The new health reform law wrings $390 billion in savings from Medicare over the next decade to help pay for health care reforms—but spending on the program will continue to rise.
How can the new legislation reduce Medicare costs and still spend millions more dollars on improvements like closing the gap in drug coverage and offering free preventive care? Here’s a quick lesson in Medicare math.
These are cuts in future increases, not cuts in services, experts explain.
Medicare spending has grown about 8 percent annually over 20 years, according to the Congressional Budget Office, an independent arm of Congress. The law could slow down the annual increase in spending to about 6 percent over the next 20 years, the CBO has reported.
For example, of the projected $390 billion in savings—the latest estimate from Congressional Research Service—$196 billion comes from smaller increases in payments to hospitals, nursing homes, home health workers and other medical providers. But physicians who work in primary care will be rewarded with a 10 percent bonus. Hospitals that prevent readmissions or hospital-acquired infections will be paid more than those that do not. The American Hospital Association and the American Medical Association were among the many health care organizations that backed the legislation, along with advocacy groups.
Medicare Advantage Another piece of the $390 billion savings, about $136 billion, comes from reductions in subsidies paid to private health insurance plans, called Medicare Advantage, that provide medical and drug coverage to about one of four people in Medicare. Currently, Medicare pays the private plans an average of 14 percent more to care for a member than it would cost if that person remained in traditional Medicare.
In 2012, the government will start lowering these overpayments to Medicare Advantage plans. Insurers contend they will be forced to cut benefits. But the law prohibits plans from reducing or eliminating essential guaranteed Medicare benefits. It also protects plan members by requiring that at least 85 cents of every dollar insurers receive is spent on benefits.
Guarantees The law also requires Medicare to spend more wisely. For example, a new independent Medicare advisory board is expected to save the program $16 billion over 10 years. Cracking down on fraud and waste will save an estimated $7 billion. Even bonus payments and innovations aimed at improving patient care are intended to produce a long-term payoff: People who get more effective treatment can recover more quickly from medical setbacks, and that saves Medicare money, too.
Finally, the law comes with a Medicare warranty in Section 3601: Nothing in the law can cut current Medicare benefits, and the Medicare savings it achieves “shall extend the solvency of the Medicare trust funds, reduce Medicare premiums and other cost-sharing for beneficiaries, and improve or expand guaranteed Medicare benefits and protect access to Medicare providers.”
--------------------------------------------------------------------------------
Other Insurance Situations
Wednesday, May 5, 2010
Health Care Cost Increase Is Projected
By ROBERT PEAR
WASHINGTON — A government analysis of the new health care law says it will not slow the overall growth of health spending because the expansion of insurance and services to 34 million people will offset cost reductions in Medicare and other programs.
The study, by the chief Medicare actuary, Richard S. Foster, provides a detailed, rigorous analysis of the law.
In signing the measure last month, President Obama said it would “bring down health care costs for families and businesses and governments.”
But Mr. Foster said, “Overall national health expenditures under the health reform act would increase by a total of $311 billion,” or nine-tenths of 1 percent, compared with the amounts that would otherwise be spent from 2010 to 2019.
In his report, sent to Congress Thursday night, Mr. Foster said that some provisions of the law, including cutbacks in Medicare payments to health care providers and a tax on high-cost employer-sponsored coverage, would slow the growth of health costs. But he said the savings “would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansions.”
The report says that 34 million uninsured people will gain coverage under the law, but that 23 million people, including 5 million illegal immigrants, will still be uninsured in 2019.
Republicans said the report vindicated their concerns about the law, which was approved without a single Republican vote. The White House pointed to bright spots in the report and insisted that the law would help bring down costs. In 2004, when Mr. Foster raised questions about cost estimates by the Bush administration, Democrats lionized him as a paragon of integrity.
Mr. Foster says the law will save Medicare more than $500 billion in the coming decade and will postpone exhaustion of the Medicare trust fund by 12 years, so it would run out of money in 2029, rather than 2017. In addition, he said, the reduction in the growth of Medicare will lead to lower premiums and co-payments for Medicare beneficiaries.
But, Mr. Foster said, these savings assume that the law will be carried out as written, and that may be an unrealistic assumption. The cuts, he said, “could become unsustainable” because they may drive some hospitals and nursing homes into the red, “possibly jeopardizing access to care for beneficiaries.”
