Getting Your Money's Worth: Never Easy, Especially in Health Care

The Congressional Budget Office (CBO), whose number crunchers assess the cost of specific legislation moving through Congress, routinely churns out reports on health care policy proposals. But sometime later this year, the CBO will produce a document unusual in both its scope and aim. Its purpose: to cost out various options for slowing the growth of health care spending in the United States.

The project is the brainchild of Director Peter Orszag, who told the Senate Finance Committee this summer that the rise in health care costs is "the central fiscal challenge facing the country." Orszag, an economist who's been talking about this issue since he took office at the beginning of last year, says he hopes the CBO's efforts will be of value to lawmakers who are weighing various proposals to address the issue.

Orszag's not the only one who is prodding Congress to find ways to control health care costs. Both presidential candidates are talking about how to help Americans who do not have health care insurance find coverage they can afford. Business leaders say that rising health care costs cripple their ability to invest money in other areas of their companies and compete internationally. Consumer groups that advocate for increased coverage in both private and government-based plans understand that any expansion of the system needs to be paired with an effort to hold down costs. And congressional committees with jurisdiction over the issue have held hearing after hearing to discuss ways to make the system more efficient, with Orszag and other experts testifying at many of them.

Health care accounts for 16 percent of the nation's economy and is expected to hit 20 percent over the next decade. "If so much of our nation's resources are devoted to health care, we need to ask ourselves what we are—or are not—getting for it," said Senate Finance Committee Chairman Max Baucus, D-Mont.

Getting your money's worth is never easy, but it's especially difficult in health care. There is little hard data to show which treatments work best or which providers deliver medical care more effectively than others. There are large regional differences in health care spending but no link between higher spending and better health outcomes.

Baucus and other lawmakers, as well as health care policy analysts and presidential candidates John McCain and Barack Obama, have put several ideas on the table to evaluate how much Americans spend for health care and what they receive in return. They include broader use of health care information technology, a greater emphasis on prevention, changing the employee tax treatment of health insurance benefits and evaluating which health care treatments are the most effective.

The ongoing wars in Iraq and Afghanistan, the nation's troubled economy, and the proposed $700 billion government bailout plan of Wall Street firms may complicate efforts for lawmakers to implement any of these ideas on a broad scale. But even if they do—and significant evidence exists that some of these concepts will improve quality—"there's very little evidence that these initiatives can slow the rate of costs," said Urban Institute President Robert D. Reischauer. The policies also would challenge health care entities that are "rigid and ossified" and involve changing people's behavior and livelihoods, making major change in the current health care system difficult to achieve, said Reischauer, who is a member of the Medicare Payment Advisory Commission and a former CBO director.

All of the ideas on the table have been under discussion for some time, and none of them represents a panacea. As is often the case in the zero-sum-game nature of health care policy, cost-saving proposals are usually offset somewhere else, and the cost is borne by the patient, the provider, the insurer, the taxpayer, or even by public health as a whole. But health policy experts watching the numbers rise, and aware of the degree to which the United States is surpassing the rest of the world in health care spending, agree that something has to be done. What follows is an examination of some of the more prominent proposals in the current debate.

Changing Tax Treatment of Health Benefits for Workers

The notion of taxing workers on the value of their health care insurance is one of those ideas that a lot of health economists have talked about but few politicians have embraced wholeheartedly because it is so politically explosive. Employer-sponsored insurance, excluded on employees' taxable wages, has been such a fundamental part of U.S. health care that it has become accepted almost as an entitlement.

But lately talk of eliminating the subsidy has been more common. At a recent hearing, Baucus called employees' tax subsidy for health benefits "the third largest government entitlement for health care." Excluding the cost of the premiums from taxes costs the government about $200 billion a year.

If the exclusion were eliminated, it would probably be replaced by a tax deduction of some kind for workers to purchase health care insurance, an idea that has been advocated by President Bush. The tax exclusion also would be eliminated as part of health care legislation cosponsored by Sens. Ron Wyden, D-Ore., and Robert F. Bennett, R-Utah. GOP presidential nominee McCain would eliminate the exclusion and replace it with a $5,000 tax credit for families and a $2,500 credit for individuals. Proponents of such a change say that it would make individuals less reliant on a particular employer for coverage and it also could make workers more sensitive to health care costs.

