Health Care Cost Containment and Coverage Expansion

Abstract

Proposals to expand health insurance coverage are almost always accompanied by proposals to control the growth in health spending. Some people say that universal coverage cannot be achieved without cost containment, others that real cost savings will not be feasible without universal coverage. These arguments will be considered further below. Whether or not coverage expansion and cost controls are truly inseparable, it is likely that how the society goes about covering the uninsured may have implications for the feasibility of different possible approaches for controlling costs, and vice versa.People who favor a particular approach to covering the uninsured may also tend to favor certain cost containment approaches. For example, people who believe that consumers would be more cost-conscious if they were enrolled in high-deductible health plans are also likely to believe that coverage expansion should take the form of tax subsidies for the purchase of health insurance in a largely unregulated individual market. However, it is possible to conceive of a single-payer plan whose benefit package included a high initial deductible. The two pieces are not inherently contradictory or even ideologically inconsistent, particularly if the deductible were progressively income-based. (France actually has a single-payer system with income-based coinsurance.) It just happens that, in the current political environment, the intersection between consumer-directed health care advocates and single-payer advocates is practically a null set.This paper treats coverage expansion approaches and cost containment approaches as two distinct columns in the menu of health reform options: any choice from column A could theoretically be combined with any choice from column B. In practice, some combinations may work together better than others, and the interplay of different approaches to coverage and savings is the focus of this paper. There will be no attempt here to diagnose the sources of rapid health spending growth or to evaluate the likelihood that different proposed solutions can actually slow that growth. There is no shortage of analyses addressing these questions. Instead, the assumption is that every solution may offer at least some promise of savings-whether small or large, one-time or continuous. The question is what kind of insurance arrangements may make a preferred solution more or less workable.The paper begins with a brief review of the question posed at the outset: whether coverage expansion and cost controls must go hand-in-hand. It then lays out the menus of commonly proposed coverage approaches and available savings measures before considering how the two might go together. Because the number of possible combinations is quite large, the discussion will focus on just a few of the savings measures that have received the greatest attention from policymakers. In addition, this paper will not address measures intended to reduce the administrative costs of health insurance, as opposed to direct medical expenditures. Options for administrative simplification and their cost implications for insurers and providers are the subject of a separate paper for this project (Merlis 2008). It should be noted, however, that evaluating different coverage expansion approaches may require balancing their potential for medical spending restraint against their likely impact on administrative costs.