Health-care budget realities

Before President-elect Barack Obama attempts to overhaul America’s health-care system and put us on the road toward “universal” coverage, he should have a chat with his new budget director, Peter Orszag.

As former head of the Congressional Budget Office (CBO), the agency responsible for estimating the cost of federal legislation, Mr. Orszag knows a thing or two about government spending. In particular, he knows the government can’t afford Mr. Obama’s health-care plan.

A pair of new reports on health-care spending from Mr. Orszag’s old agency reveal as much. According to the CBO, total federal spending on Medicare and Medicaid will grow from $720 billion a year today to $1.4 trillion in 2019. Taken as a share of the economy (GDP), government health-care spending will increase from 4 percent today to nearly 6 percent in 2019 – and 12 percent in 2050.

As a recent CBO report concluded, “If tax revenues as a share of GDP remain at current levels, additional spending on Medicare, Medicaid, and Social Security will eventually cause future budget deficits to become unsustainable.”

One might think the prospect of complete fiscal ruin would curb efforts to create yet another expensive entitlement program. But that’s exactly what Mr. Obama and Democratic leaders propose for health-care reform – more spending and mandates.

The centerpiece of Mr. Obama’s health-care proposal is the “public option.” Intended to provide government insurance to those who cannot afford private coverage, the “public option” would expand existing programs like Medicare and Medicaid.

Expansion of these beleaguered programs would only add to our mounting deficit. For instance, Mr. Orszag’s CBO looked at one option that would expand Medicaid to higher-income patients and found that it would result in an extra $7.8 billion in spending over the next 10 years.

CBO’s estimate in this case accounts for only an additional 1.7 million people on the Medicaid rolls. If we were to add every other uninsured American to government health programs, taxpayers would be on the hook for hundreds of billions of dollars more.

Such government spending is only the beginning. Mr. Obama wants to force all but the smallest companies to provide insurance to their employees or face a payroll tax of probably around 7 percent. This is known as “pay or play.” Also, providers would be required to cover everyone, regardless of pre-existing conditions or medical history.

These measures would result in higher premiums for all. Healthy people would pay more to subsidize the policies of high-risk applicants. Facing runaway premiums, many consumers would likely opt for the government plan, adding billions more to the taxpayer tab. This will ultimately crowd out private plans and move America down the path to a single-payer, government-run system.

Mr. Obama’s remedy for higher premiums is – you guessed it, more federal spending. CBO looked at one plan to subsidize individuals’ purchase of insurance and found it would cost the government $65.4 billion over 10 years. Another option that would subsidize companies facing high-cost claims would cost $752 billion over 10 years.

Confronted with this budgetary reality, supporters of government-run care are likely to say higher taxes are the price we must pay for universal coverage. But this assumes the only way out of our health-care crisis is more spending.

Not true, according to the CBO, which states that “the nation’s increasing spending on health care may not be improving the quality of that care or health outcomes.”

There are other ways to reform health care, but they require less government intrusion – not more. For instance, Washington could vastly expand access to health insurance by giving individuals the same tax benefits businesses enjoy when buying health insurance. Policymakers could also institute a refundable tax credit for individuals purchasing their own insurance. Both reforms would make costs more transparent and allow individuals to shop for the lowest price or the plan that best meets their needs.

Limiting rewards in medical malpractice cases would also reduce health-care costs. Excessive malpractice judgments cost providers and patients hundreds of millions of dollars every year. CBO found that capping damage rewards would add $1.3 billion in federal revenue over the next 10 years. For consumers, reduced rewards mean lower premiums.

As CBO’s reports make painfully clear, the federal government can’t sustain its current health-care commitments, let alone additional ones. Fortunately, the man behind these prophetic reports, Peter Orszag, has the ear of our new president. The question is whether Mr. Orszag will stick to his findings – and whether Mr. Obama will listen.

Sally C. Pipes is president and chief executive officer of the Pacific Research Institute and author of “The Top Ten Myths of American Health Care: A Citizen’s Guide.”

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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