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Bending Costs, or Logic, in Health Care?

Thursday, 8 Oct 2009 | 1:34 PM ET

The Congressional Budget Office says Senator Max Baucus’ healthcare bill will lower the deficit. I’m doubtful, but let's give him the benefit of the doubt.

Here’s a crucial point—deficit neutral, even deficit reducing is NOT the same thing as bending the cost curve of growing health care costs. You can get to deficit neutral, even deficit reducing, by raising taxes. In fact, this bill raises the overall cost of healthcare spending over 10 years compared to his last proposal. Taxes go up dramatically on many industries and individuals. But that’s not my point.

There are true ways to bend the cost curve, and there are ways to pretend you are bending the cost curve.

Here’s an example that speaks to the true “spirit” of the phrase “bending the cost curve.”

Providing insurance to the un-insured lowers health care costs because those individuals will stop using the very-expensive emergency room for basic needs, and instead use general practitioners. They will get better preventive care, which means in the long run they will need less of more expensive care.

I’m not sure any of that is true, but at least it speaks to the true spirit of the meaning “bending the cost curve.”

This bill reduces costs from the top down. It simply cuts funding to Medicare and other government run insurance programs arbitrarily. That’s usually how it works when the government is involved in having to allocate scarce resources. That’s what happened in Maine and Massachusetts where the state government is involved in providing health care to everyone. Now in Maine there is a waitlist to get on the state health insurance program because they have arbitrarily cut the funding because the state can’t afford it. By insuring everyone, they didn’t bend the cost curve, so now they will just do it from the top down.

The true way to bend the cost curve is to make sure individuals have to bear some of the cost of their care so that they become much more careful users of it. Higher co-pays, higher premiums for people who engage in activities that will likely lead to higher costs such as smoking and over-eating. Those are ways to get individuals to take responsibility for their decisions, which end up costing the rest of us in costs.

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