PricewaterhouseCoopers LLP (PwC) projects that President-elect Obama's proposed reform of the U.S. health system would cost the federal government $75 billion in 2009 dollars, the equivalent of $2,500 per newly insured person, according to a report released on November 11th entitled Healthcare Policy in an Obama Administration: Delivering on the Promise of Universal Coverage.

This level of spending would extend health insurance coverage to 95 percent of all Americans, including two-thirds of those currently without insurance. But funding the near-universal healthcare plan, written before the financial crisis, will likely rely heavily on the reallocation of existing dollars within the health system, which will create challenges and opportunities for the health industry.

According to the report, released by PwC's Health Research Institute, approximately $25 billion, about one-third of the cost of the Obama proposal, could come from existing funding for the uninsured, much of which now goes to hospitals for uncompensated care. These funds, which come largely from federal, state and local tax support, could come under scrutiny as sources of funding for the expansions in health insurance coverage under President-elect Obama's plan.

"The financial crisis could accelerate health reform rather than be a roadblock to it," said David Levy, MD, principal of PricewaterhouseCoopers' health industries advisory practice. "Right now, we have an historic opportunity to fix our broken health system as many forces converge around bringing better value for patients, and those forces could become unleashed by a new President who has pledged to make healthcare reform a priority of his administration."

The report examines the implications of the next administration's health reform ideas, and the cost and implications for the existing health system. Some of the key findings identified in the report include:

• The reforms proposed by President-elect Obama are aimed primarily at increasing access to quality and affordable healthcare. Assuming full implementation of his plan in 2009, the budgetary costs would grow from about $75 billion in the first year to an annual spend of $130 billion by 2018. The cumulative cost over 10 years would be more than $1 trillion.
• Approximately $48 billion, two thirds of the $75 billion, would be spent on covering the uninsured, according to PricewaterhouseCoopers' analysis. However, not all of those who would receive subsidized coverage under the new plan would have been previously uninsured. PwC estimates that 4.5 million people who have health insurance today are likely to trade their current plans for the new government-subsidized plan proposed by Obama.  According to PwC's estimates, increased subsidies for the previously insured would represent approximately $27 billion of the $75 billion cost of the Obama plan.
• Of the 30 million Americans who would be newly insured, nearly 40 percent would obtain coverage through their employers, a reversal in the current decline of employer-based coverage. Most of the gains in coverage are likely to come from small employers.
• PwC estimates that 13.1 million previously uninsured individuals would obtain insurance coverage with the help of government subsidies, either in the non-group market or through Medicaid.

PricewaterhouseCoopers' estimate does not reflect potential savings from the yet-unspecified savings package that President-elect Obama discussed during the campaign, including modernizing healthcare, reducing costs and promoting public health and prevention. According to the PwC report, national health spending could be reduced by nine percent by 2025 if key policy changes included in President-elect Obama's ideas were implemented. However, the changes proposed by President-elect Obama will take time to enact and are not likely to result in savings large enough to offset the costs of expansion in health insurance coverage in the initial years, according to the report. In fact, it points out that proposals like those with respect to health information technology and wellness are likely to add costs, not savings, in initial years.

Implications for Health Organizations and Employers

According to the report, expanding coverage is likely to increase revenues but could lower margins for healthcare organizations that are increasingly dependent on government payment. The report offers a comprehensive look at the implications of President-elect Obama's proposed policies for commercial insurers, hospitals and other providers, pharmaceutical companies and life sciences firms and employers.

Included among PwC's findings are:

• Hospitals will benefit from a decrease in uncompensated care, but uncompensated care funds could be reduced to academic medical centers and safety net hospitals. In addition, a shift in the payer mix to more Medicaid and Medicare may lower profit margins.
• More people being insured could translate into greater premium revenue for commercial insurers coupled with new markets opening up from the National Health Insurance Exchange. But if Medicare reimbursement rates decrease and Medicaid's share increases, hospitals may place even greater pressure on private commercial insurers for higher reimbursement rates.
• A larger market for prescription drugs and a potential reduction in pharmaceutical companies' programs for free or reduced-cost drugs could positively affect revenue for pharmaceutical companies.  But, they face potential profit erosion because of Medicare Part D drug negotiations and the growth in Medicaid and new public program rebates.
• Employers may see lower costs for health insurance through the insurance exchange but they could see increasing regulation of employee benefits that are likely to be part of any employer mandate.

"New consumer expectations, innovations in medical science and disruptive market forces are already quickly changing the way that healthcare is financed and delivered," added Dr. Levy. "Healthcare organizations that will thrive will be those that continue to look for and deliver on the enormous opportunities to improve health and productive longevity for all."

A full copy of the report Healthcare Policy in an Obama Administration: Delivering on the Promise of Universal Coverage is available for download at www.PwC.com/obamahealthreport.

SOURCE: PricewaterhouseCoopers