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Central Valley Health Policy Institute


In order to be financially viable and effective, health care reform must address certain financial realities.  The CAUSE approach looks carefully at removing duplication, cost savings, associated costs and sources of revenue.

Streamlining the Healthcare Delivery System by Removing Duplications in Medical Coverage

In order to streamline the current health care system to avoid duplicated coverage, and ultimately cut costs needed for health care, the current workers' compensation system for medical coverage would be removed. It would become a legal process through which qualified physicians are hired by the state to determine the extent of the claimed disability. This process would be similar to the process used by the Social Security Administration when determining disability.

Multiple benefits would come from this, including saving money by eliminating duplicate services like separate health care providers,lowered premium costs, increased administrative efficiency, and allowing patients to see their own physicians for work-related injuries, thus saving businesses money by lowering or eliminating workers' compensation premiums.

Medical coverage in automobile insurance would also be removed as to avoid duplicated coverage and costs. This would also help to lower premium costs while enhancing efficiency and lessen administrative costs by having patients pay for one delivery system whether injured at home, at work, or in their vehicles.

Cost Savings

There are potential savings to be found in the current health care system, especially in producing and using better information. Using projections offered by the Commonwealth Fund, it is estimated that there will be savings of $88 billion dollars over 10 years by using health information technology. Practicing evidence-based medicine would save $368 billion dollars over the same period. Promoting health and disease prevention could reduce obesity, saving $283 billion dollars. It could reduce tobacco use, saving $191 billion dollars, and positive incentives for health could save $9 billion dollars, all in 10 years. That means there is a projected $939 billion dollar savings to be gained in only the first 10 years of the program by using better information.

Aligning incentives with quality and efficiency by initiating hospital pay-for-performance principles would save a projected $34 billion dollars over 10 years. By simply strengthening primary care and care coordination, we project a savings of $194 billion over 10 years. By eliminating federal tax exemptions for premium contributions when CAUSE is enacted will bring a savings of $200 billion per year. This is a $228 billion dollar savings in 10 years, plus $200 billion each year. By correcting price signals in the health care market, we could save money in another area. Resetting benchmarks for Medicare Advantage would save $50 billion over 10 years. By negotiating prescription drug prices, we could potentially save $43 billion to $100 billion over 10 years. Lastly, limiting payment updates in high-cost areas could save $158 billion over 10 years. Altogether, the proposed reforms can result in savings of about $2 trillion dollars by improving national health status, reducing administrative costs, aligning incentives, and fixing price signals in the healthcare market.

Associated Costs

Covering children ages 0-18 will be partially offset by eliminating SCHIP and removing much of the Medicaid burden from state budgets. This includes extending Part B coverage to everyone during years 5-10, and removal of health care premiums paid to private insurers for employers and individuals will offset extending CAUSE past year 15.

Sources of Revenue

For the first phase of implementation, 2010-2015, CAUSE will be financed through current Medicare and federal Medicaid expenditures and through imposition of a financial transaction tax of 0.5 percent on sale of stocks, smaller fees on trading of government and corporate bonds, futures contracts, swaps in currency and options, and by increasing taxes on tobacco products. This new tax will raise a projected $120 to $150 billion dollars annually for CAUSE.

Healthcare efficiency improvements and early impacts of preventive measures will cover much of the additional costs during the next two phases of implementation. At full implementation, after 2025, additional sources of revenue will be required. Other sources of revenue will consist of increasing the payroll tax to employers by 3.3 percent, providing $500 to $600 billion dollars annually.

Finally, it may be necessary to include a 2 percent national sales tax so that everyone, regardless of income or citizenship status, contributes to the cost since all U.S. residents and visitors purchase goods and services; this will exempt non-discretionary items such as groceries, utilities and housing. In considering these additional taxes, reduced individual and employer costs for health care and net reductions in the total costs of the health care system in the U.S. must be taken into account.