Sunday, December 16, 2007
How to control health spending
Dan Radmacher
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From the RoundTable blog
It doesn't sound like much: 2.5 percentage points. That's the amount that health care prices have been increasing more than the level of inflation.
But, the beauty of compound interest turned ugly, that small difference adds up over the years.
Excluding a short period in the '90s when managed care systems exerted some pressure on costs and a booming economy expanded growth in other areas, health care spending has consumed a larger and larger proportion of America's gross domestic product.
According to projections by actuaries at the federal Centers for Medicare and Medicaid services, health spending will equal 20 percent of GDP by 2015.
Speaker after speaker at a recent seminar for editorial writers by the Knight Center for Specialized Journalism at the University of Maryland pointed out that fact.
The 21 editorial writers who attended may have been hoping for a silver bullet solution, but there's no bumper-sticker answer to this growing crisis.
I'm a longtime advocate of universal care and a single-payer system. That's fine, and would result in significant savings to start with, but it would not address the rate of growth. Medicare's spending growth, after all, has been about the same as private insurers.
Gail Wilensky, an economist and senior fellow at Project HOPE, an international health education foundation, summed it up starkly: "If we can't figure out how to get [the growth rate] under control, we are dead meat."
Universal coverage is more and more accepted as a necessary component of any solution to out-of-control spending. Sen. Ron Wyden, D-Ore., said Republicans are signing on as cosponsors to his Healthy Americans Act because they realize "you can't fix health care without universal coverage."
Wyden has taken a lot of heat for his bill from single-payer advocates, who are disturbed that private insurers remain part of the system.
I was sympathetic to that criticism. The incentive for private insurers has been to go to great lengths and great expense to cherry-pick the healthiest customers. Sicker folks still get access to health care, but insurance companies want someone else to pay for it.
Wyden's bill addresses that by fundamentally changing the nature of the insurance market. Companies could not discriminate against individuals or charge higher premiums for people with chronic conditions. Premiums would be set by community ratings and family size.
Rather than attempting to gain advantage by figuring out who not to insure, insurance companies would compete on price, quality and benefits.
The most dramatic notion in Wyden's bill is to sever the link between employment and insurance. Employers who currently provide health care would stop. They would give the money spent on that to employees in the form of higher salaries. Employees would then purchase health plans on the open market.
Employees wouldn't be allowed to buy bare-bones policies and pocket the difference. Eliminating the federal tax deduction for employers' health care contributions would free up $200 billion that Wyden would use to subsidize insurance for those lower-income workers who hadn't been receiving employer-provided coverage.
The Lewin Group, a respected independent consulting firm, estimates that Wyden's plan would save $1.5 trillion in health care spending over the next decade through administrative efficiency and competition.
But while Wyden's plan would lower the growth curve, it wouldn't flatten it. Health care costs would continue to rise, and, as Wilensky said, we would still be "dead meat."
But if universal coverage is a precondition for effectively addressing the growth rate in health spending, and that seems to be the growing consensus, Wyden's plan could get us there.
Wyden says he has won more bipartisan support for his plan than any universal care proposal ever offered. Perhaps, but it's still a long and difficult road to passage, strewn with hurdles set up by the many special interests that profit from the current system.
The path from universal coverage to lower costs is even less clear. Again, no silver bullet was presented during the seminar's three days.
Most of the experts advocated a systems approach, a wholesale overhaul of the entire medical infrastructure that would change incentives to pay providers for good outcomes as opposed to the current payment-for-services system that has encouraged a large amount of unnecessary care.
The only thing totally clear is that the road we're on right now isn't a good one. America pays too much for health care, and gets too little in return.
Radmacher is the editorial page editor of The Roanoke Times.
