Where are the promised cost savings?
By Solomon Kleinsmith | Related entries in NewsI do not pretend to understand the minute details of the health care overhaul bill that the Senate has been working on for the last few weeks, but the latest news on it is disconcerting to say the least. From my understanding, the main selling points of this legislation was that it would cover more people, they would find ways for it to not add to the federal deficit and it would save the country money over the long term by keeping costs lower that they would be otherwise. The first of these selling points is built in, but while they are still working on a way to pay for the bill, it seems they may have skipped over the part about saving money.
The Congressional Budget Office director Douglas Elmendorf told a Senate committee yesterday that this legislation would significantly increase federal  costs, and that more revenue would need to be found to make sure it didn’t add to the national debt. Republicans jumped on this, and, perhaps because of this, he later seemed to clarify what he wanted to say by stating, “The point I made earlier this morning is that it raises future federal outlays more than it reduces future federal outlays.”
Is this really big news, or common knowledge being trumpeted because the head of a well regarded institution is telling us what we already know? At first bluster it may seem like big news, it certainly did to me, but when you think about it for a second, it may just be common sense. If the government is going to add millions more people onto government assistance, then of course it will cost more. The real question is whether or not doing so would stop the climb of health care costs in comparison to how they would climb without such a program.
Washington loves a good catch phrase, and the latest is “bending the cost curve”, in reference to how certain reforms might effect medical cost inflation over time. The Obama administration has been pressuring congress to give the Medicare Payment Advisory Commission, a nonpartisan panel that advises congress, powers not unlike the Federal Reserve Board has over fiscal issues. The idea is to make it so they would set the reimbursements that health care providers get, rather that politicians.
These are the kinds of reforms we will need to see to actually save money in the long run. Unfortunately the administration is getting serious pushback from lawmakers used to weilding their power over this process to bring home the bacon to their constituents. They also are the ones that have to interact with the army of health care lobbyists that are crawling all over Washington right now. They’re going to have to make a choice as to who they’re going to listen to. Are they going to care about our nation’s long term solvency, or how much money they’re going to get from health care exectives in their district next year?
Stay tuned to find out…
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July 20th, 2009 at 11:13 am
The so-called “cost savings” will never materialize — even under a single-payer system — because the escalation of health care costs is not really a “problem,” as so many of our politicians would have us believe.
The way we are now supposed to view health care “reform” begins with statements like, “We must contain the sky-rocketing costs of health care, which have risen at a far faster rate than generall inflation and now make up 16% or more of GDP.”
Few people seem to want to challenge the premise that this is a “problem.” Yet, once the average person — even more, all of us collectively — have paid for food, shelter, clothing and taxes, everything else is a matter of trade-offs. We can have more entertainment, more beer and booze, more lawn care, more vacations, etc. — or we can have more health care. For the most part, we have individually and collectively chosen more health care, so that the costs of ever more and better health care have risen faster than many other parts of out budgets. But not all. We also spend a great deal more on education than we did 40 0r 50 years ago — and that expenditure has risen at a faster-than-inflation rate.
For that matter, what we spend on automobiles has risen faster as well. With a growing economy and more money to spend, the average household has more cars than that of 50 years ago. And cars are more expensive (adjusted for inflation) because they are safer, more fuel efficient, and less polluting. On top of that, the average car has more electronic and computerized gizmos than the average car of 50 years ago. Finally, fewer people fix even minor car problems themselves and repairs and parts are more expensive. Add it al up and the total we spend on cars has risen faster than GDP. But so what? By itself, that’s just a mark of our greater wealth.
Ditto for health care.
Another way to look at health care costs is that it’s money driving one of our fastest-growing, job-producing industries. Over the past year, there has been little recessionary effect in health care, where job demand has continued to be strong.
But isn’t it still a “problem” given that other advanced countries spend less with no loss of life expectancy? Maybe, but this argument glosses over the fact that stats may be misleading. For example, Americans may have more health problems for a wide range of cultural reasons than Swedes, so they need more care. With an open system, Americans demand more health care, which may be foolish but it’s not necessarily a problem. Other nations’ expenditure stats don’t account for de facto rationing. And in any case, life expectancy may not be te only measure of health care benefits (e.g., you may not live longer because you have a hip replaced or a coronary bypass, but you’ll enjo what life you have a lot more).
The problem with US health care is that an unacceptably large number of people do not have insurance. IMHO, all these references to costs are an effort to find political cover for the inevitably higher costs of expanding coverage. We can only have a sensible debate when those higher costs are acknowledged openly.
July 20th, 2009 at 11:21 am
John, I think you bring up a valid point at the end. I haven’t seen anything so far that really addresses controlling the cost of healthcare (assuming that’s something we need to do anyway) and everything to do with simply insuring more people (and for millions of Americans, this means being forced to buy insurance that they don’t want to buy).
July 20th, 2009 at 12:05 pm
They’re still looking for those “cost savings” in Massachussets. They keep failing to materialize. The trend is the opposite direction.
The MA “universal coverage” plan is very similar to what’s being proposed on a much grander scale by the House. Our experimental lab has been up and running for a couple of years now, and the results are not as predicted by the proponents, but rather closely follow the predictions of the nay-sayers. Their cost curve has indeed bent, but not downward. We should be paying attention, no?
John Burke is right. Been saying just that for years. Demand for health care is relatively inelastic, and excess cost growth is driven by rising incomes and technological advancement. If we eliminate all the inefficiencies, rationalize the distribution, etc., it will be but a flat spot on the rising curve as the new efficiencies are absorbed, because those are not things that drive the excess cost growth. The only way to stop excess cost growth in the face of inelastic demand and rising income and newer (more expensive) technology is by forced rationing and/or forced restriction of tech advancement. Now, sooner or later supply will inevitably reach the elastic range of demand and the curve will bend and flatten, but that doesn’t look to be on the horizon anytime soon. Given that what is being purchased is quality of life and life itself, it could be a long wait.
To re-emphasize John Burke’s point, consider: overall spending growth rates on veterinary services have almost exactly matched overall spending growth rates on human medical services for the last thirty years. Yet insurance plays almost no role in veterinary services. It’s strictly a function of demand and income and technology. Newer technology costs more than old tech. We pay more because we want more. We spend that much because (collectively) we are willing to.