remember, managed care worked too, until it became intolerably rigid for many people.

It’s clear that the private sector, unencumbered by a requirement to overcome a filibuster, can implement changes. So, when it comes to the thorny problem of health care costs and with the Senate in seemingly endless deliberation, do we, must we, say, “In the private sector we trust?” If you find that unappealing, good luck trying to fix the Senate.

Austin Frakt is a health economist and an Assistant Professor of Health Policy and Management at Boston University’s School of Public Health. He blogs at

The Incidental Economist

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