Health Care Reform – Don’t Shift Costs, Cut Costs

peter orszag paul ryan budgetIn 2011, Peter Orszag reported on the then-new budget plan being put forward by Paul Ryan, then and now the House Budget Committee chairman.  At the time, some Republicans were apparently conflicted about whether to support the plan, in which Ryan proposed shifting Medicare toward consumer-directed health care in order to cut costs.

Consumer cost-sharing would most likely reduce unnecessary care, which would be a good thing, but the plan wouldn’t be an effective tool for cutting health costs for the country.  The Congressional Budget Office, officially nonpartisan, actually stated that it would actually increase total health care spending substantially.

The central flaw with consumer-directed health care reform is that most health care expenses are concentrated among just a few users.  Those who must deal with chronic diseases and end-of-life care cost the most – about 25% of patients account for more than 85% of costs.  Considering that great need for health care spending, it’s hard to imagine how the other 75% could spend less on care if  more of the financial burden falls on patients.

On top of this, the CBO analysis of the Ryan plan noted that the federal government would pay a great deal less for health care, about 20% less.  Perhaps the reason Republicans weren’t ready to jump on board to support the plan was because it merely shifted expenses from the government to consumers, mostly those faced with major health care challenges.  Without measures designed to cut costs overall, shifting the expense is no feat at all.

The Ryan plan won’t just shift the burden of expense from the government to the beneficiary without cutting costs; it will do so while adding to the overall costs.  By 2030, health spending would be more than 40% higher under Paul Ryan’s Medicare.  In the first year there would be significant cost reductions because of the pent-up demand for health services.  In following years, however, these results may be completely reversed.  What could happen is that, in an effort to lower their expenses in the short run, people may opt out of medicine or treatments.  That causes higher expenses down the line.  The reason the costs would be higher is that private plans have greater administrative costs than federal Medicare, along with less negotiating leverage with providers.

In light of a plan like this getting serious attention, it’s important to compare it to the previous year’s health reform act.  That plan offered minor savings in overall healthcare.  Compared to the rising costs under the Ryan plan, minor savings seem a lot bigger.

There is a lot of work to be done in order to cut overall costs in health care, and that wants to be one of our biggest priorities.  Shifting costs to consumers doesn’t address that at all, and may make large medical procedures financially dangerous for Americans.

from Peter Orszag Healthcare


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