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Insurers offer Obama $2 trillion in healthcare cost savings

Healthcare providers tell the president they can trim rising costs by 1.5 percent a year simply by being more efficient.

By Ron SchererStaff writer / May 11, 2009

President Obama and Secretary of Health and Human Services Kathleen Sebelius, shown at an April 28 press conference, have sought to calm concerns on both sides of the aisle in Congress concerning healthcare reform.

Jim Young/Reuters

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In a move with major implications for the economy, some of America’s largest private healthcare providers plan to tell President Obama they will reduce the spending growth rate of healthcare by 1.5 percentage points per year.

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If hospitals and large insurance companies succeed in doing this, it would have major ramifications for both individuals and the nation. For Americans, the savings could be significant – as much as $2,500 a year for a family of four by the fifth year of the program. For the federal government, the savings could be as much as $2 trillion during the next decade.

These amounts could potentially reduce the growth of the federal budget deficit as similar savings are passed on to federal programs such as Medicare, senior White House officials said Sunday.

Offer is a 'game-changer'

“This is a game-changer,” said a senior White House official during a Sunday teleconference. The briefing was given on the condition that the officials not be named because they did not want to trump Mr. Obama's formal announcement of the deal Monday.

Healthcare reform is one of the priorities of the Obama administration, which wants to find a way to provide healthcare for 46 million Americans who have no private healthcare coverage.

The voluntary effort will be announced by Obama Monday when he meets with representatives of six healthcare groups, including America’s Health Insurance Plans, the American Medical Association, and the California Hospital Association. White House officials maintain that the groups came to them with the offer without any quid pro quo. In the past, White House officials say, the groups have dragged their feet on cost containment.

The change has come about “because groups now realize we are all in the same boat and going in the same direction,” said the senior White House official. “Now, they are saying we want to be part of the solution, getting healthcare done.”

Reassuring Republicans and Democrats

Recently, Health and Human Services Secretary Kathleen Sebelius reassured Republican lawmakers that the Obama administration did not intend to drive private insurers out of business with its Health Care for America Now program, according to news reports. At the same time, the White House told Democrats it was still committed to a government health-insurance option.

White House officials indicated some of the savings would come from things such as common claims forms that would reduce administrative costs or a universal explanation of benefits. The groups were expected to come to the White House with concrete proposals.

The steps the healthcare industry will need to take will depend on healthcare reform, the White House said. For example, under current law providers are penalized if they are more efficient, the official said.

“We want to move the incentives away from more care and toward better care,” said the senior official. “We want to make it easier for private providers to provide quality and efficiency versus intensity.”

Healthcare spending rate: 7 percent more a year

White House officials estimate healthcare expenditures are growing at about a 7 percent annual rate. If the companies succeed, by the fifth year, there would be a zero growth rate. By the 10th year, calculated one senior White House official, the savings would be equal to 3 percent of the gross domestic product (GDP), or $700 billion – a figure close to the economic stimulus package that was enacted in January.

“This could be invested in education or other economic priorities,” a White House official said.

Without the savings, national health expenditures were on track to grow from 17 percent of GDP to 21 percent by 2010. With the annual savings, national healthcare expenditures would represent 18 percent of GDP.

Most analysts have assumed healthcare costs would continue to grow as the baby boomers age and require more medical services. As baby boomers grow older, their incomes also would probaby rise, meaning they would be able to spend more money on healthcare.

“We expect some increase in healthcare costs, but there will be a reduction in speed,” says the senior official.