While the health reform law is expected to reduce the federal deficit by $124 billion in the next 10 years, according to the Congressional Budget Office, its impact on family budgets is much more of a mystery. Unlike plans to expand coverage and end discrimination against the sick, there's no proven strategy in the reform bill — or anywhere else, for that matter — guaranteed to fix the most daunting problem in U.S. health care: medical costs that are rising at twice the rate of inflation.
Many economists say it will be impossible to bring health care spending under control unless everyone is covered. That's because the uninsured tend to wait until they are very sick to seek treatment. Then they show up at the emergency room, where costs are astronomical.
In the next 10 years, the new bill will spend about $350 billion on subsidies for 24 million low- and middle-income Americans who buy insurance independently. These people, plus small businesses, will have access to a new coverage marketplace in which insurers will compete against one another to offer the most attractive package of benefits at the lowest price. With this streamlining, administrative costs should go down, and with more transparency and competition, insurance premiums should become far more stable.
But those premiums will continue to rise, just with more predictability. Despite the demonization of the health insurance industry — some of it deserved — the business operates on a simple principle: collect enough premium dollars to cover overhead and claims plus, in the case of commercial insurers, earn a profit margin of 3% to 6%. Contrary to the rhetoric that has permeated the reform debate, insurance rates in most cases are rising steadily not because of price gouging but rather because underlying health care costs are increasing at an unsustainable and possibly unstoppable rate.
This growth is due to a number of factors, including a wasteful and inefficient payment system and our innovative — and therefore expensive — approach to medicine. Slowing the rate of increase is the only solution to a health care crisis that is still looming. On its own, the law does not necessarily do that. The reform's ultimate success will hinge on whether it can transform an industry that now rewards volume and accounts for one-sixth of the U.S. economy to one that pays for results.
No one expects the reform package — with all its political compromises — to be a magic pill for cost control. But most policy experts believe it will do more to address the problem of exploding health care expenditures than anything else in history. "It may not be as much as we really need," admits Alan Garber, a health care economist at Stanford University, "but it gets us on the path."