Health Care Costs: The Federal Budget's Pre-Existing Condition

Blog Post
Thursday, November 19, 2020

The COVID-19 pandemic has focused attention on the nation’s health care system. Much of that attention has understandably been devoted to strategies for combating the virus, which has infected more than 11 million Americans, caused over 247,000 deaths, devastated the economy and contributed to a ballooning federal debt. Controlling the virus is first and foremost a public health issue, but it is also an essential element of any plan to revive the economy and stabilize the budget.

Looking forward, the focus of attention will inevitably shift back to longer-term health care issues such as coverage, quality and costs that pre-existed the pandemic.

How should policymakers address these issues and how, if at all, has the pandemic affected the policy options?

Those were the questions addressed on Wednesday, November 11, when Emory University and The Concord Coalition co-hosted a virtual forum titled Health Care Costs: The Federal Budget's Pre-Existing Condition.

Joining me for this event were Dr. Ken Thorpe, Robert W. Woodruff Professor and Chair of the Department of Health Policy & Management, in the Rollins School of Public Health of Emory University and Dr. Jodie Guest, Vice Chair of Epidemiology at Emory University's Rollins School of Public Health.

You can watch the event in its entirety by playing the video below. 

Dr. Guest acted as moderator and kicked things off with a sobering overview of the pandemic’s growing spread across the nation. Her charts showed a huge recent spike in new COVID-19 cases, which at the time of the forum had reached 130,000 per day. That trend has continued to accelerate with daily new cases exceeding 180,000 on Friday, November 13.

Hospitalizations have also been spiking to over 60,000 nationwide and 44 states were in the “uncontained pandemic” category according to Harvard University’s Global Epidemics. 

Following Dr. Guest, I presented a series of charts showing the near-term fiscal and economic impact of COVID-19 as well as the crucial role that rising health care costs play in the nation’s long-term budget outlook.

The devastating impact of COVID-19 on the budget and the economy can be seen in several key metrics:

  • The budget deficit more than tripled from $984 billion in 2019 (4.6 percent of GDP) to $3.1 trillion in 2020 (14.9 percent of GDP). 

  • Debt held by the public grew from 79 percent of GDP in 2019 to 100 percent of GDP in 2020. It is on track to break the post-World War II record by 2024 (107 percent of GDP). 

  • Real GDP has fallen 3.5 percent below its level at the end of last year. 

  • Roughly 10 million net jobs have been lost since March. 

  • New weekly claims for unemployment insurance rose to nearly 7 million in March and while dropping sharply since that peak, they have remained above 700,000.

Understandably, these numbers have dominated the near-term debate over fiscal and economic policy. They tend to obscure, however, an even more fundamental problem that existed before the pandemic hit and will remain after the pandemic is brought under control: fiscal policy is on a long-term path that is unsustainable. 

Much of the long-term budget challenge stems from projected spending on health care programs, primarily Medicare and Medicaid. Health care programs constituted one quarter of the federal budget in 2019. Within 10 years, the Congressional Budget Office projects that Medicare spending will double and Medicaid will grow by nearly 75 percent.

With that background, Dr Thorpe, who served as Deputy Assistant Secretary for Health Policy in the U.S. Department of Health and Human Services from 1993 to 1995,  outlined some steps that could be taken in the near-term to control the spread of the virus until a vaccine is widely available. He then described longer-term steps that the incoming Biden Administration might take to control overall health care spending.

Dr. Thorpe first noted that the impact of COVID-19 will be felt not just from the virus itself but from a dramatic reduction that has taken place in preventive services and elective surgeries. The future health implications of these foregone services over the long-term could be substantial. “If we’re not detecting [chronic illnesses] earlier it is going to add to costs,” he said.

Looking ahead to the incoming Biden Administration’s approach to COVID-19, Dr. Thorpe said the biggest challenge will be deciding what to do before a vaccine becomes widely available. In that regard, he described two promising technologies that could be used to kill the virus. One is a heated air filter system and the other is a spray using nanotechnology. Greater use of these technologies, he said, could help to keep businesses and schools open, providing a boost to the economy.

More broadly, Dr. Thorpe said that the pandemic illustrates the need for a more agile public health system with an improved capacity to move quickly when a crisis hits. He expects this to be a priority of the Biden Administration.

Other Biden priorities he said will be building the primary care workforce, making primary care universally available and expanding coverage through the Affordable Care Act by increasing subsidies for purchasing insurance and adding a public option similar to Medicare. The public option could be controversial in Thorpe’s view because Medicare pays health care providers 40 to 50 percent less than private insurance plans and there is concern in the insurance industry that this gap could force some companies to stop offering plans. The advantage, however, is that it would provide a low cost option for the uninsured in states that did not expand Medicaid under the ACA.

Controlling long-term costs will likely involve a focus on lowering prescription drug costs, particularly out-of-pocket costs for patients, and moving away from “fee-for-service” reimbursement.  Dr. Thorpe noted that lowering or eliminating co-pays for certain drugs that treat chronic conditions can actually lower costs because it encourages patients to take needed medications. Moving away from fee-for-service would also help to reduce costs by “bundling” services for episodes of care at one unit price rather than paying for each individual service. The emphasis is to reimburse based on quality of care rather than volume, a trend that has been growing in recent years.

As we head into a new year and a new administration, it seems certain that COVID-19 will continue to dominate the health care discussion. But the long-term cost, access, and quality challenges remain. Policymakers, take note.

You can watch the entire conversation by playing the below video.