Healthcare Reform: The $3 Trillion Dollar Question

2009-08-05

Executive Summary

Without health care reform, the United States is projected to spend over $40 trillion on health care in the next decade.  Experts estimate that thirty percent of that spending – up to $12 trillion dollars – will be wasted on ineffective care, pointless red tape, and counterproductive treatments that can actually harm patients.

Without health care reform, the United States is projected to spend over $40 trillion on health care in the next decade.  Experts estimate that thirty percent of that spending – up to $12 trillion dollars – will be wasted on ineffective care, pointless red tape, and counterproductive treatments that can actually harm patients. 

Health care reform holds out the golden promise of addressing both of these problems at once.  By aligning incentives within the health care system in favor of quality treatment, by investing in health information technology, and by conducting better research on which treatments work for which kinds of patients, we can make health care both more affordable and higher quality.  

I. Streamlined Billing

Replacing the profusion of different forms and codes with a single, uniform process, and connecting providers and payers in an electronic network that does not rely on paper-based records, has been proven to increase efficiency and decrease costs. 

Net ten-year savings: up to $350 billion.

II. Health IT

Almost alone among American industries, for the most part health care has failed to integrate productivity-enhancing information technology systems.  Well-designed information technology systems can help close information gaps and allow data sharing for better coordination.

Net ten-year savings: $180 billion.

III. Insurer Efficiency

Currently, insurers are not required to devote any fixed portion of the premium dollars consumers pay to medical care.  Requiring insurers to spend at least 85 percent of premium dollars on actual health benefits would create a firm incentive for insurers to prioritize quality care and reduce wasteful inefficiencies.

Net ten-year savings: $100 billion, as a very rough estimate.

IV. Comparative Effectiveness Research and Evidence-based Medicine

Due to a lack of easily available research on which drugs, devices, and treatments are most effective for particular patients, unsuspecting doctors sometimes prescribe ineffective or counterproductive treatments. Adoption of the findings in evidence-based treatment protocols and guidelines can help ensure we are paying for the most effective treatments.

Net ten-year savings: up to $480 billion.

V. Prescription Drug Advertising

Heavy marketing of prescription drugs raises health care costs and fails to improve patient health. Pharmaceutical marketing encourages patients to take drugs that cost them more and that often are riskier than alternative medications.  Restricting this marketing would allow more prescriptions to be written based on unbiased science, reducing costs and improving care.

Net ten-year savings: Savings on the very rough order of $210 billion appear possible.

VI. Payment Reform and Prevention

Too often, patients do not receive the most effective care for their illnesses.  We systematically underinvest in the primary and preventive care – including early treatment and screenings – that keep people well, and when a patient enters a hospital or gets sick, many doctors may treat him or her without strong coordination, leading to duplicative tests, miscommunication, and needed care slipping through the cracks.  Creating financial incentives for proven treatment strategies, including managing chronic diseases, would lead to more primary care and better coordination – and lowered costs.

Net ten-year savings: ~$1.1 trillion

VII. Health Insurance Option

One of the most high-profile elements of proposed health care reform is the establishment of a new public health insurance option, open to those who are unhappy with their private coverage.  This option would expand consumer choice, but it would also help bring down costs by forcing private insurers to be more competitive.

Net ten-year savings:$230 to $320 billion. 

VII. Ending Government Overpayments to Insurers and Drug Companies

Currently, a pair of federal government policies enrich insurance and drug companies at taxpayer expense, overpaying insurance middlemen and drug manufacturers.  Eliminating these backdoor subsidies would save taxpayer dollars and make government programs more efficient

Net ten-year savings: $93 billion

Conclusion

Ultimately, the reforms discussed above can save roughly $3 trillion over the next decade.  And health care reform can also save billions of dollars in every state of the union, opening up the possibility of increased private and public investment, higher job growth, and increased savings.

The question, critical to the health and economic well-being of all Americans, is whether Congress will push for strong measures to bring down costs, or will instead settle for more modest reforms.  So far, the impact on the federal balance sheet is front and center in the current health care debate.  But just as most health care spending falls on the backs of families, businesses, and state governments, so too do the benefits of potential savings.  Leveraging federal investment into system-wide savings is the best way to get unsustainable premium hikes under control – by fostering investment in health IT, by reorienting perverse payment policies within public programs, by funding all-important medical research.

Further, one of the clearest lessons of the last few years is that the rise of health care costs is not a once-per-decade problem; additional policies will need to be adopted as technological breakthroughs occur and new research points the way to better modes of treatment.  To truly deliver on the promise of reducing health care costs, Congress should adopt proposals that would foster continual innovations to make care more affordable and effective, starting with Medicare.