Where Will $2T In Health Care Savings Go?

The Obama administration proudly announced on Monday that the health care industry has made a significant step toward contributing to health care reform by offering to reduce the growth rate of health care costs over 10 years by 1.5 percent a year, or by a total of $2 trillion.

CBSNews.com's Hotsheet asked the administration how curbing the growth of costs--not stopping it--contributes to actual reform. The administration replied that cutting costs is a goal in and of itself. Two trillion dollars is nothing to scoff at, but it helps to keep things in perspective.

Given the rate at which health care costs have skyrocketed for Americans over the past decade, these savings could be a first step toward expanding coverage, some health care advocates say.

What also has yet to be explained is specifically how the federal government could take advantage of the savings from this plan. The government shoulders a growing portion of the nation's health care expenses, and its burden could grow tremendously under President Obama. One must also keep in mind there are no mechanisms to ensure the industry actually follows through on its offer.

The slowed growth in costs proposed by the industry could save a family of four as much as $2,500 a year, the Obama administration claims. Health care costs, however, would still increase, adding to a burden that has been quickly growing for decades. Since 1970, health care spending has risen about 2.4 percentage points faster than GDP, according to the Centers for Medicare and Medicaid Services, the federal agency that provides those services.

The CMS projects the U.S. will spend over $2.5 trillion on health care this year, or $8,160 per U.S. resident. By 2018, health care spending could reach $13,100 per resident, even without Mr. Obama's intended reforms.

Between 1999 and 2008, the cumulative growth in health insurance premiums was 119 percent, according to the Kaiser Family Foundation. Comparatively, the same period saw cumulative inflation of 29 percent and cumulative wage growth of 34 percent. The organization cites a number of reasons for rising costs, including an aging population and the increase in chronic diseases like diabetes and the growing ability to treat the chronically ill. Also, as nations become wealthier, they choose to spend more on health care, and an expanding inventory of health care products, techniques, and services have enabled Americans to do just that.

At this rate, some advocates of health care reform say, industry efforts to reduce costs should be welcomed. America has finally reached an "affordability crisis," said Dave Lemmon, a spokesman for consumer health care advocacy group Families USA.

"Any effort that reins in costs this significantly really can't be underestimated," Lemmon said. "There's a lot of details that need to be worked out, but ultimately this is a good precursor for things to come. We're closer to health care reform than we've ever been."

The Obama administration has said its plan for reform will cost the federal government at least $634 billion over 10 years. The savings achievable through the industry's plan, however, would flow to society as a whole, not simply the federal government. Still, Mr. Obama said Monday that "getting health care costs under control is essential to reducing budget deficits, restoring fiscal discipline, and putting our economy on a path towards sustainable growth and shared prosperity."

For one thing, reduced health care costs could relieve some of the government's expected expenditures on Medicare and Medicaid. Also, as the administration aims to ensure universal coverage, the reduced health care costs for consumers could make it easier for the government to assist the millions of Americans who are not eligible for Medicaid but whose incomes prohibit them from being able to afford health care insurance dependent on their incomes, Lemmon explained. The government could, for instance, provide those people health care subsidies on a sliding scale.

"You're looking for any and every way to save possible dollars," Lemmon said.

As the government searches for "any and every way" to cut costs, the industry apparently decided to preempt any kind of regulatory fiat that would have mandated such changes, or perhaps or stringent ones. The Senate Finance Committee on Monday continued its discussion of ways to finance comprehensive reform.

"While (the industry plan is) certainly very encouraging, this is by no means is the end-all and be-all of health care reform," Lemmon said. "This just marks the beginning of the debate."