Economists testifying at the Finance hearing told the panel that not taxing employees on the value of health insurance they receive from employers is regressive, with nearly 27 percent of the tax expenditures benefiting families with annual incomes above $100,000, although those taxpayers account for about 14 percent of the population. Only 28 percent of that benefit went to families earning less than $50,000 a year, although that group represented nearly 58 percent of households.

"Not only do higher income families receive more benefit due to their marginal tax rate—but they are also more likely to receive health care benefits from their employer," Baucus noted.

The most commonly used argument against the tax exclusion is that not counting health care benefits as income creates an incentive to provide too much health care coverage and depress workers' incomes. "Insurance is not a gift from employers: employees ultimately pay the cost of higher benefits in the form of lower wages," said Katherine Baicker, a professor of health economics at the Harvard School of Public Health and a former member of Bush's Council of Economic Advisors.

If lawmakers wanted to change the current system, created in World War II when government-imposed wage controls prevented employers from raising pay but allowed them to expand benefits, such as health insurance, for workers, there are several possible methods. They include removing the exclusion either slowly or partially, overhauling the individual insurance market so it would be easier for people—especially those with chronic medical conditions—to purchase health care coverage, and requiring that all individuals buy health insurance, said Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology. The tax exclusion could be replaced with a flat tax deduction or credit, Baicker said.

These arguments have all gained currency as the cost of health care has risen. But the disruptions to the system and the possibility that employers could drop or scale back their health care benefits have made lawmakers very wary. While larger employers might still offer coverage, smaller employers might stop offering benefits or scale them back. If workers were left without coverage, they might have a hard time on their own purchasing coverage they could afford or that would provide the health benefits they need, especially if they had a pre-existing medical condition.

As a result, Baucus is moving cautiously. "Since a majority of Americans get their health care coverage through their employer, any changes to the current tax subsidy should be done carefully and deliberately," he said. "We need to have a full understanding of the advantages, disadvantages, and consequences."

Health Information Technology

The health care information technology system that advocates envision is a powerful one. Imagine this: Just once, consumers would fill out a form with their health insurance information, medical and family history, and any other details they often put on forms or tell the physician at every visit. Patients' personal health information, along with medical records and previous tests, would be shared seamlessly between doctors, hospitals, medical testing labs and, in the case of a medical emergency, with emergency room personnel—even if you get in a car accident on the other side of the country. Prescriptions would be processed electronically—no more carrying that piece of paper to the pharmacy with a return trip to pick up prescriptions and no more prescription errors due to sloppy handwriting.

"When used effectively, electronic health records could reduce the duplication of diagnostic tests; remind physicians about appropriate preventative care; identify harmful drug interactions or possible allergic reactions to prescribed medicines; and help physicians manage the care of patients with complex chronic conditions," Orszag testified in July before the Senate Finance panel.

But increasing the use of "health IT" is easier said than done. Only four percent of physicians have a fully functional electronic health records system as a routine part of their practice, and 13 percent have a basic system, according to a study published in June by the New England Journal of Medicine. "It is troubling to see just how slow physicians are moving to adopt this technology," said study co-author David Blumenthal, director of the Institute for Health Policy at Massachusetts General Hospital. Just 11 percent of hospitals had fully implemented electronic health records, according to a study released last year by the American Hospital Association.

Efforts in Congress provide loans and grants to hospitals, doctors and other sectors of the health care industry to promote faster adoption of electronic medical records, have been snagged on privacy and cost concerns. Some health care providers are reluctant to use electronic health records because of the expense involved and the disruption of moving to such technology will make in their practice patterns.

While some integrated health care systems such as Kaiser Permanente have implemented their own electronic health records systems and say the care they provide is better as a result, some individual medical practitioners are reluctant to make the leap because their electronic health record system may not be able to "talk" with other electronic medical record systems with other doctors' offices, hospitals and health care providers that the physician and patient interact with, and may need to replaced later with newer technology, which will add to the expense.

