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ISSUE CLASH: Will health care reform be effective in reducing health care costs?

The Panelists

Robert A. Book
Senior Research Fellow and Health Economist, The Heritage Foundation
David M. Cutler
Otto Eckstein Professor of Applied Economics, Harvard University


Robert A. Book: The reforms currently in Congress will increase health insurance premiums and health care spending, not decrease them. The Lewin Group estimates that annual premiums will increase by an average of $460 per person—that's before taking into account coverage "mandates" that the new Health Choices Commissioner would impose. Each of these mandates would increase premiums even more by forcing everyone to have "Cadillac" plans or nothing.

In addition to this spending increase in the private sector, the Congressional Budget Office estimates that federal spending would increase by $1.3 trillion over 10 years. States would spend more because of additional Medicaid expansion.

Despite the rhetoric, the health care bills being debated contain nothing that 'incentivizes' the "best" treatments over the most expensive, or encourages healthier lifestyles. In fact, the Senate bill prohibits discounts for non-smokers. The focus on preventive care is welcome because it may improve health and save lives. But with few exceptions, it doesn't save money.

David M. Cutler: America's health costs are 40 percent above those in other advanced countries, with no apparent benefit in improved health. Thus, it would be surprising if reform were not able to lower spending. Health care savings will come about in three ways: Done right, health care reform can reduce costs while simultaneously improving the quality of care. But this will not happen by magic. We need to make meaningful use of information technology, redesign public and private payment systems, and put the emphasis on prevention. The benefits would be immense. Rebuttals

Robert A. Book: The comparison with other countries ignores Americans' lower mortality from cancer and longer survival after heart attacks. Moreover, Dr. Cutler's excellent research shows substantial benefits from an additional $1 of spending: benefits of $7 for heart attack patients, $6 for low-birthweight infants, $6 for depression, and over $9 for cataracts. Despite inefficiencies, gains are possible with appropriate additional spending.

Taking Dr. Cutler's points: As President Obama's health care advisor Dr. Ezekiel Emanuel, has written: "Vague promises of savings from cutting waste, enhancing prevention and wellness, installing electronic medical records and improving quality of care are merely 'lipstick' cost control, more for show and public relations than for true change."

David M. Cutler: There are a few issues being confused here that would be helpful to keep straight. The first is the impact of health reform on national medical spending. Most estimates suggest that the increment to health spending from covering the uninsured would be minimal, perhaps 3 to 6 percent. Many of the uninsured are healthy, and the remainder receive some care—they just receive it in inefficient ways. Thus, the net impact of reform on health costs would be primarily any savings that result.
Robert Book points to an analysis from Lewin that suggests little savings. Every analyst looks at the medical system differently. In the Lewin model, the impact of changes in payment incentives on medical care delivery is minimal. Almost all savings in the Lewin analysis come from giving people insurance choice, especially among managed care plans. That is one view of the world, but not the only one or even the predominant one. Most analysts believe that up to 30 percent of medical care could be saved through delivery system reform, and that payment reform is the key to unlocking those savings. In an era where not much is agreed upon in Washington, analysts from across the political spectrum share this sentiment (for example, John McCain did in his presidential campaign).

While covering all Americans won't add much to total spending, it will increase government spending, at least in the short run. That is because the government needs to make insurance affordable to low and middle income Americans. President Obama has stated his intention to offset those costs through revenue increases or savings in other programs, through the first decade. After that point, the reduction in medical costs resulting from delivery system reform should offset the ongoing costs of increased coverage.

We know one thing for sure—the trend in medical spending will create enormous problems for the economy if it continues unabated. Enacting reforms to change that trajectory is one of the highest priorities on the public agenda.

Follow ups

Robert A. Book: Like "analysts from across the political spectrum," I agree with David Cutler that "payment reform is the key to unlocking those savings." The problem is, payment reform is not part of any of the health care reform bills before Congress, so these reforms aren't likely to result in cost savings.

Quite the contrary, in fact, The House bill, for example, would require all Americans to carry "gold-plated" or "Cadillac" health insurance, which will increase spending even for those who are currently covered. The bill even creates a new government bureaucracy whose main task would be to specify what health plans must cover (Section 142) and make sure they spend "enough" (Section 2714). The plans would also be directed to limit patients' exposure to the marginal cost of their own medical care [Section 122(c)(2)(C)], which precludes exactly the sort of delivery system reform that David Cutler and I both agree is essential to making health care more efficient and less costly.

The proposed bills would still leave us paying doctors for doing procedures rather than for keeping patients healthy, and would do nothing to make patients and providers consider the costs when comparing treatment options.

The result of the type of "reform" Congress is actually contemplating would indeed change the trajectory, but in the wrong direction. Medical spending would increase even faster than it does now, and not in ways that improve health.

David M. Cutler: In his response, Robert Book makes the point that cost savings are speculative. That is true. We do not know for sure whether investments in information technology, insurance reform, and prevention will save money. There are a couple of points to note, though:

A large number of providers as well as policy analysts believe these measures will work to save money and improve the quality of care. Indeed, it is often the highest quality providers, like the Mayo Clinic, the Cleveland Clinic, and others, who push the types of reimbursement and system changes that Congress is considering.

The goal is to avoid putting all our eggs in one basket. The legislation envisions a number of steps to reduce the growth rate of medical spending. It may be that stressing prevention will not save money, but incentivizing better coordination around hospital discharge will. Many people discount comparative effectiveness research as a key to savings, but not everyone. Congress is rightly taking a catholic approach to cost savings, not one driven by a particular ideology.

In every public policy endeavor, there is uncertainty. Thus, if we were deterred by uncertainty, we would never do anything. Indeed, that has been the problem in medical care for several decades. We know the result of this strategy, though: more uninsured people, higher costs for individuals and the government, and increasing strains on the quality of care. People expect the government to act, not to be paralyzed by fear.

The opinions expressed belong solely to the participants and do not necessarily reflect the views of NOW, PBS, or local stations. The facts stated by the participants have not been verified by NOW.