Fiscal Responsibility and Health Care Reform

Posted on August 28, 2009
PNHP Physicians for a National Health Program

By Robert A. Levine, M.D.
New England Journal of Medicine
August 26th, 2009









It has been clear for some time that the primary hurdle to enacting health care reform is figuring out how to pay for it. Virtually all Republicans and some Democrats have been unwilling to sign on to increasing taxes on high-income Americans as a partial answer. The idea of taxing the most generous health insurance benefits has met with resistance as well.

The use of electronic health records and an emphasis on prevention and early treatment of illnesses have been ballyhooed as ways to generate savings to help pay for reform, but there is no solid evidence that these measures will reduce spending anytime soon, although they might improve care

Unfortunately, legislators are ignoring the option of funding reform by harvesting available savings from within the health care system itself. I believe Congress must go back to the drawing board. Given the state of the economy and the continuing rapid growth in health care expenditures, lawmakers need the political will to devise a plan that will control accelerating costs and be budget-neutral — and to disregard the expected backlash from stakeholders (organized medicine, the insurance companies, the pharmaceutical industry, and the trial lawyers) and an uninformed public.

Time and again over the past century, there have been attempts to make the health care system more effective and efficient, the only real success being the passage of Medicare and Medicaid in 1965. Since then, various stakeholders have managed to block any efforts at restructuring that have threatened their profits.

When the U.S. economy faced its most severe test during the Great Depression, Social Security was enacted over vigorous opposition. The current crisis presents a similar opportunity to provide high-quality health care coverage to all Americans while bringing spending back in line. Comprehensive reform might also act as a government stimulus package, freeing up cash that consumers would otherwise be spending on medical care and thereby aiding the recovery.

Some drivers of health care costs (such as demographic changes) cannot be controlled; others (such as unhealthy lifestyles) are difficult to attack. However, great savings could be achievable in two areas: administrative costs and unnecessary care.

In the current health care system, administrative costs are generally estimated to account for 15 to 25% of total expenditures1; if we settled on an estimate of 20%, that would amount to $500 billion annually.

The complexity of the present system, with multiple sources of coverage, is the main cause of such high administrative costs. Every insurance plan has different benefits with different copayments and deductibles, and many require preapprovals for various tests. The multiple interactions this complexity necessitates between physicians’ offices and insurance companies — to get authorization and to haggle over payment — translate into personnel requirements (and associated costs) on both sides. Insurance companies also conduct extensive vetting of applicants for individual policies to determine whether any preexisting conditions disqualify them from coverage and what their premiums should be — an activity that, along with spending on marketing, further raises companies’ overhead.

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