EXECUTIVE SUMMARY
National health expenditures rose 9.3 percent in 2002, the fastest increase in a decade. Even more troubling was the 9.5 percent jump in the numbers of uninsured between 2000 and 2002, from 39.8 million to 43.6 million. Rising health care costs are a problem for all Americans, but they weigh especially heavily on uninsured and "underinsured" individuals, who pay much of the cost of their health care directly out-ofpocket. Higher costs to patients lead to underuse of appropriate care and greater financial burdens on the sickest.We can no longer afford or tolerate wasteful spending on care that does not benefit patients, the duplication of expensive procedures, medical errors, or the high administrative costs incurred by the nation's insurers and providers. Real solutions should directly target these sources of unacceptably high costs, not simply shift costs from employers to workers or from government to the beneficiaries of public programs. Promising long-run solutions include: rewarding health care providers that achieve demonstrably better quality and efficiency, improving high-cost patient care management, reducing medical errors, improving care coordination, and simplifying unnecessarily complex or duplicative insurance practices. Most fundamentally, we must act to achieve automatic and affordable health insurance for all, to ensure that the benefits of modern medicine are widely accessible, and to ensure that investment in health care contributes to economic growth and a healthier, more productive society.
- Health insurance premiums increased 13.9 percent in 2003, faster than the 8.5 percent growth in health care costs. Market forces are likely to bring premiums more in line with costs in future years, but the issue warrants watching.
- Health care expenditures in 2002 were $1.6 trillion, or 14.9 percent of the gross domestic product. The United States has the highest health care spending of any country, yet we are the only major industrialized nation not to provide health insurance coverage for all.
- Medicare outlays per enrollee continue to grow more slowly than private insurance, averaging 6.2 percent over the 1999–2002 period, compared with 8.7 percent in private health insurance.
- Hospital spending is now the leading source of health care services expenditure growth. While some of the increase is undoubtedly attributable to technological advances that improve health, some is a catch-up from the unsustainably low rates of increase in the mid-1990s.
- Administrative expenses are now the fastest-rising component of national health expenditures. In 2002, the nation spent $105 billion on private insurance and public administrative expenses, up 16.2 percent from 2001. Private insurance administrative costs are particularly high—12.8 percent of total private insurance outlays, compared with 3.0 percent for Medicare.
Consumer-driven health care, the major private-sector strategy for addressing rising costs, is unlikely to address the fundamental causes of rising health care costs. In fact, it is likely to have adverse consequences for patients.
- Consumer-driven health care contributes to excessive financial burdens on patients, particularly lower-income and sicker patients. If all Americans had a $1,000 deductible plan, one-third would spend more than 10 percent of their income on health care if they were hospitalized, with even higher rates at the lowest end of the income scale. High deductibles would lead to a major increase in the number of underinsured individuals.
- Patient costs are already unacceptably high. Indeed, they are a major reason why public opinion polls show that the affordability of health care is Americans' second-leading concern.
- Patient cost-sharing is a blunt instrument for reducing utilization of services. It reduces use of effective services that are already underutilized. Studies have documented that drug-tiering and higher copayments are leading patients to skip filling essential prescriptions, increasing adverse medical events, and raising emergency room use.
There are better alternatives for achieving economies in health care than shifting costs to patients. Costs are higher in the United States than in other countries because we pay higher prices for the same services; our administrative costs are higher; and physicians prescribe specialized services that are not clinically justified. If we as a nation were to adopt fundamental reforms—such as an integrated public–private strategy to purchase health services efficiently, demand quality performance, and streamline administrative costs—substantial savings could be achieved.
Short of fundamental reforms, practical steps that could be taken in the near term include:
- Reducing medical errors and improving care coordination. A major investment in health information technology, with shared public–private funding, is needed to accelerate the adoption of life-saving and efficiency-enhancing technology.
- Public reporting of cost and quality data. Costs incurred over an episode of care and quality vary enormously from hospital to hospital, physician to physician, and area to area. If we are serious about doing better, we need to know where we stand. Much more extensive efforts are required to achieve comprehensive public reporting of cost and quality data on physicians, hospitals, nursing homes, other health care providers, and health plans.
- Paying for provider performance on quality and efficiency. Medicare needs to become a leader in "pay for performance" payment methods. While the demonstrations under way are important, Medicare needs to move much more quickly to reward those providers who are both high-quality and low-cost over the course of a patient's treatment. Doing so would spur the development of information about best practices and provide guidance to private insurers looking for effective ways to promote high-performance care.
- Development and promulgation of clinical guidelines and quality standards. Public programs and private insurers would benefit from a federal agency charged with establishing the scientific basis for effectiveness not just of new drugs but of specialty consultations, procedures, and tests. A national institute on clinical excellence and effectiveness has shown results in other countries and is a model we should adopt. We also need a substantial investment in research and demonstrations, far in excess of resources currently devoted to the Agency for Healthcare Research and Quality.
- Better management of high-cost patients. Public programs and private insurance need to be willing to pay for services of non-physician personnel that are needed for high-cost care management, such as advanced practice nurses, pharmacist medication monitoring, and home "telemonitoring" of conditions such as asthma and congestive heart failure.
- Improved administrative efficiency. The U.S. has an extraordinarily complex and fragmented system of health insurance. Ultimately, solutions that would simplify eligibility for insurance and improve the stability of health insurance coverage are needed to cut the administrative costs in our system. Testing statewide electronic insurance clearinghouses to pool insurance eligibility and, potentially, claims payment in a single place should be a priority.
- Automatic and affordable health insurance for all. Employers, federal and state governments, and individuals must all share responsibility for achieving automatic and affordable health insurance for all. The most realistic strategy is a combination of group insurance options including: employer coverage for those who are working; a new Congressional Health Plan, modeled on the Federal Employees Health Benefits Program, for small businesses and individuals; an expansion of the State Children's Health Insurance Program to low-income families and individuals with incomes below 150 percent of poverty; and an option for uninsured older adults and disabled adults to obtain early coverage under Medicare (e.g., by eliminating the two-year waiting period for the disabled,
covering spouses of Medicare beneficiaries, and permitting older adults to "buy in" to Medicare). Premium assistance based on income is required to make premiums affordable for all enrollees.
Together, these steps would take us a long way toward ensuring that this country has a high-performing health system worthy of the 21st century.