Nancy-Ann DeParle, director of the White House Office of Health Reform, said that fear was unfounded.
Mr. Foster’s report, which analyzes the effect of the law on national health spending of all types, has a different focus from studies by the Congressional Budget Office, which concentrated on federal spending and revenues and concluded that the law would reduce budget deficits by a total of $143 billion over 10 years.
In his report, Mr. Foster made these points:
¶The government will spend $828 billion to expand insurance coverage over the next 10 years. Expansion of Medicaid accounts for about half of the cost. The number of Medicaid recipients will increase by 20 million, to a total of 84 million in 2019.
¶People who go without insurance and employers who do not provide coverage meeting federal standards will pay $120 billion in penalties from 2014 to 2019. Individuals will pay $33 billion of that amount, while employers pay $87 billion.
¶The law will reduce consumers’ out-of-pocket spending on health care by $237 billion over 10 years, to a total of $3.3 trillion.
Cuts in federal payments to private Medicare Advantage plans will “result in less generous benefit packages,” the report said. By 2017, it said, “enrollment in Medicare Advantage plans will be lower by about 50 percent, from its projected level of 14.8 million under the prior law to 7.4 million under the new law.”
More in Money & Policy (19 of 50 articles)
Senate Bill Sets a Plan to Regulate Premiums
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WASHINGTON — A government analysis of the new health care law says it will not slow the overall growth of health spending because the expansion of insurance and services to 34 million people will offset cost reductions in Medicare and other programs.
The study, by the chief Medicare actuary, Richard S. Foster, provides a detailed, rigorous analysis of the law.
In signing the measure last month, President Obama said it would “bring down health care costs for families and businesses and governments.”
But Mr. Foster said, “Overall national health expenditures under the health reform act would increase by a total of $311 billion,” or nine-tenths of 1 percent, compared with the amounts that would otherwise be spent from 2010 to 2019.
In his report, sent to Congress Thursday night, Mr. Foster said that some provisions of the law, including cutbacks in Medicare payments to health care providers and a tax on high-cost employer-sponsored coverage, would slow the growth of health costs. But he said the savings “would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansions.”
The report says that 34 million uninsured people will gain coverage under the law, but that 23 million people, including 5 million illegal immigrants, will still be uninsured in 2019.
Republicans said the report vindicated their concerns about the law, which was approved without a single Republican vote. The White House pointed to bright spots in the report and insisted that the law would help bring down costs. In 2004, when Mr. Foster raised questions about cost estimates by the Bush administration, Democrats lionized him as a paragon of integrity.
Mr. Foster says the law will save Medicare more than $500 billion in the coming decade and will postpone exhaustion of the Medicare trust fund by 12 years, so it would run out of money in 2029, rather than 2017. In addition, he said, the reduction in the growth of Medicare will lead to lower premiums and co-payments for Medicare beneficiaries.
But, Mr. Foster said, these savings assume that the law will be carried out as written, and that may be an unrealistic assumption. The cuts, he said, “could become unsustainable” because they may drive some hospitals and nursing homes into the red, “possibly jeopardizing access to care for beneficiaries.”
Nancy-Ann DeParle, director of the White House Office of Health Reform, said that fear was unfounded.
Mr. Foster’s report, which analyzes the effect of the law on national health spending of all types, has a different focus from studies by the Congressional Budget Office, which concentrated on federal spending and revenues and concluded that the law would reduce budget deficits by a total of $143 billion over 10 years.
In his report, Mr. Foster made these points:
¶The government will spend $828 billion to expand insurance coverage over the next 10 years. Expansion of Medicaid accounts for about half of the cost. The number of Medicaid recipients will increase by 20 million, to a total of 84 million in 2019.
¶People who go without insurance and employers who do not provide coverage meeting federal standards will pay $120 billion in penalties from 2014 to 2019. Individuals will pay $33 billion of that amount, while employers pay $87 billion.
¶The law will reduce consumers’ out-of-pocket spending on health care by $237 billion over 10 years, to a total of $3.3 trillion.
Cuts in federal payments to private Medicare Advantage plans will “result in less generous benefit packages,” the report said. By 2017, it said, “enrollment in Medicare Advantage plans will be lower by about 50 percent, from its projected level of 14.8 million under the prior law to 7.4 million under the new law.”
