Health System Modernization Will Reduce the Deficit

A CAP Action Report

SOURCE: AP/Gerry Broome

Melissa Blackwell searches through medical records Prospect Hill Community Health Center in Prospect Hill, North Carolina.

By David M. Cutler | May 11, 2009

• Print
• Email
• Text-size: A A A
• Share:

Read the full report (CAP Action)

Health care will be the major challenge to the federal budget in coming decades, with rising health costs accounting for nearly all of the expected increase in government spending relative to gross domestic product. Health care currently accounts for 16 percent of GDP, and that share is forecast to nearly double in the next quarter century. Spending money on health care is not bad, but wasting money is. Estimates suggest that a third or more of medical spending—perhaps $700 billion per year—is not known to be worth the cost. Wasting hundreds of billions of dollars on inefficient health care is a luxury we cannot afford.

A bipartisan consensus has coalesced around the idea of modernizing the health system as a way of stimulating cost savings. Health care modernization involves four broad steps: investing in infrastructure; measuring what is done and how well it is performed; rewarding high-value care, not just high-volume care; and realigning consumer incentives to encourage better health behavior.

This report analyzes how such reforms would affect the federal budget over time. It shows that health system modernization could increase productivity growth in health care by 1.5 to 2.0 percentage points annually starting in four to five years. The impact of such productivity improvement would be substantial. The federal government would save nearly $600 billion in health spending over the next decade, and $9 trillion over the next 25 years. Over time, these savings would more than offset the cost of providing insurance coverage to all Americans and put the United States on a path to long-term fiscal balance.

Read the full report (CAP Action)