When President Barack Obama pledged that health reform would be deficit-neutral, he offered an idea advanced in June by two Democratic health care economists — a "failsafe" — as a way to hold the government accountable. If health reforms do not generate the projected savings, specific spending cuts would 'kick in' to make up the difference.
That failsafe approach (.pdf) was developed by David Cutler, an economist at Harvard University, and Judy Feder, a senior fellow at the Center for American Progress, a liberal think tank. Under such an approach, legislation would require that deeper spending reductions, including limits to Medicare payments and other public subsidies, would begin if projected savings didn't keep health care costs on track to not add to the deficit.
In his speech to a joint session of Congress, Obama didn’t detail the specific funding sources, saying only “there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize."
Feder and Cutler outlined the way they would implement the failsafe during a Thursday afternoon conference call with reporters.
It could start as soon as 2015, they said, would have to be specific enough that the Congressional Budget Office could calculate its costs and could include reducing Medicare and Medicaid payments. It could also include changing tax policy and strengthening a public plan — one of the more controversial elements of the reforms Obama supports — to pressure the insurance industry to change its costs.
But in terms of the costs of sweeping reforms, Cutler said more than $900 billion — enough to pay for all of Obama's overhaul plan — could come from revising the administrative structure of hospitals and doctor's offices, getting rid of underwriting and marketing overhead and reducing acute care episodes and hospital readmissions through preventive and better-focused care. Those savings are in addition to the $500 billion to $600 billion in cost reductions to public programs already calculated, Cutler said.
"In the first decade what we need to do is make it be deficit neutral," Cutler said. "But beyond that, health care reform, even covering people has to contribute to reducing the deficit."
What's unclear is just who will make these cuts, although some experts have suggested that the Medicare Payment Advisory Commission could make the cuts under new powers it may be given to reform payment structures as part of the health care overhaul.
Cutler said that since little is done to empower or offer incentives for specific cost savings by medical care providers and hospitals, many people are discouraged by current reform proposals.
"I think the bills have gotten a bad rap in that people say, 'Oh, they don't have anything in there so, therefore, they clearly won't lead to (cost savings),'" Cutler said.
Spreading risk will be important to holding costs down, either through a national high risk pool of the insured or by using Republican Sen. John McCain's idea of doing high risk pools on a state-by-state basis, the analysts said.
"What the president is saying is 'Look, we need to do something right away,' and this is the thing right away, but that cannot be the end of it," Cutler said.