More in Money & Policy (19 of 50 articles)
Senate Bill Sets a Plan to Regulate Premiums
Read More »
Close
Wednesday, April 14, 2010
Health Coverage Legislation Small Business
Health Coverage Legislation Small Business
Health coverage legislation enacted this year includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.
Eligibility Rules
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
Posted by Malden Senior at 4:16 PM
Labels: AARP. MASS SENIOR ACTION, cost Heath care, healthcare.medicare.msac, heath Care Reform, Helath Care Reform. MSAC
0 comments:
Post a Comment
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Health coverage legislation enacted this year includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.
Eligibility Rules
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
Posted by Malden Senior at 4:16 PM
Labels: AARP. MASS SENIOR ACTION, cost Heath care, healthcare.medicare.msac, heath Care Reform, Helath Care Reform. MSAC
0 comments:
Post a Comment
Older Post Home
Subscribe to: Post Comments (Atom)
Health Coverage Legislation Small Business
Health coverage legislation enacted this year includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.
Eligibility Rules
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
Eligibility Rules
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
Saturday, March 27, 2010
Health Care Reform
House members voted 219-212
late Sunday to approve the
health care overhaul that
would extend coverage to 32
million uninsured Americans.
It also would significantly
expand Medicaid, the
federal-state health care
program for the poor; place
new federal regulations on
the insurance industry; and
allow parents to keep children
up to age 26 on their family
insurance plans.
Most Americans would have to
buy insurance or face penalties.
There would be subsidies to help
families with incomes of up to
$88,000 a year pay their premiums.
late Sunday to approve the
health care overhaul that
would extend coverage to 32
million uninsured Americans.
It also would significantly
expand Medicaid, the
federal-state health care
program for the poor; place
new federal regulations on
the insurance industry; and
allow parents to keep children
up to age 26 on their family
insurance plans.
Most Americans would have to
buy insurance or face penalties.
There would be subsidies to help
families with incomes of up to
$88,000 a year pay their premiums.
Monday, March 22, 2010
Universal Health Care
Health Reform Passes: It's Impact for Massachusetts
Mon, March 22, 2010 12:33:56 PMFrom: Mass-Care AnnounceAdd to Contacts
To: Mass-Care Announce
--------------------------------------------------------------------------------
Dear Single Payer Supporters - Late last night the House passed health reform into law, along with a "reconciliation" bill that the Senate is expected also to pass along party lines this week. What does this mean for the movement to make health care a right in Massachusetts, and how should single payer advocates respond? Millions of uninsured residents in other states will receive life-altering assistance, and the prescription drug 'donut hole' faced by seniors under Medicare will be closed over time - it's important not to understate what a victory this is for many of our supporters and allies. However, the law will create winners and losers. It contains no meaningful cost controls; the tax on workplace health benefits used to pay for the law will serve as a powerful driver towards universal underinsurance; and Massachusetts in particular will be a 'net loser' under the law, as many of its benefits are already in place here and we will be paying more under the new taxes than most states.
The bill is projected to cover 32 million uninsured people by 2019... However, by 2016 - if health costs and income continue to rise as they have been - the average cost of a family health insurance plan will consume 34% to 45% of an average family income! We know that this is not conceivable for a household budget or for a business that offers coverage to its workers. This tells us something important: we will HAVE to have another major health reform debate - one that does not ignore costs, and does not just shift them onto patients - way before the bill that just passed has been fully implemented. We also know that there is no country on earth, or any region of any country on earth, that has successfully controlled costs without a single payer system or regulations so stringent that private insurers are forced to behave like a single payer system.
This cost crisis will likely reach a head in Massachusetts, where we have the highest health care costs in the nation, before anywhere else. The debate here on how to control health care costs before our health care system implodes will be a crucial moment for the single payer movement to mobilize and ensure that we get health reform that works.
