In Wednesday’s State of the Union address, President Barack Obama focused on economic growth and jobs. He also called once again for passage of comprehensive health reform that reduces health insurance premiums, reduces the deficit, covers the uninsured, strengthens Medicare, and ends insurance company abuses. The president, who has previously linked economic recovery and job growth to health reform, noted that many Americans have been disheartened by the long march toward reform and are asking “what’s in it for me?” A series of analyses from the Center for American Progress make the point that health reform offers exactly what Americans are looking for—key components of economic recovery, including significant savings in health care costs and new jobs.
Four reports by CAP Senior Fellow David Cutler and colleagues—“Health System Modernization Will Reduce the Deficit,” “The Two Trillion Dollar Solution,” “Why Health Reform Will Bend the Cost Curve,” and “New Jobs Through Better Health Care”—demonstrate how delivery system modernization, payment reforms, and other cost-control measures will reduce the growth in health spending and insurance premiums to the benefit of workers, employers, and governments. Health care reform will create new jobs as small and large businesses get relief from burgeoning health coverage and health care costs.
Better health care
Americans currently spend $800 billion a year on services that are not proven to improve health. At the same time care for people with chronic illnesses is often episodic, chaotic, and uncoordinated. These problems result in unnecessary and sometimes harmful services and low-quality care. Cutler and his colleagues identify problems in the current system that drive unnecessary spending, and real opportunities for savings in health care spending. Problems include:
- Oversupply of well-reimbursed services
- Failure to coordinate chronic care services
- Limited performance data for treatments and providers
- Insufficient competition in insurance markets
- Administrative complexity
In “The Two Trillion Dollar Solution," Cutler and Melinda Beeuwkes Buntin argue that these systemic problems can be addressed by health system modernizations. They point to strategies in other industries that have spurred productivity improvements and greater efficiencies, including:
- Better information—in health care, this means improving what patients and providers know about what is done, what should be done, and which providers do it best.
- Appropriate payment—ensuring that payment is aligned with producing value and providing better care.
- Empowerment through better data and better incentives—enabling individuals to make systemic changes.
Cutler and Buntin also examine a set of modernization proposals and develop estimates of their respective savings potential. These proposals include improving the information infrastructure of the health care system through greater use of health information technology, new research on which treatments work and which do not, and improvements in quality measurement. Other proposals include payment-system reforms designed to promote greater integration across health care providers and reduce unnecessary services, improving primary care and chronic care management, and developing better-functioning insurance markets. All of these approaches are reflected in pending health reform legislation.
Lower health care costs
Health care spending continues to grow faster than the nation’s economic growth, workers’ wages, and inflation—and therefore squeezes out other priorities in family and public budgets. Using existing health care research and evidence from current pilot programs, innovative providers, and other demonstration efforts Cutler and Buntin estimate that health system modernization can result in $550 billion in federal budget savings over the next decade. They further estimate that overall growth in health care spending will be reduced by $2 trillion or 8 percent over the same timeframe. Cutler separately notes, in "Health System Modernization Will Reduce the Deficit," that savings related to modernizations will reduce long-term future Medicare and Medicaid spending from a baseline estimate of 9 percent of the gross domestic product by 2035 to 6.5 percent of GDP.
Cutler, in partnership with Karen Davis and Kristof Stremkis of the Commonwealth Fund, also examines delivery-system reform proposals specific to the House and Senate reform bills. In "Why Health Reform Will Bend the Cost Curve," the authors conclude that a combination of provisions in the pending bills will reduce national health spending by $683 billion or more and cut the federal deficit by $409 billion to $459 billion over 10 years after covering the cost of coverage expansions.
As the president noted Wednesday, health reform savings will reduce the deficit—a key step for long-term economic growth. These federal budget savings are significant and necessary. But beyond savings in the federal budget, savings within the broader health care system will accrue to private-sector payers, benefiting employers, workers, and workers’ families through reduced premiums, reduced out-of-pocket payments, and increased jobs.
The national unemployment rate stood at 10 percent last month, which is twice the unemployment rate at the beginning of the recession and the driving force behind the president’s focus on job creation. As Cutler and his co-author Neeraj Sood of the Leonard D. Schaeffer Center for Health Policy and Economics note in "New Jobs Through Better Health Care," health reform will deliver new jobs.
They integrate the Cutler-Davis-Stremkis savings estimates with other research on the effect of health costs on employment, concluding that overall reductions in health spending created by health reform will prompt the creation of 250,000 to 400,000 jobs per year as savings from reduced growth in health care premiums enable employers to hire additional workers. To examine the industry-by-industry impact of these changes, they apply the lower savings trend to premiums in 2016 and find that there would be an additional 200,000 manufacturing jobs and 900,000 service sector jobs enabled by health reform savings in that year.
So, what does health reform offer the average American? According to this research, quite a lot: lower premium costs, federal savings in Medicare and Medicaid, big savings across the health care system, and more jobs—not to mention more efficient, higher-quality care. No wonder the president urged Congress to find a way to finish the job and get health reform done for the American people.
Karen Davenport is Director of Health Policy at American Progress. For more on health policy from CAP, see our Health page.