How to save US healthcare $450B per year in 23 sensible steps

A little more than half a year after establishing a healthcare affordability lab, Yale University is out with freshly detailed policy prescriptions for cutting costs without compromising care.

Lab leaders estimate their recommendations, if implemented, would save U.S. healthcare around $450 billion a year. That’s close to 8% of the $5.5 trillion now being spent—and only increasing—annually. 

Congress, state legislatures, executive agencies and participants in private markets “could act on these policies now, without waiting for the next big healthcare reform fight,” the lab team says in an announcement posted Sept. 28. 

The estimates come from the lab’s “1% Steps” project, which synthesizes academic research into 23 proposed measures. The idea is to present policymakers with peer-reviewed evidence and insights informing the lab’s recommendations. 

“Reducing health spending without sacrificing quality—we can do it,” lab director Zack Cooper, PhD, a professor of economics and public health, says in the announcement. “None of these ideas alone will fix the American healthcare system, but, stacked together, these targeted reforms add up to substantial savings.”

The announcement summarizes the 10 newest of the 23 prescriptions with links to detailed descriptions of each, as follows:
 

1. Make Medicare Advantage pay its fair share for vets. 

Projected savings: up to ~$23 billion a year. 

‘Over 1 million veterans are enrolled at the VA and in a private Medicare Advantage plan. Taxpayers end up paying for their care twice: once to the MA plan, and again to the VA (even when the VA administers most or all of the care). The solution? Let the VA bill those plans like any other insurer.’ The lab’s detailed thinking on this is here.

2. One baby, one bundle (of bills). 

Projected savings: ~$1.4 billion a year. 

‘Fee-for-service billing gives healthcare providers more money for each service, even if their patient doesn’t need it. Arkansas paid for perinatal care as a bundle and cut commercial costs nearly 4% per birth, without any reduction in quality. States can follow Arkansas’ lead in their own Medicaid programs and commercial markets.’ More here.

3. Everyone in the (insurance) pool.

Projected savings: $44 to 58 per month back per household.

‘Small-employer and individual insurance plans are sold separately, which makes premiums more expensive. To reduce costs (including federal subsidies for individual plans), have them both get into the same pool. Small employers can give workers tax-free money to shop for individual market coverage, reducing premiums for most households. Based on a study in Oregon, households would be better off by $44 to 58 a month, and government spending per household drops by at least 22%.’ More here.

4. Don’t trap seniors in nursing homes.

Projected savings: ~$1.5 billion a year. 

‘Paying for seniors to stay in nursing homes by the day ends up rewarding longer stays that may not be medically necessary. Researchers estimate that shifting 10% of the payment upfront would cut the average length of stay 17%. That means more patients get home (which most say they’d prefer), and Medicaid saves about $1.5 billion a year—with no worse health outcomes.’ More here.

5. No flu for kids, more savings for you.

Projected savings: up to $500 million per year of full vaccination. 

‘Children under five have among the highest flu-related ER visit rates of any group besides the elderly. But more than 40% of kids went unvaccinated in 2022-23. For the youngest children, part of that challenge is location: 95% were vaccinated at a doctor’s office. If more states allow pharmacies to vaccinate young children, access would be greatly expanded. For every extra vaccination, researchers estimate $50 in avoided health costs.’ More here.

6. Right care, right place.

Projected savings: ~$1.6 billion for Medicare in a year. 

‘Medicare fully covers the first 20 days at skilled nursing facilities. That means nursing homes have little incentive to send patients home sooner, even if many could recover safely at home. Expanding mandatory bundled payments that keep hospitals accountable across a whole episode of care can nudge hospitals towards getting seniors into the right care setting, including home. (And some hospitals are already testing this out, with no drop in quality.)’ More here.

7. Ban drug companies’ secret side deals.

Projected savings: $3B to $12B per year. 

‘Cheaper generic drugs are supposed to enter the market once a brand name drug’s patents expire. But brand name companies sometimes pay or incentivize generic companies to hold cheaper medications off the market with deals that can make generic companies more money.  It’s win-win for the companies, but all losing for patients. Congress could ban this practice, including newer tactics where a brand name company is quietly paid off to not launch its own competing generic.’ More here.

8. Don’t pay double for the same care. 

Projected savings: $12B to $24B per year (Medicare + commercial).

‘Medicare pays more for the same procedures in hospital outpatient departments than in doctors’ offices. Those payment rates also spill into commercial insurance and reward hospitals for buying up physician practices. A law in 2015 tried to fix this, but it only applied to new off-campus facilities, reaching less than 1% of Medicare hospital outpatient spending. Expand the rules to pay for the procedure and not the place, and Medicare could save $12-24 billion in a year across Medicare and commercial plans.’ More here.

9. Make long-term care insurance work for families.

Projected savings: ~$4 billion for Medicaid per year. 

‘Many seniors rely on unpaid care from their families rather than nursing homes. Long-term care insurance only pays for formal services, which reduces demand for insurance by an estimated 7 percentage points. If family caregivers actually got paid, it could increase the uptake of long-term care insurance and ultimately save Medicaid billions.’ More here.

10. No more stars in Medicare Advantage. 

Projected savings: ~$13B to $16B for Medicare per year. 

‘The Medicare Advantage program has a star quality rating system that monetarily rewards plans that score 4 stars or higher. While the stars program uses about 45 different performance measures, evidence has signaled that high-scoring plans are not providing higher-quality care. Eliminating the quality bonuses those plans receive could save Medicare billions each year.’ More here.

Yale launched its healthcare affordability lab last March.