By Ruth Marcus
Wednesday, February 25, 2009
President Obama's plan to put the country on a sustainable fiscal path hinges on three huge bets. First, that the government can get health-care costs under control even while expanding coverage. Second, that enacting a cap-and-trade emissions plan would generate revenue along with easing global warming. Third, that the looming expiration of the Bush tax cuts can be a forcing mechanism to write a saner tax code and bring in more revenue.
Sounds great, but I wouldn't risk the kids' college funds on it -- if there were any money left in their college funds. There's many a slip, and even more lobbyists, twixt the theory and the reality. Pushing even one change of this magnitude through Congress would be an enormous achievement. Getting all three done -- certainly getting all three done in the way that Obama envisions -- would be as close as Washington comes to a miracle.
By far the biggest and most important of these gambles involves health care, and the administration's seemingly paradoxical claim that it can simultaneously cover more people and cut costs.
The administration argues that the greatest long-term fiscal challenge is controlling the growth of federal health-care spending, primarily Medicare, and that this cannot be achieved without tackling the broader health-care system.
Simply capping spending for the elderly, disabled and poor will not work in isolation, the administration says, because providers would refuse to take part in government programs or would hike prices for private patients. Yet, with the federal government the dominant player in health care, government could use its clout to induce providers to adopt cost-saving measures in the private sector as well.
Meanwhile, it could cover more of the uninsured, in part because lower costs make insurance more affordable, while leaving people uninsured ultimately costs more in emergency room visits and preventable conditions gone untreated.
Making this puzzle work requires three crucial pieces, the first two of which were launched, and underwritten, in the stimulus package. Computerized medical records will cost money upfront but save in the long run by reducing administrative costs. The greater importance, however, lies in providing the information necessary for the second piece, assessing the comparative effectiveness -- including cost-effectiveness -- of different treatments.
The trickiest part will be the third: using that information not only to improve care but to lower costs. In short, not everyone can get every medication, test or procedure. Someone, or some entity, has to make those hard choices -- which means some pharmaceutical company, medical device maker, hospital or doctor will lose out.
And this is where I have my doubts. This approach requires a discipline that Washington hasn't exactly demonstrated. Reaping the results -- indeed, even gathering the information -- will take years. The expected savings could fail to materialize. The expanded coverage could turn out to be more expensive than anticipated. So, by all means, let's try it -- but not in lieu of making reasonable changes in Medicare itself, and not just to providers or insurers. Some beneficiaries are going to have to pay more, or receive less.
Designing a cap-and-trade plan raises a similar set of worries about the gap between the best-laid plans of the smartest "propeller heads," as Obama calls his economic team, and political reality. Putting a price on carbon is a good idea; in fact, it's essential. The trick, fiscally speaking, is in the design. Obama has proposed auctioning off all permits rather than allocating some to polluting industries that face costly adjustments. This is the right approach, but there will be enormous political pressure to dole out allowances. If so, cap-and-trade will not be the cash cow of budget balancers' dreams.
Because nothing concentrates the congressional mind like an expiring tax cut, I'm most optimistic about the administration's prospects for using that moment to overhaul the tax code and bring in more revenue. Washington has shown itself capable, every 20 years or so, of scraping off the barnacles of an unwieldy tax system, which would make 2010 about four years late. Despite the Republican allergy to anything that smacks of a tax increase, the demands of the moment offer the prospect of luring enough Republicans on board to produce a more rational tax code that comes closer to paying for what government has chosen to deliver.
When the propeller heads meet the political forces, I'll be cheering for the former. But because I know who tends to win these contests, I hope the propeller heads have a backup plan.
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