Cost Containment Through Health Improvement

Cost Containment Through Health Improvement


The U.S. is in the midst of an ongoing—and still expanding—health care cost crisis. Even among people with health insurance, medical debt has become a persistent problem. Top executives at nearly 90% of large employers believe the cost of providing health benefits to employees will become unsustainable in the next 5-10 years. And the nonpartisan Congressional Budget Office (CBO) is warning that expanding federal debt—driven largely by health expenditures and compounding interest payments—indicates that a major fiscal crisis is looming.

On this last point, it is true that reputable people have been predicting fiscal collapse for many years. In 1988, Benjamin Friedman wrote that we’re facing a Day of Reckoning. Pointing to the rising federal debt, he said: “we are living well by running up our debt and selling off our assets. America has thrown itself a party and billed the tab to the future.”

Peter G. Peterson wrote a book in 1993 called Facing Up: How to Rescue the Economy from Crushing Debt and Restore the American Dream. In it, he said that “runaway medical costs are the single most important reason that federal spending and federal deficits have now become ‘uncontrollable.’”

Not everyone agreed that deficits and debt were problematic. In 2003, as Republicans were pursuing further income tax cuts, Vice President Dick Cheney declared: “Reagan proved that deficits don’t matter.”

David Stockman was Ronald Reagan’s first budget director and one of the chief architects of the Reagan Revolution—a plan to cut taxes and reduce the size and scope of government. He wrote in The Triumph of Politics that the Reagan Revolution failed because the administration had not been able to control spending, leading to massive increases in the federal debt.

In 2013, Stockman wrote a book called The Great Deformation: The Corruption of Capitalism in America. He said that during the Great Recession, the Federal Reserve Bank had carried out “the greatest money-printing spree in world history.” Between 2004 and 2012, 70 percent of rising U.S. debt was absorbed by central banks. He said that “the world’s central banks have morphed into a global chain of monetary roach motels. The bonds went in, but they never came out.” He concluded that it was easy money, which the Federal Reserve System had supplied for decades, that was responsible for “deficits without tears.” “American politicians…had essentially died and gone to fiscal heaven.” They were able to spend money “without the inconvenience of taxing.” Both Democrats and Republicans have taken advantage of this changed reality.

In 2020, Stephanie Kelton wrote a book called The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. In it, she called for a paradigm shift: since the U.S. has the ability to print its own money, we should recognize that federal spending is not financed by tax revenue or borrowed funds. Whenever the need is pressing enough (e.g., warfare), we can and do supply whatever money is needed. The real deficit, she said, is not the fiscal deficit, but societal needs that are going unmet. Regarding health care, “our failure to provide proper insurance and care for every American is not because the government cannot ‘afford’ to cover the cost.” It’s just that we are operating under the wrong budget paradigm.

Importantly, though, Kelton wasn’t saying that there is a free lunch. She wrote, “It is possible for the government to spend too much. Deficits can be too big. But evidence of overspending is inflation, and most of the time deficits are too small, not too big.” This dovetails with David Stockman’s concerns about unsound money. And it mirrors the concerns of the CBO, which has said that a fiscal crisis would involve higher rates of inflation and an erosion of confidence in the U.S. dollar.

Containing Health Care Costs

If the CBO is to be believed, deficits and debt do matter. And although there have been “Cassandras” saying the sky is about to fall for many decades now, there may come a point in time when the need for cost containment becomes immediate and vital. (Some would argue that we’re already there.) Health care is a primary driver of fiscal deficits and, in an emergency, it would become a primary target for budget savings.

In this context, cuts to Medicare and Medicaid become a central focus.

The CBO has said that raising the Medicare eligibility age from 65 to 67 might be a good option. However, this would be a painful cut. When France recently increased its retirement age, police and protestors clashed on the streets of Paris. And in the U.S., many have advocated moving in the opposite direction, such as reducing the eligibility age to 60, or establishing Medicare for All.

Invariably, people who are concerned about the national debt talk about the need for “hard choices.” An entire section of Pete Peterson’s book is devoted to “the choices we must make.” However, as Kelton has observed: “the anti-entitlement crowd loves to congratulate itself on its courage. But there’s nothing brave about attacking programs for the elderly, disabled, and poor.”

Some states are now implementing spending limits to contain cost growth. California is the largest of these, and it will include strict accountability measures. The state is moving toward 3% annual growth in spending over the next five years, as compared to 5.2% growth in recent years. Providers—including hospitals, doctors groups and health insurers—will have to submit spending data to demonstrate that they are complying with the cap. However, the California Hospital Association has argued that if a similar cap had been in place the last five years, “$60 billion would have been drained from the resources hospitals use to care for patients, an amount that translates to a whopping 58,000 health care jobs lost.”

There are many other health care cost containment strategies currently being considered nationwide, but pain is the common denominator (often for patients, and frequently for powerful special interest groups).

A Better Solution

I’ve been thinking about this problem since I entered health policy 30 years ago, and I think I’ve identified a solution. There is a way to cut costs that represents a win-win for patients and purchasers—and avoids rankling special interest groups. It involves cost containment through health improvement. I discuss this in a previous blog called The Sweet Spot of Health Care Cost Containment. This strategy involves improving patient health and thereby reducing the demand for health care services. Though it resembles rationing—because it involves reductions in care—patients would be the ones deciding not to pursue care (because they are actually feeling well). The challenge is to improve patient health in a way that doesn’t eat up all the resultant savings.

In the 1990s and 2000s, disease management emerged as a strategy for improving the health of chronically ill Medicaid beneficiaries. Patients with diabetes, asthma, congestive heart failure and other chronic conditions would speak on the phone with nurses who would advise them on how to improve their health (e.g., diet and exercise, and medication adherence). However, results indicated that cost savings were not achieved.

More recently, digital health tools have emerged as a potential solution. For example, Livongo provides diabetes patients with access to blood glucose meters and 24/7 support from expert coaches when the devices signal out-of-range readings. The Peterson Health Technology Institute (PHTI, which is connected to Peter G. Peterson) recently assessed a number of diabetes digital tools and found that they were not cost-effective. PHTI is now moving on to evaluate digital tools in other clinical areas, including mental health.

In the Sweet Spot blog, I describe a mood tracking device that I created to manage my own bipolar condition. It provided a feedback loop that helped me to self-monitor and self-regulate. Using the digital device, I was able to reduce my hospital utilization significantly, leading to direct savings in the tens of thousands of dollars. The intervention itself was free. Since hospitalization is a bad outcome for both patients and purchasers, avoiding hospitalization is a win-win solution. And since we’re short of hospital beds anyway, it doesn’t rankle providers.

I would like to develop this tool for use with other patients with depression, bipolar disorder, and schizoaffective disorder, but there are numerous barriers to entry. One is proving that the device works. In saying that the system reduced hospitalizations, I am relying solely on an “N of 1” and my own historical trajectory. I would argue that this method establishes a useful spending baseline since it is patient-centered and captures actual long-term patient outcomes. However, medical professionals and scientists in the field may not agree.

The question we face is this: if health care cost containment becomes an even more urgent need than it is today, will we be nimble enough to meet the moment?

Ben Wheatley has 30 years of experience working in health policy with organizations including AcademyHealth, the Institute of Medicine, Kaiser Permanente, and Health Affairs

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