Cost of fixing health care is far from settled

Two years ago, Gov. Timothy M. Kaine's commission on health care examined the potential cost of expanding Virginia's Medicaid program for the poor.

The estimated price to cover adults who earn less than the federal poverty level -- $22,050 for a family of four this year -- was roughly $1 billion. The state's share under the normal cost-sharing formula for the program would be half -- about $500 million, Virginia Secretary of Health and Human Resources Marilyn B. Tavenner said in an interview Friday.

The program didn't expand, but it could under proposals being debated in Congress for overhauling the country's health-care system. The federal government -- not the states -- would bear the full cost of the expansion under pending proposals.

"Opponents act like maintaining the status quo is a viable option," U.S. Sen. Mark R. Warner, D-Va., said in an interview from London this month while returning from a vacation abroad. "The status quo is going to bankrupt America and bankrupt average American families."

The cost of fixing the system is far from settled, with most estimates exceeding $1 trillion in new expenditures over 10 years. The Congressional Budget Office pegs the price at $1.2 trillion.

That would pay primarily to expand Medicaid and children's health-insurance programs in every state, and to help other uninsured Americans buy insurance in a new type of market exchange system that might include a government plan or some kind of nonprofit cooperative to compete with private insurers.

But policymakers also are counting on major savings, primarily from changes in reimbursement for service under the Medicare program for the elderly, as well as significant reductions in direct and indirect expenses from carrying the burdens of 47 million Americans without health-insurance coverage of any type. They see federal and state money freed up from paying for charity care at hospitals, mental-health services to adults who could be covered by Medicaid, and a range of other subsidies for the cost of treating people with no insurance.

"To me, it's an unprecedented opportunity to be able to do something about health care and the uninsured," said Tavenner, a former executive at HCA Inc., Virginia's biggest for-profit hospital system

As a hospital officer, she said, "I'd see middle-class people caught without insurance, who basically had to give up their homes and sometimes file for bankruptcy."

Virginia's Medicaid program ranks near the bottom of the states in spending on health benefits for the poor. The pending proposals, aimed at reducing the number of people with no health insurance, would raise eligibility limits as high as 150 percent of the federal poverty level. One proposal, pending in the House of Representatives, would set eligibility at 133 percent of poverty and expand health care for an estimated 11 million Americans without it.

In Virginia, Medicaid officials estimate that an additional 255,000 to 315,000 people would be covered under that proposal at an estimated cost of $1.1 billion to $1.5 billion a year. Virginia would not be required to share in that cost until 2015 under the proposal. Its share in 2015 would be $170 million to $217 million, according to estimates from state officials.

The full cost would be borne initially by the federal government instead of being shared with states. Virginia already faces a $1.8 million shortfall in Medicaid when federal stimulus money runs out in 2011 and 2012.

"From a fiscal perspective, Medicaid is the biggest ticket item for the states," said Alan R. Weil, executive director of the National Academy for State Health Policy, based in Washington.

Warner and eight other freshman senators pushed cost controls in a letter last month to the chairman of the committee that is racing to meet a Sept. 15 deadline set by President Barack Obama for a health-care bill that both parties can support and adopt this year. The letter said proposed changes weren't focused enough on controlling the cost of health care, which is consuming 17 percent of the gross national product and rising fast.

"We hear daily from our constituents about this issue; many of them are concerned that we are not doing enough to control costs," Warner and his fellow freshmen wrote to Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.

The increasing federal deficit is one concern, but the group sees overhauling the health-care cost structure as the key to lasting change. "It's not only got to be deficit control; it's got to start driving the health-care inflation rates down," he said in an interview on Aug. 19.

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For advocates, the cost of not having health insurance -- or losing it because of rising unemployment in a brutal recession -- trumps concerns about the price of expanding the safety net. "The stability that health-care reform offers to the middle class is huge," said Jill A. Hanken, a staff attorney at the Virginia Poverty Law Center.

But some seasoned policymakers think the costs are far more real than some of the potential savings touted by advocates of overhauling the system.

"They talk about savings from Medicare, but at the same time the baby boomers are reaching retirement age, so you are going to have more demand," said former U.S. Rep. Thomas J. Bliley Jr., a Richmond Republican who once served as chairman of the House Energy and Commerce Committee. "I'm not looking at any savings there."

The flip side of that argument is that uninsured baby boomers who reach age 65 are likely to be more unhealthy and expensive to treat by a Medicare system that all parties acknowledge needs major changes in the way it reimburses doctors, hospitals and other providers.