_______________________________________________
Mass-Care: The Massachusetts Campaign for Single Payer Health Care
33 Harrison Ave - 5th floor
Boston, MA 02111
Ph: 617-723-7001
Fx: 617-723-7002
Em: info@masscare.org
Mon, March 22, 2010 12:33:56 PMFrom: Mass-Care Announce
To: Mass-Care Announce
--------------------------------------------------------------------------------
Dear Single Payer Supporters - Late last night the House passed health reform into law, along with a "reconciliation" bill that the Senate is expected also to pass along party lines this week. What does this mean for the movement to make health care a right in Massachusetts, and how should single payer advocates respond? Millions of uninsured residents in other states will receive life-altering assistance, and the prescription drug 'donut hole' faced by seniors under Medicare will be closed over time - it's important not to understate what a victory this is for many of our supporters and allies. However, the law will create winners and losers. It contains no meaningful cost controls; the tax on workplace health benefits used to pay for the law will serve as a powerful driver towards universal underinsurance; and Massachusetts in particular will be a 'net loser' under the law, as many of its benefits are already in place here and we will be paying more under the new taxes than most states.
The bill is projected to cover 32 million uninsured people by 2019... However, by 2016 - if health costs and income continue to rise as they have been - the average cost of a family health insurance plan will consume 34% to 45% of an average family income! We know that this is not conceivable for a household budget or for a business that offers coverage to its workers. This tells us something important: we will HAVE to have another major health reform debate - one that does not ignore costs, and does not just shift them onto patients - way before the bill that just passed has been fully implemented. We also know that there is no country on earth, or any region of any country on earth, that has successfully controlled costs without a single payer system or regulations so stringent that private insurers are forced to behave like a single payer system.
This cost crisis will likely reach a head in Massachusetts, where we have the highest health care costs in the nation, before anywhere else. The debate here on how to control health care costs before our health care system implodes will be a crucial moment for the single payer movement to mobilize and ensure that we get health reform that works.
_______________________________________________
Mass-Care: The Massachusetts Campaign for Single Payer Health Care
33 Harrison Ave - 5th floor
Boston, MA 02111
Ph: 617-723-7001
Fx: 617-723-7002
Em: info@masscare.org
Sunday, February 28, 2010
The Commonwealth Fund Blog
The Costs of Failure: Economic Consequences of Failure to Enact Nixon, Carter, and Clinton Health Reforms
December 21, 2009
Authors: Karen Davis, Ph.D., Kristof Stremikis, M.P.P.
Tags: health reform legislation , health reform , health spending
View Citation
CitationK. Davis and K. Stremikis, The Costs of Failure: Economic Consequences of Failure to Enact Nixon, Carter, and Clinton Health Reforms, The Commonwealth Fund Blog, December 2009.
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Blog Post (201K PDF)
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By Karen Davis and Kristof Stremikis
The U.S. Congress is on the threshold of historic change that will usher in a new era in American health care. In the last 50 years, three presidents—Nixon, Carter, and Clinton—have made a serious effort to enact reform and failed. The nation simply can not afford to fail again—too much is at stake for those Americans who fail to get the life-saving care they need and for those who pay the bills of ever-rising cost of health care. History makes clear that failing to act on health reform has serious and far-reaching economic ramifications. An examination of trends in health spending over the past 50 years shows that if health reform measures proposed by previous presidents had been enacted and slowed the growth in spending by as little as 1.0 or 1.5 percentage points annually, spending trends in the U.S. would have been closer to those seen in other major industrialized countries and fewer adverse health consequences and economic burdens would have been borne by American families, businesses, and government.
Learning from Past Efforts
Over the last half-century, the nation has made several serious attempts to ensure health insurance coverage and control health care spending, either as part of comprehensive legislation or through companion measures.
President Richard Nixon imposed wage and price controls on the entire economy in 1971 in the wake of inflation triggered by the Vietnam War, with special mechanisms developed for controlling health care costs. He then proposed a Comprehensive Health Insurance Plan that received serious legislative consideration in 1974. The central features of the plan were employer-mandated private insurance coverage for workers and their families in firms with 25 or more employees, a plan for low-income families that would replace and improve Medicaid, and a federal health insurance plan that would replace and improve Medicare.1 Reform efforts died when Nixon was removed from office, as proponents hoped to enact stronger legislation in the political aftermath of his impeachment. The Nixon health care cost controls were lifted in 1975 when the industry pledged to control costs voluntarily.2
President Jimmy Carter proposed hospital cost containment legislation in 1977. In 1979, he introduced a national health plan that included minimum standards on benefits and required employer contributions, as well as a new federal HealthCare program to replace Medicaid and Medicare and cover all low-income individuals, in addition to the elderly and disabled. The Carter hospital cost containment legislation, a response to the explosion in health care costs following the lifting of Nixon's health cost controls, was defeated when the industry mounted an alternative "Voluntary Effort." Unfortunately, this voluntary approach to cost control also quickly dissipated once the threat of legislation was removed.3 Inflation in health care spending and a deteriorating economy contributed to the demise of the Carter national health plan in 1980.
