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The Myth of the Costs of Failure

Anthony T. Lo Sasso, Ph.D., Stephen T. Parente, Ph.D.
Medical Progress Today
March 18, 2010

This week the Commonwealth Fund released a study claiming that the lamentable 17.7% of GDP that health spending will comprise in 2010 could have been averted had only the Nixon, Carter or Clinton health reform proposals been enacted. Had the Clinton plan been passed health spending would have been reduced to 14.2% of GDP; it may come as a surprise to some that Carter had a comprehensive healthcare reform plan, but had it been implemented health care spending would have been reduced to a startling 11.5% of GDP; Nixon's plan tops them all by reducing spending on health care to 10.7% of GDP, nearly approaching the spending of other industrialized countries (9%). The fact that the policies of the widely known patron saint of the liberals, Richard Nixon, are held up as the greatest missed opportunity in a generation should give even ardent supporters of reform-at-any-cost pause.

One might suspect that these estimated miracles of what-could-have-been were generated by a complex policy simulation run on a general equilibrium model of the US economy over the last 40 years using a supercomputer. But in fact the claimed reduction in health care spending is brought about simply by asserting the reforms would have reduced health care spending by 1.5% per year and allowed compound interest rates to work their magic.

Why 1.5%? Why not? There is no justification for how a nation can insure millions more people (mind you all of whom would likely increase spending by at least 50% once insured) and yet on net spend less than it otherwise would have. In addition, the implicit assumption is that the reductions in health care spending have no effect on GDP—the economy keeps humming along despite the sledgehammer coming down on a major sector. However, when you pay a doctor or hospital less for something, they typically have less income and buy fewer things. When the numerator and denominator change by the same percentage the quotient doesn't change. In this absurdist accounting exercise, there is no accounting for any of the costs of such changes to the healthcare system. Would we have all the innovations and conveniences we now enjoy? What about the lives that would have been lost if some therapies were delayed or not brought to market? Would there be essentially zero wait time (as US healthcare consumers enjoy today) for pretty much any procedure you want?

Nevertheless the claimed "savings" will be taken as face value and have incredible policy marketing appeal. And the myth that doing something/anything is better than doing nothing will continue to be perpetuated the President, his Congressional allies and an eager media. If true bipartisanship is to have a chance, we'll have to agree to draw the line somewhere. Making up numbers and reporting them as true estimates of what could have been seems like a good place to start.

Anthony T. Lo Sasso, Ph.D., is a professor of health policy and administration in the School of Public Health at the University of Illinois at Chicago and at the Institute of Government and Public Affairs. Stephen T. Parente, Ph.D., is a professor of finance at the Carlson School of Management and the Director of the Medical Industry Leadership Institute at the University of Minnesota.

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