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August 21st, 2009
12:47 PM ET

Fix the healthcare system (and fight the recession, too)

Dana P. Goldman and Neeraj Sood
RAND Corporation

A little-known proposition amid the highly charged health care debate is that properly controlling health care spending could generate economic growth equal to 1 percent of gross domestic product.

It may not be obvious that cutting health care spending would stimulate the economy. After all, delivering health care also means jobs. If we spend less on health care, doesn't that mean fewer jobs for health workers? And if cutting health care spending leads to worse health, wouldn’t more people take more sick days or leave the work force entirely? One might believe that any attempt to trim spending on health care would trigger more unemployment and lower productivity.

The fact, however, is that much of our health care spending is wasteful. The U.S. spends more on health care than any other industrialized nation, yet our population fares worse than many others. Unnecessary surgical procedures are a good example of how the U.S. overinvests in often-ineffective treatment at the expense of prevention. This spending adds nothing to our economic output – let alone the damage it does to our health.

The goal of health reform should be to slash health care spending that does not improve health outcomes. President Obama's advisors estimate the potential savings to the private sector at $140 billion annually. Our research suggests that such savings are ambitious, but attainable. In a $14 trillion economy, this amounts to about 1 percent of economic output.

But who would benefit from the money we don’t spend on health care we don’t need? It could end up in three places: insurance coffers, employers’ wallets, or workers’ pockets. Let’s consider each.

If companies and individuals spend less on health care, insurers will naturally try to keep most of the savings, simply by maintaining the health insurance premiums their customers now pay. Insurance companies and their shareholders would reap higher profits. That would stimulate the economy, but the effect would be minimal.

Fortunately, such a scenario is unlikely, as the health insurance market is very competitive. Insurers who did not reduce premiums when health care costs fell would risk losing market share to their competitors.

It is more likely that employers, who pay a large fraction of health care costs, would benefit the most from cutting wasteful health care spending.

Business leaders frequently complain that skyrocketing health care costs erode their competitiveness and lead them to move jobs overseas. Lower health care costs would make it cheaper for employers to hire workers at home.

Our estimates indicate that it’s equivalent to giving employers a tax break of $1,285 annually for each full-time job they keep in the United States. Past experience suggests that this tax break will create about 1.1 million new U.S. jobs, and the economy overall would grow by $120 billion.

The final scenario has employers passing on the savings from lower insurance premiums to their workers. Research from a variety of policy contexts—including worker compensation, maternity benefits, and Social Security—suggests that this is the most likely outcome.

Cutting health care costs will put money back in workers’ paychecks – in effect, the equivalent of a permanent tax cut. Some of this money would be saved. But the majority would flow back to the economy as increased spending. The economic stimulus would be similar to making the Bush tax cuts permanent – about a $100 billion increase in GDP.

In the end, though, no matter where the savings go, the entire economy will prosper from cutting wasteful health care spending. It would spare patients from unnecessary and potentially risky medical procedures.

And it would do what bailout efforts never can: provide tax breaks to businesses and workers without increasing government spending.

Editor's Note: Dana Goldman is director of health economics and Neeraj Sood is a senior health economist at the RAND Corporation, a nonprofit, nonpartisan research institution. Both are also on the faculty at the University of Southern California.

soundoff (28 Responses)
  1. WBK

    Keep up the good work Anderson! I am sure Obama has a position for you on his staff.

    August 24, 2009 at 12:41 pm |
  2. Maureen L.

    Dear President Obama,

    Please listen to the people of this country. The anger that almost every politician has been confronted with does not just involve healthcare. We are fed up with the political system and our representatives. You may ask why and I will tell you. We feel we have no one representing our interests. Every time you turn around either a government representative of the people is involved in some scandal, in the pocket of some lobbyist, or ready to promote a book. Health care has to some degree become a basic need to us the people of this country just like water, food, and shelter. You cannot live without health insurance if you have any bit of savings or you will be destroyed financially. A statistic I heard recently was that the majority of people filing for bankruptcy were ones that involved a health-related illness. Let me back up and say the health care I talk about is one with no rationing, meaning no limits on cost of provided service such as in the case of a catastrophic illness, because there are many policies out there that people are unaware of until they get sick that health insurance has the right to stop or limit care.

