Controlling Health Care Costs

Originally published by HSC President Paul B. Ginsburg as a Commentary, October 2004. Published in the New England Journal of Medicine, Vol. 351, No. 16.

Controlling Health Care Costs: The Policy Challenge

While both presidential candidates in the 2004 election offered proposals to address voter concerns about health care affordability, neither campaign tackled the fundamental issue of controlling the rate of health care cost growth, according to an analysis by HSC President Paul B. Ginsburg published in the New England Journal of Medicine.

Per capita health spending for privately insured Americans increased 39 percent between 1999 and 2003, while workers' average hourly earnings grew only 14 percent over the same period. This widening gap between health care costs and incomes was creating a growing affordability crisis, with increasing numbers of Americans unable to maintain health insurance coverage.

Technology as the Primary Cost Driver

Ginsburg identified new medical technology as the principal driver of health care spending growth over time. While many technological advances were extremely valuable and produced genuine improvements in patient outcomes, others offered only marginal benefits. Some new treatments and technologies ultimately proved harmful, the result of rapid adoption and diffusion without rigorous research on comparative effectiveness. The health care system lacked systematic mechanisms for evaluating whether new technologies and treatments delivered value commensurate with their costs before they became widely used.

When health costs rise at a much faster rate than incomes, growing numbers of people find themselves unable to afford health insurance. Both presidential candidates had proposed ways to expand coverage and improve affordability, but both approaches relied primarily on increased government subsidies rather than addressing the underlying rate of health care cost growth. Without effective cost containment, Ginsburg argued, subsidies would have to keep growing to keep pace with spending, creating an unsustainable fiscal trajectory.

The article underscored the importance of distinguishing between proposals that make health care more affordable for individuals through subsidies and those that actually slow the growth of spending in the system as a whole. Only the latter addresses the root cause of the affordability crisis. Strategies that could slow spending growth included investing in comparative effectiveness research, reforming provider payment systems to reward value rather than volume, and developing the information infrastructure needed for consumers and purchasers to make more informed choices.

Sources and Further Reading

Ginsburg, Paul B., "Controlling Health Care Costs," New England Journal of Medicine, Vol. 351, No. 16 (October 14, 2004).