A Closer Look at Business and Health Insurance Reform

A Closer Look at Business and Health Insurance Reform
Posted by Christina Romer on November 12, 2009 at 06:30 PM EST
Today's report from the Business Roundtable (pdf) – an association representing leading U.S. companies with more than 12 million employees – confirms that the health care spending path we’re on is unsustainable, and that the bills working their way through Congress are moving us toward cost containment and greater fiscal responsibility.

The Business Roundtable (BRT) report adds to a growing body of evidence that workers with employer-sponsored health insurance coverage will see lower cost growth and lower premiums from health insurance reform as supported by the President and as contained in the bills being considered in Congress. Health insurance reform not only contains cost growth for the government and so reduces the long-run budget deficit, it will also lower premiums and expenses in the private sector and throughout the health care system – for businesses, workers, and their families.

As documented in the BRT report, rising health care costs are placing an ever-increasing burden on employers and on the millions of Americans with employer-sponsored health insurance. In the absence of reform, the BRT projects that rapidly rising health care spending will restrain job growth and reduce the growth of employee wages. Without reform, the report projects that average per-employee health care costs at large employers will triple over the next decade. The report estimates that health insurance reform as currently proposed in Congress, when fully implemented, would reduce the overall health care cost trend for employer-sponsored health insurance by 15 to 20 percent over the next ten years. This would reduce per-employee health insurance costs by $3,095 in 2019, relative to what they otherwise would have been.

This is consistent with the findings of the Council of Economic Advisers report, "The Economic Case for Health Care Reform," which finds that reform could increase income for a typical family of four by $2,600 in 2020, and increase the nation’s real GDP by nearly 2 percent in 2020, and 8 percent in 2030.

The BRT report estimates that the delivery system reforms that are included in current draft legislation have the potential to spread beyond Medicare and Medicaid to private insurance plans. In this way, they can substantially reduce the growth rate of overall health care spending, which eats into the take-home wages of workers with employer-sponsored coverage every year. The BRT report finds that delivery system reforms have the potential to make health care more efficient without compromising on quality.

For example, the BRT report points out that the House and Senate reform proposals contain provisions to encourage Accountable Care Organizations (ACOs), which are groups of doctors working together through joint decision making to coordinate care for patients. The report "find[s] that private-sector savings from initiatives such as these can be very positive."

The report also describes how the House and Senate reform proposals encourage payment bundling for Medicare, where doctors and hospitals are paid for an episode of care, rather than individual treatments. Bundling payment gives providers incentives to provide quality care for an overall condition or hospital stay, improving efficiency and reducing costs over the long run.

Finally, the report highlights many other reforms that improve efficiency and quality while reducing costs – such as paying providers based on their performance through Value-Based Purchasing, preventing hospital readmissions, and an independent commission to consider reforms to make Medicare spending sustainable and fiscally responsible over the long run.

Christina Romer is Chair of the Council of Economic Advisers