    Why is there a resistance to the public option you are trying to provide? Let’s start with the history of the government and getting involved in running businesses. From what I understand even though MediCare and US Postal systems are good government systems, they are running out of money. I won’t even get into the systems that have failed miserably or that are considered inept. What the people of this country need is a government and politicians looking out for their interests? Why can’t the government act as an arbitrator with the private insurance companies and manipulate costs through policy/law that benefit the people. Let’s not keep blaming who is at fault and try to fix some of these problems. Everyone needs to be held accountability for this broken system which has been allowed to function this long. This system I talk about is the dysfunctional relationship between the government, politicians, lobbyist, healthcare insurance companies, pharmaceutical companies, hospitals, doctors, insurance companies that insure for malpractice, and the list goes on.

    Mr. President we need a government to do what it was made to do, represent the people’s interest and not private business. We need these companies/doctors to be held accountable fully knowing that health care has become a primary need for us. We need to break up these monopoly-like paradigms that a lot of these companies have created, we need more policy to control healthcare costs that are not passed down to the American citizen. We need more policy like the one you have currently for COBRA if you are unemployed. We need a government that will make this country thrive by example. We need a government that will stop over taxing the people of this country that have the ability to bring it forward. We need a government that will protect our nest eggs for our future.

    Please listen to us…

    August 24, 2009 at 11:04 am |
  3. Donna

    PASS FOR NEW HEALTHCARE REFORM. I JUST REWROTE WHAT I REALLY WANTED TO SAY BECAUSE I AM SO UPSET ABOUT THIS WHOLE UNFAIR MESS!

    August 23, 2009 at 9:22 pm |
  4. Benjamin

    Dont let Obama fool you people. My wife a RN and she opposes government option. She would rather see insurance for medical malpratice get lower. This would reduce the cost of doctors.Don't overhaul the system just tweak it a bit then the cost would go down. Also if the government picked up the cost to go to school to become a doctor. This would reduce the cost the doctors charge to pay back their loans. In short all you liberals lets just take a deep breath and look at the country you live in. Free enterprise is what this country is founded on! So lets not throw government option as the only result. Lets tweak the laws so doctors don't charge that much and dont have the burden of heavy loans to payback for medical school. The real soultion is think outside the box and not expect to become a welfare country.

    August 23, 2009 at 8:40 pm |
  5. William

    CORRECTED COPY
    Anderson: There is talk about pushing the reset button on health care. The most efficient and effective healthcare systems is a one-payer system. It is also the one most misrepresented. Pres. Obama seems to prefer a one-payer system, but feels it would not pass. That is because it has been so maligned he has given up. But let’s set the record straight. Canada has had a one-payer system for over 40 years, and rather, as some suggest the quality deteriorates, the opposite is true. My experience over 40 years proves that.

    Misrepresentation of Canada’s Health Care System is really quite straight-forward. What follows is not a political statement. I have taken a position of strict political neutrality. I just want to set the record straight. Canada has had Government funded health care since 1966. For over 40 years all Canadians have had access to complete, high quality health care at no direct cost to themselves. The program is funded from tax revenue which, in the long run, is less expensive than premiums paid to a private insurer. In a recent town hall meeting with President Obama, one lady from Nebraska said she and her husband pay $800.00 per month for a policy with an $8000.00 deductible. In Canada, private carriers do not participate in conventional medicine. It would be redundant for them to do so. They provide disability coverage, dental, prescription drug, and alternative medical care: chiropractic, acupuncture, etc. Unfortunately, private carriers deny most claims and it is often difficult to get approval. Injured survivors of flight 1549 that landed in the Hudson were told by the airline’s insurer that no claims would be paid, “it was the bird’s fault.” That would never happen in Canada. Canada’s Health Care Program would take over where the private carrier failed.

    In Canada’s system there are no deductibles, no pre condition exemptions, no age limits, and no claims forms – everyone is included. Canada’s Health Care system is expanded after age 65 to include prescription drugs. The Government has no involvement in the doctor/patient relationship. All decisions are made between the doctor(s) and patient. The Government is a silent partner. It is government funded, not government run. All Canadians carry a “Health Card” which they present to a doctor, hospital or other medical facility and the treatment is automatically paid for. During the current US health care debate, when “government run health care” is mentioned, paranoia sets in. A lady in a town hall meeting with Senator Arlen Specter charged: “You are systematically disassembling this country, turning it into another Russia.” After 40 years of Government Health care, Canada is not now or ever will be a Socialist country.

