How to Control Spending on Health Care

Since President Obama has asked for new ideas about limiting how much we spend on health care, I have a serious proposal: let’s actually put a limit on how much we spend on health care.  Participants at this Thursday’s summit should decree that the current relative level, 17% of gross domestic product (GDP), is all the country can afford because medical expenditures are now crowding out critical investments in education, environment, and infrastructure.     

As the national economy goes, so goes health care under my straightforward proposal.  The only way for medical enterprises to get more absolute resources is overall economic growth.  Unlike all the complicated proposals on the table, capping the medical sector’s relative share of GDP would operationalize reform’s only area of bipartisan agreement—that spending more on health care will soon lead to economic disaster.

This policy would also incorporate a lesson we should learn from the dozens of industrialized countries that produce healthier populations for 13% or less of their GDPs.  We have been studying differences in these countries’ health systems—which are substantial—without focusing on the one attribute they have in common.  All set global budgets for health spending.  They rely on a variety of public and private mechanisms for operating within the budget, but they put advance limits on spending.  My friends in these other countries are amazed that U.S. health policy effectively allows unlimited spending. 

Policy experts over the past year made a strong case that one-quarter to one-third of health spending in the U.S. is wasted.  Cutting this waste out of the system by reducing health care to 13% of GDP could quickly garner populist political support as an alternative to freezing expenditures at 17%, as I propose, or allowing them to rise to 20%, as CBO predicts.  We forget that Bill Clinton’s goal as a candidate in 1992 was to cut health spending below 10% of GDP.  He got elected by focusing on economic recovery, not health reform.  (The Obama administration has misinterpreted the lessons of subsequent events in the Clinton White House, but that’s another subject.) 

At this week’s summit, industry stakeholders should make a firm commitment to maintaining health care at 17% of GDP.  Further, they should agree to work together accountably and transparently for reallocating the wasted resources to quantifiable improvements in cost, quality, and access.  This direct approach should focus national attention on creating the best health care system that 17% of GDP can buy—a much more inspiring goal, to my way of thinking, than trying to find more resources for the dysfunctional system we have.  What do you think?