COST: Paying for Health Reform

This post also appears on the National Journal's Health Care Experts Blog. where you can also see what other health policy analysts have to say.

Instead of asking how much it will cost to reform our health system, we should first remember what failing to fix our health system costs our society.

As a result of the lost productivity stemming from the premature death and prolonged illness of the uninsured, we sacrifice over $200 billion of potential economic value each year. That is more than it would cost to cover the uninsured. This is not just a moral issue (though it surely is one); it is also an economic issue of the first order.

Premiums will continue to rise faster than wages if we do not act, rendering health insurance and timely, high quality health care unaffordable for more and more American families every year. In fact, recent projections by my colleagues at New America suggest that by 2016 half of American households will need to spend more than 45 percent of their income to buy health insurance for themselves and their families.

Meanwhile, rising health care costs are undermining the ability of U.S. firms to compete and leading more American jobs overseas. Indeed, the cost of failing to fix our broken health care system is high. It will only rise over time.

Yet, we know health care reform will need to be financed in a way that is fair and sustainable. That is why I believe restructuring the tax treatment of employer-provided health care should remain an option and I applaud Senator Baucus for his efforts in this regard. If we do not use all of the tax preference money, however, we will likely need to finance subsidies from other sources. In total, I think new premium subsidies capable of supporting coverage for all Americans will cost roughly 1percent of GDP.

But we are currently wasting 5 percent of GDP because roughly 1/3 of what we spend now on health care adds no value. Thus, reclaiming 1/5 of the current waste in our health system could pay for covering the uninsured. So yes, part of the value in investing in real reform is to create the conditions necessary for a more efficient and sustainable delivery system that will deliver more tolerable rates of per capita cost growth in the future. This too will require some investment up front (albeit a smaller investment than coverage expansion). Yet, like coverage expansion, investments in delivery system reforms are investments well worth making.

We must reform our struggling health system not in spite of our current economic crisis, but rather precisely because of the impact our health care system has on our economic well being.