    The quality of Canada’s medical plan has been criticized by opposers who pick out an isolated incident of failure, the details of which are unknown, but ignore the fact that every day millions of Canadians receive quality health care by the doctor(s) of their choice. Recently a 98 year old friend was diagnosed with a cancerous colon tumor. A surgeon operated and she is now fully recovered. Surgeons at Toronto’s Hospital for Sick Kids successfully performed heart surgery on an unborn baby. I am 76 years old, and have had numerous surgeries and other medical procedures during my life-time. All procedures were covered by Canada’s Health Care plan. If I had lived in the U.S., I would have lost my home years ago because of medical costs.

    On the other hand, noted American heart surgeon, Dr. Mehmet Oz said recently on an Oprah show that over 200,000 Americans die each year as a result of medical mistakes. A lady on the same show reported undergoing a mastectomy only to find out three days later she did not have breast cancer. Test results had been mistakenly switched with those of a patient who did have breast cancer, resulting in a double tragedy. It has also been reported that 99,000 Americans die annually as the result of hospital sourced infections. VA hospitals have been severely criticized for not properly administering colonoscopies. An Air force pilot was admitted to hospital for a routine gall bladder operation. The surgeon made an error that resulted in the necessity of a leg amputation.

    As a neutral observer it appears there are two major problems. (1) There is more concern over money than over health care for all Americans. (2) When Canada introduced Government funded Health care 40 years ago, there were no objections from anyone. If the U.S. had acted 40 years ago there would have been no serious objections, because since then people have become more acrimonious in attitude and behavior.

    I really hope that in the end, all Americans will have appropriate Health Care.

    Ontario, Canada

    August 23, 2009 at 5:54 pm |
  6. Robert

    The most important item going on with health care is what I call the Democratic Test! If these fools can not get it done and continue to argue amonst themselves then the simply solution is to THROW them out of office come next election because they will have failed the American people and not done the job of a Congress person.

    August 23, 2009 at 5:44 pm |
  7. Capricorn7NC

    RECONCILIATION!!! If they want to keep postponing then that is what I want to see. Reducing the costs of health care will help everyone and I fully support health care reform. Obama is being way too polite on such a serious issue. I am a Democrat and I voted for Obama, but I am tired of him trying to compromise on something everyone wants. I thought reducing itemized deductions was a good idea, but I thought rolling back the Bush tax cuts immediately would have been better. Keep the public option and I definitely support it 100%.

    August 23, 2009 at 9:53 am |
  8. John

    I agree there should be health care reform. What we have now is clearly not working.. But is the govt the best option?? Not sure..

    I would be interested to see an analysis of the current govt run health care systems, medicaid and medicare from the following perspectives:
    1) Patient satisfaction
    2) Dr satisfaction
    3) Cost control
    4) Sustainability- Are they working or will they be solvent under their current states.

    This would show how well the govt ran those programs. As with other things this doesn't guarantee how they would/will run another health care system..

    August 22, 2009 at 5:23 pm |
  9. Chi

    I grew up in Japan and used Japanese affordable and patient-friendly medical insurance until I moved to the US. The following is a brief description of the Japanese health care system.

    In the Japanese health care system, healthcare services, including "free" screening examinations for particular diseases, prenatal care, and infectious disease control, are provided by national and local governments. Payment for personal medical services is offered through a universal health care insurance system that provides relative equality of access, with fees set by a government committee. People without insurance through employers can participate in a national health insurance program administered by local governments. Since 1983, all elderly persons have been covered by government-sponsored insurance. Patients are free to select physicians or facilities of their choice.

    One of the great things about the Japanese health insurance system is that no children will miss health examination or immunization shots because schools, whether private or public, are required to provide those services for students for free. In the US it's individuals' responsibility to choose and obtain a health insurance and take their child to the doctor's office for health examination. Now, "individuals" include both responsible and irresponsible parents. Irresponsible parents or responsible parents but that cannot afford insurance can easily let their children miss health examination, immunization shots, and even let them fail to be accepted for school enrollment because of missing immunization records.

