Why Does Controlling Health Care Spending Cost Money?

Peter Orszag, Director of the Office of Management and Budget, tackled the most confusing riddle in health care reform today on the OMB Blog yesterday:  Why should we spend money on reform if one of the stated goals is to spend less on health care?  It certainly seems like a paradox.  Since we spend so much more on health care than other nations, can’t we just move money around?

Orszag gives a quick answer by describing health care reform as having two moving parts – expanding coverage and cost control.  Expanding coverage means getting coverage for everyone who’s uninsured, and getting better coverage for everyone who’s underinsured.  To expand on Orszag’s point a little more, we’re currently paying for both the uninsured and, at times, the underinsured – we’re just doing it in the least efficient way possible.  This health care spending is largely invisible.  It comes out of our pockets in the form of tax dollars that go to hospitals for uncompensated care and in the form of extra costs passed from hospitals to insurance companies, which our insurance companies pass on to us in the form of higher premiums.  In the Obama/Baucus/Kennedy model, we get everyone covered through a combination of subsidies for those who can’t afford premiums on their own, having the federal government spend more on Medicaid and SCHIP to increase that eligibility, and creating a marketplace with transparency where those without insurance can buy comprehensive insurance at an affordable (with subsidies) rate without fear of being discriminated against for pre-existing conditions, having lifetime maximum benefits, or any of that jazz.  Yes – expanding eligibility, handing out subsidies, and building a new structure for individuals to shop for coverage all cots the federal government money.  This isn’t deficit-spending, Orszag is quick to point out – they’ll find the money for it in new revenue or cuts to other parts of the budget or both -- but you have to pay upfront.

Single-payer is a similar process.  Right now, government pays for maybe a little over a trillion out of the $2.4 trillion we’ll spend.  That other $1.4 trillion to assume all health care spending in the budget has to come from somewhere.

However, this isn’t money out the window.  It’s an investment. We’re replacing uncompensated, expensive emergency interventions with regular access to less expensive primary care, sure, but that primary care actually decreases the likelihood of those expensive interventions later on.  That reduces cost in and of itself over time -- you won't see it in year one, just as the body of a diabetic who's been unable to afford regular care will take time to adjust and show the effects of health living.  But just giving everybody access to primary care and preventative medicine isn’t enough – we also need to increase capacity and incentives throughout the system to deliver that primary care.  There’s a reason why every plan, Republican or Democrat, sings the praises of investing more in primary care, chronic disease management and preventative medicine.  It’s the ultimate no-brainer – it makes sense both economically and medically;  we can look for models of how to do it right, well, everywhere – from countries that have universal health care, or here in the U.S. with the VA Hospital system or private institutions like the Mayo Clinic.  Best practices abound.  What doesn’t abound is the political will to pay up front for it, knowing that we’ll get the money back – and then some – 10 years or more down the road.  Our status quo biad and our knee-jerk fear of increased spending -- even when we can pay for it and even when it saves us money in the long-run -- has been too strong so far.

Ezra Klein describes why we need to spend money on coverage and cost control in terms of an analogy – he suggests we think of a family that up until now has only fed 8 of 10 children at a restaurant each night, but then resolves to a.) feed all of its children and b.) learn how to shop at Costco and cook for itself most nights.  Yes, you’re going to be spending more on part A because the skills needed for part B takes time to develop, but then you wind up spending less in the long-term.  I would also think of this as starting a new division at a company – and not using an idea that’s new, just new for your particular company.  You’re relatively sure you can hire people with the skills who can get it done, study what your competitors are doing, and then build a better mousetrap.  But for a few months or a few years, that new division is going to operate at a loss, supported by money made in other divisions.  But if the new line is worth it, and you’ve hired the right people, and you’ve designed your product smartly, over time you make that money back in spades.

We’re not going to make all of our money back on health care for years, but we can bring costs down to a much more manageable level – one that doesn’t bankrupt us, our businesses or our government with out-of-control costs.  Think of it as a new venture – you’re going to need to take money from other divisions (read: other revenue or budget cuts) to pay for it for a while.  That’s not a weird thing at all in business.  It shouldn’t be a weird thing in government – particularly when we look around and see that our competitors (other countries) are already doing it, and doing it well.

Given that we’re not talking about a product but about people’s lives, health, and financial well-being, it’s more than worth us floating this start-up known as the American Health Care System, version 2.0.  We're investing in us.

(Photo credit:  The National Academy of Sciences on Flickr).