House health plan has worthy aim, poor funding

Friday, October 30, 2009

THE FUNDAMENTAL aims of the health-care bill unveiled Thursday by House Speaker Nancy Pelosi (D-Calif.) -- covering the uninsured and reforming insurance markets to end abusive practices -- are laudable. But the legislation, while creating an expensive new entitlement program (subsidies to purchase health insurance) and dramatically expanding an existing one (Medicaid), does not do enough to address rising health-care costs and is not financed in a sensible, sustainable way.

Although the Congressional Budget Office has scored the House bill as deficit-neutral in the first 10 years and perhaps even beyond, the risk is that promised savings won't materialize -- or, more specifically, that politicians won't have the backbone to make planned cuts stick. To get a sense of this risk, consider that, according to the CBO, the bill envisions Medicare spending per beneficiary growing at 4 percent per year over the next two decades; the average growth rate during the past 20 years has been 7 percent. That makes it likely that the bill would add to the problem of out-of-control entitlement spending, not address it.

Specifically, the measure is missing the independent commission envisioned in the Senate Finance Committee bill that would be empowered to make changes in Medicare subject to an up-or-down vote in Congress. That commission as drafted is far from perfect -- it wouldn't have power to change Medicare benefits, for one thing -- but it is at least a start at depoliticizing the process and introducing real cost controls.

A related sticking point is the proposed financing. The price tag is $1 trillion; that gets whittled down to $894 billion only by taking into account penalties paid by individuals without insurance and employers who don't offer it. It is paid for in significant part with a "millionaire's tax" -- a surcharge on individuals making more than $500,000 a year and couples earning more than $1 million. The tax code should be more progressive, but financing health care this way makes that revenue unavailable for other endeavors, most notably deficit reduction. House Democrats, deferential to organized labor, refused to draw on the most obvious source of financing: the current tax-free treatment of employer-sponsored health insurance -- a move that would not only bring in money but help slow the growth of health-care costs. The excise tax on high-value insurance plans contained in the Senate Finance Committee version of health reform is a better, if inelegant, approach.

Aspects of the House bill are preferable to the Senate Finance version. It takes a bigger bite out of Medicare Advantage programs and Medicare prescription drug payments. It provides more flexibility to implement, not just on a trial basis, delivery system reforms such as bundling payments to providers and setting up accountable-care organizations, groups of providers that would be paid based on the quality of their performance. It would cover more people, make coverage more affordable for those at the lower end of the income scale, and impose tighter rules on insurance companies participating in new exchanges to prevent them from cherry-picking healthier enrollees. In addition, the House measure would impose a mandate on employers to provide insurance or pay a penalty. The Senate Finance bill's incomplete version of that mandate would perversely discourage the hiring of poorer workers.

If you've noticed that we haven't talked about the public option in the House bill, that's not an oversight. For all the fury over the issue, it doesn't matter that much; the CBO estimates that the government-run plan would actually have slightly higher premiums. What does matter is the unpleasant fact that -- after laboring to find the money to pay for this massive expansion of federal health spending -- lawmakers face another quarter-trillion-dollar expenditure in the form of staving off planned reductions in Medicare payments to physicians. This is said to have nothing to do with health reform. But it has a lot to do with how much the country can afford to spend on health reform.

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