The Economic Urgency of Health Care Reform

Watching the events of the past several weeks in Washington has been sobering. Decades of failed fiscal policy have finally come home to roost and Congress is tied in knots trying to find a compromise solution and avoid American default. Americans rightly are scared that our leaders can’t find a way out of this muddle. But the really sobering part is this: the solutions under consideration don’t fix the problem. Even if Congress enacts the most draconian spending cuts advanced by the Tea Partiers, and all of the tax increases advanced by the liberals, we will not be out of the mess. The crisis will still loom. Why? Because health care costs continue to increase at an unsustainable rate, and health care spending is the single largest category of federal spending. Without real, sustained health care cost control, we still face a crisis, no matter what package of cuts and revenues the new “gang of 12” develops.

As a Governor, I can’t ignore this problem. Health care spending more than tripled in Vermont between 1992 and 2009. Between 2000 and 2009, health care spending as a share of our gross state product rose from 12.9 percent to 18.5 percent.

We come face to face with the impact of growing health care costs every year in our state budget process. Health care squeezes out all sorts of other priorities, and we (state government) aren’t even paying our fair share of the increase. The state can’t afford to sustain a rate of growth that far exceeds growth in our economy and growth in our tax revenues. So we shift costs from state health care programs to the private sector. The private sector can’t sustain the growth, either, so they cut jobs and reduce insurance coverage for their employees. That’s why, despite aggressive efforts to expand government-sponsored insurance coverage in Vermont, nearly one in ten Vermonters is uninsured, and nearly a quarter of our population is underinsured — they have coverage, but could still go bankrupt if they had a major illness.

In Vermont we are pursuing a plan that we think will control health care costs, not just by cutting fees to doctors and hospitals, but by fundamentally changing the state’s health care system. I have launched an ambitious effort, with support from the Vermont legislature, to implement a single payer system in Vermont. Under the plan, single payer coverage will be a right and not a privilege, and will not be connected to employment. This is groundbreaking. But our success in guaranteeing coverage depends on our ability to control health care costs, so our plan is focused squarely on that goal. It has three parts:

  • Reduce administrative waste: We spend at least eight cents of every health care dollar on pushing paperwork. We can use health information technology to implement a single system for processing claims and a single set of coverage rules, and allow patients adjudicate their bills at the point of service. This will not only save money, but make using the health care system easier and more understandable for doctors and patients alike.
  • Reduce clinical waste and duplication: Again, we can use the best technology to assure that your doctor has a pipeline to your medical record. This will allow the next doctor to know what the last doctor did, and reduce the countless unnecessary and duplicate tests and treatments that occur in our health care system every year.
  • Encourage health and efficiency with the right financial incentives: Vermont doctors and hospitals are paid largely on a fee-for-service basis. They make more when they do more. We want to change that, so providers get paid for outcomes, for keeping people healthy, rather than for volume. We also want to build into the system of coverage financial incentives for all Vermonters to maximize their own health by eating right, being active and getting the right preventive care.

Together these initiatives could make a huge difference. If we reduce health care cost growth by just two percentage points (from a predicted rate of six percent to four percent) we will save almost $900 million in Vermont over the period 2014-2019. That’s big bucks for a state where our annual state budget is about $1.2 billion.

Congress has a tough job. I don’t envy their position as they attempt to navigate the shoals of the federal debt crisis. But they should at least, in the process, address the real problem — health care cost increases, unabated, will continue to cripple our economy. Alan Simpson and Erskine Bowles said it well in the pages of the New York Times earlier this week: “If we can’t find a way to slow the rapid rise of health care costs, they will drive this country to bankruptcy.” Let’s face the music.

Peter Shumlin is governor of Vermont.

This post originally appeared at The Huffington Post.

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