    If the public option discussed in the health care reform is something like what I enjoyed in Japan, it will be great for everyone. By the way, Japanese universal health care insurance covers vision and dental, so it's less complicated and cheaper, compared to the US health insurances.

    Ash, I agree with you.

    August 22, 2009 at 3:13 pm |
  10. Diane

    On tonight's show (Friday), one of the female panelists made the statement that President Obama is not keeping his promise to be bipartisan. I strongly disagree!! He is doing everything possible to "play nicely" and work with the Republicans. What more does she expect him to do, switch parties?

    Just pass Health Care Reform already!!!!! Including Public Option. Thank you.

    August 21, 2009 at 11:32 pm |
  11. Annie Kate

    Hopefully cutting the waste will help at all three levels and make our health care less expensive. It would be nice if someone would summarize this health insurance bill for us so we could easily see without reading 1000 pages just what would be cut, what created, what would be changed, etc. Too much misinformation right now.

    August 21, 2009 at 8:43 pm |
  12. RLWellman

    I guess all the movie stars and others that get plastic surgeries would not be able to get them any more. That would eliminate a whole lot of doctors in this field and all they would have to do is change their field of practice.

    The good thing is the Government would have the same panel to decide about their medical also, right? You mean they won't be following the same guidelines?

    August 21, 2009 at 6:56 pm |
  13. Heather,ca

    Obama is lying. Imagine that. Only businesses of certain size get a tax break. The rest pay. They pay regardless. If they can't afford to provide healthcare to their employees they get fined. Remember when Hillary was running she said very quietly we would all have to pay.

    August 21, 2009 at 6:00 pm |
  14. Pat Wilfred

    Anderson, I was at my primary care today. I asked her about the health care. This was her comment to me: They took the incentive for primary care physicians out of the package. Only about 20% of the doctors are members of the AMA. There will be absolutely no reform on malpractice insurance for Doctors.

    My question to you: Why doesn't someone tell us the truth? How can be know what to support and what not to support. I can understand why people are so angry.

    Please answer. Thank you.

    August 21, 2009 at 5:52 pm |
  15. Dana

    I have experience with doctors performing tests routinely when I or my children visited them just to increase the bill they could hand the insurance. I also know how much more doctors and hospitals charge people who don't have insurance. That's not fair.

    Insurance companies are also just out for profit. And we, the patients, are in the middle of this battle for the dollars. We need someone on our side, someone to regulate the mad dash for profit. We know all too well from the recent bank fiasco that companies can't be expected to worry about little things like morals or consumers when profits are involved.

    It's a big issue, but I truly believe we cannot rein in the costs unless we provide for a basic, low-cost public health option. If not all of us are insured, we can't control the costs for those who are. Trying to do so would be like trying to drive a car by controlling 2 of the wheels.

    August 21, 2009 at 4:46 pm |
  16. lampe

    I still don't understand how it will provide tax breaks to businesses, when Obama himself said " I will raise taxes."

    August 21, 2009 at 3:12 pm |
  17. Keith

    Anderson, please take the lead by connecting the dots between disenchantment with congressional representatives [<25% approval], vigorous debate at town hall meetings, drug company and insurance company lobbying / kickbacks and the positions taken by representatives in the healthcare reform "debate". Who is representing who and why? This is the real story ... not the endless soundbite reruns and video loops that CNN calls "news". Thanks. K.

    August 21, 2009 at 2:54 pm |
  18. Kat

    America was the land of Plenty and Big Dreams! There was plenty to help other countries with food and medicine! When did we become so very small we can Not even help our own citizens with medical care?

    August 21, 2009 at 2:32 pm |
  19. MarkT

    Unnecessary surgical procedures are a good example of how the U.S. overinvests in often-ineffective treatment at the expense of prevention.

    Such as?

    The goal of health reform should be to slash health care spending that does not improve health outcomes.

    So life prolonging outcomes are now...what? There's nothing new here, nothing added or newly explained to the partisan bickering.

    Still no:
    - Program of Tort reform
    - Program to find, fund, educate, and place GP's.
    - True lowering of the costs of generic beta blockers and statins

    August 21, 2009 at 2:24 pm |
  20. Christina *L.A. California*

    Makes sense!!

    August 21, 2009 at 2:14 pm |
  21. Christina *L.A. California*

    Amen.

