Health-Care Math

Sunday, September 13, 2009

WHEN POLITICIANS start talking about paying for programs by cutting "waste and abuse," you should get nervous. When they don't provide specifics -- and when the amounts under discussion are in the hundreds of billions of dollars -- you should get even more nervous.

President Obama outlined, in his speech to Congress last week, a sensible framework for health-care reform. But here are a few questions he has yet to answer:

-- What exact combination of new revenue and spending cuts is the administration proposing?

-- Will that financing be adequate to underwrite the cost of expanded coverage -- not only within the 10-year budget window but beyond?

-- What mechanisms does the administration envision, if any, to control costs if they are greater than anticipated or if projected savings don't materialize?

One approach the president endorsed Wednesday night was to tax insurance companies that offer excessively generous plans, although he did not offer details of the threshold at which this would apply. The administration apparently would set the allowable limit higher -- and therefore bring in significantly less money -- than the plan being crafted by Senate Finance Committee Chairman Max Baucus (D-Mont.). Mr. Baucus, whose proposed tax is estimated to reap $200 billion over 10 years, would tax plans exceeding $21,000 for a family of four. He would index that cap to the regular consumer price index, not the far higher rate of inflation in medical costs. The lower the initial limit and the lower the inflation index, the more effective the tax would be in restraining health costs, so to the extent that the administration and Mr. Baucus diverge, the Baucus plan is preferable.

Beyond the insurance tax, Mr. Obama was vague about where the money would come from, and administration officials have since declined to provide specifics. Previously, the administration outlined $635 billion in Medicare and Medicaid savings, but it is not clear what it now envisions beyond cutting payments to Medicare Advantage plans that receive higher payments than regular Medicare providers and reducing subsidies to hospitals for treating the uninsured as that population diminishes. Squishy talk about cutting "hundreds of billions of dollars in waste and fraud" isn't enough.

One idea that, like the Monty Python parrot, is not dead yet is some version of the administration's proposal to limit the value of deductions for the highest-bracket taxpayers. The administration originally proposed generating more than $300 billion in revenue by limiting the wealthiest taxpayers, who pay marginal tax rates of 33 and 35 percent, to deductions worth 28 percent. One tweak might be to leave the existing value of deductions in place but not allow the deductions to rise when the Bush tax cuts expire and the highest tax rates revert to 36 and 39.6 percent.

The president has staked out two principles with admirable firmness: Health reform must not add to the federal deficit, and it must slow the rate of health cost inflation. Now he needs to support the detailed measures that will fulfill both pledges.

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