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That 1.5 Percent

Yeah, so it's a heavy health-care day here on the blog. Big whoop, wanna fight about it?

Didn't think so. In my interview with Christina Romer, I asked about the sudden emergence of the talismanic "1.5 percentage points." In the past few months, this has become the goal of health-care reform: to slow the annual growth rate of spending by 1.5 percentage points. This is what the industry coalition promised to achieve voluntarily. This is the optimistic case that led the Council of Economic Adviser's report. "1.5 would be a tremendous accomplishment," Romer told me. "Though it may sound like a small number, it's very hard."

Slowing annual cost growth by 1.5 percentage points is, increasingly, the definition of success. But it's an odd definition of success. The number that the health-care industry thinks it could achieve voluntarily, without any real hit to profit or any coercive reforms, is quite a bit lower than the number we could, and probably should, achieve with a lightly wielded scalpel and an appropriately jaundiced eye toward the status quo bias of providers.

What you can say about an annual slowdown of 1.5 percentage points is that it would be a magnificent achievement given the political difficulties of health reform, but it's quite a bit lower than could be achieved absent those constraints. The Obama administration deserves credit for being conservative in its estimates. But though it's true that this new definition of success is ambitious given what we're likely to achieve amid a broken political system and a powerful health-care industry, it's probably quite modest given what could be achieved in more straightforward circumstances. And that's worth keeping in mind.

By Ezra Klein  |  June 3, 2009; 12:27 PM ET
Categories:  Health Economics , Health Reform  
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Comments

Hey Ezra,

Wouldn't it be more useful to set a goal of say 2% growth, instead of saying increases will be cut by 1.5%. It seems like some kind of weird obfuscation of what is actually happening in health care spending.

BTW: You need to get better exposure on the WAPO site. Your blog is buried in the business section and hard to find.

Posted by: srw3 | June 3, 2009 12:40 PM | Report abuse

I agree with srw3: how are people supposed to find you?

Posted by: Castorp1 | June 3, 2009 12:49 PM | Report abuse

The legislative rule should be no more than 1% above CPI in any two year period. Most recessions last less than 2 years, and booms (with inflation) are curable with tightened money. Anything else, and eventualy healthcare becomes a target for cuts again.

Posted by: JimPortlandOR | June 3, 2009 2:17 PM | Report abuse

Since you're all about the health care stuff today - do you have any thoughts on Sen. Gregg's proposal? (Of course, it's totally possible that you blogged about it and I missed it.) Thanks for making all this more understandable!

Posted by: KatherineWelsh | June 3, 2009 2:41 PM | Report abuse

As a health care provider over the last 30 years, I have seen many plans come and go. I would like to see the list of the 108 options noted in the interview. I will bet that not one addresses the most important aspects of medical care costs which is futile care. Not one congressman will approach this subject because it is very emotional. The excess use of patient and family driven medical services has not been evaluated. These two problems could conservatively save enough to pay for the 40 mil. uninsured!!

Posted by: jtillinghast | June 3, 2009 10:27 PM | Report abuse

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