May 11, 2009 in Nation/World

Health industry vows to cut costs

Groups to present plan to Obama today
Michael A. Fletcher And Ceci Connolly Washington Post

Who’s on board

Six major groups plan to pledge to cut the growth rate for health care by 1.5 percentage points each year. They are: Service Employees International Union, the American Medical Association, the American Hospital Association, the Pharmaceutical Research and Manufacturers of America, the Advanced Medical Technology Association (which represents device makers) and America’s Health Insurance Plans (which represents insurers).

WASHINGTON – Volunteering to “do our part” to tackle runaway health costs, leading groups in the health care industry have offered to squeeze $2 trillion in savings from projected increases over the next decade, White House officials said Sunday.

The pledge comes amid a debate over how, or whether, to overhaul the nation’s health care system, and Obama administration officials predicted that it will significantly increase momentum for passing such changes this year.

The groups aim to achieve the proposed savings by using new efficiencies to trim the rise in health care costs by 1.5 percent a year, the officials said. That would carry huge implications both for the national economy and the federal budget, both of which are significantly affected by health care expenses.

Representatives from half a dozen health industry trade groups are scheduled to make a formal offer today in a White House meeting with President Barack Obama.

“I don’t think there can be a more significant step to help struggling families and the federal budget,” a senior administration official said in a conference call with reporters. The official spoke on condition of anonymity because the offer remains tentative.

The White House projects that the savings after five years under the proposal would mean about $2,500 a year in lower health care bills for a family of four. Within 10 years, the savings would “virtually eliminate” the nation’s budget deficit.

Despite such heady predictions, many aspects of the plan remain unclear. The groups did not spell out how they plan to reach such a target, and in a letter to Obama they offer only a broad pledge, not an outright commitment.

In addition, White House officials said, there is no mechanism to ensure that the groups live up to their offer, only the implicit threat of public embarrassment. And it would be difficult to track whether they come up with the promised savings, other than the imprecise measure of comparing current projections of health care cost increases with future actual costs.

Nonetheless, White House officials were optimistic about the offer from industry officials who have previously tried to put up obstacles to health care reform.

The trade groups making the pledge represent a broad spectrum of health care interests, including the American Medical Association, the Pharmaceutical Research and Manufacturers of America, America’s Health Insurance Plans, and the Service Employees International Union.

“We are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health system,” the groups wrote to the president. “We are committed to taking action in private-public partnership to create a more stable and sustainable health care system.”

The groups declined to elaborate on their proposal Sunday, saying they wanted to first meet with Obama before doing so.

Much of the proposal tracks with ideas Obama included in his draft budget, and the goal of slowing the rise in health care costs by 1.5 percent a year was first articulated by the administration. Lawmakers, however, are considering more draconian cuts.

“As restructuring takes hold and the population’s health improves over the coming decade, we will do our part to achieve your administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate,” the groups wrote.

Their offer is the latest attempt by the health care industry to secure a seat at the bargaining table, as Democrats consider legislation that would simultaneously hold costs in check and extend coverage to millions of uninsured Americans.

Drugmakers, insurers, hospitals and the American Medical Association were among the harshest critics of a similar reform plan by President Bill Clinton in 1993. The insurance lobby, for instance, sponsored the “Harry and Louise” ads that ultimately turned popular sentiment against reform efforts.

But the explosive cost of health care has since strangled pay raises for most workers and slowed profits for many business, causing the industry to dramatically shift its posture. Earlier this year, it offered a major concession, offering to abolish policies that deny coverage under certain circumstances. In return, insurers said they want Congress to enact legislation that requires every American to have insurance.

During the presidential campaign, Obama opposed such an “individual mandate.” But many Democrats back the concept, comparing it to a requirement that all drivers have auto insurance.

The groups will have to streamline administrative costs, better coordinate care and bundle payments in order to achieve the projected savings. If they can slow the spiraling increases in health care costs, it would greatly improve the prospects for expanding health care coverage to the 46 million uninsured Americans.

Experts estimate that extending coverage to every American will cost $1 trillion to $1.5 trillion over the next decade, much of the money going to startup costs. Over the longer term, Obama and some analysts expect to accrue savings from technological improvements and more appropriate, less unnecessary care.

The United States spends about $2.2 trillion a year on medical care, representing about 16 percent of the nation’s overall economy. And the federal government has a big interest in lowering the cost of health care, given the hefty expense of its Medicaid and Medicaid coverage.

Obama has not been shy about framing his health initiatives in a broader economic context, calling reform integral to reining in federal budget deficits and to raising the take-home incomes of ordinary Americans.

Such comments tap into the most potent political argument identified by pollsters. Many Americans express concerns about the number of citizens who do not have coverage, but surveys show that the top complaint among voters is the rising cost of care.

“We cannot continue down the same dangerous road we’ve been traveling for so many years, with costs that are out of control, because reform is not a luxury that can be postponed, but a necessity that cannot wait,” Obama said, in remarks prepared for today’s event.

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