THE RAPIDLY rising cost of health care, President Obama has said, is "a threat to our economy" and "a ticking time bomb for the federal budget." So a critical test of the health reform proposals lumbering through Congress is whether they defuse that bomb. The answer, so far, is no. That was the message, more tactfully delivered, of a letter budget director Peter Orszag sent to the chairs of three House committees that released a "discussion draft" of legislation last month.
Controlling cost is a different question from the also crucial matter of how to pay to cover millions of uninsured Americans. Most of those pay-fors -- whether tax changes or spending cuts -- would not change the upward trajectory of health costs. As Mr. Orszag put it, "Adopting a deficit-neutral health reform that expands coverage . . . is not enough, because it would perpetuate a system in which best practices are far from universal and costs are too high."
What would it take to fix that system? No one knows for certain, and any savings would take time to materialize, which is why the Congressional Budget Office appropriately declines to "score" the changes as cost-saving; in fact, some would cost money at first. But it would be crazy to squander this opportunity to bring costs under control.
Two potential changes would require Congress to cede some control over Medicare, which may explain why they are not part of the House measure. Draining the politics out of Medicare payment policies could help create a more rational system. And because of the program's size, the way it pays for health care has implications for the whole system.
Currently, doctors are paid for each office visit and every test, encouraging quantity of care over quality. Paying them, and hospitals, to manage the overall health of a patient might encourage more cooperation, lower costs and improve outcomes. Rather than have Medicare recipients bouncing among various specialists, it also makes sense to have a primary care physician, working with a team, responsible for overseeing treatment -- and compensated in part based on whether that is accomplished in a cost-effective way. The House takes baby steps in these directions, but it should give Medicare the flexibility to try them on a broader scale.
As the Obama administration has suggested, it also would make sense to bolster the power of the Medicare Payment Advisory Commission (MedPAC). Every year, MedPAC submits recommendations to Congress to cut costs and improve care, and most of these -- the most politically sensitive, anyway -- are ignored. Turning MedPAC into something like a base-closure commission, with recommendations subject to an up-or-down congressional vote, would be another step toward controlling costs.
Fortuitously, the most sensible way to pay for expanded coverage -- taxing employer-provided health insurance -- also would help control costs. Taxing wages but not health insurance encourages more generous insurance benefits. Costs go up because there is more demand for services. It's mind-boggling that lawmakers continue to resist tapping this ready source of financing -- and doing good at the same time.
Finally, changes in the current, irrational system of medical malpractice litigation might help lower costs. The evidence that costs are driven up by doctors practicing defensive medicine to protect themselves from lawsuits is scant. But higher malpractice premiums are passed on to consumers. Steps to reduce the prevalence of medical errors and to lower the cost of adjudicating claims -- perhaps by finding ways to screen out frivolous claims -- could also help bend the current dangerous trajectory of health-care costs.