Outgoing CMS Chief Donald Berwick Takes a Parting Shot at Waste...and Misses the Target

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Dr. Donald Berwick, former administrator of the Centers for Medicare and Medicaid Services, identifies the central problem with the American health care system as the "extremely high level of waste." Many people, myself included, would agree.

The question before us is how to eliminate waste from health care, especially from entitlement programs such as Medicare and Medicaid that are consuming an increasingly large share of federal and state budgets.

A related question is what expenditures are classified as waste, rather than as the natural desire of a wealthier society to purchase more health care to buy more time on earth and a more comfortable old age.

Dr. Berwick's approach appears to be to identify methods of delivering health care that will save money, and instruct the medical community to follow those methods. Electronic records save money--let's make doctors use those. Certain drugs are not effective--let's not allow them to be used. Let's empower an Independent Payment Advisory Board to determine what procedures can be permitted.

Of course, this approach can work, just as Soviet-style command and control approaches to production worked, after a fashion. It can hold down the health budget and eliminate waste.

But what is sacrificed is innovation and personal choice, which have made American health care the best in the world.

There is simply no way that government officials at CMS can deliver orders that can match the innovation of consumer-driven health care, just has there is no way that a policeman on Fifth Avenue at rush hour can tell all those yellow taxis the best way to Penn Station without causing a tremendous traffic jam.

We know how to get rid of the waste in our health care system, because we've got rid of waste in some medical services and in other areas of insurance. The basic principle is that we need to make people bear a larger share of the costs of health insurance and of routine health care. We need to return the health insurance system to its original purpose--insurance--rather than a way of paying for routine expenditures.

This has worked in Lasik eye surgery and cosmetic surgery, where people pay out of their own pockets. The costs of these medical procedures have fallen over time.

It has worked with state efforts to rein in health care costs, such as Indiana's Health Savings Accounts for state employees. Under the HSA option (which is now chosen by 70 percent of state employees, up from 4 percent five years ago), the State deposits $2,750 per year in a worker's account. Unused funds belong to the worker. If the worker uses the entire amount in the HSA, the State pays half of all additional costs, up to an out of pocket maximum per patient of $8,000, after which all costs are met by the State.

This system saved Indiana taxpayers $20 million in 2010, and saved employees $8 million over the cost of traditional plans, thanks to much lower premiums.

According to Indiana Governor Mitch Daniels, writing in the Wall Street Journal on March 1, 2010, "It turns out that, when someone is spending his own money alone for routine expenses, he is far more likely to ask the questions he would ask if purchasing any other good or service: 'Is there a generic version of that drug?' 'Didn't I take that same test just recently?' 'Where can I get the colonoscopy at the best price?' By contrast, the prevalent model of health plans in this country in effect signals individuals they can buy health care on someone else's credit card."

The tragedy of Obamacare is that a slew of new insurance regulations may kill HSAs outright. The Department of Health and Human Services recently also denied a waiver for Indiana to maintain its the Healthy Indiana Plan (another HSA style plan) for low-income uninsured Indiana residents because it does not meet the requirements for a qualified benefit plan under the new law.

Shopping around has saved money with other forms of insurance. High-deductible auto and home insurance policies have lower premiums, and lower costs.

It's well-known that the provision of health insurance is so costly because it received a special tax benefit. In the 1940s, wages and salary growth was frozen, but employers were allowed to offer health insurance as a tax-free benefit. Workers became tied to health insurance offered through employers, and the private market, which was not tax-free, evaporated.

To increase consumer choice and make health insurance more like other forms of insurance, employer-provided health insurance needs to be on the same footing as insurance purchased from other suppliers. It is probably politically too difficult to take away the tax advantage for health insurance from employers--but we could extend it to insurance purchased outside the workplace so that the employer advantage would diminish.

Then, allow insurance companies to compete across state lines, and allow professional organizations to market insurance to their members. We need to hear ads on the radio and TV, "call me for a 15-minute quote to lower your health insurance," just as we hear these ads for auto and life insurance.

House Budget Chairman Paul Ryan has proposed a competitive system for Medicare recipients, for people who turn 65 in 2021. Then, seniors would have a choice of a variety of plans, including health savings accounts. The government would pay a portion of the cost, and contributions from seniors would vary depending on age, health, and assets.

Yes, there's waste in our health care system. But a Washington takeover has not yet solved the problem, and will not do so in the future.

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