"Right now, if you are without health insurance, you stay without health insurance," said Karen Cameron, executive director of the Central Virginia Health Planning Agency. "So many people going into Medicare are extremely unhealthy."

Similarly, young people who can't afford insurance are betting on staying healthy, Cameron said. "When they do get sick, everybody has to pay for it."

But Bliley warns that the Obama administration is making the same mistake as the Clinton administration in a failed bid to pass comprehensive health-care reform in 1993. He said he told chief Clinton health-policy adviser Ira Magaziner, "'You should do this incrementally. It's so huge, it's going to be difficult to do everything.' It's the same thing they're running into now."

That view is shared by some Virginia hospital officials, who agree that expanding coverage for the uninsured is essential, but they think changes in the Medicare payment system may need to come first in order to encourage prevention and discourage unnecessarily expensive treatments.

"At the end of the day, the purpose of all this is to get better patient care," said Katharine M. Webb, senior vice president at the Virginia Hospital & Healthcare Association. "That's a very hard message to get across to someone who doesn't have a health-insurance card."

Here are some of the biggest issues in the debate over costs and savings:

Medicaid expansion

Currently, Virginia pays half the cost of Medicaid services for the poor and about one-third of the price for serving children. However, the state's program ranks 48th in per capita spending because eligibility levels are so low, even for single parents who are caring for children. Few adults are covered unless they are disabled.

Advocates see the proposal as a perfect way to help Virginia's Medicaid program catch up with the rest of the country, provide health care for people who now have no insurance, and leave the full tab to the federal government.

"If you're going to require states to cover a whole lot more people through health-care reform, then of course you've got to give them the money to pay for it," said Deborah Oswalt, executive director of the Virginia Health Care Foundation.

But the House proposal offers full federal financing through 2014 and then drops it to 90 percent the next year. Expanding the states' obligation to pay for Medicaid is a tough sell in the current economy.

"At a time when we're in one of the severest recessions in U.S. history, I worry," said Dr. Sheldon M. Retchin, CEO of the Virginia Commonwealth University Health System.

Cost controls

Bringing down health-care costs is a top priority for everyone in the system -- hospitals, doctors and insurers. They agree that the costs are unnecessarily expensive, but not necessarily on who's to blame. Doctors blame the threat of malpractice lawsuits. Hospitals blame the fee-for-service system of reimbursing doctors. And insurers say they're paying too much for inefficient and unnecessary procedures, as well as subsidies for government programs that often don't cover the full cost of care.

It's also a big issue for employers, who are trying to fashion their own programs to encourage healthier lifestyles and preventive care that costs less than treating acute illnesses.

"I'm trying to get healthier employees who will perform better at work," said Sara Wilson, director of the Virginia Department of Human Resources Management, which is trying new ways to hold down increasing costs without adding to the burden on more than 100,000 salaried state workers.

For state employees, health care is a crucial benefit of working for the government. "They're trying to do a balancing act: maintain a high level of benefits, reduce the demand through wellness programs, and in the end, drive down costs," said R. Ronald Jordan, executive director of the Virginia Governmental Employees Association.

Insurance coverage

In addition to requiring that everyone have health insurance, the proposals all attempt to remove roadblocks to coverage, such as prohibiting insurers from denying coverage to people with pre-existing medical conditions or charging them premiums they can't afford. Anthem Blue Cross and Blue Shield, the biggest insurer in Virginia, supports this approach, though it doesn't favor requiring small businesses to cover employees and adamantly opposes a public option plan that would compete with private insurers.

Ultimately, the changes are aimed at making health insurance more accessible, affordable and reliable for everyone. Like other efforts to control health-care costs, the proposals could save people money and boost the economy. "The upside of a more efficient health-care system is that more money could go into other parts of the economy," Weil said. "It frees up money for other productive purposes."

Bliley is among political conservatives who think the proposals don't go far enough to unshackle private insurers from restrictions on selling insurance across state boundaries.

Paying for it

This is the trillion-dollar (plus) question.

The proposals count on savings from Medicare and Medicaid, new taxes on high-income earners ($280,000 a year for singles and $350,000 for couples under the House Democrats' plan); a tax on high-cost insurance policies in one Senate proposal; or, in the House Republicans' version, savings from waste and fraud in government programs. Ultimately, the Senate Finance Committee is likely to have a big say on how to pay.

Oswalt, who promotes wider access to health care, said the proposed changes are going to be expensive, no matter what potential savings they offer.

"There's no free lunch," she said. "You're on drugs if you think there's not going to be a cost for this."

Contact Michael Martz at (804) 649-6964 or .