"Current legal and financial incentives provide little motivation to share information across institutions, which is critical to improving patient outcomes as well as efficiency," researchers Carol Diamond and Clay Shirky wrote in a study on health information technology published in the Aug. 19 issue of the journal Health Affairs. "There is also deep concern on the part of doctors and hospitals about how the technology will be financed, and on the part of consumers about how their data will be used and kept safe from misuse."

Another obstacle to adoption, said Rand Corporation researcher Richard Hillestad, is that most of the benefits from health IT would go those who pay for health care—the government and insurers, for example—providing little financial incentive for physicians and hospitals not part of an integrated health care system to pay the costs and undergo the disruption to implement the technology. "This market failure is a key indicator of the need for government intervention," he told the Finance panel in July

In addition to improving patient care and reducing medical errors, some experts see a strong incentive—major savings—to widespread implementation of health IT. A 2005 Rand Corporation study estimated that widespread adoption of health information technology, defined as 90 percent adoption level for hospitals and physicians, had the potential to save about $80 billion per year, while the costs to achieve those savings in 15 years would average about $8 billion a year, or $120 billion total.

But other health care analysts warn against assuming large savings from health IT. At the same hearing, Orszag said broader changes in the health care system, especially changes in the financial incentives for doctors, would be needed to realize the full potential of health information technology. As a recent CBO report on health IT noted, current health care payment systems do not reward providers for reducing costs and may even penalize health care providers who do. In many cases, public and private health care providers are reimbursed on the number of tests and procedures they order, so their incomes would be reduced if they did less. Orszag has suggested that the threat of financial penalties may spur providers to adopt health information technology on a faster basis, in particular for providers who participate in Medicare.

In recent months, the Bush administration has taken the incentive approach, offering about $150 million in additional Medicare payments over five years to physicians who replace their paper medical records with electronic systems, and the announcement of a pilot program designed to allow Medicare beneficiaries to manage their health records electronically.

But as policy makers pursue broader health information technology adoption among hospitals and medical practices and other initiatives to improve patient care, expectations for cost reduction must be realistic, warned Paul B. Ginsburg, president of the Center for Studying Health System Change.

"Skepticism is in order about the magnitude of cost reductions that might result," he told the Senate Finance Committee in June. "While there certainly will be instances where quality improvement will contain costs at the same time, it's questionable whether the next impact on costs will be commensurate with the magnitude of the cost problem."

Comparative Effectiveness: Finding Out What Works Best

One of the new buzzwords in health care policy, comparative effectiveness means finding out what medical treatments and procedures work best so that employers, insurers, and consumers can be better informed about how they spend their health care dollars.

The concept is not new; the Agency for Healthcare Research and Quality (AHRQ), a federal agency within the Department of Health and Human Services, currently conducts comparative effectiveness research to evaluate the quality, effectiveness and efficiency of health care delivered through Medicare, Medicaid, and the State Children's Health Insurance Program (SCHIP). But several lawmakers have expressed interest in creating a separate entity to conduct such research on a broader scope.

"Doctors and patients need reliable, unbiased information about the effectiveness of treatments to determine the best care possible, but right now that data is scarce and unorganized," said Baucus, who has authored legislation with Senate Budget Committee Chairman Kent Conrad, D-N.D., to establish a private nonprofit corporation, governed by a public-private sector Board of Governors, to evaluate which health care treatments and services and work and which do not.

"Knowing more about the effect of different health interventions will improve the treatment of diseases, help American better manage and prevent illness, and could lower health care costs for everyone," Baucus said.

Under the Baucus plan, the entity could work with AHRQ or other federal agencies, such as the National Institutes of Health, or private researchers, but it would be governed by a private sector board of governors and not be an agency of the federal government. Rep. Pete Stark, D-Calif., has proposed a similar program, which was included in a House-passed SCHIP reauthorization last year, and he may introduce the proposal as stand-alone bill this fall, an aide said.

