Federal Action on Health Care Unlikely This Year

Published March 1, 2008

As the presidential campaign heats up, we certainly can anticipate a hot political debate over the future direction of our health care sector. I hope this time the candidates will be talking to a better-informed and even more skeptical electorate.

While policy reform is needed, what we’d be most likely to get in the current climate would only make things worse. Fortunately, the signs suggest federal action is unlikely to happen soon.

Sixteen years ago, voters were swayed by utopian campaign promises that clashed with the hard reality of change and costs. This time, voters will ask tougher questions, and all of the campaigns will need to be prepared with detailed answers and analyses of their own and their opponents’ plans.

Getting the rhetoric right is easy. Following it up with the right policy is the hard part.

‘Calm Before the Storm’

Gary Ahlquist of Booz Allen Hamilton sees 2008 as “the calm before the storm,” as candidates jockey to press their versions of reform. I commend to you his excellent year-end analysis of the health sector terrain, “Consumer and Physician Readiness for a Retail Healthcare Market.”

Ahlquist notes all the major candidates recognize the difficulty of enacting sweeping reform. He concludes, “A monolithic new federal approach to the entire health system is not going to arrive on Congress’ doorstep early in 2009, since the agenda will already be full with taxation, war funding, and entitlement issues. This is not to say that significant change won’t occur; it just will not happen in 2008 or even 2009.”

Ahlquist and co-authors Gerald Adolph and David Knott expect 2008 to bring several positive developments in health care. These include continued development of consumer-directed health plans; joint ventures among payers, providers, and pharmaceutical companies to provide better care and better service for major medical problems such as cardiac conditions, joint replacement, cancer, asthma, and diabetes; new opportunities to aggregate catastrophic risk in the individual market and create new “virtual” groups of policyholders; and political debates that begin to chart the multiyear process of future reform.

Ripe for Innovation

One of the biggest improvements this year will be in bedside care and in coordinating care and services throughout a patient’s health care episode. “Quite simply, the clinical variability and often nightmarish bureaucracy of today’s system are problems waiting to be addressed, and those who develop the solutions can expect huge returns,” conclude the authors of the Booz Allen report.

These experts believe the market will continue to be ripe for innovation, at least in the near and intermediate terms–and I agree.

Slower Growth in Spending

New studies show national health spending increased in 2006 by 6.7 percent, to $2.1 trillion. One of every six dollars spent in our entire economy goes to health care.

While the numbers are high, the good news is that this rate of growth of spending on most major health services is slower than in prior years.

The biggest increase was in Medicare spending. This was largely attributable to the addition of the drug benefit. Drug prices grew only 3.5 percent over the previous year, even as spending on prescription drugs grew at a faster rate, largely because more people are getting their prescription drugs following enactment of Medicare Part D. And wasn’t that the point?

Studies also show seniors are more likely to fill prescriptions and are paying less for their medications today than they did before Medicare Part D.

Health Care Costs Decreasing

Out-of-pocket spending by consumers continues to fall as a percentage of overall national health expenditures. In 2007, out-of-pocket spending dropped to 12 percent of total expenditures, the lowest level ever, and a significant drop from the 47 percent of health care spending that out-of-pocket expenditures made up in 1960.

When out-of-pocket costs and consumers’ shares of premiums are included, the direct household share of health spending has remained fairly flat as a percentage of personal income since 2003.

Moderating health spending and increasing market innovation may temper the urgency for political action on health reform.

Policy changes are needed, of course, but if the market can continue to innovate, if consumers continue to have new incentives to seek value in their health spending, and if politicians can keep their heavy hands off the regulatory levers for a few more years, we may yet have time to right the ship in our health sector. This could open new opportunities for the market to provide new options for more affordable, more widely available health coverage and more consumer-friendly health services.

Grace-Marie Turner ([email protected]) is president of The Galen Institute, a free-market think tank in Alexandria, Virginia.

For more information …

“Consumer and Physician Readiness for a Retail Healthcare Market,” Booz Allen Hamilton: http://www.boozallen.com/news/33114276?lpid=827466