Jul 02, 2011 at 7:04 pm
Q: Could you please explain why it’s so important to enact measures to bend the cost curve in the private sector, if you want to save the government money? I mean, isn’t one of the assumptions behind plans like the Ryan proposal that the private sector is more willing (and able) than Congress to be the bad guy and impose otherwise politically untenable, but needed, measures, like higher copays for less-effective procedures?
Why important to save costs in pvt sector to save gov’t money?
Not so much to save the gov’t money as to save the economy money. All the other advanced economies spend half to two-thirds what we do (as a share of GDP) with full coverage and better outcomes, on average. Credible estimates say we waste about a third of health spending on unnecessary or unhelpful procedures and tests.
So the problem is that all this excess crowds out spending on other things society needs and wants. We spend about 17% of GDP on health care, public and private. Cut that by a third, say 6% of GDP, that’s $900 billion a year to be used for infrastructure, schools, productive investments, deficit reduction, tax cuts…you name it!
(There’s one area where some savings could accrue to the gov’t from lower private sector costs. Employers can deduct contributions to their employee’s health care, which amounts to $200 billion a year of forgone tax revenue. Slower private sector cost growth could generate fewer deductions and thus some savings here.)
Isn’t the pvt sector better at saying no and thus lowering costs?
Probably so for discretionary stuff like Lasik surgery, but that’s not where the big money is—the vast majority of health care spending is on major diseases, chronic diseases, and end of life, and pvt sector coverage is no better at controlling those costs. And in fact, as I showed in a recent post, costs have been growing more slowly in the public sector, which does a better job than the pvt sector in controlling the bigger ticket costs (though costs are growing unsustainably quickly there as well).
What’s needed, as your question implies, is a system that can identify–both on the public and private sides–what’s cost effective and what isn’t, and make the latter something you can have if you pay for it. That’s the core cost control idea in the Affordable Care Act, through the Independent Payment Advisory Board.
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