Saturday, December 19, 2009

HCR - Cost Control Holes Remain

CBO report is out handing the necessary victory to Sen. Reid to close the Senate passage by Dec 24. However, browsing through the report it is clear that Sen. Reid would have retained all the holes which would not address the Cost Control Measures effectively. One specific hole is how Medicare Costs are controlled. Here is what the report has to say in that regard:

"The legislation also would establish an Independent Payment Advisory Board, which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program’s spending. Those recommendations would go into effect automatically unless blocked by subsequent legislative action. Such recommendations would be required if the Chief Actuary for the Medicare program projected that the program’s spending per beneficiary would grow more rapidly than a measure of inflation (the average of the growth rates of the consumer price index for medical services and the overall index for all urban consumers). The provision would place a number of limitations on the actions available to the board, including a prohibition against modifying eligibility or benefits, so its recommendations probably would focus on:
• Reductions in subsidies for non-Medicare benefits offered by Medicare Advantage plans; and
• Changes to payment rates or methodologies for services furnished in the fee-forservice sector by providers other than hospitals, physicians, hospices, and suppliers of durable medical equipment that is offered through competitive bidding."

What this means is the Board would not recommend changes in lot many cases as Medicare Expenses would not increase faster than 'average of consumer price index of medical services and general CPI growth'. I believe originally it was only 'CPI of medical services' which might have been improved further to include average with general CPI as well. But the most desired proposition is it should be only 'general CPI'. This is because general growth rates are highest for over all Medical Services (say 10%), then for Medicare (say at 5%) and then for general CPI (say at 3%) in decreasing order. To bend the curve means to bring the Medicare growth rates more aligned to general CPI. There is no reason to have any correlation with growth of Medical Services overall. In this particular example it is not clear whether Lieberman-Rockefeller amendment in this regard is accepted.

This is just one example what one blogger can dig into. For sure, more such 'land mines' are planted all over the 2000 pages of this bill. Now that Nebraska Sentor Nelson is on board, it is very very unlikely Sen. Reid would make any changes in the bill. This means the bill will be passed with all these 'land mines' and much weaker and ineffective Cost Controls. Mix this one with House Bill which has almost 'no cost controls' and general thinking is Conference Bill will be more near to House Bill than Senate version.

All this means, despite all the scolding of Media by Peter Orszag; White House is going to give far more importance to passage of the bill than having right cost control measures. This is bad and it means essentially White House and President Obama are not sticking to their words of 'strict cost control' measures. People are tired of telling Congress to be prudent here. Democrats in Congress and Senator Reid in particular are 'shameless' and appear to have decided to pass a bill with no regards to 'cost control measures'. Tragedy is we hoped President Obama will be vigilant in this regard, but all signs point that he would let go this bill as is and will not bother 'watering down' of cost control measures which Congress is undertaking.

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