Let's Pay Today

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Today, the Senate Finance Committee released a 50-plus page release of options to pay for comprehensive health care reform. The options are divided into those reforming the Medicaid and Medicare payments systems, those modifying current health care tax expenditures (particularly the employer exclusion), and those imposing taxes on certain unhealthy items such as alcohol and sugar-sweetened soft drinks.
 
These proposed offsets are quite important, not only because they offer a menu of choices from which politicians can choose when writing legislation, but also because they signal Congress’s dedication to fully-offset the costs of their health care plan.
 
This is not necessarily convention wisdom in Washington. A couple month ago, a coalition of 30 organizations including the Chamber of Commerce, AFL-CIO, AARP, and American Medical Association suggested that health reform should not be subject to pay-as-you-go budget rules, arguing that health reform would:
 
“…reduce the rate of growth of both federal and private health care expenditures, and will thus improve the fiscal health of the nation. While the cost savings from improving the efficiency and quality of health care will be significant, many of the anticipated savings will be realized in the long term, and may thus not be evident in a ten year budget window.”
 
So if broad delivery system reforms can reduce health care costs by enough to finance reform over the long-run, why worry about paying for it? Well, here are a few reasons:
 
- Uncertainty. Comprehensive health care reform will have both components that increase costs and that decrease costs, but the former is far more certain. We know that expanded coverage will cost money, and we know, within a reasonable range, by how much. The savings, although they could be huge, are far less certain. For example, it is unclear whether more preventative.
 
- Unsustainability. Medicare and Medicaid are on an unsustainable fiscal path, and threaten to consume the entire budget. Without a doubt, we need to lower their costs over the medium- and long-run. If all the savings achieved in these programs is shoveled back into other health care spending, it will do nothing to move us back toward a sustainable path. True, more people will be covered – and that is a good thing. But we will have done nothing to improve the fiscal picture or maintain the financial integrity of these programs. Finding direct offsets for the costs of health care reform will allow much of the savings to be used to actually slow the growth of these unsustainable programs.
 
- Leadership. Changes to Medicare, Medicaid, and the Tax Code can help encourage system-wide cost reduction. Payment reforms in Medicare can serve as an example (and competitor) for private insurance companies, limits to the employer exclusion can encourage buyers to shop for cheaper insurance, and taxes on soft drinks can reduce the incidents of obesity.
 
- Generational Equity. Even if we are able to slow health care cost growth, we won’t stop it. And the combination of this growth, population aging, and continued debt accumulation will mean that future tax payers will have to finance a bigger government – especially to pay for Social Security, Medicare, Medicaid, and interest on the debt. If we can shift some of that future burden to today, or at least minimize any increases in that burden, we should. Paying for today’s policies today will do this.