Cutting U.S. health-care costs doesn’t have to be harmful

Bryan R. Lawrence is founder of Oakcliff Capital, a New York-based investment partnership.

Now that the Supreme Court has found the Affordable Care Act’s individual mandate constitutional, there is a danger that we will revert to our old health-care politics — Republicans warning about “death panels” and socialized medicine, and Democrats wanting more tax revenue to protect Medicare.

All of that misses the point. Medicare costs per beneficiary grew by 5.5 percent annually from 2000 to 2011 (excluding the costs of Medicare Part D). Over the next 75 years, they are projected to grow at a slower rate, 4.3 percent annually, as Congress stops its annual “doc-fix” avoidance of its own legally required reductions in physician payments and as the ACA’s cost-control experiments prove effective.

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But the 2012 Medicare trustees’ report casts doubt on whether that slower rate will happen. Medicare already pays doctors just 80 percent of private insurance rates. For the doc fix not to be implemented again next year, payments to physicians would have to be cut by 31 percent. Many doctors would stop seeing Medicare patients, and that would make another another doc fix politically inevitable.

Medicare’s trustees also worry that the ACA’s cost controls may not work. “Actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report, possibly by substantial amounts,” they concluded. To them, that 4.3 percent growth rate looks low.

Why does this matter? In its 2011 financial report for the federal government, the Government Accountability Office calculates that health-care cost growth that is just 1 percent faster would require that the Treasury Department set aside, today, an additional $36 trillion to fund future promises (this includes Medicaid, which is expected to grow at rates similar to Medicare).

That’s roughly 240 percent of our gross domestic product. Greece was pushed into crisis with a debt-to-GDP ratio of 113 percent.

These frightening numbers also show the opportunity for positive change. If total U.S. health-care spending could be reduced over the next 20 years to Swiss levels — based on 2007 data, that would mean going from 15.7 percent of GDP to 10.8 percent — annual health-care cost growth over those 20 years would be 2 percent slower. The GAO did not calculate the impact of slower growth, but simple deduction suggests that tens of trillions of dollars would be freed up to spend on schools, or roads or lower taxes.

Put another way, if we spent what the Swiss do on health care, the reduction of 4.9 percent of GDP would free up more than $700 billion a year to lessen the burden on American households. That would be almost as much as the entire 2009 American Recovery and Reinvestment Act stimulus, except that it would happen every year, and it would not increase the nation’s debt load.

The Swiss system isn’t just cheaper. Swiss health care delivers better outcomes than our own. Infant mortality is 38 percent lower, according to World Health Organization data published in 2010, and the Swiss live four years longer than Americans. Why aren’t our politics about the outrage of higher costs and worse results?