How to Lower Rising Health Care Costs

Panelists discussed the potential of comparison shopping, information sharing, risk pooling, and government action in lowering health care costs.

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“There is a common agreement across the political spectrum that health reform can improve the value in our system, and we need to figure out how this is a priority. That said, we really have had more rhetoric than policy discussions, and need to begin to dig into these differences,” said Jeanne Lambrew, a Senior Fellow at the Center for American Progress Action Fund, introducing a CAPAF panel event yesterday on the expanding costs of health care.

The panel, moderated by Karen Tumulty, the national political correspondent for Time, focused on the causes of rising health care costs and potential solutions, and included Allan Hubbard, former Assistant to the President for Economic Policy, and current Chairman of E&A Industries, and Jacob Lew, former Director of the Office of Management and Budget.

Lew argued that the current health care system is fragmented, which makes it both inefficient and difficult to reform. “The problem is, we don’t have a system that anyone ever sat down and designed,” he said, and argued that, “any attempt to reform health care must address underlying problems in health economy overall.”

Lew noted that “the biggest tax expenditure in the federal government is the exclusion of employer-sponsored health insurance,” which he said tends to go to middle- and upper-income individuals. Elderly and low-income Americans, he said, benefit from Medicare and Medicaid. But many middle-class Americans have no health insurance because they fall between these two programs.

Hubbard argued that health care spending increases are “just at a non-sustainable rate.” He ascribed health care’s rapidly rising costs to the current system, which he characterized as a “third-party pay” system. “When a third-party pays for something, we consume it as if it were free…Where you don’t have third-party pay in the health care system…the marketplace works,” he said. Lasik eye surgery and in-vitro fertilization, he argued, are not covered by a “third-party pay” system, and so have become much less expensive recently.

Hubbard argued throughout the panel for a more market-driven health care system, in which consumers can compare options and choose those with the lowest costs and highest quality. “We’re going to go one of two ways: government system, or more consumer-directed system, so people shop.” He acknowledged, however, that the insurance model was inadequate for some people. “The uninsurable-you’re going to need to handle that separately. You’re insuring a house that’s already on fire,” he said.

“I don’t think pure, unfettered competition will work. There has to be a kind of pooling” of risk and information, countered Lew. Because “the leverage in [the current] system is heavily weighted toward the insurance industry,” he argued, “I don’t think that individuals will fare well.” He questioned how well individuals could “shop” for medical care when the information they need to make their decisions is often not accessible. Lew noted that consumers can currently choose their prescription drugs, so the pharmaceutical industry spends more on advertising than on research. When people come to their doctors asking for a drug they’ve seen on TV, he argued, “that’s not a good way to practice medicine.”

Lew also argued that the federal government should have a role in some areas, such as medical records. Health systems across the country currently utilize a bewildering array of incompatible health record-keeping systems. Lew said that there is a role for the federal government in deploying a standardized system. “It’s desperately needed, because without that type of information sharing we won’t be able to get those types of savings,” he said, adding, “the system is not set up right now so that providers and patients have easy access to best-practice information.”

For more on this event, please see the events page.

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