What healthcare reform 2.0 might look like

December 16, 2009

Let’s assume, for the moment, that the latest version of the shape-shifting U.S. healthcare reform legislation may not worsen U.S. finances in the short term. But do the deficit math, and it doesn’t reduce long-term spending enough. The curve won’t get bent.

The proposed legislation would reduce the U.S. budget shortfall by a cumulative $100 billion or so over the next decade compared with the current baseline forecast, according to the Congressional Budget Office (CBO).  And in the decade beyond that, the changes would reduce federal budget deficits by about one-quarter percent of GDP against the no-reform case.

For the long term, though, that’s not nearly enough. Budget deficits are likely to average somewhere near $1 trillion annually over the next decade, with long-term structural deficits of at least 7 percent of GDP (maybe much more), which is currently $14.3 trillion.

By comparison, the post-World War Two average deficit in the United States is 2 percent of GDP. Healthcare costs are currently projected to account for roughly half of total government spending, or nearly a quarter of GDP, over the coming decades.

To narrow the deficit, healthcare spending cuts would therefore need to be substantial. Unfortunately, the reforms currently envisaged don’t contemplate that kind of surgery. For instance, the money saved from big cuts in Medicare, the U.S. government’s post-retirement healthcare program, is earmarked for expanding coverage rather than reducing overall costs. Yes, the Senate bill is filled with all manner of pilot programs means to change the healthcare payment system and the incentives it creates for overuse of pricey premium. But whether these programs will eventually blossom is pure guesswork.

Here’s what isn’t guesswork: Pressures will eventually mount, whether from creditors of the United States or, if successive governments choose to print money to fund their deficits, from citizens weary of inflation. It’s hard to see how hefty healthcare cuts could then be avoided.

But maybe such a crisis will finally prompt some smart policy that moves America away from an unaffordable,  central planning approach. One possible result might be a healthcare system with a minimalist public safety net and lots of add-ons paid for by users. Or perhaps a more market-driven fully private insurance system with government subsidies for the poor. The CBO has actually scored approaches like these and found that they could help close the long-term budget shortfall, reducing total long-term government healthcare spending by half from current projected levels.

Unfortunately, today’s reforms are just kicking the cost problem down the road. It will be the next round of healthcare reform that has to explore more radical options.

7 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

I oppose Obamacare, plain and simple.

But, there are flaws in the current system that are not likely to be fixed entirely by market solutions. Consider the practice of health insurance companies denying coverage to folks with pre-existing conditions. From the perspective of an actuary working for an insurance company, it may indeed make perfect economic sense to engage in this practice. But from the perspective of society as a whole, do we really want a society where the people who need coverage the most are the least likely to be able to get it?

There are other similar flaws. My point is that fixing such flaws would probably require some form of government intervention – unless you can show me a model where it is in the economic interests of health insurance companies to provide affordable coverage to the sickest among us.

“Compassionate conservatism” is a phrase that has gone out of favor in recent years. But it is precisely such compassion that is required to address issues which the market does not. The solution need not be heavy-handed central planning in the mold of Obamacare. But we can’t just sweep these problems under the rug either, and the ‘smart policy’ you allude to cannot be left entirely to a private sector that has failed to fix some of the most vexing problems in our health care system.

Posted by Bill, Fairfax, VA | Report as abusive

Budget concerns are certainly an integral part of any spending discussion but at some point the people of this country, specifically their health care must become a priority. No one can argue that the single payer option does not work because there are plenty of successful templates to emulate. The insurance industries no compete strangle-hold on the health sector is not designed for the patients benefit. Fees are skyrocketing and benifits shrinking. Who can argue that. The oppostion is obviously fueled by the industry that has reaped mega profits and intends to continue to do so at the expense of the private citizen. Once the dollars become the focus then all other spending programs become part of the discussion. The biggest sacred cows being military spending, corporate and banking subsidies. Huge! Like arguments couched between socialism and capitalism only a program geared to benifit the people is labeled “socialist” as oppossed to the corporate/banking give aways that have been an accepted part of our deficit spending for decades. Only in a time where corporations are legal entities with rights and influence that far surpass that of the private persons interest would we be having this debate on whether the citizens should have a health care system devoid of profit driven priorities. I won’t widen this discussion any further by discussing corporate/banking influence on your representives concerning trade ect… but it is obvious that these influences play a part in every sector. Thank you.

Posted by M.D. Lindstrom | Report as abusive

Bill from Fairfax makes a good point. The problem is that is carries with it an assumption – the same assumption that got us into this mess: He writes that we have a collective responsibility – meaning you and I, or the Government, to provide coverage to “those who need it most” (whoever they are?). Secondly, government intervention can be understood in a number of ways. So let’s be clear about what is in principle and in fact appropriate “involvement” in the health cost/affordability issue.

The first problem is this, then: fundamentally, is it every tax paying, working American’s responsibility to assure that everyone has health care, and what level of care must they receive? Certainly, the writer (and I hope not the government) does not assume everyone should have the same coverage, and same access, regardless of cost? Because if he does, everyone in America must from the beginning, accept the premise that the standard of care for all will be reduced to an level working Americans are not going to tolerate. The cost cannot be born by the working citizens on the one hand, and they cost for a lower standard of care will not be accepted.

Is it not common sense that tells us that some will have better care, and others less, due to cost and incentive/ability to support a “charitable” need?

So we simply must understand that different levels of care and provision are necessary, as one initial principle of change and cost control – - which is the single greatest concern at this time.

Moreover, the government intervention to date has been a complete failure. Of a dozen or so major changes implemented by the feeble government to control costs over the last 15-20 years, not a single one has worked.

Real change – - (hear that?) begins with real market concepts and real competition. Intervention does not mean central planning. It means sound economic principles applied to health industry business and consumers. One may only consider Obama+big Pharma’s cozy relationship to realize one major source of trouble and hinderance at effective reform. And while no system is perfect (e.g. election/campaign finance reform), we can make incremental policy and business modifications.

Another matter is government priorities. No one speaks of this in terms of affordability. How many less important social/welfare programs are robbing funds from otherwise substantial coffers for subsidies for, say, catastrophic care policies.

And why is it that statist mentality – as opposed to charitable trusts and organizations – is what Americans look to for care of the poor. Perhaps a renewed national effort to restore charity can be supported.

Lastly, illegal aliens have simply soaked and sapped the system to a point that it cannot be sustained. The cost of enforcing and detaining criminals (at a rate of 10-1) would certainly pay for a simple, basic policy for most poor Americans.

“Or perhaps a more market-driven fully private insurance system with government subsidies for the poor. ”

Exactly … how about a simple rule that Govt pays 80% of costs for healthcare above 10% of family income for those making $50,000 or less, and pays in more for costs below that for those medicare eligible.

Save 2,000 pages, hundreds of billions, and many bureaucracies.

We need to kill ObamaCare or it will ruin healthcare in the US forever.

Posted by Patrick | Report as abusive

oops ‘medicare eligible’ should be ‘medicaid eligible’ and maybe could make it ‘SCHIP eligible’.

We need to focus on affordability as the #1 issue.

Posted by Patrick | Report as abusive

Somebody needs to hit the “reset” button on this whole debate. How could so many overfed, overpaid politicians waste so much time to produce so little and still expect to get paid by The People for what they have done?

The FBI’s going to find out sooner or later who took what by way of bribes from the “health” cartels for deliberately riding this issue into the ditch, and then, by golly they’re going to need emergency care in a big way.

Posted by HBC | Report as abusive

By the time this healthcare legislation passes there won’t be anything left in it worth passing.

Posted by Laz | Report as abusive