–Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –

Today President Obama submits his budget outline to Congress, and, with it, a $634 billion fund for health care drawn from higher individual and small business taxes and lower reimbursements to medical providers.

Reform of our health care system is long overdue.  If you’re unemployed, or work for a small business that offers no health plan, or someone in your family has an existing illness known as a “pre-existing condition,” your main concern might be how to get health insurance.

As Obama said on Tuesday night in his address to the nation, “We can no longer afford to put health care reform on hold.”  But setting up a $643 billion fund and raising taxes in the middle of a recession isn’t necessarily affordable either.

In testimony yesterday before the Senate Committee on Finance, Congressional Budget Office Director Douglas Elmendorf presented options for controlling health care costs.  He warned that “reducing or slowing spending over the long term would probably require decreasing the pace of adopting new treatments and procedures and limiting the breadth of their application.”  That’s rationing by another name, not a comfortable concept to Americans. (To read the testimony in pdf format, click here.)

Mr. Elmendorf pointed to the current employer-based health insurance system, where health insurance premiums are untaxed income to workers, as one of the main causes of price increases.  He suggested replacing the tax exclusion or restructuring it, so that patients have more incentives to control costs.  In that way the purchase of health insurance would be similar to the purchase of home insurance or auto insurance, services that consumers appear able to purchase without major problems.

President Obama has said he will consider all proposals.  During his campaign, the centerpiece of his health reform effort was to set up a new health insurance plan, similar to the Federal Employees Health Benefits Program. It would be open to all, with “affordable” premiums and co-payments.

In addition, he proposed a new National Health Insurance Exchange to set standards and regulate private insurance underwriters. Those who could not meet the standards would close.

In a third provision, some employers who offer health insurance now would have to pay higher premiums in order to raise benefits to the level of the new public plan.  Those employers who don’t offer health insurance would be required to pay into the new plan, a new tax.

One way President Obama proposes to save health care dollars would be to encourage or require doctors and hospitals to use electronic health records.  Although privacy concerns have stalled this effort, it could save billions of dollars a year in medical error.  The stimulus bill allocates $20 billion to this effort.

Yet setting up an electronic data base raises many questions.  Can people opt out of the national database?   Should the federal government or individual states mandate one type of standard that can be shared between institutions? Can private companies be allowed to compete among themselves to offer the most convenient method to the medical community?  These questions need debate.

Obama plans to fund his $634 billion fund through higher income taxes on those making over $250,000 as well as limiting itemized deductions by 20 percent. This would be a substantial increase in tax for those households, as well as for small businesses who file under the individual tax code.

Yet even these numbers might be understated.  The insurance program for federal employees is of a higher quality and more costly that typical private-sector coverage.  Expanding health insurance and providing better care costs more money, not less.

Everyone agrees that health insurance needs to be easily accessible and portable, like auto and home insurance.  The question facing us is how to get there and how to pay for it.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.