President Bill Clinton introduced legislation in 1993 with cost containment measures built into health reform. In particular, his proposal called for controls on the rate of increase in health insurance premiums. The Health Security Act included an employer mandate that required employers to pay 80 percent of the premium (up to a maximum of 7.9% of payroll), with the family share of premiums not to exceed 3.9 percent of income.4 The plan was to be financed by substantial Medicare and Medicaid savings, an increase in tobacco taxes, and cross-subsidies among employers within risk pools. President Clinton's health reform ran into major opposition from small businesses and insurers, and the legislation stalled out in Congress.
U.S. Health Spending Trends and Projections
The federal government's repeated failure to enact health reform has had serious consequences for American government, families, and businesses. The U.S. spent 5 percent of gross domestic product (GDP) on health care in 1960; health care now consumes 17 percent of the nation's economy and will reach 21 percent by 2020, if trends continue. While investment in health care has contributed to improved health and productivity, other countries have devoted a far lower share of GDP to health care and achieved comparable or better health outcomes.
Ever-higher health spending has directly contributed to stagnating incomes and rising health insurance premiums for middle-class families and workers. Commonwealth Fund analysis has shown that premiums have risen from 11 percent of family income in 1999 to 18 percent in 2009. If current trends continue, average family premiums will reach 24 percent of median income by 2020.
Rising health care costs–and the subsequent rise in health insurance premiums–have fueled an increase in the number of Americans without insurance over the past three decades. Nearly 50 million Americans are expected to be uninsured in 2010. Cost growth also has placed enormous pressure on employers' ability to provide comprehensive benefits, leading many to shift to less generous policies or drop coverage altogether. Employees of small businesses, which are much less likely to offer coverage, are at particularly high risk.
It is difficult to estimate with precision what would have happened had proposed reforms been enacted. Still, it is instructive to consider where we would be today if those efforts had succeeded. Each included provisions designed to provide health insurance coverage for all.5 Each set out regulatory restraints on the growth in provider payment or insurance premiums, or both. All had significant mechanisms to control costs, including changing provider payment, increasing competition in the insurance market, and controlling the growth in private insurance premiums.
Exhibit 1 shows the growth in national health expenditures as a percentage of GDP and what we would have spent as a nation if effective measures to slow the growth in health expenditures by 1.5 percentage points a year had been adopted in 1975, 1980, and 1995. In 1960, we spent 5.2 percent of GDP on health care, compared with the 3.8 percent of GDP median rate in all major industrialized nations. Today, we spend 17.7 percent—nearly twice the rate of 9 percent that is devoted to health care in other industrialized countries.
If President Nixon's health reform plans had been enacted in 1975 and slowed the annual rate of spending by 1.5 percentage points a year, today we would be spending 10.7 percent of GDP on health care. In dollar terms, we would spend only $1.6 trillion on health care in 2010, instead of projected health spending of $2.6 trillion. This savings of $1 trillion in 2010 alone would remove much of the financial burden on families, businesses, and government. Even if Nixon reforms had slowed spending growth by "only" 1 percentage point a year, health spending as a percent of GDP would have been $1.9 trillion in 2010, or 12.7 percent of GDP—a savings of 5 percent of GDP.
If cost containment measures slowing spending by 1.5 percentage points a year had been enacted in 1980 under President Carter, the trends would be similar, with spending rising to $1.7 trillion in 2010, or 11.5 percent of GDP. Even if we had acted as late as 1995 under President Clinton, health spending in 2010 would be $2.1 trillion, or 14.2 percent of GDP.
The federal government would have been a major beneficiary of comprehensive health reform under Presidents Nixon, Carter, or Clinton. Instead of consuming 6.2 percent of GDP in 2010, federal health outlays would have been 3.7 percent in 2010 under Nixon reforms that slowed spending growth by 1.5 percentage points, 4.0 percent under Carter, and 5.0 percent under Clinton.
