Health Reform Without Cost-Cutting Isn't Worth It

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ER Productions / Brand X / Corbis

President Obama is pushing health-care reform for many reasons, and at different moments during the debate he has focused on different reasons. At times he has emphasized the skyrocketing health costs that are on track to bankrupt the country. At other times he has emphasized the promise of universal coverage. Lately he has shifted to the plight of the insured, who still face exorbitant out-of-pocket expenses and can lose their coverage if they get sick. But he has also tried to assure Americans that they'll be able to keep their existing insurance if they like it.

They're all persuasive messages, but they tend to drown each other out, especially now that the Administration is spending most of its time batting down wild rumors about death panels, enemies lists, socialized medicine and government takeovers of bank accounts. And only one of those reasons really explains why Obama has made health-care reform — or health-insurance reform, as he's now calling it — his overwhelming priority at a time when the economy still stinks and fossil fuels are still destroying the planet.

That reason is our out-of-control, highest-in-the-world, wiggety-wiggety-wack health-care costs. They're gobbling one-sixth of our economy, and without reform they'll devour one-third of our economy by 2040; the average family's annual premiums are on track to exceed $45,000 in 2008 dollars. They're already destroying businesses small and gigantic; unaffordable health-care liabilities are one of the main reasons GM and Chrysler went bust. And since half of all health care is paid for with tax dollars, these exploding costs are a fiscal, as well as an economic, nightmare. Medicare and Medicaid spending is on course to increase from about 5% of GDP today to about 20% in 2050 — the size of the entire federal government last year.

This is why Obama and his budget director Peter Orszag are so eager to "bend the cost curve" for health care — if they don't, it's hard to see how we're going to be able to afford a military or interstate highways or a social safety net or any other government services. Compared to health costs, the Iraq war, the financial bailouts, the stimulus package and even the long-term Social Security shortfall are minuscule fiscal problems.

The other arguments for reform are perfectly good ones. It's a disgrace that 46 million Americans have no coverage. It's an outrage that insurance companies get away with the shenanigans they pull to deny claims when their enrollees get sick. It's true that real reform would enhance the economic security of working Americans. But let's face it: there are lots of ways to try to enhance the economic security of working Americans. You do health care first because the status quo is unsustainable. The most pressing health-care crisis is that we're spending way more than any other country, and we're getting results that are no better and sometimes worse. And the good news, for reformers at least, is that numerous studies have shown that the system is riddled with wasteful and unnecessary treatment, which means there's plenty of fat to cut; Orszag has suggested that costs could be reduced by as much as 30% without any reduction in the quality of care.

But these days, Obama isn't saying much about cost-cutting. This is partly because most of his curve-bending ideas — computerized records to bring medicine into the 21st century, comparative effectiveness studies to identify unnecessary treatments, revamped incentives to reward quality rather than volume of care — would take more than a decade to start slashing costs, and the Congressional Budget Office (CBO) doesn't score bills for their impact on the federal deficit that far in advance. Obama's most prominent game changer — an independent panel to set Medicare reimbursement policies removed from political pressures — did not fare well under the conservative CBO scoring system either. The only proposal that really impressed the CBO was the so-called public option, which would pressure private insurers to cut costs to compete with government coverage, but is now on the chopping block thanks to political pressure from Republicans and centrist Democrats.

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