Richard Foster, as good an actuary as you can find, delivered the Obama folks a bit of bad news last week. As chief actuary of the Medicare system, Foster crunched some numbers and found that health care costs will likely continue to increase, despite promises from politicos that reform would actually lower them and make those darn insurance premiums affordable. Upon signing the new law last month, the president himself said that the measure would “bring down health care costs for families and businesses and governments.” Well, what do you know? It may not.
Simply put, Foster says that the new law will not slow the growth of the nation’s health care bill. Instead, the cuts in Medicare spending and other ways Congress has finagled the financing won’t offset the big bucks needed to provide health insurance to thirty-four million currently uninsured Americans. In fact, Foster wrote that the country’s medical spending would increase by about $311 billion (0.9 percent) over the next decade. One of the biggest reasons is that more insured people will be using more services. That should have been obvious, given that the total health care expenditures equal the number of services times their price.
As if that weren’t enough, Foster raised the specter that Congress might have to revisit some of the Medicare cuts—perhaps even cancel them, as they have done for the doctors year after year. Even though in the late 1990s Congress decreed cuts for the docs, physicians have repeatedly lobbied the press and the pols to stop the cuts from taking effect, and they are scheduled to do that again this week. Furthermore, the report noted that the proposed cuts might be deep enough to affect the solvency of about 15 percent of hospitals and nursing homes, causing some to stop treating Medicare patients and “possibly jeopardizing access to care for beneficiaries.” Hospitals do close their doors. To wit: St. Vincent’s in New York City.
So how did the media cover Foster’s report? The New York Times reported that Nancy-Ann DeParle, who directs the White House Office of Health Reform, said that the fear about harm to hospitals was unfounded. But what’s the evidence for such a conclusion? Here was an example of a predictable reaction quote left unchallenged. The AP, meanwhile, didn’t offer a White House response, though it did quote a statement from Health and Human Services Secretary Kathleen Sebelius that emphasized the silver linings in the report.
It’s a case of politics vs. the numbers, and both the Times and the AP, which were the main conduits for spreading the news, used a political frame to tell the story. The NYT’s Robert Pear pointed out that the tables had turned: when Foster raised questions about the cost estimates for the Medicare drug benefit pushed by Republicans during the Bush administration, Pear noted, the Democrats “lionized him as a paragon of integrity.” Now, with Foster’s predictions making the Dems squirm, White House officials complain that his reports lowball the law’s potential to achieve the savings they like to promote.
A bunch of bloggers also weighed in, with their own political slants. Ernest Istook at the Heritage Foundation wrote that “it’s not unusual for politicians to promise one thing and then deliver something totally different,” and called Obama’s plan a “bait-and-switch in a class by itself.” WaPo’s Ezra Klein, on the other hand, opined that a one percentage point increase in spending Foster that predicted was a good trade-off for covering more people.
All this political framing and blogger opinion left me wondering if there wasn’t more to the story. So I phoned Robert Laszewski, who has been silent of late on his blog. “We have done nothing to change the trajectory of spending,” he told me. In other words, serious cost containment that gets at what doctors and hospitals charge (the root of medical inflation) is still not part of the discussion, and media accounts of Foster’s report didn’t go there. “Obama said after he was elected we can’t kick this can down the road anymore. He just kicked 99 percent of it down the road,” Laszewski added.
Obviously it’s impossible to predict what is precisely going to happen, but the signs are pointing to increased costs and higher premiums in the near future. That’s the consumer story to come from Foster’s report. At the Association of Health Care Journalists conference last weekend, Tim Lee, a consulting actuary with Milliman, presented a super-clear explanation of how insurance companies and medical inflation play a role in premium hikes and gave tips to reporters on how to understand this story. Premiums and the cost of medical care, of course, go hand-in-hand. Lee left me with a sobering thought:
“Some of the health reform provisions are inconsistent with the principles of insurance and risk pools. The result is that people with insurance will see their premiums increase more than they otherwise would.”
That, to me, is the real takeaway from Rick Foster’s report.