Slowing the Rising Costs of Health Care Possible

Wilson H. Taylor Scholar Joseph Antos
Medical care is enormously more effective than it was a few years ago and most Americans are living longer, healthier lives. But improved care is costly. We will spend $2.2 trillion on health care this year--more than 16 percent of everything we produce. Our health bill is likely to hit 20 percent of the gross domestic product in the next decade.

Health spending is rising faster than other spending for young and old alike. That translates into an unprecedented crisis for the federal budget. Medicare and Medicaid will have more people to care for and, more important, will spend more on each one.

The coming federal budget crunch cannot be resolved simply by slashing Medicare and Medicaid benefits and passing the buck to states and the private sector, which are already struggling with rising medical bills.

We cannot stop the inexorable rise of health care spending, but we should be able to slow it down without sacrificing the care we all want. There is no single silver bullet that will do the trick--tort reform to reduce malpractice claims, exercise and diet to prevent illness, electronic medical records to reduce errors and duplication, rewarding doctors and hospitals for more effective care, or covering the uninsured to reduce emergency room use. We need to move on all these fronts--and more--simultaneously.

Progress can be made, but only if we get past the ideological debate over market-oriented versus regulatory approaches. Both markets and regulations play a necessary role in our health care system, and we must improve both. Giving consumers more understandable information about costs and effectiveness can help them choose more efficient providers and spend their health dollars more wisely, especially on routine or elective procedures. But a patient with a serious acute illness may not be in a position to make informed choices. Public and private insurers must adjust their payments to reward best practices and discourage wasteful and ineffective providers.

Medicare can use its considerable financial and legal clout to move the whole health system forward. The program has data on the care given to 43 million seniors and disabled people, and it can take the lead in collecting information on health outcomes, defining best practices, and designing incentives for efficiency. States are already testing cost-saving approaches in Medicaid, including partnership programs that encourage the purchase of private long-term care insurance and cash-and-counseling programs that give patients more control over the care they receive.

Veterans Affairs has successfully implemented a health information technology system, which has improved efficiency and quality of care. That can serve as a model for other federal and private initiatives to make better use of patient-level data in the delivery of care.

President Bush's recent proposal to make employer contributions to employee health insurance taxable would discourage employers from offering over-generous health coverage that fosters wasteful health spending. The President would offer a standard deduction for health insurance to help taxpayers buy coverage either through their employer or in the market. The Congress should treat the President's proposal as an opening bid, convert the standard deduction to a refundable tax credit available to everyone, and help the states make affordable coverage available to all through high-risk pools and more sensible regulation.

One thing is certain. Slowing the rise of health spending to a sustainable pace and getting more health for our money is going to take all of us. Patients and doctors, hospitals and insurers, governments and the private sector all have to work together. It won't be easy, but unless we try everything and keep trying, we will have poorer than necessary health care at higher than necessary cost.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI. Alice M. Rivlin is a senior fellow at the Brookings Institution.

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