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Will Obama's healthcare reform plan cut costs?

Even if lawmakers approve healthcare reform legislation, it's a partial fix, say forecasters. With or without reforms, the America's healthcare spending will rise sharply over the next decade, demanding more cost containment measures.

By / staff writer / March 15, 2010

President Obama made a campaign-style speech promoting healthcare reform in St. Charles, Mo., March 10.

Charles Dharapak/AP


For many Americans, the question of whether to support President Obama on healthcare reform boils down to something very basic: Will the plan help control medical costs or send those costs spiraling still higher?

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The president has made bold claims.

"My proposal would bring down the cost of healthcare for millions – families, businesses, and the federal government," Mr. Obama said on March 4, urging Congress to approve the stalled reform package.

American voters remain skeptical.

In a February ABC News/Washington Post poll, 59 percent of Americans called Obama's plan "too expensive." Other polls in recent months have found a majority predicting that the changes will raise their own medical costs, boost healthcare spending nationwide, and push up the federal budget deficit.

Such doubts are a big reason the president has had such a hard time moving his plan – many elements of which the public supports – toward the legislative end zone. What's the reality about Obama's plan and costs?

Although it's a complex and hotly debated issue, many of the plan's backers and foes agree on some important points:

•At first, America's overall healthcare spending is likely to head higher than it otherwise would. The reason is that an estimated 30 million or more Americans will be newly insured.

The core of Obama's initiative is a mandate for individuals to buy insurance, coupled with subsidies to help pay for it and penalties for people who don't buy it.

•Obama intends to cover those new costs, without adding to federal deficits, mainly by squeezing efficiencies out of Medicare for seniors.

The reality is, these planned savings are uncertain. If seniors observed a decline in their quality of care, for example, a future Congress might be tempted to open the spending spigot wider.

•Government's role in the healthcare system would go up. That could be good or bad for cost control, depending on your view. Proponents say more regulation would provide needed leverage, while opponents would prefer to rely more on enhancing marketplace competition.

•Even if the reforms work well, they're a partial fix – a start down the road to cost containment. With or without reforms, forecasters see the nation's healthcare spending rising sharply over the next decade. The question is not so much whether healthcare costs will rise, but how much.

"The test [for Obama's plan] will be whether the rate of growth of healthcare spending relative to total income is higher or lower than it has been in the past," says Henry Aaron, a health policy expert at the Brookings Institution, a Washington think tank that tends to be centrist or left-leaning.

In recent decades, he says, the rate of healthcare spending has outpaced income growth by about 2.5 percentage points a year. That pattern, compounded over time, is proving very costly.

Many healthcare experts say it's not surprising, given longer life spans and the evolution of new medical treatments, that healthcare accounts for a rising share of the nation's gross domestic product (GDP).

But rising costs are still a vital concern, to the degree that fees are soaring not because of the intrinsic value of care but because the system lacks incentives to curb costs. The risk is that rising costs will erode family finances, slow economic growth, and make the US Treasury essentially go broke.