Obama Adviser: Healthcare Cost Curve May Bend Down Without Reform
Morgen on October 12, 2009 at 1:05 pm
David Cutler is a prominent Harvard economics professor who was a key architect of President Obama’s health reform proposal during the election campaign. While he is apparently not serving in the Administration as reported earlier this year, he has continued to be a very vocal advocate for health reform with numerous media appearances in recent months. He’s not a disinterested party. Which makes these comments from Cutler published in the New England Journal of Medicine earlier this month more than noteworthy:
If there is one certainty about the health care sector, it is that its costs increase over time. U.S. health care spending has more than doubled as a share of national income over the past half-century, and most forecasters believe that the steep growth will continue. The Congressional Budget Office, for example, projects that health care spending will account for one third of the U.S. gross domestic product (GDP) by the middle of this century, up from 17% today. In their latest report, the Medicare trustees have forecast similar growth rates for Medicare costs.
But what if this conventional wisdom is wrong? In my view, several pieces of evidence suggest that increases in health care costs might actually moderate significantly, if not decline relative to the GDP, over the next few decades — even without the type of systemic changes proposed in current legislative efforts. As a result, the financing crisis in health care could be much less dire than most people believe.
Cutler makes the case for a decreasing cost curve based on three factors: 1) a declining pipeline of new drugs and medical devices, 2) the potential for technology to lower the administrative costs of health care, and 3) improvement in the management of chronic health conditions. With regards to the first point, he also argues that the costs of new drugs and devices coming onto the market will decrease over time as many of these will be more effective and less expensive to produce as alternatives currently available on the market.
The most important thing to note here is that these are all market forces which Cutler is referring to. And I believe there is a strong basis for his arguments, especially with regards to the potential for efficiencies to be gained through the increased application of technology. I’ve been involved in one way or another with Info Tech consulting my entire career, and it is widely known that most segments of the health care industry, particularly the providers, are grossly lagging in IT innovation. In many cases, they are 2 or more generations behind in implementing best practices and best-of-breed computer systems.
Now, lest anyone think that Cutler is blatantly undermining the Administration’s arguments for healthcare reform, he closes his article with a statement reaffirming his belief that reform is necessary. But given the importance that the Administration has placed on “bending the cost curve” as an argument for reform, I think Cutler’s arguments are deserving of more attention. Particularly, I think the question should be asked whether the reforms included in ObamaCare will actually subvert the sort of market-driven cost savings which Cutler envisions. At a minimum, it seems to me that the massive expansion of coverage and care envisioned by Democrats could very quickly overwhelm the ability of providers to implement the strategic and organizational changes necessary to realize these savings.
Category: Health & Education |
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October 12, 2009 @ 10:14 pmThis is an emotional issue for many Americans. This so-called “public option” in Government run health care presents serious challenges for us. As Consumers we should be able to compare the cost and quality of health care services. How much is a specific surgery at one hospital, as compared with another? http://www.friendsoftheuschamber.com/media/
October 13, 2009 @ 10:35 amHeard this morning that “reform” is supposed to cost 2 trillion dollars in actuality. That’s a significant difference from 54 billion.
I also heard that the concept which was voted on (because there really is no bill yet, and if there is, no one has seen it) has all sorts of taxes in it. Taxes that ill people will have to come up with.
Taxes for wheelcahirs, bandaids, ace bandages, arm slings, neck braces, ankle boots, soft casts, crutches, and the list goes on, and on, and on.
October 16, 2009 @ 9:01 amYeah, that’s one of the craziest things about this whole dialogue. ObamaCare was sold under the premise that we need to reduce health care costs over the long run. When the fact of the matter is that any actual reductions in costs are going to be swamped by the creation of the largest entitlement program in our history.
Those taxes you refer to are just the tip of the iceberg as even with the accounting gimmicks they are using, they still have to find some real revenue sources. So the hope is that they can slip through taxes on the items you mention and no one will notice.
But the real tax increases will come down the road when it becomes evident that the entire system they’ve put in place is fiscally unsustainable. And these will be across the board tax increases for everyone. Which is why some people – like Pelosi – are already starting to set the stage for a VAT tax.
October 16, 2009 @ 10:00 amThe downside to the Dems slick maneuver on costs is that, once this mess becomes law, there will be 2-3 years of new taxes and increased costs with zero benefits. No exchanges. No public options. Nada. Just new bills to pay.
You think that might be an issue, say, October 2012? I think so.
October 16, 2009 @ 10:24 am[...] The Centers for Medicare & Medicaid Services (CMS) released their annual report this week on total healthcare spending in the U.S. for 2008. To the limited extent that this release was even reported, the headline was that the growth in healthcare spending “slowed” from the prior year. From a growth rate of 6% in 2007 to only 4.4% in 2008. This in fact represented the lowest rate of growth since the CMS first started reporting this data in 1960. Given all the hyperbole about exploding healthcare costs this past year, this would seem to be wonderfully good news, worthy of national media attention. Might the cost curve be bending down (gasp) without government intervention? [...]
January 7, 2010 @ 2:33 pm[...] The Centers for Medicare & Medicaid Services (CMS) released their annual report this week on total healthcare spending in the U.S. for 2008. To the limited extent that this release was even reported, the headline was that the growth in healthcare spending “slowed” from the prior year. From a growth rate of 6% in 2007 to only 4.4% in 2008. This in fact represented the lowest rate of growth since the CMS first started reporting this data in 1960. Given all the hyperbole about exploding healthcare costs this past year, this would seem to be wonderfully good news, worthy of national media attention. Might the cost curve be bending down (gasp) without government intervention? [...]
January 7, 2010 @ 5:47 pm[...] The Centers for Medicare & Medicaid Services (CMS) released their annual report this week on total healthcare spending in the U.S. for 2008. To the limited extent that this release was even reported, the headline was that the growth in healthcare spending “slowed” from the prior year. From a growth rate of 6% in 2007 to only 4.4% in 2008. This in fact represented the lowest rate of growth since the CMS first started reporting this data in 1960. Given all the hyperbole about exploding healthcare costs this past year, this would seem to be wonderfully good news, worthy of national media attention. Might the cost curve be bending down (gasp) without government intervention? [...]
January 8, 2010 @ 7:48 am[...] Another report that has been mostly ignored points to factors which will most likely see private sector spending continue to decline over the coming years. It is most likely being ignored because the solutions put forward are primarily market based solutions. [...]
January 9, 2010 @ 7:25 am