Most health care stakeholders agree that the comparative effectiveness of procedures and treatments should be evaluated and support such an entity, but some providers and drug and medical device makers want to make sure that the findings of such an entity but said its findings should not be used to deny or delay medical care. "We believe safeguards should be included to ensure that the final determination of what treatment option works best for each patient should be made by individuals and their physicians," said Stephen J. Ubl, CEO of the Advanced Medical Technology Association, also known as AdvaMed.

Meanwhile, some analysts have expressed concern that comparative effectiveness research might interfere with doctors' ability to determine what treatment might work best for a particular patient. Blue Cross and Blue Shield Association President and CEO Scott P. Serota says that's not the point. "I'm not telling a physician how to practice medicine. I'm telling him what works," Serota said in an interview. "What's happening today is that you can't find out."

Private insurers, most often the larger ones, have been conducting their own research in into drugs and devices and sometimes analyze claims data for enrollees to determine effectiveness of a particular medical treatment. For example, the Blue Cross and Blue Shield's Technology Evaluation Center produces about 20 to 25 new assessments of drugs, devices, and other technologies each year. 

But as CBO researchers noted late last year, "health plans may choose to publicize the results or they may decide to keep their findings confidential and use them to shape their policies regarding coverage of and payment for the treatments in question."

Under pressure to reduce the cost of federal health care programs as well as lower costs in the public sector, lawmakers have plenty of incentive to use comparative effectiveness to achieve those goals. But to work such an entity must have a dedicated funding stream and be insulated from political pressure, with appointees having long terms of service, experts said.

"The data made available by the center must be regarded as objective, credible, and transparent—protected from both the political process as well as the interests of affected parties," said Gail Wilensky, a former director of Health Care Financing Administration (HCFA), now known as the Centers for Medicare and Medicaid Services (CMS). "The information should also be timely, span the full range of data available, and be understandable to the various parties who want to make use of the data but the most important characteristics are those associated with 'trust,'" Wilensky testified before the Finance panel in July. "Without that, the center won't be able to serve its fundamental reason for existing."

Even with such a panel in place, other changes will have to occur to maximize the potential for comparative effectiveness to reduce costs. The research would have to cover a large range of medical conditions, and patients and physicians would have to change their behavior based on that information. Greater use of comparative effectiveness also may expand the use of "pay for performance" efforts that link a provider's payment to the quality of care delivered. Ongoing demonstrations by the Medicare program have rewarded payment bonuses to hospitals and physicians that have improved the quality of medical care provided.

While comparative effectiveness research has great potential to lower health care spending without adverse effects on health, it would probably take a decade or more for such research to significantly lower health care spending, Orszag wrote last year in an assessment of Stark's proposal to create a comparative effectiveness entity.

Prevention: Does It Save Money?

It sounds like a no-brainer: Increasing investment in health care prevention will improve outcomes and reduce costs. Like most health care issues, though, the experts disagree.

"Sweeping statements about the cost-saving potential of prevention . . . are overreaching," researchers from the Tufts New-England Medical Center and the Harvard School of Public Health wrote in the New England Journal of Medicine. "Whether any preventative measure saves money or is a reasonable investment despite adding to costs depends entirely on the particular intervention and the specific population in question . . . It is important to analyze the costs and benefits of specific interventions."

For example, drugs used to treat high cholesterol yield more value for the money spent if the targeted population is at high risk for coronary disease, and the efficacy of cancer screening can "depend heavily on both the frequency of the screening and the level of cancer risk in the screened population," the authors wrote. In addition, high technology treatments can be expensive and might not be the most efficient use of resources.

In their book "Health Care Half Truths," authors Arthur Garson and Carolyn L. Engelhard offer similar caution when evaluating the cost-saving benefits of prevention. "Prevention is absolutely the right thing to do: it improves quality of life and increases our life span, but it doesn't always save money," they write, adding that the expense of prevention depends on the number of people being screened and treated, the cost of disease being prevented, and the time frame involved. Garson, a physician, is a former dean of the University of Virginia's School of Medicine and is now the school's executive vice president and provost. Engelhard is an assistant professor and health policy analyst in the medical school's Department of Health Sciences.

