The Inflation Reduction Act will lower health care costs for some patients. But we must do more

Last week, Congress passed historic legislation to fight inflation, reduce carbon emissions and invest in domestic energy production. But the Inflation Reduction Act of 2022 also contains a number of health care provisions, including ones that would reduce Medicare drug spending by an estimated $287 billion over 10 years and reduce Affordable Care Act premiums for three years.

This is good news for millions of individual patients and their families.

Much more will need to be done, however, if we are to truly rein in the astronomical health care costs in the United States, which topped $4 trillion in 2020.

What do we get for our $4 trillion?

It is worth noting that people from all over the world – including many world leaders – come to the United States every year for high-quality health care. At the same time, public health outcomes for some of our most vulnerable citizens remain dismal. The United States ranks 31st in life expectancy at birth, with high rates of maternal and child mortality, obesity, heart disease, and HIV/AIDS, among other ailments.

Some point to these poor results, as well as the fact that the United States spends roughly twice as much per capita as other wealthier nations on clinical care ($11,945 per person in 2020, compared to $5,268 in UK, $5,564 in France and $6,731 in Germany) to suggest that the US has a “healthcare cost problem”.

But to suggest that we simply “spend less” fails to take into account the complexity of the U.S. health care financing and delivery system—a system that includes both private and public insurance, a high degree of patient choice in providers, and hospitals and a cultural mandate to care for everyone who walks through the doors, regardless of ability to pay. All of these add to costs in ways different from any other nation, as does the relatively high cost of labor.

To wrap our head around this issue, we at the AAMC Research and Action Institute are publishing three articles exploring US health care spending in all its complexity. Not surprisingly, no single factor is to blame for the high cost of care, but the unique characteristics of the American system contribute. For one thing, the United States spends more on clinical care but less on social services for families than many similar countries, despite higher poverty rates. In addition, the United States is the only developed country that does not provide a basic health care plan for all residents. As a result, 27 million minors were uninsured in 2020.

The United States also spends an extraordinary amount on administrative costs, including billing and insurance, and through inefficient cross-subsidies to make up for underpayments by the government. While Medicare and Medicaid pay prearranged fees for health care goods and services (but not so far for drugs), these fees do not cover actual costs—Medicare covered 84% of average hospital costs, while Medicaid covered 88% in 2020— leading providers to charge several times more for privately insured patients in an attempt to recoup their fees. All these negotiations between doctors and hospitals and dozens of different insurance companies cost money — and drive up the cost of care for everyone.

None of these cost drivers will be corrected in the near future. And frankly, the American public isn’t as worried about them as they are about their own health care costs.

Today, nearly one in five Americans has medical debt, and out-of-pocket health care spending has doubled over the past 20 years, from $193.5 billion in 2000 to $388.6 billion in 2020. These rising costs have fallen disproportionately on those with the fewest resources, including the uninsured, blacks, Hispanics, and low-income families. But even stable middle-class families have been forced to make difficult health care decisions because of increased cost-sharing through copayments and coinsurance.

So what’s the solution? In the short term, policymakers should provide targeted subsidies to certain population groups, such as families whose household incomes are below average or whose health care costs are extraordinary. These subsidies—like those included in the Inflation Reduction Act—might increase overall health care costs in the short term, but would provide a huge benefit in the long term as patients are more likely to seek preventive care.

We must also pursue thoughtful and targeted policies that will reduce out-of-pocket costs for patients, as well as those that will improve outcomes, including better health promotion and disease prevention. And we need to focus on getting more for our health care dollars while helping those suffering from poor health and lack of access to care.

We may not be able to significantly reduce overall health care spending as a nation, but we can i can reducing costs for families, reducing cost growth and hopefully improving health at the same time.

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