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Commentary By David Gratzer

The High Price Of Health Care Reform

Health, Health Healthcare

How to contain costs.

In March, White House budget director Peter Orszag testified before the Senate Finance Committee. The prior afternoon, the Dow dropped to its worst close since April 1997. Administration officials began using the term deep recession, and trillion-dollar deficits were projected as far as the eye could see.

But Orszag focused on health care and the White House plan to contain costs. Around that time, the Council of Economic Advisors had praised the benefits of shaving 1.5% off the growth of health costs, and presidential speeches pegged America’s economic recovery to future health care savings. Since his inauguration, the president has argued that his motive for reform is to temper the rise of health costs--to “bend the curve” (Orszag’s trademark expression). Right on cue, Orszag testified: “We need to act...”

With debate beginning last week on Sen. Harry Reid’s, D-Nev., draft legislation, the White House seems to be on target, with talk of a reduction in the deficit despite an expansion of insurance coverage. As economist Paul Krugman opined in Friday’s New York Times: “For America can’t get control of its budget without controlling health care costs--and this is our last, best chance to deal with these costs in a rational way.” But, in fact, the larger problem--rising health costs--will likely worsen with these reforms. The problem doesn’t simply stem from the details of the bill, but from its philosophy.

It’s too early, of course, for any meaningful analysis of the Reid bill, but earlier bills were scrutinized. Three studies--two by the Lewin Group and one by the Centers for Medicare & Medicaid Services (a federal body)--conclude that various congressional plans would increase health spending. The estimates vary but range from $114 billion to $750 billion over the next decade. Given its structure, there is no reason to believe the “new” Reid bill will be much different.

Predicting future health costs is hardly an exact science, and the administration has quibbled with these numbers. But even advisers concede. MIT economist Jonathan Gruber, a White House adviser, said the tabled legislation “really doesn’t bend the cost curve,” adding the weak caveat that “relative to doing nothing, I think we are a lot closer to bending the curve”--as if the only alternative to “nothing” is a trillion-dollar program and 2,000 pages of legislation. Gruber joins many doubters. Harvard Medical School Dean Jeffrey Flier writes: “In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation ... will markedly accelerate national health-care spending...”

There is good reason to think that these reforms would pour gasoline on the fire of health inflation: Though details differ, both the House and Senate bills would offer subsidies to millions, insist on first-dollar coverage for certain services and expand entitlements.

And there’s reason to be skeptical of the very approach. It assumes that more government management will lead to better cost control.

It’s long been established that countries with government-run health care systems have ended up with rationed care. Born and raised in Canada, I can attest to the wait lists and quality of care sufferers--witness the superiority of American cancer outcomes. But do these systems actually restrain costs? Historically the answer has been yes. Countries like Canada and Britain spend a fraction of GDP compared with the U.S. But, in recent years, government-run health care has lost control of costs. Between 2000 and 2006, the average real annual growth rate for health expenditures for OECD member countries was 4.9%; American health inflation over the same period was 4.95%.

Take Britain. Even with top-down management, the annual budget of the National Health Service rose between 5% and 10% faster than inflation through most of the decade. Britain tried to contain the surge by creating NICE--the National Institute for Health and Clinical Excellence, an agency empowered to save money by delaying or rationing “cost-ineffective” treatments. Congressional leaders hope to cut countless billions from Medicare with the same failed approach, passing tough decisions to an independent commission separate from Capitol Hill.

Unfortunately, sick patients have a funny way of ignoring tidy lines on government charts. Time and again, NICE ruled against drugs, only to find doctors and families were more persuasive than government reports. An anti-blindness drug--rejected unless patients had already lost one eye--was later approved after a public outcry; NICE dismissed a life-extending kidney drug until a PR campaign forced a reversal. American lawmakers are familiar with such reversals: Congress has often overturned Medicare cuts it enacted.

There are limits to top-down health care savings in the age of the Internet and public activism, which is why the Obama-Reid-Pelosi reforms would bend the curve up.

This piece originally appeared in Forbes

This piece originally appeared in Forbes