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AARP Bulletin

Where We Stand

We Must Improve the Health Care System

Medical costs are threatening the middle class and future retirees

One of the biggest challenges we face as a nation is the rising cost of health care. It is driving people out of the middle class and driving up the costs of Medicare and Medicaid, as well as the budgets of state governments and employers. Looking ahead, steadily rising out-of-pocket medical and health care costs will overwhelm the retirement savings that many Americans have tried to accumulate. Clearly, the standard of living for future retirees is threatened. All because of rising health care costs.

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Over the past generation, the percentage of our nation's gross domestic product dedicated to health care has nearly doubled, to 17 percent — and it's still rising. We spend more than any other developed nation — more, in fact, than the next 10 biggest spenders combined — and often with poorer outcomes.

We can't continue this pace, especially when the Institute of Medicine estimates that up to a third of health care spending is wasteful or inefficient.

Our challenge is to lower the growth in health spending systemwide. We have to make the entire system work more efficiently. Consumers have a role to play in this, but much of the responsibility lies with providers, payers and policymakers.

A good first step is to create more transparency throughout the health care system. That burden lies mostly with major stakeholders — hospitals and doctors, insurance companies and politicians. Consumers often don't have the information they need to make rational decisions and seek value. Transparency, fair prices, known quality — factors we take for granted in other markets — are often not available in the health care marketplace. Consumers, who already shoulder an increasing financial burden for health care, are at the mercy of their doctors, hospitals, insurance companies and a complex system of regulations and practices that they often do not understand and have no ability to change.

The new health care law helps to promote improvements in health care, but more needs to be done. Moving forward requires new incentives for providers and new thinking by a wide range of health care stakeholders. We should consider additional reforms, such as:

  • Expanding payment innovations that promote value, not volume;
  • Promoting greater care coordination;
  • Implementing measures to lower drug costs;
  • Providing consumers with better information on cost and quality;
  • And working to make the health care programs more efficient and less wasteful.

This will bring significant savings, spur innovative cost reductions in private insurance — and, most important, help people get healthier and stay healthier.

It all comes back to the impact on people. An analysis by the President's Council of Economic Advisers shows that lowering the growth rate of health care costs by 1.5 percentage points per year will increase the real income of middle-class families by $2,600 in 2020, $10,000 in 2030 and $24,300 by 2040. That's real relief for real people.

A. Barry Rand is the CEO of AARP.

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Video Extra

CUTTING THE COST OF CARE: A look at the "Choosing Wisely" campaign, which suggests ways to lower health care costs by cutting back on unnecessary diagnostic treatment.

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