Obama steps up fight for US health reform

Obama steps up fight for US health reform
By Krishna Guha in Washington
Copyright The Financial Times Limited 2009
Published: June 2 2009 14:31 | Last updated: June 2 2009 14:31
http://www.ft.com/cms/s/0/226f00e0-4eff-11de-8c10-00144feabdc0.html


The White House on Tuesday will step up the fight for health reform, releasing a report that says a lower rate of health cost inflation could make the average US family of four $2,560 a year better off by 2020.

The study, by the Council of Economic Advisers set up by Barack Obama, the US president, estimates the net benefit of extending coverage to include the 46m uninsured US citizens at about $100bn a year more than the cost of insuring them.

Christina Romer, the chairman of the CEA, said health reforms could have a significant effect on the labour market. She said a step-change down in the rate of health cost increases would temporarily lower the unemployment rate consistent with stable inflation.

Meanwhile, extending coverage would increase labour supply by reducing absenteeism due to ill health, while allowing people to change jobs more freely without worrying about losing coverage for existing medical conditions.

However, the figures in the report are likely to be challenged on the grounds that they rely on the assumption that health cost savings can be achieved with no loss of value in terms of the services provided through increasing efficiency.

The report also does not estimate the economic cost of tax increases required to make health reform budget-neutral in the years before cost savings accumulate.

Moreover, the headline figures do not equate to increases in measured gross domestic product, since the health sector contribution to GDP is measured in terms of inputs, such as visits to doctors, rather than health outcomes.

The $2,560 estimate was based on the assumption that the annual rate of cost increases could be reduced by 1.5 percentage points through pure efficiency gains, which the report admits is “probably near the upper bound of what is feasible”.

The economic benefit arises primarily from these efficiency gains, which release resources for use elsewhere in the economy, leading to reduced government deficits resulting in more national savings, higher investment and capital accumulation.

Advocates of reform say the health system is so bloated and inefficient it would be possible to wring out large cost savings. Sceptics say it is not possible to eliminate the waste without curtailing desired services.

The CEA found that if the rate of cost increases declined by 0.5 percentage points, the benefit would be $877 a year by 2020.

In either case the big gains from increased efficiency and capital accumulation build over time, with the average family of four $24,297 a year better off by 2040 in the high efficiency gain scenario and $8,987 a year better off with the low cost saving scenario.

While these gains are related to cost savings and not directly to expanded coverage, Ms Romer said that some efficiency-driven savings could only be achieved in a system with near-universal coverage.