Bending the Health Care Cost Curve Today
In the current round of health reform, the primary strategy for controlling costs has been legislative changes to Medicare and a public health insurance plan that encourages private insurers to control costs. While enrollment in the public health insurance plan in the House bill has been narrowly targeted on the uninsured and small businesses, the proposal faces an uncertain future in the legislative process.
The House of Representatives has added provisions to negotiate pharmaceutical drug prices, review insurance premium increases, and set standards on the share of premiums devoted to health care. Both the House and Senate have provisions for rapid testing of new methods of provider payment in Medicare. The Senate bill calls for an independent Medicare advisory board to facilitate rapid consideration of recommendations to limit the rate of increase in Medicare outlays.
Several commentators have questioned whether the cost containment provisions in the health reform bills passed by the House and under consideration in the Senate are sufficient. Neither bill includes the aggressive system-wide cost control measures that were part of the Nixon, Carter, and Clinton proposals. But the House and Senate bills would begin to bend the curve in total health spending and encourage the development of mechanisms for extending cost control measures more broadly once experience is gained. A recent analysis by the Council of Economic Advisers estimates that private and governmental spending would be slowed by 1.0 percentage points a year.
History shows that even modest cost-cutting has a significant impact over time and that inaction has a cost. The longer we wait to address the underlying problems in the U.S. health care system, the more health spending will continue on its rapid rise and the more drastic the measures that will be required to right our economy and our federal budget. Congress is right to move ahead. After 50 years of spiraling health care costs and the resulting price paid by American families, business, and government, we can no longer afford to postpone health reform.
--------------------------------------------------------------------------------
1 K. Davis, National Health Insurance: Benefits, Costs, and Consequences (Washington, D.C.: The Brookings Institution, 1975).
2 K. Davis, G. Anderson, D. Rowland, and E. Steinberg, Health Care Cost Containment (Baltimore: The Johns Hopkins University Press, 1990).
3 K. Davis, "Recent Tends in Hospital Costs: Failure of the Voluntary Effort," Testimony before the House Committee on Energy and Commerce, December 15, 1981.
4 Congressional Research Service, Health Care Reform: President Clinton's Health Security Act, (Washington, D.C.: Congressional Research Service, 1993).
5 K. Davis, "Universal Coverage in the United States: Lessons from Experience of the 20th Century," Journal of Urban Health: Bulletin of the New York Academy of Medicine, March 2001 78(1).
Read or Post Comments
Edward Gamache, of Deckerville Community Hospital, say(s):
December 21, 2009
There was a time when the healthcare cost curve started to flatten; it was at the height of the impact of HMO implementation. It is important to remember this historic period. Your article fails to identify this period and the backlash HMO controls had on the general public. HMOs became associated with a loss of choice in healthcare and as a result was pushed back by the very institution that supported its development, the U.S. Congress.
I suspect that whatever elements of cost control are included in the current national health reform bill that creates similar impacts will face the same fate. I’m confident that the first legislative proposal to change the current bill will be introduced that day after the President signs it.
December 21, 2009
Authors: Karen Davis, Ph.D., Kristof Stremikis, M.P.P.
Tags: health reform legislation , health reform , health spending
View Citation
CitationK. Davis and K. Stremikis, The Costs of Failure: Economic Consequences of Failure to Enact Nixon, Carter, and Clinton Health Reforms, The Commonwealth Fund Blog, December 2009.
E-mail Share RSS Feed Add To My Library Comments (1)Print Downloads
Blog Post (201K PDF)
Chartpack (57K PDF)
Chartpack (278K PPT)
By Karen Davis and Kristof Stremikis
The U.S. Congress is on the threshold of historic change that will usher in a new era in American health care. In the last 50 years, three presidents—Nixon, Carter, and Clinton—have made a serious effort to enact reform and failed. The nation simply can not afford to fail again—too much is at stake for those Americans who fail to get the life-saving care they need and for those who pay the bills of ever-rising cost of health care. History makes clear that failing to act on health reform has serious and far-reaching economic ramifications. An examination of trends in health spending over the past 50 years shows that if health reform measures proposed by previous presidents had been enacted and slowed the growth in spending by as little as 1.0 or 1.5 percentage points annually, spending trends in the U.S. would have been closer to those seen in other major industrialized countries and fewer adverse health consequences and economic burdens would have been borne by American families, businesses, and government.
