White House: Health Reform Will Lower Costs

This is a political argument masquarading as an economic argument.  The White House is prepared to say today that reducing health care costs by 1.5% a year will increase gross domestic product by 8% over what it would otherwise be in 2030 and that providing insurance to those who don't have it amount to a net "welfare" effect of more than $100 billion. CEA Health Care Report Embargoed.pdf

A new report, previewed for reporters by Council of Economic Adviser chair Christina Romer, makes the case that doing health care reform properly is incredibly important for the economy. Makes a broadening of the White House argument, which has focused largely on access, to the economic benefits of reducing long-term costs.

The report documents the amount of inefficiences in the system and suggests some ways to reduce costs. The suggestions aren't specific because the White House "doesn't want to get ahead of the legislative process," Romer said. "The slowing of costs is certainly going to be challenging," she said.

Promoting the creation of small businesses might reduce insurance premiums over the long-term, especially if these businesses are given the ability to pool their employees and bargain with insurance companies.

The support suggests that reversing "job lock" -- where people with insurance don't leave bad jobs for better ones because they're worried about insurance -- will provide tangible economic benefits. (No discussion here of portability.)

Responding to an argument that subsidizing health care premiums results in an aggregate job supply decline, the report contends that such effects are likely to be "modest."

Expanding coverage to everyone could save as much as $65 billion a year in reduced mortality.

The report is vague about cost-cutting measures. In a moment of candor, Romer -- who, come to think of it, is usually fairly candid, admitted that "[c]hanging the incentives for providers depends much less on getting everyone covered" -- that is, health reform that focuses on access, which is what Congress and the White House are working on, won't do much of anything to contain costs. Romer said her report intended to look "beyond that" short term period.