Cost cutting must occur ahead of reforms

July 1, 2008

Although there is strong interest in providing universal coverage for Americans, there is a growing sense that any coverage mandate must follow other changes so insurance is made more affordable first.

"Improving access and quality may increase rather than reduce total costs," commented Federal Reserve Board Chairman Ben Bernanke at a healthcare reform conference last month sponsored by the Senate Finance Committee. The country will either have to shrink all other government programs, raise taxes tremendously, or run up huge deficits, if costs are not cut, he said.

Policy makers realize the nation's healthcare budget now tops $2 trillion a year, or 16% of GDP, and shows no signs of slowing down.

FANTASY SAVINGS

Unfortunately, most of the popular proposals for reducing healthcare outlays may not have that effect. Quality-improvement efforts, medical-liability reform, and expanded health IT, for example, are not likely to reduce costs, according to Paul Ginsburg, president of the Center for Studying Health System Change (HSC).

The Congressional Budget Office (CBO) issued a report in May describing the many potential benefits of health IT. However, similar to Ginsburg's point, it emphasized that adoption of more IT by itself is "not sufficient to produce significant cost savings."

The public applauds many of the healthcare reform proposals, said Princeton University Professor Uwe Reinhardt at a briefing sponsored by the Alliance for Health Reform, but whether they save dollars each year is "not so clear."

In weighing health reform proposals, the key issue is money, said Mark McClellan, MD, of the Brookings Institution. With a very tight federal budget next year, he urged the public to make presidential candidates explain how they will pay for proposals to expand coverage that rely on fictitious cost-cutting estimates. Real savings requires underlying changes in the healthcare system, including how we pay for care and what benefits are covered, he commented.

DRIVING CHANGE

Ginsburg suggested that lower-wage consumers might prefer more tightly managed-care products, even if they limit choices in providers and restrict coverage for certain services. For physicians, Medicare could reduce incentives for excess services by paying for major treatments on a per-episode basis. Programs to develop more medical-effectiveness information could reduce medical errors and drive more efficient utilization.

"Real cost containment involves real sacrifice," said Ginsburg. It may require patients to forgo certain services, and providers and insurers would have to settle for smaller incomes or profits.

CBO Director Peter Orszag pointed out that 30% of Medicare costs-some $700 billion a year, if extrapolated to the nation's broader healthcare system-could be saved without negatively affecting health outcomes. While such a large inefficiency is "striking," Orszag commented, it also points to enormous opportunities for reform that can make a difference.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.