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Uwe Reinhardt on Cost Control

By October 5, 2010Commentary

Concern about rising health care costs has bedeviled the United States for decades.  Uwe Reinhardt, a well-known health care economist,  looks back at those concerns historically and as they are playing out now in a New York Times Economix Blog column.   (NY Times Blog) Reinhardt recalls that in the late 1970s there was great concern that health care costs, which were then about 8% of GDP, were heading toward 10%.  We would be happy with that today, as costs are at 17-18% and still rising rapidly.  It is obvious that no real progress has been made in limiting national health spending and Reinhardt clearly doesn’t seem to believe that the new reform law has done anything meaningful.

Reinhardt aptly points out that the fundamental problem in limiting spending is that you are then also limiting someone’s income, usually a health care provider or health care product supplier, and that  attempts to do this are vociferously objected to by the recipients and beneficiaries of the spending.   His basic formula is that national spending equals the product of the number of persons served by public and private insurers times the price each category pays for health services times the per capita volume of health used in each category.  We have seen ample evidence of the political difficulty in cutting provider payments in government programs, particularly to physicians. Private insurers appear to have little negotiating leverage against the market power of most providers or little will to use that leverage if they can just pass increases on to employers and consumers.

Similarly, there is little appetite now to reduce the number of people covered under government programs, since that may only increase the ranks of the uninsured.  Reducing the volume of services by comparative effectiveness research, changes in end-of-life care, etc. are projected to have a minor effect at best and most people are very leery of anything that appears to limit their access to whatever care they want or that providers want to give them.  Reinhardt concludes that we are likely to just see continued rationing of health care by income class, as more costs are shifted to the consumer and lower-income groups simply can’t afford care.  But that shifting of costs may be the most helpful trend, as many economists agree that decoupling the user of the service from the payment for the service is a major factor in the health spending problem.  If people are responsible for paying and if they can be given enough information and helped to use that information effectively, it is at least possible that some rationality might be restored to the health care market.

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