Real Ways to Drive Down Healthcare Costs

Scott E. Harrington, University of Pennsylvania

Download PDF Version

The Challenges 

  • High healthcare costs
  • Rapid growth in costs
  • Large numbers of uninsured
  • Unsustainable federal healthcare spending
  • Change is inevitable—what do a majority of people want?

Who are these 50 million?

  • They generally have access to acute care without regard to ability to pay 
  • We don't know how much health and longevity is affected 
  • Characteristics

How Public and Private Insurance Contribute

  • Too much insurance for many of those who have it
  • The big three subsidies

The PPACA Will Make Matters Worse

  • More utilization of low-valued care
  • Adverse selection and further cost pressure
  • Destabilization of individual and small group health insurance markets

PPACA's projected effects on Medicare 

  • Projected Medicare reimbursement cuts and budget savings may not be achievable 
  • More people will enroll in traditional Medicare as Medicare Advantage is squeezed
  • Restrictions on types of care will eventually  follow 
  • Mechanisms

Demonizing Private Health Insurers 

  • You have to create a devil to justify a savior 
  • Universal coverage with single payer system is the goal 
  • Distortions, misinformation, and falsehoods are the means, whether intentional or ignorant
  • The stage is set for closing the deal: choke off private supply with a public insurer to the rescue 

The Broad, Market-oriented Agenda

  • Overall
  • Three broad steps

We Need to Change the Tax Treatment of Health Insurance

  • Reduce the tax incentive for workers, especially the higher paid, to be compensated with generous health insurance coverage of moderate expenditures
  • Equalize the tax treatment of individual and employer-sponsored coverage to improve portability and choice
  • There exist a variety of means to achieve these goals, including replacing the exclusion with refundable tax credits

We Need to Transform Medicare

  • Improve incentives for enrollees to consider costs as well as benefits by expanding choice 
  • Broad approaches 
  • The choice for post-1960 generations must be made clear 

Other Steps that Will Help Us and Our Children 

  • Allow insurers to price risk with sensible safety nets for high risk buyers that don't encourage people to wait until they need care to seek coverage
  • Promote competitive health insurance markets
  • Encourage medical liability reform 

Conclusion- a Fork in the Road

  • Generous "nominal" insurance with top-down restrictions on choice


  • "Real" insurance, where we and our doctors have to consider the costs and make tough decisions given with insurance protection against truly high costs
  • The 2010 and 2012 elections will determine the path taken