Learning from Past Efforts
Over the last half-century, the nation has made several serious attempts to ensure health insurance coverage and control health care spending, either as part of comprehensive legislation or through companion measures.
President Richard Nixon imposed wage and price controls on the entire economy in 1971 in the wake of inflation triggered by the Vietnam War, with special mechanisms developed for controlling health care costs. He then proposed a Comprehensive Health Insurance Plan that received serious legislative consideration in 1974. The central features of the plan were employer-mandated private insurance coverage for workers and their families in firms with 25 or more employees, a plan for low-income families that would replace and improve Medicaid, and a federal health insurance plan that would replace and improve Medicare.1 Reform efforts died when Nixon was removed from office, as proponents hoped to enact stronger legislation in the political aftermath of his impeachment. The Nixon health care cost controls were lifted in 1975 when the industry pledged to control costs voluntarily.2
President Jimmy Carter proposed hospital cost containment legislation in 1977. In 1979, he introduced a national health plan that included minimum standards on benefits and required employer contributions, as well as a new federal HealthCare program to replace Medicaid and Medicare and cover all low-income individuals, in addition to the elderly and disabled. The Carter hospital cost containment legislation, a response to the explosion in health care costs following the lifting of Nixon's health cost controls, was defeated when the industry mounted an alternative "Voluntary Effort." Unfortunately, this voluntary approach to cost control also quickly dissipated once the threat of legislation was removed.3 Inflation in health care spending and a deteriorating economy contributed to the demise of the Carter national health plan in 1980.
President Bill Clinton introduced legislation in 1993 with cost containment measures built into health reform. In particular, his proposal called for controls on the rate of increase in health insurance premiums. The Health Security Act included an employer mandate that required employers to pay 80 percent of the premium (up to a maximum of 7.9% of payroll), with the family share of premiums not to exceed 3.9 percent of income.4 The plan was to be financed by substantial Medicare and Medicaid savings, an increase in tobacco taxes, and cross-subsidies among employers within risk pools. President Clinton's health reform ran into major opposition from small businesses and insurers, and the legislation stalled out in Congress.
U.S. Health Spending Trends and Projections
The federal government's repeated failure to enact health reform has had serious consequences for American government, families, and businesses. The U.S. spent 5 percent of gross domestic product (GDP) on health care in 1960; health care now consumes 17 percent of the nation's economy and will reach 21 percent by 2020, if trends continue. While investment in health care has contributed to improved health and productivity, other countries have devoted a far lower share of GDP to health care and achieved comparable or better health outcomes.
Ever-higher health spending has directly contributed to stagnating incomes and rising health insurance premiums for middle-class families and workers. Commonwealth Fund analysis has shown that premiums have risen from 11 percent of family income in 1999 to 18 percent in 2009. If current trends continue, average family premiums will reach 24 percent of median income by 2020.
Rising health care costs–and the subsequent rise in health insurance premiums–have fueled an increase in the number of Americans without insurance over the past three decades. Nearly 50 million Americans are expected to be uninsured in 2010. Cost growth also has placed enormous pressure on employers' ability to provide comprehensive benefits, leading many to shift to less generous policies or drop coverage altogether. Employees of small businesses, which are much less likely to offer coverage, are at particularly high risk.
It is difficult to estimate with precision what would have happened had proposed reforms been enacted. Still, it is instructive to consider where we would be today if those efforts had succeeded. Each included provisions designed to provide health insurance coverage for all.5 Each set out regulatory restraints on the growth in provider payment or insurance premiums, or both. All had significant mechanisms to control costs, including changing provider payment, increasing competition in the insurance market, and controlling the growth in private insurance premiums.
Exhibit 1 shows the growth in national health expenditures as a percentage of GDP and what we would have spent as a nation if effective measures to slow the growth in health expenditures by 1.5 percentage points a year had been adopted in 1975, 1980, and 1995. In 1960, we spent 5.2 percent of GDP on health care, compared with the 3.8 percent of GDP median rate in all major industrialized nations. Today, we spend 17.7 percent—nearly twice the rate of 9 percent that is devoted to health care in other industrialized countries.
