Straight talk on health care reform: Cutting health care spending not the same as cutting costs
Health care costs are the key to our country's fiscal future. Unfortunately, most of the discussion these days is about cutting federal health care spending and not about reducing the cost of health care. If you think that cutting spending is the bottom line, you should ask whose bottom line they're talking about.
The new deficit-reduction "supercommittee" is only the most recent commission/committee/task force trying to come up with effective ways to cut the federal budget and reduce the deficit. Previous efforts included the Bowles-Simpson commission, the Domenici-Rivlin task force and the budget proposal developed by Rep. Paul Ryan, chairman of the House Budget Committee. All of these panels and proposals addressed health care spending, but none of them tackle the root cause of the problem – the ever-increasing cost of health care itself. And because of that, it seems certain we will see yet another committee or task force when health care costs once again catch up to and pass the old budget cuts.
Reductions in federal spending on health care are necessary, but for long-term success, we must address the overriding problem of increasing costs.
The simple math is this: Health care costs have a huge impact on both federal spending and the economy as a whole. Federal health care spending represented 23 percent of the federal budget in 2010, mostly for the Medicare and Medicaid programs, and that proportion is projected to rise to 29 percent by 2020.(1) In 2010, total health care spending in the United States accounted for 17.3 percent of the nation's economic output, or roughly $2.6 trillion.(2) By 2020, total health care spending is expected to reach $4.6 trillion, or 19.8 percent of GDP. By 2020, one of every five dollars spent in the U.S. will be spent on health care. Health care spending per capita is forecast to increase to $13,708 in 2020, compared to $8,327 in 2010.(3) By any measure, that level of growth is simply unsustainable.
As a country, we have to find ways to reduce the cost of health care. And that task will involve more than the government and much more than just cutting federal spending. In the end, budget-cutting alone will only reduce federal spending by shifting the cost of health care to someone else's budget -- state and local governments, businesses, families, seniors and individuals like you and me.
Budget-cutting and cost-shifting, to be sure, can reduce health care spending, but the outcome is not positive. If co-pays and cost-sharing are increased, if benefits are excluded, if eligibility is restricted, health care spending will be reduced because people will have less access to health care or they will put off seeing their doctor to save money. Federal spending will be reduced, but the engines that drive costs will remain untouched and access to quality care will become more dependent upon personal wealth.
Here are several health-care-related budget-cutting mechanisms that have been proposed by various deficit reduction panels and committees. Some of these proposals could serve as a model for future deficit reduction:
- Restructure the Medicare and Medicaid programs in order to increase beneficiary cost-sharing and co-pays.
- Convert Medicare from an insurance program into a voucher system in 2022, requiring beneficiaries to absorb any additional costs.
- Increase the age of eligibility for Medicare from 65 to 67 between 2022 and 2033.
- Means test Medicare benefits.
- In 2013, change Medicaid from the current federal-state matching system into a block-grant program in order to reduce the contribution of the federal government. While granting states more flexibility in terms of how federal monies are spent, this recommendation would reduce the amount of federal money allocated to each state.
- Eliminate the use of provider fees to generate additional federal matching funds for state Medicaid programs. This recommendation would significantly affect Medicaid expansions and reimbursements to Medicaid hospitals in Colorado under the state's Healthcare Affordability Act.
- Increase co-pays and deductibles in TRICARE, a program that provides health care coverage for military retirees and their families.
- Implement a premium-support pilot program (similar to the Medicare voucher program) for federal employees through the Federal Employees Health Benefits Program.
- Implement malpractice reforms that would include a statute of limitations and specialized health courts.
In almost every instance, federal spending would be reduced by increasing out-of-pocket costs for less healthy or chronically ill Americans and seniors. Once again, these recommendations reduce federal spending by passing the difference on to someone else. Health care costs, the source of the problem, would continue to grow even if the large majority of these recommendations were put into effect.
Also, the additional financial barriers created by these recommendations would limit access to health care and cause people to avoid seeking care or obtaining medications. All of which leads to increased reliance upon emergency care, which, when it cannot be paid for, will be passed on to providers and ultimately to those of us who are insured.
Cutting the federal deficit and debt is critical, but budget-cutting is at best a temporary remedy. If health care costs continue to grow at their historical rates, similar budget problems are inevitable. And in the meantime, cutting budgets will simply reduce federal spending through the old book-keeping trick of shifting costs.
Reducing health care costs and actually bending the cost curve will require a different conversation than the one currently taking place in Washington, D.C.
– Bob Semro
1) Karen Davis, Cathy Schoen and Stuart Guterman, The Commonwealth Fund, Bending the Health Care Cost Curve: Focusing Only on Federal Budget Outlays Won't Solve the Problem, Jan. 28, 2011.
2) Parija Kavilanz, CNN-Money, U.S. will pay for half of all health care costs by 2020, July 28, 2011.