Think health reform will cut costs? Think again.

James C. Capretta
USA Today
8/11/2010

If the government’s current spending rate continues, “growing budget deficits will cause debt to rise to unsupportable levels,” the Congressional Budget Office (CBO) concluded in a recent report to Congress.

It’s not a surprising conclusion. Last year, the CBO forecast that total spending on Social Security, Medicare and Medicaid alone would reach 11.4% of GDP within a decade — nearly triple what it was in 1970. As entitlement spending skyrockets, the U.S. government will have to radically raise taxes and cut vital programs.

The new health law was supposed to address the rapidly rising entitlement costs. But it does nothing to slow the growth. According to the CBO, spending on Social Security and federal health programs will make up an astonishing 14.7% of GDP by 2030, and that’s assuming all of the law’s controversial cuts and taxes are fully implemented.

Fee-for-service problem

A big reason the new law is ineffective in constraining costs is that it doesn’t fundamentally reform Medicare, particularly the program’s dominant “fee-for-service” reimbursement option.

That model covers over 75% of Medicare enrollees, or about 35 million people. It works exactly how it sounds: Medicare pays health care providers a pre-set amount for each service. Patients are largely shielded from costs of additional services because nearly 90% have extra insurance that covers costs Medicare doesn’t.

This setup creates perverse incentives…

The article continues at USA Today.

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