Could the U.S. Cut $1 Trillion in Wasteful Healthcare Spending?

Many presidential hopefuls have been offering their proposals to improve healthcare and to rid of "wasteful spending" that accounts for an estimated 25% of total healthcare spending. Experts recently measured the effectiveness of interventions to rid of that waste, ranging from demand-side options to supply-side options. Experts categorized the interventions into different strategies proposed by various presidential candidates and analyzed their total potential savings. Four strategies were reviewed including the current healthcare system’s present trajectory, comprehensive demand-side reform, aggressive supply-side reform, and a combination of those two types.

From analysis, experts found that demand-side and supply-side reform have approximately the same effect on total spending. In addition, even if the U.S. implemented all possible approaches, only 40% of the estimated $1 trillion of wasteful spending would be addressed, leaving a significant opportunity for innovation in healthcare. Current reforms occurring in private and public sectors will continue to generate annual savings of $140 billion achieved over 5 years, which represents 5 times the average annual federal savings that the ACA is estimated to produce in this decade. 

A comprehensive demand-side strategy is needed to give consumers incentives and information to be better healthcare shoppers. Combining that with an aggressive supply-side strategy that changes the way providers are paid so their profit margins are tightly linked to outcomes and efficiency, is the initial yet fundamental way to reduce costs and improve quality in healthcare. Together reform in demand-side and supply-side reforms could generate an incremental $170 billion in savings. Addressing these challenges in healthcare will help increase productivity, extend the viability of the Medicare trust fund, allow employers to use money to raise wages instead of using it on healthcare and even reduce state and federal expenditures on healthcare allowing taxes to be lowered. 

To read more from our staff click here

To read more from the Harvard Business Review click here