Speaker 1: As we've seen, a major part of the Affordable Care Act was expanding access to health insurance for millions of Americans. We expanded it by reforming the health insurance marketplaces. We expanded it through the individual mandate and employer mandate. Probably the most innovative part are the new exchanges where individuals can go in and purchase private health insurance. And then there's an expansion of Medicaid, allowing low-income people to be on the Medicaid program. An equally important part of the Affordable Care Act is actually controlling health care costs. Let's remind ourselves that in 2013, the United States spent over $2.97 trillion on health care. That made the American health care system the fifth largest economy in the world. It's a huge amount of money. And over time, it's been growing rapidly. In the early 1960s, we spent about 5% of the economy on health care. And it's grown each year faster than the economy, so that today, we spend about 18% of the economy, or one of every $6. In the last few years, it's true that health care costs have moderated over time. And that's been an important element in going forward. But cost control is very, very important. It's important to distinguish two types of cost control. One is to reduce the level of spending. That is, to take money out of the system, to go from $2.97 trillion to, say, $2.9 trillion. That's a whack. But reducing the level of spending, as you can see here in the light green line, does not change the rate of growth. It's a one-time change. On the other hand, there's a way of reducing the rate of growth, the inflation rate in health care, so that it doesn't grow faster than the economy. And that is the darker line. That is what people refer to as bending the cost curve. Reducing the rate of growth is much the more important way of trying to reduce health care costs, because over the long haul, it more substantially saves money. Now, as we talk about cost control, it's important to recognize that costs are made up of two components. Price times volume equals total cost of health care. You can reduce costs, therefore, in two ways. You can take high prices per test or treatment and reduce them. Or you can change the volume of services. Go to lower cost services or use fewer services and reduce unnecessary services. The Affordable Care Act actually deals with costs in both ways, reducing payment and reducing the volume or types of services offered. Reducing payment? Well, the Affordable Care Act reduces the payment to Medicare Advantage plans. It reduces payment for other Medicare providers, like hospitals. It also introduces ways of reducing the price paid for various medical services that are paid for by Medicare. There are also ways of reducing or changing the kinds of medical services given to patients so that they're more efficiently done and lower cost services are used when they're clinically equivalent. The Cadillac tax is one way of doing that. The Accountable Care Organizations, which is a new item created by the Affordable Care Act. IPAB, or the Independent Payment Advisory Board, does that. There's an innovation center in Medicare to try to do experiments or demonstration projects to transform how we deliver care. Let's talk about reductions in payment that are in the Affordable Care Act. A very big one is cutting overpayment to Medicare Advantage plans. Remember, Medicare Advantage plans are private insurance companies that offer coverage to Medicare beneficiaries and provide all of the doctor as well as hospital coverage. For many, many years, we've known that Medicare overpays them. That in fact, they actually provide services that are cheaper than what Medicare pays them. And this overpayment has been built into the system. One of the things the Affordable Care Act does is to make the payments more accurate. Second, there's fraud and abuse in Medicare and Medicaid. We know that for every dollar spent in fighting fraud and abuse, Medicare actually recovers $17 and the bill, the Affordable Care Act, incentivizes more enforcement of fraud and abuse provisions. Administrative simplification is another important part of the bill. There's a lot of paperwork associated with billing in private insurance. And as a result, doctors have to pass a lot of different paper to their insurance companies. They have to get prior authorization. All of this paperwork actually costs a lot of money. And the Affordable Care Act tries to streamline it. There's payment change for complex imaging. When you go in for a CT scan of both the chest and the abdomen, rather than billing them separately, the bill goes together and reduces payment. Another important element of reducing prices is competitive bidding. Right now in Medicare, Medicare sets prices for many items that it buys. No one thinks that the government setting prices is the ideal way to get the highest quality product at the lowest cost. In fact, many people can walk into Walmart and buy a walker at much less than the identical walker costs Medicare. So the Affordable Care Act actually creates competitive bidding process for things like oxygen equipment, wheelchairs, hospital beds, diabetes equipment, and other items. Initially it was proposed to run a small demonstration project and that saved money to expand it in 2016. In fact, the competitive bidding process was a huge success. Costs for things like oxygen equipment, wheelchairs, walkers, all declined by about 40%, constituting big savings for Medicare. So those are different ways that the Affordable Care Act reduces the prices paid by Medicare for various services. But there's also an incentive to transform how care is delivered. And there are a variety of programs in the Affordable Care Act to try to make this transformation to reduce the number of services and to substitute cheaper, clinically equivalent services for more expensive ones. We've just looked at a whole series of ways of trying to reduce costs by keeping prices down, reducing the prices for various medical services. Next we're going to try to look at cost control on a macro level.