EBRI Issue Brief

Controlling Health Costs and Improving Health Care Quality for Retirees

Feb 1, 2005 20  pages



The problem of how to pay the increasingly costly medical bills of retired Americans is rapidly rising as a national priority, not just among policymakers, but also among the general public. As a result, deeper thinking within the health policy community on two broad issues is taking place: How changes in government programs will affect the delivery of health care in the United States; and whether the coming changes that are made to control costs—especially within Medicare— will ultimately improve quality of care delivered as well. These topics provided the focal points of a policy forum sponsored by the Employee Benefit Research Institute Education and Research Fund in Washington, DC. This Issue Brief summarizes the policy forum discussion and puts it in the context of these issues more generally.

The increase in health care costs slowed in 2003, but this trend hit a plateau during the first half of 2004. Currently, employers are trying to control health care cost increases by giving employees more responsibility for paying a growing proportion of their medical bills. Concurrent with this shift in cost sharing is a renewed focus on managed care strategies, such as utilization review, disease and case management, limited provider networks, and provider incentives designed to encourage efficient clinical practice.

The issue of rising health care costs is even more prominent in the Medicare program. The Medicare hospital program faces an estimated shortfall of $8 trillion over the next 75 years. When the costs of outpatient services and the new prescription drug program are added, the unfunded liability is near $28 trillion. Medicare’s financial problems are much more immediate—and more difficult to solve—than what the Social Security program will face in several decades.

Investments in information technology could reduce some of cost pressures that both the private and public sectors currently face. Clinical information technology systems typically include four components: electronic patient medical records, physician order entries, electronic reporting of test results, and decision support tools for providers. While the idea of providing medical services in the most efficient way possible has long been a top priority for those interested in health economics, the primacy of this concept has never been accepted more broadly by the health care community.

The quest for a better health care system is a process that has no end. The challenge lies in creating a climate where there is momentum to fuel the continuing quest for progress. A major challenge is that the health care system is extremely fragmented. Trying to fix separate parts of the system, rather than approaching it as a whole, seems destined to failure.