Health Care Editorial in New York Times

Health Care and the Deficit

Here is a basic truth about the deficit: In the long run, it cannot be fixed, without reining in spending on Medicare and Medicaid.

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Health Care
This year, Medicare, Medicaid and a related children’s health insurance program will account for more than 20 percent of all federal spending — higher than Social Security or defense. Unless there are big changes, by 2035 federal health care spending — driven by rising medical costs and an aging population — is projected to account for almost 40 percent of the budget.

Two bipartisan commissions have issued recommendations to sharply reduce annual deficits, in part through bold changes — some sound, others dubious — in the way health care is paid for. Here are some of the issues that Congress will need to evaluate:

COST-SHIFTING The most disturbing element of both reports is that, in their efforts to show quick savings, they shift much of the burden from the federal budget to individuals or, in some cases, to states. That may make the federal deficit look better, but it is a shell game that produces no real reduction in the cost of health care.

Both commissions would save the government significant money by forcing all but the poorest Medicare beneficiaries to pay higher premiums and co-insurance.

The White House commission, headed by Erskine Bowles and Alan Simpson, proposes to wring nearly $400 billion from health care spending between 2012 and 2020, of which the biggest single element — $110 billion — would come from increased cost-sharing by Medicare beneficiaries. The second commission, an independent panel headed by Pete Domenici and Alice Rivlin, seeks to save $137 billion from Medicare cost-sharing.

Forcing beneficiaries to pay more is a reasonable way to get them to think twice before undergoing an expensive test that may not be critically necessary. But there is a big risk that people on modest incomes might forgo needed care. Beneficiaries might have to pay hundreds or even thousands of dollars more out of pocket.

It would make sense to require wealthier older people to pick up more of the cost of their own health care. But almost half of all Medicare beneficiaries live on low incomes — below $21,000 a year for an individual and $28,000 for a couple. Cost-shifting must not be allowed to undermine the health or financial security of elderly or disabled Americans of modest means.

END OF A TAX BREAK The Domenici-Rivlin panel, the more aggressive on health care, would also phase out the exclusion that exempts workers from paying taxes for employer-subsidized insurance, a benefit that also encourages excessive use of medical care. The long-term gain in tax revenue could be huge — more than $3 trillion between 2012 and 2030 and almost $10 trillion by 2040.

The health care reform law already limits the tax exclusion for the most costly employer plans, and eliminating it entirely sounds like a good idea in principle. But it would increase the financial burden on middle- and lower-income employees. That is why they would need to have access to competitive insurance exchanges that will open in 2014 and, depending on their need, federal subsidies. Such subsidies could amount to roughly half of the tax revenues gained by eliminating the exclusion, but the net reduction of the deficit would still be large.

VOUCHERS FOR MEDICARE The Domenici-Rivlin panel has a far-reaching proposal to give Medicare enrollees vouchers to buy coverage from Medicare or a competing private plan offered on a Medicare exchange. The voucher would increase in value at roughly half the likely rate of medical inflation. If the cost of coverage rose faster than that, the beneficiary would have to pay an extra premium to cover the difference or seek a cheaper plan.

The commission believes that competition on the exchanges will cause insurance plans to find ways to lower premiums. It also believes beneficiaries will restrain their own spending. The panel projects savings from premium support and its near-term cuts and cost-shifting could be huge — more than $2 trillion through 2030 and more than $7 trillion through 2040.

We see considerable merit in having traditional Medicare and private plans compete for business, but only if the competition is fair. There would have to be tight regulation to require plans to accept all comers, to set limits to cost-sharing.

SPENDING CAPS The health care reform law already seeks to cap the growth in Medicare spending per beneficiary to roughly half the rate it has been increasing in recent decades. It empowers a new board to find savings should the target be breached, subject to Congressional veto. The Bowles-Simpson commission would expand that approach by placing a cap on total federal spending for health care — not just Medicare and Medicaid but the subsidies on new exchanges and tax exemptions. But the commission punts on what to do should the growth cap be exceeded, as many experts deem likely.

FIXING THE SYSTEM The best way to lower health care spending is to reform the dysfunctional health care system whose costs seem unrelated to the quality of care delivered. The reform law makes a good start, sponsoring research to determine which treatments are effective and which are not, starting pilot projects to change the way care is delivered and paid for, and setting up new organizations to rush successful approaches into wide use in Medicare and ultimately the private sector.

Neither commission goes much further, probably because reformers had already scooped up most of the plausible approaches. The White House commission wants to speed up the adoption rate for reforms shown to work in pilot projects, an idea we heartily endorse.

Lawmakers from both parties need to take a serious look at the commission’s recommendations. So far, we have not heard much more than the usual posturing from either side of the aisle. Meanwhile the Republicans are still vowing to repeal the new health care reform law or block its implementation. That is yet one more reason why their claims to fiscal rectitude are so unbelievable.

A version of this editorial appeared in print on December 12, 2010, on page WK7 of the New York edition.