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In health-care reform, no deficit cure
Debate rages over bill's impact on costs -- and how much that matters

By Lori Montgomery
Washington Post Staff Writer
Monday, November 30, 2009

As the long battle over health care is rejoined in the Senate this week, experts remain deeply divided over whether the legislation would rein in soaring health-care costs or simply add millions of people to a system that is already driving the nation toward bankruptcy.

Optimists say the $848 billion package drafted by Senate Majority Leader Harry M. Reid (D-Nev.) contains all the most promising ideas for transforming the health-care system and encouraging doctors and hospitals to work more efficiently. They say it would eventually reduce both private premiums and the swelling cost of government health care for the elderly and poor.

Even pessimists don't necessarily disagree. But they see scant evidence that those ideas would quickly bear fruit, and in the short term they fear that the initiative would leave Washington struggling to pay for a new $200 billion-a-year health program even as existing programs require vast infusions of cash to care for the aging baby-boom generation.

Those concerns were magnified by the release of Reid's bill, which the Senate will begin debating on Monday. Democrats were thrilled when the nonpartisan Congressional Budget Office reported that the package was fully "paid for" -- meaning lawmakers had identified spending cuts and tax increases sufficient to cover the cost of expanding coverage to 30 million additional people.

But the measure would not deliver on Democrats' most ambitious claims, the CBO found. While the package would not worsen the nation's record deficits, it would not significantly improve them, either now or in the future. Reid's bill would shave less than 2 percent from deficits projected to top $9 trillion over the next decade. And it would make only "small reductions" after that, the CBO said -- about 0.25 percent of GDP -- to deficits projected to balloon to roughly 14 percent of the economy by 2035.

"The hope that health-care reform would take care of our budget problem has evaporated," said Isabel Sawhill, a fiscal expert at the Brookings Institution.

Many budget experts also worry that lawmakers may not have the stomach to keep the new taxes and spending cuts intended to pay for the package. Republicans are already planning to offer an amendment to strike more than $400 billion in proposed Medicare cuts from the package, a move that would blow a huge hole in financing for the bill.

In merging bills drafted in committee, meanwhile, Reid significantly watered down two of the most important cost-containment provisions: a tax on high-cost health insurance policies that was opposed by labor unions and an independent commission that had been designed to automatically and methodically restrain Medicare spending. Senior White House officials have called those provisions critical, but House leaders are adamantly opposed to both.

"I do give them credit for shooting for deficit reduction as a target," said Robert L. Bixby, executive director of the nonprofit Concord Coalition, which promotes a balanced federal budget. "But this bill is not bending the cost curve. Even if these things work, it's not of the magnitude that is needed to prevent us from going over the cliff."

As the Senate prepared to return to the debate, the White House pushed back aggressively against such criticism, touting endorsements from outside experts and publicizing a new study by Massachusetts Institute of Technology economist Jonathan Gruber showing that the Senate bill would slash hundreds of dollars from annual insurance premiums in the individual market. White House Budget Director Peter R. Orszag questioned the expertise of the administration's critics, telling reporters in a hastily arranged conference call that their "loosey-goosey" anxieties were ill-informed.

In a separate interview, Orszag said health reform was never intended to reduce deficits immediately, but rather to set in motion a process that would avert a fiscal catastrophe decades down the road. The president will propose additional steps for reducing the short-term deficit in his next budget, Orszag said, though he declined to offer details. Calls are growing louder in Congress for a bipartisan commission to rebuild the tax system and cut spending on Social Security, Medicaid and Medicare, and Obama has expressed support for the idea.

But with health costs poised to swamp the federal budget, Orszag said, such additional efforts would be almost pointless without reform.

"The legislation is reflecting all the ideas that have been put forward in health policy circles for years and creating a feedback-and-continuous-improvement loop that will allow us to learn as we go," Orszag said. "When someone says it's not guaranteed to work, my response is: Doing nothing is guaranteed to fail."

Orszag and Nancy-Ann DeParle, Obama's top health aide, were particularly critical of doubts about Medicare savings, noting that similar cuts to the program enacted in 1997 exceeded expectations. Lawmakers eventually scaled them back, but only because the federal budget was in surplus, a situation that is unlikely to recur. Meanwhile, DeParle said critics are ignoring other major reforms, such as a plan to charge wealthy seniors higher premiums for prescription drug coverage under Medicare.

"Bills have been vetoed over stuff like this," she said. "Somehow, people have gotten inured or numb to the big, significant changes in these bills."

Controlling costs is not only a fundamental goal of health reform, but it is also critically important to the politics of the Senate debate, in which a handful of centrist Democrats and one or two moderate Republicans are likely to decide the fate of Obama's signature domestic initiative.

But the CBO has attached only modest savings to some of the administration's favorite reforms, such as computerizing medical records and studying the effectiveness of treatments. Budget analysts found that expanding preventive care would actually increase costs.

As a whole, the CBO projects that Reid's bill would not change the trajectory of federal health spending. And a competing House bill, the CBO said, would push federal spending higher.

Obama's more conservative critics accuse him of "a big bait-and-switch," as Andrew Biggs of the American Enterprise Institute put it. "They said the only way to fix the budget is to cut health-care spending. And they come out with something that increases health-care spending. If it weren't such a big deal, it would be a joke."

White House officials and their allies counter that the CBO's estimates are too conservative. Harvard health economist David Cutler, a reform advocate who advises the CBO and is a longtime friend of CBO Director Douglas W. Elmendorf, said the legislation takes careful aim at inefficiencies that account for as much as 25 percent of costs at a typical hospital. Even limited success would have a dramatic impact, he said.

"But Doug will say, 'Don't they have incentives to get rid of it already?' So he'll give you zero credit for reforms that attack more than a quarter of hospital spending," Cutler said, admitting frustration. "No one can say who's right or who's not right. But they have a point of view, and I actually believe their reading of the evidence is incorrect."

Even some staunch reform advocates concede, however, that the ideas are unlikely to produce fast results. Brookings Institution health policy expert Henry Aaron, one of 23 economists who endorsed aspects of the Senate bill in a letter widely touted by the White House, said the measure "is necessary but not sufficient for dealing with our long-term budget problems."

"It was foolhardy to suggest that those changes were going to come easily or quickly," Aaron said. "What we're dealing with is a huge industry, and the truth of the matter is we don't really have the levers to bring about a fundamental transformation in that system."

Another signatory, University of Chicago economist David Meltzer, encouraged skeptics to view the Senate bill as a necessary first step in a reform campaign likely to take decades.

"This is like turning the Titanic," Meltzer said. "I view this as some turns in the right direction."

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