Obama's Inflated Health Savings

Summary
Obama says his health care plan will garner large savings – $120 billion a year, or $2,500 per family – with more than half coming from the use of electronic health records. And he says he'll make that happen in his first term. We find his statements to be overly optimistic, misleading and, to some extent, contradicted by one of his own advisers. And it masks the true cost of his plan to cover millions of Americans who now have no health insurance.

Obama cites a RAND study that found widespread use of electronic health records could save up to $77 billion a year in overall health care spending. But the study says that level of savings won't be reached until 2019, when it projects 90 percent of hospitals and doctors would be using electronic records systems.

Much could be done to speed up the adoption of electronic record-keeping. But experts, including the lead researcher on the RAND study, are extremely doubtful the U.S. could see widespread adoption in the first term of an Obama presidency, or even a second term. Even a campaign adviser acknowledges Obama's plan likely won't reach the full savings potential until five years into implementation, by which time Obama could be out of office.

Obama says he'll "lower premiums by up to $2,500 for a typical family per year" by investing in electronic health records as well as other efforts. But his adviser tells us that $2,500 figure includes savings to government and employers that could, theoretically, lead to lower taxes or higher wages for families – so we shouldn't necessarily expect insurance premiums that are "lower" by that amount.

The RAND study on which the campaign partly bases its estimates is one of the only reports available on possible cost savings. It may well be correct – no one knows for sure. But it looks at potential savings in an ideal situation and recently has faced criticism.
Many, if not most, health care experts and professionals agree that the use of electronic health records or health IT would have various benefits, in terms of quality of care as well as spending. But doctors and hospitals in the U.S. have been slow to adopt it for several reasons. Whether Obama can effectively bring about widespread adoption and large savings is an open question and not as concrete as his pronouncements imply.

Analysis
In a town hall meeting on health care on June 5, Obama talked about the savings his plan will provide within the next four years.

Obama (Bristol, Va., June 5): In an Obama administration, we'll lower premiums by up to $2,500 for a typical family per year. And we'll do it by investing in disease prevention, not just disease management; by investing in a paperless health care system to reduce administrative costs; and by covering every single American and making sure that they can take their health care with them if they lose their job. ... And we won't do all this twenty years from now, or ten years from now. We'll do it by the end of my first term as president of the United States.

This is far from the first time that Obama has mentioned the importance of "a paperless health care system" – in other words, electronic medical records and other health information technology – to his projected savings. In a memo, his panel of health care experts wrote: "Greater use of information technology is one key to a more efficient health care system, along with incentives to use that technology wisely. The Rand Corporation conservatively estimated that significant investment in health IT could save $77 billion per year."

Similarly, his health plan touts the figure: "A study by the Rand Corporation found that if most hospitals and doctors offices adopted electronic health records, up to $77 billion of savings would be realized each year through improvements such as reduced hospital stays, avoidance of duplicative and unnecessary testing, more appropriate drug utilization, and other efficiencies." This $77 billion is part of the $120 billion to $200 billion in total annual savings that Obama's health care experts say will come from his plan.

These rosy projections make universal health care seem almost painless, particularly when the savings estimates far outweigh the costs of Obama's plan (his campaign projects $50 billion to $65 billion a year in new government funds). But it's highly questionable that Obama could reach the level of savings he touts within one term. The RAND study on which the Obama campaign partially bases its savings estimates assumes we won't see widespread adoption – or the full $77 billion in estimated savings – until 2019. Experts we interviewed doubted Obama could prompt widespread adoption within one or even two presidential terms. Adoption of electronic health records has been crawling along in the U.S. In fact, even an Obama adviser says it will take at least five years to foster widespread use. Plus, it's unknown whether the RAND estimates will turn out to be correct: The study recently was criticized by the Congressional Budget Office as an overly optimistic best-case scenario.