Will health reform bend the cost curve? The answer is yes, according to a new report from the Center for American Progress and the Commonwealth Fund. The report, Why Health Reform Will Bend the Cost Curve, focuses on how health reform, specifically the cost savings associated with health system modernization, will affect total national health expenditures.
When it comes to numbers, the Congressional Budget Office scores of the health reform legislation moving through the Congress right now
usually get the most attention. But
as we’ve written before, the CBO tends to be pretty conservative in their estimates of health care cost savings resulting from system reforms. The impact that health reform will have on the federal budget (both the
House and
Senate bills will reduce the deficit over 10 years) is not the same as the impact reform will have on health spending as a whole, according to the report.
The report considers the most recent versions of the House health care bill and the merged Senate bill, which is currently being debated on the Senate floor. The report names several major “channels” through which health reform will affect national health expenditures:
- Impact of new coverage. To cover the newly insured, the government will have to spend approximately $1,600 per individual per year. This amounts to $75 billion per year to cover approximately 60 percent of the uninsured. Over a 10 year period, this is $402 billion in new medical spending under the Senate bill and $549 under the House bill.
- Savings in public programs. Health reform will reduce wasteful spending in public programs, such as eliminating overpayments to Medicare Advantage. According to the CBO, Medicare and Medicaid spending will decline by $393 billion in the period between 2010 and 2019. ($364 billion in the House.)
- Insurance exchanges and the public option. The report argues a public plan could help drive down costs by providing meaningful competition to private insurance companies and the exchange would save money by grouping individuals and small businesses into larger entities with more purchasing power. The report calculates this will result in savings of $162 billion (Senate bill) and $187 billion (House bill).
- Health system modernization. The report argues aggressive modernization measures could result in greater cost reductions that the CBO estimates. These provisions (which are enacted through Medicare and Medicaid) include: payment innovations such as bundling and pay-for-performance initiatives, increased funding for comparative effectiveness research, increased emphasis on prevention and wellness, and a Medicare commission to recommend needed changes.
The report concludes that the Senate health reform legislation would save $638 billion in national health spending over the next decade, while the House health reform bill would save $532 billion. Premiums would probably go down by about $2,000 per family, and the annual growth rate in national health expenditures would decline 0.4 percent, to 6.0 percent.
We’ve been extolling the merits of
delivery system reform and quality improvement
for a long time. Current health reform legislation does a lot on the health care quality front -- so it makes sense we’re going to see some big savings.
As OMB Director Peter Orszag said last week, “This bill has more cost containment and delivery system reform than any bill that has ever been considered on the Senate floor. Period.”
Because the report gave more weight to savings resulting from health system modernization and the reduction of health insurance spending on the part of employers, the report argues the federal deficit reduction from health reform will be greater than the CBO predicts, up to $409 billion over 10 years for the Senate bill, and $459 billion for the House.
For more information, read the full report
here.
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