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A Project of The Annenberg Public Policy Center

Health Savings Still Optimistic

Back when he was courting voters, then-candidate Barack Obama boasted that his health care plan would save the typical family "up to $2,500" a year. And May 13, as President Obama, he repeated the claim, this time relying both on undefined "comprehensive reform" and a cost-control promise by the insurance and medical industries to garner such benefits:

Obama, May 13: On Monday I met with representatives of the insurance and the drug companies, doctors and hospitals, and labor unions, groups that included some of the strongest critics of past comprehensive reform proposals. We discussed how they’re pledging to do their part to reduce our nation’s health care spending by 1.5 percent per year. Coupled with comprehensive reform, this could result in our nation saving over $2 trillion over the next 10 years, and that could save families $2,500 in the coming years — $2,500 per family.

First of all, Obama isn’t actually proposing to cut spending at all, as he carelessly claims here. He’s only proposing to cut the rate of growth in spending, which will continue to rise even if his ambitious goals are met. The claim is not that families’ current health care bills will be lowered by $2,500 a year, but that future spending will be lower compared with what it is now projected to be. The industry coalition says in its letter to Obama that national health care spending is projected to average 6.2 percent over the next 10 years. Reducing that by 1.5 percent means expenditures will grow 4.7 percent instead. Certainly consumers would welcome such cost controls. But we doubt most families would think of this as "saving" money – even if their bills don’t go up as much as they could have.

Linda Douglass, communications director in the administration’s Office of Health Reform, told us in an e-mail that Obama "has always believed that savings of roughly $2500 could be achieved … if the right steps were taken." This time, however, the Obama team came up with a different justification for the $2,500 figure than the one used on the campaign trail.

White House economists started with the $2 trillion in projected 10-year savings from reducing the growth rate in health care spending. They then simply converted that into a yearly figure and divided it by the number of people in the U.S. That total was then multiplied by four to get an average savings of a little more than $2,500 per family of four. A senior administration official explained to us that during the campaign, a bottom-up approach was used to arrive at the $2,500 figure, adding together savings estimates for implementing measures such as the use of electronic health records. Health information technology accounted for the bulk of the savings in Obama’s campaign estimate.

"That’s one of the key ways you get there," the official said of health IT, adding that the two different calculations are "not inconsistent ways" of estimating savings.

Families that are saving up for a great summer vacation or a new deck for the backyard may well like the sound of this. But can they really expect to have $2,500 more in their pockets each year thanks to health care reform?

As with much in life, there are no guarantees. (Obama did say "could save.") But as we determined last June, this claim is a bit of optimistic thinking. Then, the Obama camp made clear that it was relying on widespread use of electronic health records for most of the savings — but adoption of the technology by doctors and hospitals has been crawling along. Obama’s estimate pointed to a study that assumed 90 percent of hospitals and doctors would be using health IT. Research published in The New England Journal of Medicine in 2008 and 2009 found that only 9.1 percent of U.S. hospitals and 17 percent of doctors have either a comprehensive or basic electronic records system, with the vast majority having just the basics.

Health professionals could pick up the pace of adoption. The stimulus legislation Obama signed into law in February provided $19 billion to speed up the process, and improving health IT was one of the measures industry groups mentioned in their recent letter to the president, pledging to control costs. But it remains an open question as to how quickly there could be widespread usage. (On the campaign stump, Obama had called for spending $10 billion a year over five years.)

There’s also some trickle-down savings at work here. Could all of the reduction in the growth of national health care spending — every penny of it — somehow translate into savings for consumers? This estimate assumes, for instance, that a family would spend less on taxes as the government’s Medicare and Medicaid costs are reduced. It’s certainly not a given that such savings would be passed on to the public.

Experts told us last summer that with electronic health records, consumers may not be the ones to see economic benefits. "Definitely insurance companies and federal and state payers would see savings," Catherine Desroches, an instructor at the Harvard Medical School and part of the research team for the NEJM studies, told us. "I’m not sure individuals will see savings, [except] in the unlikely event that payers realize these savings and pass them on in the form of lower premiums." (There are other benefits for patients, such as reduced errors, a system that catches potential bad drug interactions, and the convenience of specialists and other physicians having easy access to their medical records.)

For more on what’s behind the $2,500 claim, read our full story, "Obama’s Inflated Health Savings."

The president’s statement on May 13, however, also relied on help from the health care and insurance industries, including the American Medical Association, America’s Health Insurance Plans and Pharmaceutical Research and Manufacturers of America, which pledged to "do our part" to reach Obama’s cost-cutting goals. Their promises, too, are vague — they wrote that they would "encourag[e] coordinated care," implement "prevention strategies" and work on "administrative simplification," among other steps. Those measures also were part of Obama’s cost-saving estimate during the campaign.

The industry efforts may or may not actually put a dent in our national health care spending, which was an estimated $2.4 trillion in 2008. As the New York Times‘ Robert Pear wrote of the voluntary offer: "None of the proposals are enforceable, and none of the savings are guaranteed. … At this point, cost control is little more than a shared aspiration."