You've Got Questions: Health Reform's Cost Paradox
Ezra - I'm wondering if you can help me understand a couple of really simple questions.
If one of the major current problems [in health care] is cost - why is reform going to cost even more?? Seems backwards.
That question is, I think, key, and the sort of thing that's going to be a real problem for the Obama administration. Peter Orszag, in fact, tries to answer it on his blog today. He's even got a graph. But uncharacteristically, I'm going to try to do this without a graph.
There are two main things happening in health reform. Coverage expansion and cost control. Extending coverage to the uninsured costs money immediately. Cost control measures generally work over longer periods of time.
An example: Imagine you have a family of 10 kids. Every night you take eight of them out for $100-a-head dinners. But you want to make two changes: You want all your kids to eat, and you want eating to cost less money. You start by simply taking all 10 kids out for meals. Costs go up. You're paying $1,000 a night. But at the same time, you begin learning how to cook at home, shopping at Costco, eating at cheaper places. These changes take a few years. But over time, costs drop. Now you're only paying $60 a head.
That's the theory behind health care reform. Costs will jump in the short-term as we expand coverage, but contract in the long-term as we make changes to the system. Quoth Orszag, "In the near term, the impact of expanded coverage will temporarily dominate, and health care reform will therefore temporarily increase government spending. Over time, however, the impact of the cost containment provisions will accumulate, and the net impact will be a reduction – and perhaps a dramatic one – in government spending."
Some argue, by the way, that you can't make the necessary reforms unless you first invest in universal coverage. Before insurers will compete on cost and quality, for instance, they have to stop competing to simply insure the healthiest applicants. And they can't do that unless the system is universal and all insurers have to offer coverage to all applicants. (For a longer version of that argument, see this article.)
I think I half-believe that argument, given the cost control measures under consideration. Comparative effectiveness and Health IT, for instance, do not require universal coverage, but they're key to the administration's strategy. But the argument I do believe is that expanding coverage is the right thing to do, and the right thing to spend money on in the short-term, and that controlling costs is an important thing to do, and the correct goal in the long-term.
(Photo credit: Getty Images.)
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