President Obama often says that bending the curve in health spending downward is one of the main objectives of his health care reform agenda.* There is indeed a consensus that health costs are growing at a rapid rate, and that reformers should work to slow the rising costs of care.
But as Heritages Robert A. Book, Ph.D, and Dr. Jason D. Fodeman, M.D. point out, the big picture is not so simple.* In order to lower costs, legislators must pinpoint the cause. The big House and Senate bill are based on faulty assumptions.
Book and Fodeman break down health spending, explaining that increased spending can be due to negative factors or positive factors, such as medical advances in technology or new treatments for previously incurable diseases. *Furthermore, increased spending can also be caused by higher prevalence of disease. It is not enough to look at overall health spending and declare it excessive; rather, reformers must focus on areas where spending is not correlated to the value of goods received.
Several factors lead to increased health spending: disease prevalence, increase in insurance coverage, new medical technology, and waste.* All increase health spending, with varied effects on actual health of the patient.
But, as Book and Fodeman note, all of these increases take place within a distorted health care market, driven by *misaligned economic incentives. Since 1965, third-party payments increased from 48 percent to 85 percent.* Third party payers, they argue, may appear to have an incentive to encourage efficient use of resources, but ultimately they do not pay the price for inefficiency. Patients, doctors, and insurers alike are thus insulated from the direct effects of increased spending; patients and taxpayers ultimately experience the pain, albeit indirectly.
So will the giant House and Senate health bills succeed in bending the cost curve downward?* No. Limits on out-of-pocket spending, mandates requiring coverage for a greater number of services, and the Senate bills excise tax on high-cost insurance plans would all increase premiums in the private sector.* This is in addition to massive increases in government spending on health care.
To reduce health spending, lawmakers should reform Medicare, Medicaid, and tax law regarding health insurance.* Finally, Congress should create a true national insurance market.* Promoting choice and rewarding cost-efficient care is the right way to reduce costs.* Loading new mandates, taxes, and regulations onto patients, doctors, and insurers, as the House and Senate bills would do, will only exacerbate current health spending increases.