Cost savings in treating high blood pressure, a condition thought to afflict 43 million Americans, "depends on how high the blood pressure is and the risk of having a stroke or heart attack, and overall, treatment appears to recover only about 27 percent of the cost of the treatment," they write. While it may seem cynical to use such calculations to weigh the economic benefits and costs of prevention "it makes the point that we control diseases like hypertension to add years of life and to promote health, not to save money."

To be sure, there are many voices in the health care debate that say that placing a greater focus on health care prevention will save both lives and money. That's the focus of the Partnership to Fight Chronic Disease, an alliance of health care and business groups, unions, and academics that has pressed to raise awareness among the 2008 presidential candidates and voters about the prevalence of chronic disease. In a recent report, the group sites medical research findings that conclude investing in prevention will save the United States more than $1 trillion by 2023.

While not all prevention activities result in immediate savings to the health care system, over time they will, said Ken Thorpe, the group's executive director and who was a top health policy aide to President Bill Clinton. He says lifestyle changes are just as important in making prevention work as other interventions, such as taking medications as prescribed and monitoring an ongoing chronic disease. He also says that analysts must take a close look at prevention programs that work as well as those that do not.

"We have an accumulated body of evidence out there on both the lifestyle intervention and on care management which link design, which is critically important, to results and outcomes," he said in an interview.

Another health care expert that challenges the notion that prevention does not save money is Dean Ornish, founder and president of the Preventative Medicine Research Institute, which investigates the effects of diet and lifestyle choices on health and disease. In testimony at the Senate Finance Health Care Summit in June, Ornish said that lifestyle changes, such as improved diet and exercise and stress management techniques, can help to reduce harmful LDL cholesterol levels in men and women without the use of drugs.

"The debate on prevention often misses the point . . . it's not just how long we live but also how well we live," Ornish said. "Making comprehensive lifestyle changes significantly improve the quality of life very quickly, which is what makes these changes sustainable and meaningful."

Business groups including the Business Roundtable also point to growing support for wellness programs and the benefits they bring in fewer lost workdays due to illness and improved employee health. In a recent report, the group said that 82 percent its membership offered disease management programs while 74 percent offered tobacco cessation and 85 percent offered weight management.

The Road Ahead

With each of these ideas there is consensus around the goals, but differences around the methods. As a result, it will not be easy to incorporate them into a health care overhaul that Congress is likely to contemplate next year. Each proposal is technically complicated and would disturb well-established constituencies in the health care system that could stand to lose. And the biggest obstacle, ironically enough, is that each proposal to cut costs actually costs money.

The threat of losing money may stop some in the current health care system from changing it, said Intel Corporation Chairman Craig R. Barrett. "Everybody hates it, nobody likes it and none of the incumbents want it to change because despite the fact they say they don't like it, they're afraid that . . . they might be adversely affected. They've all figured out their niche, they've figured out how to survive in the current system. Anytime you mutter the words efficiency, productivity, they translate that into 'well, that means less revenue, less money, that means you're going to squeeze me. I don't like that. I like the current system.'"

Watching the yearly struggle over Medicare physician payments—which will have to be revisited next year again or physicians will face an approximately 20 percent payment cut—illustrates how difficult it is for Congress to navigate the political constituencies and complications involved in health care legislation. Lawmakers will also face a March 31 deadline to continue funding for SCHIP. With those challenges in mind, passing health IT and comparative effectiveness legislation "would be an awful lot," says Maria Ghazal, director of public policy for the Business Roundtable.

But others say that since health care legislation is so difficult, a broader approach to overhauling the nation's health care system—with more provisions that would please a broader range of constituencies—might widen support for it. "Let's do all of them, as much as we can, as fast as we can. We have to try everything because the alternative is worse than that," said David Cutler of Harvard University and a health care adviser to the Obama campaign. "If we don't try all of these and we fail it's a big shame for us."

The Urban Institute's Reischauer said next steps ahead include a "long, deliberate process" of building an infrastructure for a different health care system, such as broader use of health information technology and more transparency so patients can learn more about the cost and quality of health care choices, while taking more immediate steps to correct current problems.

"You do what you can to provide more coverage for the uninsured, you do what you can to change the incentives that both individuals and providers have which have led to such dysfunctional behaviors," he said. "And keep your fingers crossed."