Improving our healthcare system to deliver better quality care at lower cost is critically important to our nation’s long-term economic and fiscal well-being. The U.S. currently devotes 18 percent of our economy to healthcare. Without reform, healthcare spending will grow to one-fifth of our total economic output within 10 years, which will make it increasingly difficult to find the resources to invest in other sectors of our economy.
There are many reasons why the U.S. spends twice as much on healthcare as other advanced nations do, but it is not because we always have better overall health outcomes. Instead, health policy experts point to excessive waste in our healthcare system as the culprit behind our high costs. The Institute of Medicine, for example, has estimated that 30 percent or more of total healthcare spending goes to unnecessary, ineffective, overpriced, and wasteful services. That leads many analysts to believe that there are substantial opportunities for the U.S. to maintain or improve our health outcomes, but at lower cost.
Containing the cost of healthcare is difficult because the U.S. pays for healthcare through a number of public and private channels including the federal and state healthcare programs, private insurers, and individual out-of-pocket payments. To avoid simply shifting costs around, system-wide reforms to the delivery and payment system offer the most promising approaches to reducing the rate of cost growth while also preserving healthcare access and quality. To help identify and scale up those approaches, the Foundation launched the Peterson Center on Healthcare in 2014.
The federal government is the largest payer of healthcare expenditures. Its programs insure low-income families and many of the people who have high healthcare costs — older individuals and those in need of long-term care. In addition, the federal government provides direct subsidies to help moderate-income people purchase insurance and uses the tax code to subsidize employment-based health insurance. While containing the growth in healthcare costs is important to our nation’s long-term fiscal future, the federal programs exist to achieve certain policy objectives. Consequently, policymakers cannot simply clamp down on federal costs without the risk of shifting costs to other parts of the healthcare system and potentially disrupting access to good care for intended beneficiaries. Careful federal action can, however, address fiscal concerns while protecting program beneficiaries. Reforms also can influence the overall healthcare system because of the significant federal role.
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