Health industry to offer cost cuts

WASHINGTON - President Obama's plan to provide medical insurance for all Americans took a big step yesterday after leaders of the health-care industry offered $2 trillion in spending reductions over 10 years to help pay for the program.

Hospitals, insurance companies, drugmakers, and doctors planned to tell Obama today that they would slow their rate increases in a move that government economists said would create breathing room to help provide health insurance to an estimated 50 million Americans who now go without it.

With this move, Obama picks up key private-sector allies that fought former President Bill Clinton's effort to overhaul health care.

Although the offer from the industry groups doesn't resolve thorny details of a new health-care system, it offers the prospect of freeing a large chunk of money to help pay for coverage. And it puts the private-sector groups in a good position to influence the bill Congress is writing.

Six major groups plan to deliver a letter to Obama and pledge to cut the growth rate for health care 1.5 percentage points each year, senior administration officials said yesterday. They spoke on the condition of anonymity in order to sketch the offer before full details are revealed at a White House event scheduled for today.

Obama has offered an outline for overhauling the health-care system, and he wants Congress to work out the details and pass legislation this year. His plan would build on the current system, which has employers, government, and individuals share the costs and delivers care privately. The government would play a stronger role by subsidizing coverage for many more people and spelling out stronger consumer protections.

"We cannot continue down the same dangerous road we've been traveling for so many years, with costs that are out of control, because reform is not a luxury that can be postponed but a necessity that cannot wait," Obama said in prepared remarks the White House released yesterday. "That is why these groups are voluntarily coming together to make an unprecedented commitment."

The industry groups are trying to get on the administration bandwagon for expanded coverage now in the hope they can steer Congress away from legislation that would restrict their profitability.

Insurers, for example, want to avoid the creation of a government health plan that competes with them to enroll middle-class families.

Drugmakers worry that new medications might have to pass a cost-benefit test before winning approval. And hospitals and doctors are concerned the government could dictate what they get paid to care for any patient, not only the elderly and the poor.

Obama has courted industry and provider groups, inviting their representatives to the White House. Some of the groups sense that now may be the best time to act, before anger over costs turns public opinion against them.

It was unclear whether the proposed savings will prove decisive in pushing a health-care overhaul through Congress. There is no detail on how the savings pledge would be enforced. And, critically, the promised savings in private health-care costs would accrue to society as a whole, not just the federal government. That's a crucial distinction because specific federal savings are needed to help pay to expand coverage.

Cost is the most serious obstacle to Obama's plan. The estimated federal cost ranges from $1.2 trillion to $1.5 trillion over 10 years, and so far Obama has spelled out how to get only about half of that. Administration officials would not say yesterday how much they thought Obama's plan would cost, but they indicated they were confident it could be paid for.

A reduction of 1.5 percentage points a year in cost increases might not sound like much, but it would slow the current 7 percent annual increase by about one-fifth. That's significant when health-care spending runs far ahead of inflation year after year.

Officials estimated, for instance, that five years from now, such private cost curbs could save a family of four an average of $2,500 a year.

Administration officials said they didn't expect all the saving strategies to be announced today, nor did they have specifics on how the groups reached their estimates and analysis. But the initial reaction was positive.

"While serious questions remain about the details, AARP believes the agreement of providers to slow the skyrocketing cost of health care is critical for the health reform we are all working toward," said John Rother, policy director for the seniors' lobby.

The six major groups that plan to deliver the letter to Obama are the American Medical Association, the American Hospital Association, the Service Employees International Union, the Pharmaceutical Research and Manufacturers of America, the California Hospital Association, and the Greater New York Hospital Association, which represents facilities in four states.