"The American health care system is on an unsustainable path," a new report by the Council of Economic Advisers (CEA) for the President states. In the midst of the current crucial debate on health care reform, the CEA (a council that assists the President with the development and implementation of U.S. economic policy) has released the 56-page report, "The Economic Case for Health Care Reform." The report discusses the economic impact of U.S. health care spending, and suggests a bleak economic forecast in the absence of any health care reform. The report also details purported inefficiencies and market failures in the health care system, and the economic effects of slowing cost growth and expansion of coverage.

The report first states that while U.S. health care expenditures are around 18 percent of the Gross Domestic Product (GDP), the share is projected to rise to 34 percent by 2040. State and Federal government covers nearly half of heath care spending, and Medicare and Medicaid spending is likely to rise to nearly 15 percent of the GDP in 2040. About a quarter of that figure is from demographic effects such as the aging population. In addition, about 46 million Americans are currently without health insurance. The CEA suggest that this number will be 72 million in 2040 in the absence of reform.

As to inefficiencies in the system, the report states that even though the U.S. applies a much larger share of the GDP to health care than other developed countries, it does not achieve better health outcomes, including life expectancy and infant mortality. The report also notes that specific procedures and per capita health care spending vary by significant amounts in different geographic regions of the U.S. The sources of inefficiency include: spending on high cost, low-value treatments; lack of care in the most cost-effective setting; too much variation in the quality of care provided to patients; preventable medical errors leading to worse outcomes; and a complex system with high administrative costs. The market failures of health insurance such as adverse selection of beneficiaries contribute to the overall problem of health care delivery costs.

Slowing the growth of costs is an important component of health care reform, according to the report. A suggested slowing of the annual cost growth by 1.5 percentage points would be a "tremendous accomplishment." In order to do so, there are recommendations including reorienting the financial incentives of providers toward value rather than volume--where a system rewards providers who deliver care adhering to evidence-based guidelines, and does not pay for preventable medical errors. In addition, the report suggests standardized electronic billing, benefit determination, preauthorization, and patient payment determination methods used by all providers for simplifying administration and avoiding fragmentation of care; aggressively targeting fraud and abuse, and rewarding technological progress that leads to a reduction in morbidity, mortality and spending.

Other features of health care reform in the report are giving patients a greater role in medical decision-making, which synthesizes treatment strategies with patient preferences and to lower costs, and expanding performance measurement and provider feedback. This might take place through development of a set of performance measures that all providers would adopt and report and adoption of health information technology to help in this process.

The report also argues that expanding health insurance coverage would lead to more utilization of medical care and ultimately to improved health outcomes for the public by increasing labor supply, removing unnecessary barriers to job mobility, and leveling the playing field between large and small businesses.

Adapted from the CEA's Report:
http://www.whitehouse.gov/assets/documents/CEA_Health_Care_Report.pdf

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