Aging Boomers Are Not the Problem

Today's New England Journal of Medicine contains the first of two articles from the Congressional Budget Office on what's really behind skyrocketing health care costs. This is an important series because the CBO, now run by Peter Orszag, is usually seen as a source of "facts" in any debate.

So what are the facts, as CBO sees them? First, Social Security has nothing to do with the long-term fiscal crisis facing the nation, as Dean Baker of the Center for Economic Policy and Research has frequently pointed out. Over the next ten years, as the Baby Boom enters retirement, Social Security spending will rise from 4.2 percent of gross domestic product (GDP) to 4.8 percent. That level of increase is clearly manageable.

What's not manageable is the projected increase in spending on Medicare and Medicaid, which now take 4.6 percent of GDP and will go, if left unchecked, to 5.9 percent by 2017, a 30 percent increase in 10 years. Projecting out a bit further, government spending on health would reach 20 percent of GDP by 2050, which as a share of the economy is roughly what goes for ALL government expenditures now. Private sector spending on health, now about half of all expenditures, will rise right along with it.

But the most interesting part of the CBO analysis comes from what they blame. An aging society? Nope. Obesity? Nope. "The bulk of this spending growth appears to result not from increasing disease prevalence but from the development and diffusion of new medical technologies and therapies," they write. Moreover, "many treatments and services are provided to patients who could do just as well with less expensive care. . . substantial evidence exists that more expensive care doesn't always mean higher-quality care. Consequently, embedded in the country's fiscal challenge is the opportunity to reduce costs without impairing overall health outcomes."

There was one other interesting fact in their analysis that signals the CBO may be lining up to support the Republican approach to eliminating this expensive, not-needed care. Republican plans generally call for insurance to cover just catastrophic care while consumers, subsidized if need be, pick up first dollar coverage through tax-advantaged health savings accounts. As I've argued elsewhere, this would be a disaster for our already abysmal record in providing preventive care (which is the first thing people would eliminate in their efforts to save money), and substantially worsen our already lagging health care performance in international comparisons.

The CBO article points out that out-of-pocket expenditures have actually been declining as a share of total health care spending, falling from 33 percent of all health care expenses in 1975 to 15 percent in 2005. It's slated to fall to 13 percent by 2015.

But wait, how can that be? Everyone's co-pays are rising! Yes, but they're not rising as fast as overall health care expenditures, so their share of the total pie is falling. CBO uses this statistical fact as a lead in to describing the famous RAND study from the 1970s and early 1980s, which found that health care outcomes didn't decline when people had to absorb higher costs. It's the main study used to argue that people won't eliminate needed services if they are forced to have more "skin in the game."

Is not having "worse health outcomes" what we aspire to as we move to rein in health care spending? We're already 21st out of 30 OECD nations in longevity, a full four years behind Japan, despite spending 40 percent more on health care than any other industrialized nation. Isn't it about time that we get value for our money? Making people pay for first dollar coverage may succeed in holding down the rate of health care expenditure growth, but it will be at the expense of our already abysmal health care record.

We should be reducing co-pays on preventive services, and looking for creative public health strategies to ensure that individuals and families take advantage of them. Several interventions (like smoking cessation programs and aspirins-to-prevent-heart attacks) save money in the short run. Most, like the right kind of colorectal cancer screening, save money in the long run.

It will be interesting to see what CBO has to say in next week's article when it identifies "specific steps that could be taken to capture" the "potential savings" in health care costs.

Posted by gooznews at November 1, 2007 10:16 AM