Excerpted from WSJ: ” Why Obama’s Health Plan Is Better”, David Cutler, Sept. 16, 2008
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The big threat to growth in the next decade is not oil or food prices, but the rising cost of health care. The doubling of health insurance premiums since 2000 makes employers choose between cutting benefits and hiring fewer workers.
Rising health costs push total employment costs up and wages and benefits down. The result is lost profits and lost wages, in addition to pointless risk, insecurity and a flood of personal bankruptcies.
Sustained growth thus requires successful health-care reform.
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Sen. Obama’s proposal
Learning. One-third of medical costs go for services at best ineffective and at worst harmful. Fifty billion dollars will jump-start the long-overdue information revolution in health care to identify the best providers, treatments and patient management strategies.
Rewarding. Doctors and hospitals today are paid for performing procedures, not for helping patients. Insurers make money by dumping sick patients, not by keeping people healthy. Obama proposes to base Medicare and Medicaid reimbursements to hospitals and doctors on patient outcomes (lower cholesterol readings, made and kept follow-up appointments) in a coordinated effort to focus the entire payment system around better health, not just more care.
Pooling. The Obama plan would give individuals and small firms the option of joining large insurance pools. With large patient pools, a few people incurring high medical costs will not topple the entire system, so insurers would no longer need to waste time, money and resources weeding out the healthy from the sick.
Preventing. In today’s health-care market, less than one dollar in 25 goes for prevention, even though preventive services — regular screenings and healthy lifestyle information — are among the most cost-effective medical services around. Guaranteeing access to preventive services will improve health and in many cases save money.
Covering. Controlling long-run health-care costs requires removing the hidden expenses of the uninsured. The reforms described above will lower premiums by $2,500 for the typical family, allowing millions previously priced out of the market to afford insurance.In addition, tax credits for those still unable to afford private coverage, and the option to buy in to the federal government’s benefits system, will ensure that all individuals have access to an affordable, portable alternative at a price they can afford.
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Given the current inefficiencies in our system, the impact of the Obama plan will be profound. Besides the $2,500 savings in medical costs for the typical family, according to our research annual business-sector costs will fall by about $140 billion.
We know these savings are attainable: other countries have them today. We spend 40% more than other countries such as Canada and Switzeraland on health care — nearly $1 trillion — but our health outcomes are no better.
The lower cost of benefits will allow employers to hire some 90,000 low-wage workers currently without jobs because they are currently priced out of the market. It also would pull one and a half million more workers out of low-wage low-benefit and into high-wage high-benefit jobs. Workers currently locked into jobs because they fear losing their health benefits would be able to move to entrepreneurial jobs, or simply work part time.
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Mr. Cutler is professor of economics at Harvard and an adviser to Barack Obama’s presidential campaign.
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Full op-ed:
http://online.wsj.com/article/SB122152292213639569.html#printMode
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The Homa Files 
September 16, 2008 at 10:36 am |
Interesting piece. I read one of Cutler’s books, amazing how many times he mentioned to his readers that he works for Harvard.
That aside, here are come of my comments/disagreements:
Learning – $50 billion to jump start the information revolution will not maximize the utility of that $50 billion. According to the New England Journal of Medicine, physicians only follow evidence based measures 53% of the time. That means nearly half the time physicians are inappropriately following their gut instinct. Care guidelines are readily available, physicians just don’t use them. That’s a training and culture problem, not an information problem.
Rewarding – Paying physicians based on outcomes will encourage physicians to cherry pick healthy patients or the easily cured ones. Very sick patients will be viewed as money losing….right when you need healthcare the most. Also, better overall health is not the same thing as better health care.
Pooling – If small populations are lumped in with larger ones, the cost will be passed on to others already in the big pool. Insurance companies are not going to forgo profits, so it is a simple movement of passing the risk premium from one group of people to another. As a pool becomes more risky, those with good health will be priced unfairly and move to another pool. The pool they just left will get more expensive, so the next healthiest group will leave. The pool will get even more expensive, leading to more defections. Eventually, it will implode in a death spiral.
Prevention – Absolutely wonderful, if we had really good uptake. Just as some people with access to affordable insurance do not purchase it, some people that can get affordable preventive care forego it. Access does not equal “purchase”. Not sure what the ratio is, but since it isnt 100% now spending money on capacity instead of stimulating demand may not be the best use of taxpayer dollars
Coverage – Giving more people the ability to purchase coverage isn’t a magic bullet. For one thing, Medicare/Medicaid reimbursements are terrible, physicians don’t want those patients. In addition, as mentioned before access to insurance does not guarantee uptake of coverage. For those that do get insurance, some will still skip preventive care. For others, moral hazard will provide an incentive to over-demand care.
It is very trendy to claim that more IT and electronic infrastructure is a panacea for our health system. I think our system is more complicated than that. The truth is, no one has a health care system that is relatively cheap, has great access, and has great outcomes. If someone had gotten their system running perfectly, everyone else would have emulated it by now.
Try again, Harvard.