Economics of health care reform

Abstract

Several economic points require consideration when assessing the current cost of health care in the United States and the potential savings from proposed reforms. Most savings projections are based on assumptions and estimates that cannot be accurate under the best of circumstances, and the error in the final results is greatly compounded by even small errors in the initial estimates. Experience with health care programs worldwide, including our own Medicare program, has shown that final costs are usually much larger—often several times larger—than initial estimates. It is even more difficult to predict the behavior of the population under a system that does not yet exist, and it is not clear whether a system such as the Jackson Hole Plan will actually produce savings. The effect our political system will have on any health system enacted through legislation must also be considered. The political process itself frequently results in more benefits rather than fewer, more regulation rather than less, and the shifting of costs to other sectors of the economy to minimize costs in the health sector. When presented with projections and predictions in health care planning, we must critically examine the initial assumptions, knowing that errors in these assumptions will magnify errors in the final results.