If President Nixon's health reform plans had been enacted in 1975 and slowed the annual rate of spending by 1.5 percentage points a year, today we would be spending 10.7 percent of GDP on health care. In dollar terms, we would spend only $1.6 trillion on health care in 2010, instead of projected health spending of $2.6 trillion. This savings of $1 trillion in 2010 alone would remove much of the financial burden on families, businesses, and government. Even if Nixon reforms had slowed spending growth by "only" 1 percentage point a year, health spending as a percent of GDP would have been $1.9 trillion in 2010, or 12.7 percent of GDP—a savings of 5 percent of GDP.
If cost containment measures slowing spending by 1.5 percentage points a year had been enacted in 1980 under President Carter, the trends would be similar, with spending rising to $1.7 trillion in 2010, or 11.5 percent of GDP. Even if we had acted as late as 1995 under President Clinton, health spending in 2010 would be $2.1 trillion, or 14.2 percent of GDP.
The federal government would have been a major beneficiary of comprehensive health reform under Presidents Nixon, Carter, or Clinton. Instead of consuming 6.2 percent of GDP in 2010, federal health outlays would have been 3.7 percent in 2010 under Nixon reforms that slowed spending growth by 1.5 percentage points, 4.0 percent under Carter, and 5.0 percent under Clinton.
Bending the Health Care Cost Curve Today
In the current round of health reform, the primary strategy for controlling costs has been legislative changes to Medicare and a public health insurance plan that encourages private insurers to control costs. While enrollment in the public health insurance plan in the House bill has been narrowly targeted on the uninsured and small businesses, the proposal faces an uncertain future in the legislative process.
The House of Representatives has added provisions to negotiate pharmaceutical drug prices, review insurance premium increases, and set standards on the share of premiums devoted to health care. Both the House and Senate have provisions for rapid testing of new methods of provider payment in Medicare. The Senate bill calls for an independent Medicare advisory board to facilitate rapid consideration of recommendations to limit the rate of increase in Medicare outlays.
Several commentators have questioned whether the cost containment provisions in the health reform bills passed by the House and under consideration in the Senate are sufficient. Neither bill includes the aggressive system-wide cost control measures that were part of the Nixon, Carter, and Clinton proposals. But the House and Senate bills would begin to bend the curve in total health spending and encourage the development of mechanisms for extending cost control measures more broadly once experience is gained. A recent analysis by the Council of Economic Advisers estimates that private and governmental spending would be slowed by 1.0 percentage points a year.
History shows that even modest cost-cutting has a significant impact over time and that inaction has a cost. The longer we wait to address the underlying problems in the U.S. health care system, the more health spending will continue on its rapid rise and the more drastic the measures that will be required to right our economy and our federal budget. Congress is right to move ahead. After 50 years of spiraling health care costs and the resulting price paid by American families, business, and government, we can no longer afford to postpone health reform.
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1 K. Davis, National Health Insurance: Benefits, Costs, and Consequences (Washington, D.C.: The Brookings Institution, 1975).
2 K. Davis, G. Anderson, D. Rowland, and E. Steinberg, Health Care Cost Containment (Baltimore: The Johns Hopkins University Press, 1990).
3 K. Davis, "Recent Tends in Hospital Costs: Failure of the Voluntary Effort," Testimony before the House Committee on Energy and Commerce, December 15, 1981.
4 Congressional Research Service, Health Care Reform: President Clinton's Health Security Act, (Washington, D.C.: Congressional Research Service, 1993).
5 K. Davis, "Universal Coverage in the United States: Lessons from Experience of the 20th Century," Journal of Urban Health: Bulletin of the New York Academy of Medicine, March 2001 78(1).
Read or Post Comments
Edward Gamache, of Deckerville Community Hospital, say(s):
December 21, 2009
There was a time when the healthcare cost curve started to flatten; it was at the height of the impact of HMO implementation. It is important to remember this historic period. Your article fails to identify this period and the backlash HMO controls had on the general public. HMOs became associated with a loss of choice in healthcare and as a result was pushed back by the very institution that supported its development, the U.S. Congress.
I suspect that whatever elements of cost control are included in the current national health reform bill that creates similar impacts will face the same fate. I’m confident that the first legislative proposal to change the current bill will be introduced that day after the President signs it.
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