Tuesday, May 12, 2009

Promises, Promises. . .

In an event staged to generate support for a consensus on health care reform, President Obama recently hosted a meeting of health industry leaders at the White House. The industry officials have promised to shave $2 trillion from health-related costs over the next 10 years. Without these promised savings, many economists believe that Obama's health care goals are unsustainable.

But will the industry players deliver the promises? Many people are not sold on the idea (including yours truly). The New York Times has published an article that sums up my feelings about the issue. In particular, the article reports that:
If history is a guide, their commitments may not produce the promised savings. Their proposals are vague — promising, for example, to reduce both “overuse and underuse of health care.” None of the proposals are enforceable, and none of the savings are guaranteed. Without such a guarantee, budget rules would normally prevent Congress from using the savings to pay for new initiatives to cover the uninsured. At this point, cost control is little more than a shared aspiration.
One health care analyst had a serious case of deja vu after hearing the dramatic promise to cut costs:
Henry J. Aaron, a health economist at the Brookings Institution, said that when he heard the industry’s promises on Monday, “I had a Rip van Winkle moment, as if I had fallen asleep in 1977 and woke up again this morning.”

Mr. Aaron served in the administration of President Jimmy Carter, whose proposal for hospital cost controls prompted the industry to undertake a short-lived “voluntary effort" . . . .

Econ blogger Megan McArdle also argues that the cost-saving plan announced by the industry bears a striking resemblance to Obama's campaign proposal that promised to fund health care reform by cutting costs.

Many industry leaders strongly oppose particular policies that would undoubtedly reduce costs. For example, insurance companies do not want a public plan option that some Democrats favor. Although the public plan would drastically reduce health care costs, it might also cause some private insurers to go out of business or consolidate (which does not strike me as a bad idea). Also, medical providers do not want Obama to push his plan to trim Medicare payments because this would impact the bottom line for doctors. In other words, promises are easier said than done.

Health and Human Services Secretary Kathleen Sebelius has consulted the crystal ball, and it looks like the health care industry will deliver its promise to lower costs over the next ten years:

Health and Human Services Secretary Kathleen Sebelius said Tuesday she's confident health industry leaders will make good on their promise to slow the growth of medical care costs.

And she also suggested that the Obama administration wouldn't hesitate to call them out if they retreat on the promise to slow spending growth by $2 trillion over the next 10 years.


Anonymous said...

The way to (partially) reduce the cost of health care is to get rid of the damn patent-based monopolies that big pharma enjoys. Read 'Against Intellectual Monopoly' for more on this.

Darren Lenard Hutchinson said...

Thanks, anonymous. But - there are serious research and development and free rider issues that we would have to address.

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