Overview of Approaches to Lower Healthcare Spending by Government

http://www.nytimes.com/2010/12/12/opinion/12sun1.html?_r=1&hp

Healthcare spending is projected to grow at over 7% per year if nothing changes. At that rate spending will double in 10 years. Government contribution to total spending is around 50% and it is the largest and fastest growing segment of the federal budget. Most analysts agree that little can be done to limit the growth in the national debt without changes to the healthcare system. This article provides an overview of the approaches taken by two commissions and it describes some of the approaches in the current healthcare reform law.

Obama's plan caps the growth in Medicare spending per beneficiary at half of the current rate (which would be closer to the general inflation rate). The plan includes a review process by a board which will recommend savings if spending grows faster than plan. It also provides exchanges that will compete with private insurers. The idea is that competition between insurers and government options in the exchanges will provide an incentive to negotiate for better prices from suppliers of healthcare.

The two commissions propose increases in Medicare premiums based upon income that would lower Medicare costs by over $100B between 2012 and 2030. The Simpson/Bowles plan caps government spending on healthcare but it has no plan for dealing with spending above the cap. The other commission would end the tax subsidy that employees get by not having employer payments for insurance premiums count as taxable income. It would also change Medicare substantially by providing vouchers to beneficiaries that can be used to purchase insurance from Medicare or from private insurers. The vouchers would increase in value annually below the current healthcare inflation rate.

In general all these approaches shift some of the cost burden from government to individuals. Currently, the GOP has not agreed upon an alternative plan. They only agree upon repealing the Obama plan.