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Healthcare industry to offer cuts of $2 trillion

Pledge boosts goal of system overhaul

By Michael A. Fletcher and Ceci Connolly
Washington Post / May 11, 2009
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WASHINGTON - Volunteering to "do our part" to tackle runaway health costs, leading groups in the healthcare industry have offered to squeeze $2 trillion in savings from projected increases over the next decade, White House officials said yesterday.

The pledge comes amid a debate over how, or whether, to overhaul the nation's healthcare system, and Obama administration officials predicted that it will significantly increase momentum for passing such changes this year.

The groups aim to achieve the proposed savings by using new efficiencies to trim the rise in healthcare costs by 1.5 percent a year, the officials said. That would carry huge implications both for the national economy and the federal budget, both of which are significantly affected by healthcare expenses.

Representatives from half a dozen health industry trade groups are scheduled to make a formal offer today in a White House meeting with President Obama.

"I don't think there can be a more significant step to help struggling families and the federal budget," a senior administration official said in a conference call with reporters. The official spoke on condition of anonymity because the offer remains tentative.

The White House projects that the savings after five years under the proposal would mean about $2,500 a year in lower healthcare bills for a family of four. Within 10 years, the savings would "virtually eliminate" the nation's budget deficit.

Despite such predictions, many aspects of the plan remain unclear. The groups did not spell out how they plan to reach such a target, and in a letter to Obama they offer a broad pledge, not an outright commitment.

In addition, White House officials said, there is no mechanism to ensure that the groups live up to their offer, only the implicit threat of public embarrassment. And it would be difficult to track the promised savings, other than the imprecise measure of comparing current projections of healthcare cost increases with future actual costs.

Nonetheless, White House officials were optimistic about the offer from industry officials who have previously tried to put up obstacles to healthcare reform.

The trade groups making the pledge represent a broad spectrum of healthcare interests, including the American Medical Association, the Pharmaceutical Research and Manufacturers of America, America's Health Insurance Plans, and the Service Employees International Union.

"We are developing consensus proposals to reduce the rate of increase in future health and insurance costs through changes made in all sectors of the health system," the groups wrote. "We are committed to taking action in private-public partnership to create a more stable and sustainable health care system."

The groups declined to elaborate on their proposal yesterday, saying they wanted to first meet with Obama before doing so.

Much of the proposal tracks with ideas Obama included in his draft budget, and the goal of slowing the rise in healthcare costs by 1.5 percent a year was first articulated by the administration. Lawmakers are considering more draconian cuts.

"As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your administration's goal of decreasing by 1.5 percentage points the annual health care spending growth rate," the groups wrote.

Their offer is the latest attempt by the healthcare industry to secure a seat at the bargaining table, as Democrats consider legislation that would simultaneously hold costs in check and extend coverage to millions of uninsured Americans.

Drugmakers, insurers, hospitals, and the American Medical Association were among the harshest critics of a similar reform plan by President Bill Clinton in 1993.

But the explosive cost of healthcare has since strangled pay raises for most workers and slowed profits for many business, causing the industry to dramatically shift its posture.

The prospect of millions of new customers has been a major enticement for other industry players as well. Drug manufacturers, suffering declining profits as consumers switch to cheaper generic medications, have put money and lobbying muscle behind universal coverage, expecting that the newly insured will become new customers.

White House officials said many of the cost reductions would be "crucially dependent" on legal changes being contemplated in Congress as part of a healthcare reform package.

The groups will have to streamline administrative costs, better coordinate care and bundle payments to achieve the projected savings. If they can slow the spiraling increases in healthcare costs, it would greatly improve the prospects for expanding coverage to the 46 million uninsured Americans.

Experts estimate that extending coverage to every American will cost $1 trillion to $1.5 trillion over the next decade, much of the money going to start-up costs. Over the longer term, Obama and some analysts expect to accrue savings from technological improvements and more appropriate, less unnecessary care.

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