Well with finals over and done with you can expect to get a lot more posts from me in the coming weeks!  And we start out today with some very exciting  news.  President Obama held a press conference today for what he called, “a watershed event in the long and elusive quest for health care reform.”  The American Hospital Association, the American Medical Association; PhRMA; AdvaMed; America’s Health Insurance Plans, the SEIU, and the Greater New York Hospital Association and the California Hospital Association announced a new cooperative effort to drastically reduce the rate of growth of healthcare costs beginning immediately.  They pledged to cut the rate of growth by 1.5%.  This may not seem like a lot but this means a cut from about 7% to 5.5%, bringing us much closer to the annual rate of income growth which tends to hover around 4-5% but which has at times grown to near 6%.  And that’s what really matters, that’s really our baseline here.  If healthcare costs can be reduced such that their growth is equal to the rate of income growth in the US then the future of healthcare suddenly gets a lot rosier.  And this commitment brings us much closer to that goal.

And this is also great news for America’s future financial security.  Many people don’t realize the huge impact that rising healthcare costs have on our country’s national budget.  The reasons why that is are a subject for another article but even a savings of 1.5% will mean much smaller deficits and less national debt.  One Obama aid put it this way:

“I don’t think there could be a more significant step to help struggling families and to help the federal budget than reducing the growth rate of healthcare spending by 1.5 percentage points per year. With regard to the federal budget… the only way that we are going to restore the nation to a sound fiscal path over the long term is to reduce the growth rate in health care costs… Reducing the growth rate of health care costs overall by 1.5% per year would virtually eliminate the nation’s long term fiscal gap. … This, by an order of magnitude, is far more important [than Social Security or related reforms] to the fiscal trajectory that we’re on, especially over the long term, than anything else that could be done.”

Perhaps a bit hyperbolic but nobel-prize winning economist Paul Krugman was almost as excited:

“And serious cost control would change everything, not just for health care, but for America’s fiscal future. As [Budget Director Peter] Orszag has emphasized, rising health care costs are the main reason long-run budget projections look so grim. Slow the rate at which those costs rise, and the future will look far brighter. I still won’t count my health care chickens until they’re hatched. But this is some of the best policy news I’ve heard in a long time.”   And later says, “…shaving 1.5 percentage points off the growth rate of health care spending. That may not sound like much, but it’s actually huge: achieving that goal would save $2 trillion over the next decade.”

So certainly nothing to sneeze at.  The details of how these savings will be accomplished were not released today but will be revealed over coming weeks.  As for why they’ve chosen to independently take this step?  The only answer from the industry was that they’re being “good Americans”.  This commitment will have no enforcement mechanism beyond the press and there will be no formal regulations.  Apparently the industry just came to this conclusion themselves.  Fantastic, if its that simple, but some fear this may be a preemptive attempt to block the healthcare reform that’s currently taking shape in congress.  Insurance companies can ask for patience first to see if their efforts are sufficient or they can claim that they tried to do their part but congress simply wouldn’t compromise.

I’m actually more optimistic.  In the industry’s statement on the issue they implicitly endorsed the healthcare economics currently being used by the administration to justify healthcare reform.  Which means that somewhere there has been a fundamental shift.  Previously, the insurance industry was holding up their own fringe economists to testify on their behalf against the wave of economic opinion opposing them.  Sort of like the tobacco industry doctors or the oil company ecologists.  But it seems they’ve accepted the fact that they’re part of the problem.  Of course the fact that they can suddenly reduce cost growth by 1.5% just for the heck of it seems to validate that idea as well. There’s been easily reducible waste in the private healthcare system for some time now, and this commitment just highlights that fact.

Healthcare reform plans will be presented in the next few months and I suppose the industry’s intentions will become clear then.  I’ll keep you updated as events unfold and as more details about these cost-reducing measures come to light.

No related posts.