Health Groups Vow Cost Control
$2 Trillion in Savings Offered Over Decade, White House Says

By Michael A. Fletcher and Ceci Connolly
Washington Post Staff Writers
Monday, May 11, 2009

Volunteering to "do our part" to tackle runaway health costs, leading groups in the health-care industry have offered to squeeze $2 trillion in savings from projected increases over the next decade, White House officials said yesterday.

The pledge comes amid a debate over how, or whether, to overhaul the nation's health-care system, and Obama administration officials predicted that it will significantly increase momentum for passing such changes this year.

The groups aim to achieve the proposed savings by using new efficiencies to trim the rise in health-care costs by 1.5 percent a year, the officials said. That would carry huge implications for the national economy and the federal budget, both of which are significantly affected by health-care expenses.

Representatives from half a dozen health industry trade groups are scheduled to make a formal offer today in a White House meeting with President Obama.

"I don't think there can be a more significant step to help struggling families and the federal budget," a senior administration official said in a conference call with reporters. The official spoke on the condition of anonymity because the offer remains tentative.

The White House projects that the savings after five years under the proposal would mean about $2,500 a year in lower health-care bills for a family of four. Within 10 years, the savings would "virtually eliminate" the nation's budget deficit.

Despite such heady predictions, many aspects of the plan remain unclear. The groups did not spell out yesterday how they plan to reach such a target, and in a letter to Obama they offer only a broad pledge, not an outright commitment.

In addition, White House officials said, there is no mechanism to ensure that the groups live up to their offer, only the implicit threat of public embarrassment. And it would be difficult to track whether they come up with the promised savings, other than the imprecise measure of comparing current projections of health-care cost increases with future actual costs.

Nonetheless, White House officials were optimistic about the offer from industry officials, who previously tried to put up obstacles to health-care reform.

The trade groups making the pledge represent a broad spectrum of health-care interests, including the American Medical Association, the Pharmaceutical Research and Manufacturers of America, the American Hospital Association, America's Health Insurance Plans, and the Service Employees International Union.

"We are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health system," the groups wrote to the president. "We are committed to taking action in private-public partnership to create a more stable and sustainable health care system."

The groups declined to elaborate on their proposal yesterday, saying they wanted to meet with Obama before doing so.

Much of the proposal tracks with ideas Obama included in his draft budget, and the goal of slowing the rise in health-care costs by 1.5 percent a year was first articulated by the administration. Lawmakers, however, are considering more draconian cuts.

"As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your administration's goal of decreasing by 1.5 percentage points the annual health care spending growth rate," the groups wrote.

Their offer is the latest attempt by the health-care industry to secure a seat at the bargaining table, as Democrats consider legislation that would simultaneously hold costs in check and extend coverage to millions of uninsured Americans.

Drugmakers, insurers, hospitals and the American Medical Association were among the harshest critics of a similar reform plan by President Bill Clinton in 1993. The insurance lobby, for instance, sponsored the "Harry and Louise" ads that ultimately turned popular sentiment against reform efforts.

But the explosive cost of health care has since strangled pay raises for most workers and slowed profits for many business, causing the industry to dramatically shift its posture. Earlier this year, it offered a major concession, offering to abolish policies that deny coverage because of preexisting coverage. In return, insurers said they want Congress to enact legislation that requires every American to have insurance.

During the presidential campaign, Obama opposed such an "individual mandate." But many Democrats back the concept, comparing it to a requirement that all drivers have auto insurance.

The prospect of millions of new customers has been a major enticement for other industry players as well. Drug manufacturers, suffering declining profits as consumers switch to cheaper generic medications, have put money and lobbying muscle behind universal coverage, expecting that the newly insured will become new customers.

"It is a recognition that the fictional television couple, Harry and Louise, who became the iconic faces of those who opposed health-care reform in the '90s, desperately need health-care reform in 2009," Obama said in remarks prepared for his event with industry officials today. "And so does America."

White House officials said many of the cost reductions would be "crucially dependent" on legal changes being contemplated in Congress as part of a health-care reform package.

The groups will have to streamline administrative costs, better coordinate care and bundle payments to achieve the projected savings. If they can slow the spiraling increases in health-care costs, it would greatly improve the prospects for expanding coverage to the 46 million uninsured Americans.

Experts estimate that extending coverage to every American will cost $1 trillion to $1.5 trillion over the next decade, much of the money going to start-up expenses. Over the longer term, Obama and some analysts expect to accrue savings from technological improvements and more appropriate, less unnecessary care.

The United States spends about $2.2 trillion a year on medical care, representing about 16 percent of the nation's overall economy. And the federal government has a big interest in lowering the cost of health care, given the hefty expense of its Medicaid and Medicaid coverage.

Obama has not been shy about framing his health initiatives in a broader economic context, calling reform integral to reining in federal budget deficits and to raising the take-home incomes of ordinary Americans.

Such comments tap into the most potent political argument identified by pollsters. Many Americans express concerns about the number of citizens who do not have coverage, but surveys show that the top complaint among voters is the rising cost of care.

"We cannot continue down the same dangerous road we've been traveling for so many years, with costs that are out of control, because reform is not a luxury that can be postponed, but a necessity that cannot wait," Obama said in the prepared remarks.

Advocates for expanding health-care coverage applauded the industry's avowed commitment yesterday.

"We are glad to see major industry trade groups approach the president with an offer to get health-care costs under control in a system that covers everyone, and we appreciate their emphasizing the urgency of health-care reform," said Richard Kirsch, national campaign manager of Health Care for America Now, which calls itself a national grass-roots organization pushing for expanded health-care coverage.

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