Healthcare Reform Must Focus on Cost Control
Joe El Rady
US healthcare costs continue to rise not only steeply but also more steeply every year! The rapid multi-decade increase of US healthcare costs far outstrips both inflation and the rise in personal incomes. Regardless of any moral arguments for provision of care to the uninsured, we must address the brutal and potentially disastrous economic realities. Let’s be honest, it is a lot easier to expand health care coverage than it is to find ways to pay for it.
Currently accounting for one sixth of GDP, US healthcare spending far exceeds that of any other industrialized country. Aside from just the ballooning costs, American businesses face a competitive deficit against foreign firms with no healthcare costs. Like businesses, state and local governments have nearly buckled under heavier and heavier healthcare burdens. A 2007 report by the Government Accountability Office (GAO) concluded that health-related costs comprise a primary driver of the fiscal challenges facing state and local governments. As for the federal government, the projected cost growth of Medicare and Medicaid comprises the largest contributor to our nation’s unsustainable fiscal outlook.
In order to avert the looming disaster, Washington must set clear cost control targets and craft specific policies to achieve them. A mechanism to ensure results would also prove helpful. While the President has clearly emphasized “bending the cost curve,” almost all of the current policy proposals in Washington focus on reforms that are merely “deficit-neutral” and that for only the next 10 years. While ten year deficit neutrality is necessary, it is not sufficient. Congress needs a twenty year plan. Congress must pass a plan that not only funds itself for its first ten years, but also reduces the federal budget deficit for the following ten years based upon the “cost curve bending” achieved in the first ten. None of the current plans promise this. In fact, as the Congressional Budget Office reports, the plans currently under consideration increase the budget deficit after their tenth year.
Beyond raising taxes to pay for any expansion in benefits, truly bending the cost curve will require difficult choices.
1. We must budget for healthcare (as most industrialized countries do). It seems unfathomable that the US does not budget for one of its largest spending categories. A health care budget would force all constituents and stakeholders, including politicians, providers and the public, to prioritize health care spending in a responsible manner.
2. We must end our system’s ridiculous payment incentives. Reimbursing providers for each individual service raises costs by rewarding providers who perform more services regardless of results. It also encourages repetition of costly services (such as diagnostic tests) rather than coordination across and by different providers.
3. We must end our system’s ridiculous tax incentives. Tax breaks encourage employers to provide unlimited benefits through health insurance, a huge encouragement for higher healthcare costs by third-party, unregulated and unaccountable insurance companies that can simply pass the costs along to the tax incentivized employer through higher premiums… an upward cost spiral that we must break before it breaks us.
4. We must standardize care. Ubiquitous over-utilization of ineffective treatments, coupled with pervasive under-utilization of effective ones, resulting from insufficiently disseminated medical knowledge and evidence has led to massive variation in healthcare costs across states and even across counties within the same state, with no commensurate increase in quality of care. We must establish guidelines based on evidence of best practices.
5. We must not pass any of the costs on to the states in the form of unfunded federal mandates.
Implementation of the above guidelines, coupled with a strong enforcement mechanism would realize the “curve bending” reforms Washington seeks and our country’s fiscal health requires.
Joe El Rady
US healthcare costs continue to rise not only steeply but also more steeply every year! The rapid multi-decade increase of US healthcare costs far outstrips both inflation and the rise in personal incomes. Regardless of any moral arguments for provision of care to the uninsured, we must address the brutal and potentially disastrous economic realities. Let’s be honest, it is a lot easier to expand health care coverage than it is to find ways to pay for it.
Currently accounting for one sixth of GDP, US healthcare spending far exceeds that of any other industrialized country. Aside from just the ballooning costs, American businesses face a competitive deficit against foreign firms with no healthcare costs. Like businesses, state and local governments have nearly buckled under heavier and heavier healthcare burdens. A 2007 report by the Government Accountability Office (GAO) concluded that health-related costs comprise a primary driver of the fiscal challenges facing state and local governments. As for the federal government, the projected cost growth of Medicare and Medicaid comprises the largest contributor to our nation’s unsustainable fiscal outlook.
In order to avert the looming disaster, Washington must set clear cost control targets and craft specific policies to achieve them. A mechanism to ensure results would also prove helpful. While the President has clearly emphasized “bending the cost curve,” almost all of the current policy proposals in Washington focus on reforms that are merely “deficit-neutral” and that for only the next 10 years. While ten year deficit neutrality is necessary, it is not sufficient. Congress needs a twenty year plan. Congress must pass a plan that not only funds itself for its first ten years, but also reduces the federal budget deficit for the following ten years based upon the “cost curve bending” achieved in the first ten. None of the current plans promise this. In fact, as the Congressional Budget Office reports, the plans currently under consideration increase the budget deficit after their tenth year.
Beyond raising taxes to pay for any expansion in benefits, truly bending the cost curve will require difficult choices.
1. We must budget for healthcare (as most industrialized countries do). It seems unfathomable that the US does not budget for one of its largest spending categories. A health care budget would force all constituents and stakeholders, including politicians, providers and the public, to prioritize health care spending in a responsible manner.
2. We must end our system’s ridiculous payment incentives. Reimbursing providers for each individual service raises costs by rewarding providers who perform more services regardless of results. It also encourages repetition of costly services (such as diagnostic tests) rather than coordination across and by different providers.
3. We must end our system’s ridiculous tax incentives. Tax breaks encourage employers to provide unlimited benefits through health insurance, a huge encouragement for higher healthcare costs by third-party, unregulated and unaccountable insurance companies that can simply pass the costs along to the tax incentivized employer through higher premiums… an upward cost spiral that we must break before it breaks us.
4. We must standardize care. Ubiquitous over-utilization of ineffective treatments, coupled with pervasive under-utilization of effective ones, resulting from insufficiently disseminated medical knowledge and evidence has led to massive variation in healthcare costs across states and even across counties within the same state, with no commensurate increase in quality of care. We must establish guidelines based on evidence of best practices.
5. We must not pass any of the costs on to the states in the form of unfunded federal mandates.
Implementation of the above guidelines, coupled with a strong enforcement mechanism would realize the “curve bending” reforms Washington seeks and our country’s fiscal health requires.
posted by Joe El Rady at
12:47 PM
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