In the recent publicity about President Obama’s budget and health reform initiative, an important issue
has not received enough attention. Most reporters, analysts, editorial writers and bloggers have focused on the proposed $634 billion reserve fund, the aim for universal coverage, the reduction in Medicare Advantage payments, the tax on families with incomes over $250,000, and other key features. In the view of many Republicans and others opposed to this approach, the proposal looks like just another version of a “tax and spend” strategy to fix our health care system. There is something different, however, and the health reform battle is moving into new terrain.
In the past, advocates of health reform focused on need to provide access to care for the uninsured. This was (and is) a moral issue – “How can the richest nation on earth let millions of people go without access to decent health care?” To provide universal access, however, required a lot more government spending. This set up a conflict, because every reform proposal had a big price tag, and few politicians were willing to support a program that dramatically enlarged the federal deficit. Many advocates believed that expanding coverage was worth it, but it faced very difficult obstacles due to concerns about the rising government debt load.
In the current debate, many people have been repeating the mantra that “we must expand access and contain costs”, but this often seems to be simply a convenient way to broaden the goals and make it look like they are being more fiscally responsible. The Obama administration is taking a different path, however, and it is changing the debate in a fundamental way. The President has stated that rising health care costs are the most important problem for future federal deficits. Peter Orszag, the OMB Director, makes a convincing case that we face an unsustainable trend in government spending for Medicare and Medicaid in the absence of health reform. As a December 2008 CBO report stated:
"The rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will increase from about 4 percent of gross domestic product (GDP) in 2009 to nearly 6 percent in 2019 and 12 percent by 2050."
This means that health reform – if done right – won’t make the deficit problem worse; in fact, we need health reform in order to tame the long-term deficit. This has transformed the debate about health reform. It’s not just a desirable social policy; it’s a necessary tool for fiscal discipline. Traditionally, “entitlement reform” has meant cutting benefits or shrinking eligibility for Medicare and Medicaid in order to hold down costs. The new approach, however, looks at expanding health coverage as a key element of reducing the deficits.
Is this really a new approach, or is it simply clever re-framing or wishful thinking? There are three key elements that make it worthy of serious consideration. - First, the OMB and CBO are taking a long-term view of the federal deficit. While expansion of coverage and investment in electronic health records and research will cost more in the short-run, comprehensive reform has the potential to “bend the cost curve” over ten years, thus putting the federal budget on a more sustainable course. - Second, the President’s recent budget proposal includes specific revenue sources, e.g., the tax on families with incomes over $250,000, which offset the increased expenses. In the budget proposal, the net cost of the health reform reserve fund is zero. - Third, and perhaps most importantly, there is a much broader view of what is needed to contain health care costs. Instead of relying on politically unpopular cost reductions such as moving Medicare eligibility to age 68 or slashing payments to physicians, the plan recognizes that system changes can drive lower costs. For example, giving employees of small businesses a choice of health plans through an insurance exchange would introduce healthy competition, which should spur insurers to improve efficiency. Similarly, prohibiting the use of medical screening to deny coverage would also create incentives for insurers to find more appropriate ways to reduce costs.
As the health reform debate heats up during the next few months, there will be some who attack health reform as “too expensive”. In the past, this might have been sufficient to stop any plan to expand access to care. The landscape has changed, however, and the battle will now be fought on different grounds. Politically, the new approach allows fiscal conservatives to line up with social liberals to support health reform. Quietly but powerfully, this change has improved the prospects for health reform.