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Top economists weigh in on health reform

A coalition of 23 prominent economists has sent a letter to President Obama supporting the Senate Finance Committee's healthcare reform proposal

A coalition of 23 prominent economists has sent a letter to President Obama supporting the Senate Finance Committee's healthcare reform proposal and outlining four elements that the scholars believe will be crucial to effective healthcare reform: deficit neutrality over the first decade; an excise tax on high-cost insurance plans; an independent Medicare commission to ensure that the programme continues to improve even after the health reform debate subsides; and delivery system reforms that offer both incentives and penalties.

The letter, which is signed by economists including former US Food and Drug Administration (FDA) commissioner Mark McClellan, singles out the Senate Finance Committee health reform bill, also dubbed the "America's Healthy Future Act," as the current proposal that contains all four key elements. 

The four measures "will help transform the healthcare system from delivering too much care to a system that consistently delivers higher-quality, high-value care," the letter states, adding: "The projected increases in federal budget deficits, along with concerns about the value of the healthcare that Americans receive, make it particularly important to enact fiscally responsible and quality-improving health reform now."

Elaborating on the acceptable standards for budget neutrality, the economists assert that reform legislation should not be passed unless it is deemed by the Congressional Budget Office to be at least deficit neutral over 10 years and to reduce the deficit thereafter. "Covering tens of millions of currently uninsured people will increase spending, but the draft health reform legislation contains offsetting savings sufficient to cover those costs and the seeds of further reforms that will lower the growth of spending," the letter states.

The excise tax on high-cost insurance plans that is part of the Senate Finance Committee's bill will help raise funds, but more importantly will discourage the growth of private health insurance premiums by creating incentives to limit the costs of plans to a tax-free amount, the letter states.

The proposed Medicare commission "should be charged with developing and suggesting to Congress plans to extend the solvency of the Medicare programme and improve the quality of care delivered to Medicare beneficiaries," according to the economists.

Delivery system reforms would improve health and cut costs by rewarding doctors for providing higher quality care rather than simply more care, the letter adds, noting: "Studies have shown that hundreds of billions of dollars are spent on care that does nothing to improve health outcomes. This is largely a consequence of the distorted incentives associated with paying for volume rather than quality."

Specifically, any health reform legislation should include funding for research into the effectiveness of tests and treatments, incentives for physicians, and penalties for healthcare facilities tied to unnecessary re-admissions and health-facility acquired infections, the letter argues.

Along with McClellan, high-profile economists who have signed the letter include Stanford's Kenneth Arrow and Berkeley's Daniel McFadden, both of whom are Nobel Laureates in Economics, as well as Princeton University's Uwe Reinhardt, a frequent public speaker and media commentator on healthcare economics.

18th November 2009

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