    August 21, 2009 at 2:10 pm |
  22. Janet

    I disagree with you. The only one that would prosper from cutting wasteful spending would be the insurance companies. What you are saying here amounts th the death panels, that everyone speaks of. No one should be able to say whether or not a surgery is necessay, but your doctor. Who are you saying should make this decision? Not some panel working for the insurance company or the government I hope. Most surgeries would endup not being performed, but labeled experimental, because proof it would do any good does not exist on that specific patient.

    August 21, 2009 at 1:59 pm |
  23. Ash

    I lived in Japan for 15 years and participated in their affordable, market-based, single payer system and am embarrassed that my own country doesn't have something similar to it. My Japanese wife and I have both decided to return one day to Japan for the healthcare.

    August 21, 2009 at 1:55 pm |
  24. Tamara Bihun

    Hi from Canada Anderson....adore you and your show. You are one handsome and brilliant son of a gun!

    Regarding health care. The Republicans are LYING about Canada's hc to frighten people not to support Pres. Obama's initiatives.
    Canadian Citizens as well as citizens of all countries who have Universal Health Care are supporting Obama by signing petitions to be sent to the White House debuking the lies and scare tactics which have been planted to scare citizens.

    My son is married living in St. L for the past ten years and thank God his company covers his family of 4. He is appalled at what he has seen first hand sosme disgraces happening to some of his friends...i.e. bankrupties for unpaid bills, denial of claims by Ins. Co. to heighten their bottom Line. Free enterprise is one think but putting profits before legitimate claims, not giving ins. to people with previous health issues is unbelievable. Raising rates like drunken sailors is a disgrace too.

    Anderson, Sicko the doc from Mike Moore is extremely accurate, because I he interviewed people from Canada as well as people in other countries and the people told the truth as far as Canadian care goes.

    Anderson, why don't you bring Michael Moore on. He's travelled the world on this subject. I heard News organizations are hesitante to put him on. But you are fearless! Better to hear from Michael rather than hearing the pundits saying the same thing over and over.

    I watch you every night so I hope one day you will consider this request.
    Tamara (Niagara, Ontario)

    August 21, 2009 at 1:35 pm |
  25. Peggy Stevens

    I am an independent voter.I voted for both, Pres Bush & Obama hoping that they could make a difference. I found that no one man can do it. I am a retired civil service worker and I have good healthcare; BUT I have a 25 yr old self employed son freelancing full-time for a car dealership as a photographer and videographer. He has no healthcare; hasn't had a physical since he became ineligible as my dependent. His wife works two part time jobs; no healthcare either. Contrary to some popular belief, healthcare reform is not for the poor who sit home all day. It's for the working poor, self employed, small business, part time workers and will benefit all of us in cost savings. The special interest have been successful in distorting what Pres Obama is trying to do using fear tactics. Fear works! Keeps us from moving forward! They are disrupting town hall mtgs and we all know why? They don't want reform! I just want to encourage all of our congressmen/women; Please! Don't let the insurance companies win in this! Please help get this done and soon. Thank you!

    August 21, 2009 at 1:28 pm |
  26. Melissa

    Finally. Someone that tells the truth.

    August 21, 2009 at 12:23 pm |
  27. Karl Newman

    Why is purposely distributing false information about health care reform, such as suggesting that an element of reform includes "death panels" not considered fraud? If a corporation disseminated false information about the business it could be considered a criminal act. Shouldn't the same be said about false information released on topics which could directly affect the business? I believe CNN should have its reporters looking into where is the misleading information coming from. Who stands to benefit from attempting to disrupt the real debate which should be happening on health care? Additionally, I would like to see CNN taking a deeper look into the health care systems of other countries to set the record straight on how well they work and dispel misinformation such as hip replacements not being performed on people over a certain age.

    August 21, 2009 at 12:03 pm |
  28. Michael C. McHugh

    The Republicans are completely out to lunch on health care reform and also on issues of energy and the environment. Obama deserves credit for at least trying to do something about these problems and steer the country in the right direction, even if I don't agree with everything he has done or the way it's been done.

    The Republicans controlled the White House most of the time since 1968, and Congress since 1994, but they never did anything about all these problems. They just let it all slide and left it to the "free market", and now look at the mess we're in.

    August 21, 2009 at 11:59 am |