Sequestration's Arbitrary Cuts Hurt U.S. Healthcare

All healthcare spending cuts can't be treated equally.

Woman waiting for the doctor
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Maura Calsyn is associate director of health policy at the Center for American Progress.

Almost everyone agrees that sequestration—the blunt, across-the-board cuts to federal spending that went into effect on March 1—is a terrible idea. But for a small minority of misguided budget hawks, sequestration—and especially its cuts to Medicare and other health care programs—is preferable to the status quo.

This is a reckless position. No good will come from sequestration's healthcare cuts. They will reduce access to needed care, limit our ability to research new treatments, and possibly slow the approval process for promising new treatments.

That is because sequestration, by design, treats all federal healthcare spending the same. But a dollar spent to provide low-income individuals with critical cancer screenings, AIDS drugs assistance, or mental health services is not the same as a dollar spent on wasteful administrative costs, care that is unnecessary and often unwanted, or excessive payments to the healthcare industry.

[See a collection of political cartoons on sequestration and the fiscal cliff.]

We should target federal healthcare savings on these areas of waste and overpayment. That is exactly what the Center for American Progress's Senior Protection Plan would accomplish. The plan details $385 billion in federal healthcare savings, targeting specific areas within the system where prices are excessive or Medicare payment bears little relationship to costs. A recent Time article exposed just how ridiculous these prices can be—with some hospitals marking up prices up to 10,000 percent.

Not only does the sequester cut the wrong federal healthcare spending, it will do nothing to help us rein in our nation's overall healthcare spending. Our current, fragmented system rewards volume over value, resulting in the overuse of high-volume, high-priced services and too little coordination between patients' doctors and other caregivers.

This is not simply a Medicare problem or a federal problem. States, private employers, and individuals all pay far too much for care that does not necessarily make us healthier. Unless we shift these incentives, our healthcare costs will only continue to grow.

[See a collection of political cartoons on healthcare.]

But the news is not all bad. The Affordable Care Act takes important steps to change how Medicare pays for healthcare, such as linking payments to quality and encouraging greater coordination among patients' doctors and other health care providers.

As a result, although total Medicare spending will continue to grow faster than the overall economy because of the large number of retiring baby boomers, experts now predict that these changes will help keep the per person growth of Medicare spending below the per person growth in the overall economy for the next decade.

Medicare is not alone—many private employers and states are also testing new approaches that will lower costs while improving care. In Arkansas, the state Medicaid program and private insurers are changing how they pay doctors, hospitals, and other healthcare providers for certain episodes of care, including treatment for upper respiratory infections and hip and knee replacement surgeries. Arkansas and private insurers will no longer pay separately for each test, procedure, or doctor's visit for these patients. Instead, they will pay a lump-sum payment for the entire course of treatment that will encourage coordination among providers, improving patient care and eliminating unnecessary costs.

[Read the U.S. News Debate: Should the Medicare Eligibility Age Be Raised?]

This is just one way to move towards a value-based system of care. The Senior Protection Plan offers a variety of solutions—including payment reforms like those in Arkansas—to help lower system-wide healthcare costs.

Because federal spending is only one piece of the healthcare puzzle, many of the recommendations tackle state and private spending. States should be allowed to test innovative payment and delivery reforms and, if their spending falls below global targets, they should keep a significant part of the savings.