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Controlling Health Spending

By October 25, 2011Commentary

Is there anyone who doesn’t think that health care spending in the United States is too high and grows too rapidly from year-to-year?  The question is what are the causes and what therefore will provide an effective remedy.  The “reform” law enacted a smorgasbord of potential cost control solutions, many of which are untested.  A new Urban Institute report examines this issue and analyzes the potential effect of solutions beyond those enacted in the reform bill.   (Urban Inst. Report)   The authors begin by identifying four categories of causes for the spending growth–overinsurance due to the tax treatment of employer-sponsored insurance, medical technology, chronic disease prevalence increases, and the consolidation and resulting pricing power of providers and insurers.

The authors adopted baseline estimates for spending from the CMS Office of the Actuary and CBO and extended those to 2023.  They then examined the impact of the proposed spending control measures over this time period.  The largest effect is from some form of all-payer rate setting for providers, which could save about $300 billion a year by 2023.  Other large savings could come from greater limits on the tax exclusion for employer provided health insurance, about $73 billion a year, malpractice reform at $45.5 billion and more aggressive insurance exchanges, at $47 billion a year.  In total, if all the proposed solutions were adopted, as much as a trillion dollars could be saved in 2023.  Certainly worth considering.

This is a detailed and useful analysis, but there could be a greater focus on some of the obvious problem areas in spending.  For example, almost every analysis has shown that around two-thirds of the growth in spending is driven by unit price increases.  Greater efforts to limit those increases would have a dramatic impact.  The least painful way to do that is to help providers of services and products reduce their costs.  Limiting advertising and marketing efforts by drug and device manufacturers would dramatically lower their costs, allowing their products to be priced much more cheaply while preserving margins.  Similarly, reducing the operating costs for hospitals, physicians and other providers should result in lower costs and in turn lower prices.

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