Some of President Barack Obama's former advisers are proposing major changes aimed at controlling healthcare costs as political uncertainty hovers over his health law.
Call it Healthcare Overhaul, Version 2.0. Their biggest idea is a first-ever budget for the nation's $2.8-trillion healthcare system, through negotiated limits on public and private spending in each state.
The approach broadly resembles a Massachusetts law signed this summer by Democratic Gov. Deval Patrick that puts pressure on hospitals, insurers, and other major players to keep rising costs within manageable limits. It could become the Democratic counterpoint to private market strategies favored by Republican presidential nominee Mitt Romney and running mate Paul Ryan.
Health costs lie at the heart of budget problems confronting the next president. Healthcare accounts for 18 percent of the economy and about one-fourth of the federal budget, and many experts believe it can't grow unchecked without harming other priorities. Because the United States spends much more than other advanced countries, there's a consensus that savings from cutting waste and duplication won't harm quality.
"We think of these as the next generation of ideas," said Neera Tanden, who was a senior member of the White House team that helped pass the health law. Tanden is now president of the Center for American Progress, a Washington think tank close to the administration.
Under the proposal, the major public and private players in each state would negotiate payment rates with service providers such as hospitals. The idea is to get away from paying for each individual test and procedure. Negotiated rates could be based on an entire course of treatment. Payments would have to fit within an overall budget that could grow no faster than the average rise in wages.
The spending limits would be enforced by an independent council, but crucial details need to be spelled out. In Massachusetts, for example, budget-busting providers will be required to file plans with the state laying out how they'll amend their spendthrift ways.
The federal government would provide grants to states interested in developing their plans.
Tanden joined a brain trust of former administration officials floating the proposal recently in the New England Journal of Medicine. The group included Peter Orszag (former budget director), John Podesta (transition director), Donald Berwick (first Medicare chief), Ezekiel Emanuel (Orszag's health policy guru), and Joshua Sharfstein (former No. 2 at the Food and Drug Administration). Also on board was former Senate Majority Leader Tom Daschle, D-S.D., Obama's first pick to shepherd his healthcare overhaul.
Their proposal includes other ideas, such as a malpractice liability shield for doctors who follow best clinical practices, and competitive bidding for all Medicare supplies and lab tests, not just home health equipment. All of the signers support Obama's healthcare law, but see cost control as unfinished business.
Republicans are already scoffing at the budgeting proposal.
"Politically, it is really tone deaf," said economist Douglas Holtz-Eakin, president of the American Action Forum, a free-market think tank. "There is no way Americans are going to trust any government entity to say how much the nation should spend on (healthcare). It is at odds with our values and our history and has zero chance of happening."
But neither party has a monopoly on trust when it comes to changing healthcare.
A recent Kaiser Family Foundation poll found that 55 percent of Republicans would prefer to keep Medicare the way it is instead of nudging future retirees toward private insurance plans, as Romney and Ryan propose.
Republican leaders generally want to reshape the healthcare system along the lines of the changes that 401(k) plans have brought to pensions. Instead of open-ended benefits, individuals would get a fixed payment for health insurance and pick coverage from private plans competing to drive down costs and improve quality.
Republicans also believe government has no business telling private individuals and employers how much they can budget for healthcare.
"The aim of public policy should not be to stop people spending their own money on their healthcare," said Stuart Butler, a top health policy expert with the conservative Heritage Foundation. (While the new Massachusetts plan limits what public programs spend, it does not require private payers to do the same.)
Tanden, the former White House aide, says she thinks budgets and negotiated payments will be less threatening and more politically acceptable than giving people a voucher-like payment and sending them into the marketplace. Medicare would share in the benefit if costs can be checked for the country as a whole.
"We think of this as the answer to 'premium support'," said Tanden, referring to the term Republicans prefer for the Romney-Ryan Medicare plan. "What this is really enabling is a private sector negotiation. Under premium support what will happen is consumers will pay more."
In Massachusetts, the new cost control law has its share of skeptics, but it doesn't seem to have provoked a backlash.
"These global budgets are going to be negotiated between health insurers and providers," said Jay Gonzalez, the state's secretary of administration and finance. "They are agreeing to pay for services in a different way. It isn't rationing. It isn't capping."
Massachusetts enacted its original healthcare overhaul under then-Gov. Romney in 2006, expanding coverage to an estimated 98 percent of state residents. Obama's law covering the uninsured could still be repealed if Romney wins the White House. The main cost controls in the president's plan — a board to restrain Medicare spending and a tax on high-cost private health insurance — wouldn't start to bite for another few years.
The White House has had little to say about the new ideas from Obama's former advisers. That could change if Obama is re-elected and plunges into budget negotiations with Congress.