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Ongoing Treatment

RAND Can Help Rein In U.S. Health Care Costs

By James A. Thomson

James A. Thomson is president and chief executive officer of the RAND Corporation.

James Thomson

The bipartisan National Commission on Fiscal Responsibility and Reform pulled no punches in its final report in December 2010: “Federal health care spending represents our single largest fiscal challenge over the long run. As the baby boomers retire and overall health care costs continue to grow faster than the economy, federal health spending threatens to balloon.”

The commission — created by President Obama to address America’s fiscal challenges — predicted that, by 2035, federal outlays for Medicare, Medicaid, the Children’s Health Insurance Program, and the health insurance exchange subsidies will account for 10 percent of U.S. gross domestic product (GDP), up from 6 percent in 2010. States and the private sector pay dearly as well. If historical rates of growth continue, U.S. spending on health care from all sectors — federal, state, and private — will surpass 20 percent of GDP within five years and eat up the entire GDP by 2082. Since the latter cannot happen, something else dramatic will have to happen between now and then, by design or default.

When it comes to health care expenses per capita, Americans shoulder more out-of-pocket costs, pay more for private insurance, and spend more tax money than do citizens of Canada, France, Germany, Great Britain, or Sweden. America’s annual health bill tops $2.5 trillion. However, even with that spending, 50 million Americans lack health insurance, and U.S. life expectancies are in the bottom quarter of the 34 countries that make up the Organisation for Economic Co-operation and Development.

RAND is ready, willing, and able to play a leading role in this effort.

The Patient Protection and Affordable Care Act that Obama signed into law last spring was an earnest, albeit controversial, step to address these issues. While the act’s ultimate disposition is murky pending challenges in federal courts, what remains clear is that slowing or reversing rising health care costs — while also making care more effective — will remain America’s preeminent public policy challenge for decades.

RAND is ready, willing, and able to play a leading role in this effort. For more than 60 years, we have helped policymakers around the world identify cost savings. Our results for the U.S. Department of Defense are some of the best known; RAND studies have allowed the Pentagon to save or avoid billions of dollars in spending.

RAND Health draws from a similar legacy, one that its new vice president and director, Arthur Kellermann, intends to build upon. RAND teams have examined why health care costs are rising, what value they provide, and how the health care system can function more efficiently. These teams have identified potential savings of $77 billion a year from widely adopting health information technology; of $18 billion a year in avoided health care costs from reducing Americans’ average intake of salt; and of another $1 billion a year from cutting drug copayments for people taking cholesterol-lowering medication.

But, given the size of U.S. health spending, considerably more is needed. Almost all of RAND Health’s work — from health promotion and disease prevention to studies of health economics, finance, and organization — is directed at reducing health care costs. The benefits of lowering these costs go beyond reducing the federal budget deficit, as important as that is. Lower health care costs will benefit state governments, the competitiveness of U.S. businesses in the global marketplace, and the financial security of 300 million Americans. Finally, lessons learned in the United States will be valuable globally, because rising health care costs are a growing concern everywhere.

The aim of RAND’s efforts is to make the U.S. health care system more cost-effective. This is an area in which RAND’s expertise runs deep and on which we intend to continue focusing sustained analytic attention. Health care is America’s biggest economic problem, and it deserves our full prescriptive powers. square