AQ Feature

Ask the Experts: Health Care

How do we contain rising health care costs?

Kathleen Sebelius answers:

For too long, Americans have been at the mercy of insurance companies who, using faulty assumptions and loopholes, have gamed the system at the expense of middle class families—hiking up premiums to unfair and unsustainable levels and dropping health care coverage when people are most in need.

But with the passage of the Affordable Care Act, the balance of power is shifting back to the American people.

The new law contains the broadest package of health care cost-cutting measures in American history: investing in prevention; reimbursing providers based on the quality, not quantity, of care they provide; and setting new rules that hold insurers accountable.

For the first time, insurers will be required to publicly justify premium increases, thus limiting companies’ ability to push less healthy individuals and small businesses off their rolls. And if insurers spend premiums on excessive administrative costs instead of medical care and quality improvement, policy holders will get rebates.

The law introduces much-needed competition into the insurance market. Beginning in 2014, Americans will be able to buy affordable health coverage through innovative state-based exchanges, and for the first time insurers will need to compete for their business by lowering prices and strengthening services. Starting this year, $250 million will be available in grant money for states to monitor insurance companies and keep those that hike up their rates excessively from participating in the exchanges.

New resources will soon be available to help put control of health insurance in consumers’ hands. An important part of that will be a new web portal coming this summer that will help consumers and employers explore and compare coverage options in their state. The online portal will serve as a central, one-stop resource for Americans looking for information about their options, including private insurance plans, high risk pools, the Children’s Health Insurance Program, and Medicaid.

The new law will also cut costs by standardizing forms and reducing providers’ paperwork burden. The Congressional Budget Office expects that the law’s administrative streamlining will reduce premiums in the exchanges by an estimated 7 to 10 percent, compared with a comparable plan in the current individual insurance market.

The new law also encourages hospitals and providers to find new ways to provide higher quality care and avoid unnecessary hospital readmissions. Through Accountable Care Organizations that take responsibility for the cost and quality of the care received by patients, national pilot programs that bundle payments for the full course of a patient’s care and other innovative initiatives, the Affordable Care Act will help improve quality and reduce cost for patients.

For years, our health care system has really been a “sick care system.” But through new incentives and mandatory coverage of proven preventive services for new plans, the new law will help patients get the care they need early, avoiding costly, unnecessary care later. This prevention-focused approach is better for doctors, patients and our national balance sheet.

These measures, coupled with a host of other reforms—including new rules allowing young adults to stay on their parents’ insurance plans until age 26 and new tax credits for small businesses—will help millions more people gain access to quality, affordable health insurance.

After decades of talking about how to fix a broken system, the Affordable Care Act ensures Americans will finally see better days ahead.

Senator Thomas Daschle answers:

In the next 10 years, the United States is likely to spend $35 trillion on health care. That is roughly $100,000 in taxes, premiums and out-of-pocket expenses for every man, woman and child in America.

There are five critical changes that we must make to meet that challenge.

First, we need greater transparency of the health care system, its administration and costs. Much of the cost related to health care today is invisible.

Second, we must end fee-for- service reimbursement. Today, health care is the only sector of the economy where, at the time of purchase, one doesn’t know the cost or who is going to pay. Our marketplace creates incentives for more tests, more procedures and more medical care.

Third, we have to reduce paperwork. One out of every five dollars is spent on administration. Universal forms and health information technology are a must.

Fourth, we need to stop unnecessary care, which may account for $700 billion of all care provided in the United States. Defensive, proprietary (is it a business or practice?) and market-driven medicine (those drug ads), along with fraud and abuse, account for much of the unnecessary care.

Finally, we must have far better management of chronic illness. There is too much inefficiency in the health care marketplace today. Accountable Care Organizations can contribute greatly to an improved system.

These changes require strong political will and a sound decision-making mechanism to allow our best collective judgment on these issues.

Ariel Pablos-Méndez answers:

Invest in primary health care, reduce administrative costs, tighten regulations, and redirect the large sums of money being invested in technology for curative health toward preventive medicine. These are the typical responses to the question, “how can you contain rising health care costs?” Yet these approaches have not achieved the desired outcome, which leads me to the somewhat provocative question: is the eternal quest to contain rising health care costs the right approach when seeking to improve health care access and quality in the Americas?

The cost of health care is increasing to alarmingly high levels across the globe—thus the seemingly logical assumption that this spending must be curtailed. Yet the focus on limiting health spending might be misplaced. Let’s look at the macroeconomic relationship between Total Health Expenditure (THE) and a country’s gross domestic product per capita (GDP): as GDP rises, so do the public and private components of THE. The fact that richer countries spend more on health than poorer countries is no surprise. However, this understanding has obscured two other parts of the equation:

  1. The degree of correlation between THE and GDP is very high (R2=0.95), suggesting that the level of GDP alone explains the level of THE ­and that attempts by governments to increase or decrease THE are not effective; and
  2. THE increases slightly faster than GDP, thus progressively consuming a greater percentage of GDP.

With GDP around the world growing in the last two decades (recent recession notwithstanding), health spending is rising at unprecedented rates.  These observations hold true across most countries and have been documented by multiple independent studies of cross-country and longitudinal data, from poor as well as rich countries, during the last 30 years.

If one accepts this premise, then the policy debate should shift, from increasing health spending through foreign aid in poor countries and decreasing it in richer ones to maximizing the value of health spending through more efficient and effective allocation of resources.  This would lead to a productive discussion around health system performance and universal health coverage.  Mexico’s Seguro Popular program illustrates how a policy shift extended coverage to the poor without cutting back on other programs. In 2001, the government promised to cover the 40 percent of the population that remained uninsured by the end of the decade. Total health spending went up, with the poor receiving most of the benefits.

But the higher level of THE corresponded to Mexico’s growing GDP. Without such a commitment, health spending would still probably have grown, but without improving health care quality or access for those most in need. Universal health coverage is not only the right medical prescription,  it’s  the right economic proposition. The good news is that many countries in the Americas are now on this path.

Marta Linares de Martinelli answers:

Today’s health care system must be more cost efficient. How we do it will have a broad effect on the health of individuals and their families.

There are myriad factors that affect the cost of health care. Among them: rising demand, limited supply, the poor quality of service, health care based on treatment rather than prevention, limited access and untimely service, lack of strategic planning, changing demographic and factors caused by a rise in chronic illnesses, lack of restriction in terms of costs, and the overuse of some services.

Acknowledging these variables is essential to halting rising costs.

If we address the reforms directly and seriously, we can improve primary care and quality and make it more efficient. For example, if we adopt a program of ambulatory care we can address 80 percent to 90 percent of current health problems more efficiently and at lower cost. This and other reforms must be designed to offer educational, preventive and primary care.

Another key is collecting information on the population’s health risks and patterns of illness. This information will allow governments to better adapt programs for more preventive care for chronic diseases. If we invest more in preventive medicine, we will decrease the number of hospitalizations and the overall cost of care.

Improving our country’s health care system and making it more affordable will improve Panama’s capacity to contribute to the global economy.

By doing so we will be better placed to create jobs and reduce poverty. After all, a healthy population makes for a healthy, productive economy.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Panama, Health care, United States




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