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America’s health costs are 40 percent above those in other advanced countries, with no apparent benefit in improved health. Thus, it would be surprising if reform were not able to lower spending. Health care savings will come about in three ways:
• Reducing wasteful administrative expenses. The lack of system-wide IT leads to enormous administrative expenses, from wasted time to excessive personnel. We could take 10 percent or more out of the health care budget simply by streamlining the administrative system.
• Reducing marketing and underwriting costs. Insurance administration averages 12 percent of costs overall, but only half that in large firms. Moving individuals and small firms into larger exchanges would save tens of billions of dollars annually.
• Fewer and less expensive acute episodes. We devote far too little attention to prevention, and when acute episodes occur, they are more expensive than need be. The best health care systems, from the Mayo Clinic to Group Health Cooperative, save up to 10 percent while delivering higher care quality.
Done right, health care reform can reduce costs while simultaneously improving the quality of care. But this will not happen by magic. We need to make meaningful use of information technology, redesign public and private payment systems, and put the emphasis on prevention. The benefits would be immense.
David M. Cutler
Otto Eckstein Professor of Applied Economics, Harvard University
American College of Emergency Physicians