WASHINGTON -- President Obama's restructuring of the nation's health care system will make it easier for poor and sick Americans to get and keep insurance. What's less clear is whether it will reduce health care costs for most Americans, as the White House says it will.
Medical costs are rising fast -- up 5.7% last year, while the economy declined 1.1%, according to the Centers for Medicare and Medicaid Services. In the next 10 years, health spending is projected to rise 6.1%, reaching $4.5 trillion, or nearly 20% of the economy.
Some critics and even proponents of the law say it won't do enough to slow down that trend. The health insurance industry, blasted by Obama for recent premium increases in California and other states, argues that the unsolved problem is the prices charged by doctors, hospitals, drugmakers and others.
"The cost crisis needs to be addressed," says Karen Ignagni, president of America's Health Insurance Plans. "Underlying health care costs are exploding."
The White House has long argued that pilot projects and demonstration programs stuffed into the legislation will produce far more in long-term savings than anyone can promise today. The Congressional Budget Office can't prove much of those savings will materialize, so it doesn't count them in its balance sheets.
White House budget director Peter Orszag says the new law will, over time, steer the health care system toward charging for the quality of care, rather than the quantity. That, he says, will drive prices down for everyone.
"The key thing for our fiscal future and for slowing cost growth over time is reorienting the system towards quality," Orszag says.
"This is the single most consequential piece of legislation that moves in that direction in the history of the country."
Several initiatives in the law are designed to hold down costs:
*Pilot programs promote physician and hospital services under one roof, much like the Mayo Clinic, as well as paying for effective prevention and management of illnesses. That's a change from today's practice of paying for each visit or medical test.
*An Independent Payment Advisory Board will study and offer recommendations on holding down both private sector and Medicare spending.
*A demonstration program will research the effectiveness of medical procedures, so doctors and other health care providers can adopt best practices.
*Programs will be established to standardize insurance forms, codes and billing procedures. At least 85% of group plan premiums and 80% of individual plan premiums must be spent on care. Insurers who don't hit the mark will have to offer refunds.
Many health experts say the pilot programs could produce big bucks in future decades.
"If we do this right, we should be paying way less than we would have been paying," says Len Nichols, a health policy professor at George Mason University in Virginia. "Fundamentally, we have got to change incentives. The most important part of the bill is the signal that business as usual is over."
Robert Reischauer, former director of the Congressional Budget Office, says the law makes the government more responsible for the rate of spending growth.
"It creates a platform on which cost containment measures can be built," he says. "There's a lot of promising experimentation contained in this bill."
Many proponents of the law, as well as critics such as insurers and business groups, say much more could have been done to bring down costs. The most glaring omission: a deal struck last spring between insurers, hospitals, doctors, drugmakers, medical device manufacturers and labor unions to reduce projected costs by 1.5% annually.
The deal never made it into law. If it had, says Ralph Neas, CEO of the National Coalition on Health Care, it would have saved a family of four more than $5,000 a year in health care costs before the end of the decade.
"It's a good start, but it is not enough," Neas says. "The only way you can keep premiums down is to make sure the pharmaceutical costs, the doctor costs, the hospital costs, the medical device costs, everything else does not continue to grow at double-digit inflationary rates."
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