Slowing the growth of health care costs

I'm Jean Abraham.
I'm an assistant professor at the University of Minnesota and I'm a health economist.
Last year I had the fortune of going to Washington, D.C. where I worked
as the senior economist on healthcare for the president's council of economic advisors.
So, there are two main reasons or motivations for healthcare reform.
The first of which is that costs have been rising in the United States.
In 2009, we're expected to spend about $2.5 trillion
on healthcare, or roughly $8,100 per person.
Costs are also growing in real terms at about 5.5%,
which is considerably faster than overall economic growth.
As a result of cost growth we also have many millions
of individuals who lack health insurance.
They can't afford coverage.
And so, healthcare reform seeks to find ways or develop policies that will extend coverage
to upwards of 46 million Americans who currently lack it.
While I was in Washington, D.C., I had the opportunity to co-author a report entitled,
'"The Economic Case for Healthcare Reform."
And the idea behind an economic case for healthcare reform is
that given how rapidly costs are growing,
for millions of Americans healthcare will no longer become affordable in coming decades.
In fact, we're expected to spend upwards of almost one in three dollars on healthcare
by the year 2040 if we don't do something about slowing the growth of healthcare costs.
So, part of reform is an attempt to include policies
that will change the way the delivery system functions, changing some of the incentives
that providers and consumers have, in order to help slow the growth of costs
and make sure that individuals have coverage.
So, healthcare will help to reduce the number of insured in two major ways.
The first is that in the proposals that are currently being discussed in Washington,
there is a call for a comprehensive expansion of Medicaid for those Americans
who are very low-income, typically between 133% and 150% of the poverty line.
These individuals would become newly eligible for coverage
and they would have better access to care as a result of that.
For individuals who make above that poverty threshold but are still fairly low-income,
there would be additional help for them in the individual market for health insurance.
Here, they would be able to obtain premium subsidies, or credits,
toward the cost of a health insurance premium.
And, as a result of that, we expect that millions of Americans will be able to move
from being uninsured to having coverage.
Paying for healthcare reform is one of the biggest issues
that policy makers are having to address in the debate.
Current estimates from the Congressional budget office put those numbers at between $850 billion
and $1 trillion over the next ten years.
Paying for healthcare reform is likely to come in two ways.
So, there were two major strategies that were undertaken.
One was to try to find sources of savings from the Medicare and Medicaid programs
through efficiencies or changes to payment that would generate about half, a third to one half,
of the cost associated with the coverage expansion.
The other piece of this would be to find new sources of tax revenue.
And there are two kind of major ideas being generated right now.
One is to extend a high-income surcharge or to create a high-income surcharge
on individuals making at least $350,000 a year.
The other proposal coming out of the Senate finance committee is
to actually impose an excised tax on high cost health insurance plans,
or the so-called "Cadillac plans."
And this would be assessed and although it would not likely generate much revenue
in the first few years, over time the way that the policy is designed,
more and more Americans would be subject to that tax.
One of the major elements of healthcare reform is the creation of an exchange
and making changes and improvements to the functioning of the individual market
for health insurance, which currently provides coverage
for about 17 million non-elderly individuals in the United States.
One feature of this is the creation of exchanges,
either at a national level or at a state-based level.
An exchange is really an organized marketplace, basically taking all the confusion
that currently exists in the individual market and creating more organization
around what plans are available in a person's local market, what the price of those plans are,
what the quality of the plans are and trying to facilitate greater enrollment by individuals
as well as those who are currently uninsured.
So, an exchange would perhaps improve the functioning of that market and lead
to a greater proportion of Americans getting insurance.