How We Can Pay for Health Care Reform

A new analysis shows that savings from many popular health reform ideas would finance the lion’s share of the cost of comprehensive health care reform. It also shows that a combination of revenue options currently being discussed would provide more than enough money to fill the relatively modest gap between the cost of reform and the savings resulting from it.

The Urban Institute analysis outlines multiple options for health reforms that would save the government $1.25 trillion over 10 years:

  • reductions in payments to specific components of Medicare and reallocation of money currently spent on the safety net could save $624 billion;
  • improvements in chronic disease management, prevention, HIT, and end-of-life care would generate savings totaling $498 billion;
  • malpractice reform could provide $129 billion in savings.

In addition, introducing a public plan option into the health insurance exchange could save $224 to $400 billion.

The researchers also provide estimates for a range of government revenue sources and suggest that spreading the costs broadly across an array of options is the best financing approach. For example, over 10 years:

  • A progressive payroll tax on employers that do not offer insurance coverage could generate $570 billion;
  • A cap on the tax exclusion for employer-sponsored insurance could add as much as $456 billion;
  • Raising the income on high-income households by 5 percentage points would add $224 billion;
  • Extending the individual share of the Medicare tax to unearned income -- it currently applies only to wages – would raise $435 billion.

Ultimately, the authors quantify how the reform process rests on this process of balancing savings and needed revenues with the overall cost of reform – but show that many options for saving money and sharing financing exist.