The President's Plan

The President has now unveiled his proposed budget for the 2010 fiscal year. He has a large amount dedicated to trying to change the health care system. A key question is how this will affect not just the ability of individuals to obtain health insurance for financial protection and quality health care to maintain and improve their health, but how it affects the growth in the costs of care in the long run.

One good source of information on the President's budget is at the Kaiser Network.

Health information technology improvements may bring about many improvements in care. In the long run, better information systems may save money. In the short run, it will result in spending a lot of money to make the improvements in the system. Using government money to improve and bring some standardization to the system is not necessarily a bad idea since firms left to their own devices will not obtain all the benefits of standardization and may make enough of an investment either in information technology itself or in efforts to standardize. Key message: government spending is useful and probably necessary but will not necessarily save money in the short run.

What about more prevention? Prevention doesn’t always save money. For most prevention if it saves money it is only in the long run—except for flu shots which are generally available at a low price already. So, another item with more spending and not necessarily short run savings.

There is hope—however. The government will pay less to some insurers who provide coverage for Medicare beneficiaries. If the insurers can find ways to provide lower cost care (hopefully without compromising quality) that will save money in the short run. However, that is only because the government is leaving little option.

Finally, there will be efforts to end agreements between brand name and generic providers where the brand name manufacturer pays the generic manufacturer to delay production. This seems like a reasonable approach that should result in lower costs in the short run without putting consumers at risk.

So, we have lots more money in the short run. Some hope for long run cost savings. Some of the plan will result in short run savings—with potentially mixed implications for quality of care. Is this feasible?—Maybe. Will it be effective?—Only time will tell. Does it make the most sense?—There are a lot of people who think that ending the current system of employer sponsored insurance with coverage provided by private providers might make more sense, but it is a step in trying to rearrange incentives for efficiency and quality.