At a Health Affairs reporters breakfast this morning, White House Office of Management and Budget Director Peter Orszag defended the ability of the health reform bill being debated in the Senate to “bend the cost curve” of health care costs. “The bill that is currently on the Senate floor contains more cost-containment and delivery system reforms, in its current form, than any bill that’s ever been considered on the Senate floor, period,” he said.

Orszag said the Senate bill meets the four pillars of cost control laid out in a recent letter to President Obama by 23 noted economists: no increases in federal government deficits; an excise tax on high-cost health plans; a Medicare commission to ensure continuing flexibility and reform; and delivery system reforms such as increasing the use of health information technology and comparative effectiveness research, as well as innovations such as bundled payments, incentives to cut hospital readmissions, and the formation of accountable care organizations.

Some critics have complained that the cost-cutting efforts in the legislation consist of pilot programs that may not be immediately scaled up. Orszag defended this experimentation: Because of the lack of past attention to delivery system reforms, we don’t know yet what will work best, he said.

An Openness To Strengthening The Medicare Commission And Other Cost Control Provisions

However, Orszag also repeatedly indicated an openness to “tweaking” the bill to strengthen its cost-control components. One example of this came in response to a question from Health Affairs Editor-in-Chief Susan Dentzer about whether the Medicare Commission had been “defanged” by restrictions such as excluding hospital payments from its purview until 2019. “The key thing at this point is that the Medicare Commission exists … I know that there is significant discussion ongoing about whether the Commission could be modified as the process moves forward,” he said.  

The individual mandate. Orszag was asked about insurance industry criticism of the weakness of the legislation’s “individual mandate,” with penalties for not purchasing insurance reaching only $750 annually. Wouldn’t people wait to purchase coverage until they got sick?

In response, Orszag suggested that developing social norms would prove as important to the effectiveness of an individual mandate as the level of penalties, or even more so. He pointed out that significantly more people adhere to seat belt laws than to speeding laws, despite roughly equivalent penalties, because the social norm attached to wearing a seat belt is stronger than the social norm attached to obeying speed limits.

“One of the things that I have learned is that the Econ 101 approach to life, where all that matters is the direct financial incentives or penalties, is just wrong,” he said. “If you look at Massachusetts, for example, where the penalty is only slightly higher than $750, they have had if anything much more dramatic take-up than anyone predicted. The penalties attached to not having insurance were less important than advertisements in Fenway Park because the ads helped create “a social norm that everyone knew about that you were expected to have insurance.” For a comprehensive survey of the effectiveness of mandates in various policy sectors, see Sherry Glied’s article in the Novemenber/December 2007 issue of Health Affairs.

In a related point, Orszag was asked about complaints from the American Hospital Association that the Senate bill would not reach the 97 percent coverage level that was a condition of payment cuts agreed to by the hospital industry. “It’s not surprising that various provider groups would prefer to have more people covered and less cost containment. That’s not shocking. But if you look at any of the analysis from MedPAC or the Congressional Budget Office, what the legislation accomplishes is a very significant expansion of coverage without creating significant access problems with regard to doctors or hospitals.”

Asked if that meant that the hospital industry would simply have to live with the bill, Orszag just smiled.

Orszag’s remarks at the breakfast extended to many other topics as well, such as whether the single-payer model of health reform and its advocates had been unfairly left out of the discussion.

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