Containing Health Care Costs

Two Presidential Proposals But Only One Realistic Plan

There are two presidential proposals, but only one realistic plan.

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The growth in health care costs is one of the most pressing challenges facing the United States and our elected leaders in the coming years. Health care spending, which doubled between 1996 and 2006 and is expected to double again in the next decade, outpaces wage growth and inflation. This growth poses a serious challenge for the federal budget, family budgets, and employers’ profitability. Yet at the same time, our health care system is not delivering for all Americans. In 2006, America spent approximately $2.1 trillion on health care—even as more than 47 million individuals went without insurance and thus without access to affordable routine care.

Between 2000 and 2006, private health insurance premiums increased more than 90 percent. And the rising costs will only continue, putting increasing pressure on American families. Total spending is expected to double by 2016, when health care will be responsible for 20 percent of U.S. gross domestic product. In 2001–2002, approximately 13 million families, or 11 percent of all families, spent more than 10 percent of their incomes on out-of-pocket costs—an increase of 3 percentage points from 1996–1997. While costs rise, America is failing to take full advantage of the tools that could help contain costs, such as evidence-based medicine, health information technology, and preventative services, to name a few.

As a result, policymakers on both the right and the left have advanced health reform plans that feature measures designed to contain health care costs. The political rhetoric emanating from the leaders of the conservative and progressive movements sounds remarkably similar. Both sides emphasize a series of proposals that share similar tools for reducing costs, including health information technology, managing chronic care, improving quality, and increasing competition. Agreement on the problem of rising health care costs, however, does not translate to agreement on how to achieve those solutions. The underlying philosophical approaches stand in stark contrast to each other, and the ultimate results of these competing proposals would be very different.

Conservatives, including Sen. John McCain (R-AZ), the likely Republican presidential nominee, would attempt to control health care costs by moving the locus of health insurance coverage to the individual market. Individuals and families would assume greater risk for rising insurance premiums and would absorb greater responsibility for cost-sharing. This market-based approach would make radical changes to today’s health care financing system, but would not attempt to provide affordable coverage for all Americans.

Progressives, including Sen. Barack Obama (D-IL), the likely Democratic presidential nominee, propose to make group coverage more affordable and available to all, regardless of income or employment situation. By expanding coverage and ensuring access for all, progressive approaches to cost-containment tools, such as prevention, chronic care management, and improving efficiency, have the scope to truly affect health care costs. Progressive leaders have consistently offered clear, concrete steps toward achieving these goals, including dedicating the resources needed to make cost containment a reality.

Despite similarities in the rhetoric of lowering health care costs, there is a stark difference in the design and likely outcomes of the two plans. There is little evidence for McCain’s claim that conservatives’ health care reforms will address health care costs, which he has called, “the biggest problem with the health care system.” As this report explains:

McCain’s extreme plan will likely not contain health care costs

Sen. McCain’s plan asks the impossible of consumers—it asks them to drive down prices and improve quality through one-on-one interactions with insurance companies. Extensive research, however, consistently shows that the pooling of individuals into large groups is the most effective way to manage risk and promote efficiency. Insurers increasingly operate in an oligopoly, where purchasers of all sizes have decreasing influence. Requiring individuals to navigate the health insurance market by themselves will also carry very real costs. If everyone with employer insurance were to enroll in individual coverage, administrative costs would increase by $20 billion annually.

McCain’s lofty rhetoric is unmatched by details

An analysis of Sen. McCain’s plan shows that his cost-containment steps lack specificity—regardless of his efforts to camouflage his proposals with rhetoric about “freedom” and “responsibility” lowering costs. Beyond the rhetoric, there are few concrete steps for implementation in his plan, and almost no detail about the resources he would dedicate to the effort.

Coverage for all Americans is the fundamental way to contain costs

Current research suggests that the closer a health care system is to providing affordable coverage for all, the more successful it will be in achieving significant cost containment. By extending coverage to all, we can achieve efficiencies, end cost shifting and rationalize financing mechanisms. Given Sen. McCain’s refusal to provide health care coverage for all, any success he may have in cost-savings will be limited.

The progressive alternative

In contrast, progressive leaders have consistently offered concrete steps to making sure all Americans have access to affordable health care, and to help bring down health care costs. And progressive governors have led by taking proactive action when possible, as this report shows. Indeed, for his part, Sen. Obama has articulated clear steps to implement his cost containment measures.

In addition, Sen. Obama is committed to covering all Americans by building and improving on the current system. Those steps would be far more likely to achieve the cost-containment goals that Sen. McCain just talks about. As this paper will detail in the pages that follow, there is no cost-containment panacea in health care, but the strategies proposed by progressive leaders have a better chance of success than those in the McCain plan.

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