Healthcare Reform May Not Cut Spending or the Federal Deficit

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Senate Democrats last week took a critical first step for U.S. President Barack Obama's sweeping healthcare overhaul when they successfully held off Republican efforts to reverse $460 billion in cuts to Medicare – money needed to expand coverage to tens of millions of uninsured Americans.

But as the political battle wears on this week, experts say the debate should turn its focus to one critical question: Will the legislation will put a damper on soaring healthcare costs or simply pile millions of people onto a system that already is threatening to drive the United States into bankruptcy?

Despite contentions by the White House that the bill is a necessary first step in efforts to reform an out-of-control medical system, most analysts are deeply divided over the long term implications of both the Senate and House bills for medical spending and federal deficits.

While both measures include the so-called public option – a new government entity designed to compete with insurers and reduce costs – any savings will be limited because Democratic leaders reduced the scope of the new program to win over reluctant colleagues.

Analysts say the focal point should not be the public option – which has been in the forefront of media coverage – but rather the fact that neither version diverges from the fee-for-service payment system, which encourages more demand for medical care.

"None of the bills so far would reduce total health-care costs as a percentage of the economy," David Walker, U.S. comptroller general from 1998 to 2008 told Bloomberg News. "If there's one thing that can bankrupt the country, it's health-care costs."

Reducing costs is not the only goal of health reform, but Democrats were elated when the nonpartisan Congressional Budget Office reported that the Senate package was fully "paid for" – containing enough spending cuts and tax increases to cover the cost of expanding coverage to 30 million additional people.

But as a whole, the CBO projects the Senate bill would not rein in the upward course of federal health spending. And the House bill, the CBO said, would push federal spending higher.

And while the bill crafted by Sen. Majority Leader Harry Reid, D-NV would not increase the nation's record deficits, it would not significantly improve them, either now or in the future.

Reid's bill would reduce about 2% from deficits projected to top $9 trillion over the next decade. And it would make only "small reductions" after that, the CBO said – about 0.25% of gross domestic product (GDP) – to deficits projected to soar to about 14% of the economy by 2035.

"The hope that health-care reform would take care of our budget problem has evaporated," Isabel Sawhill, a fiscal expert at The Brookings Institution told The Washington Post.

Even though the Senate managed to stave off Republican efforts to kill the Medicare cuts many budget experts remain concerned that lawmakers may not have the votes to keep the rest of the new taxes and spending cuts needed to pay for the package.

"I do give them credit for shooting for deficit reduction as a target," Robert L. Bixby, executive director of the nonprofit Concord Coalition, told The Post. "But this bill is not bending the cost curve. Even if these things work, it's not of the magnitude that is needed to prevent us from going over the cliff."

White House Budget Director Peter Orszag contends health reform was never intended to reduce deficits immediately, but rather to begin a series of actions that would prevent a fiscal catastrophe decades down the road.

"When someone says it's not guaranteed to work, my response is: Doing nothing is guaranteed to fail," he told The Post.

The House of Representatives passed its version of reform last month. Senate Democratic leaders have promised to pass the bill before the new year but Republicans want to delay the bill in hopes of stirring public opposition before the 2010 elections.

If the Senate passes a bill, the two versions will have to be reconciled in January and passed again by each chamber before being sent to President Obama for his signature.

While national opinion isn't unanimously in favor of the overhaul, a Thomson Reuters Corp. (NYSE: TRI) poll released last Thursday showed most Americans back a government-run public insurance but doubt anything Congress does will lower costs or improve care in the short term.

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