When Speaker Nancy Pelosi unveiled the revised House Democratic health care bill last week, the Obama White House hailed it as a “critical milestone” in the process. No doubt senior administration officials were relieved to see signs of “momentum” toward passage of something. But if the president really meant what he has said about health care policy throughout this year, his administration would be working to defeat the Pelosi bill, not supporting it.
On Sept. 9, the president addressed a joint session of Congress and said the plan he is pushing would cost “around $900 billion over 10 years.” During August, at many town hall meetings across the country, large numbers of Americans had expressed serious reservations with the level of government spending and debt projected to occur in coming years. The president's statement was aimed at assuaging those fears by imposing a fixed budget on the congressional process. Indeed, after the president's speech, it was assumed by all concerned that no health care bill costing more than $900 billion would be acceptable to the administration.
Then, last week, along came the long-awaited revision to the House's July bill. The Speaker asserts that the new version stays within the president's $900 billion budget, but that is plainly not the case. The Congressional Budget Office estimates that the Medicaid expansion, the new subsidies for insurance premiums in the exchange, and the tax credits for small businesses offering coverage will cost $1.055 trillion over 10 years. In addition, the bill has scores of other spending provisions that would add to the government's costs. There's an expansion in the program that subsidizes the premiums and cost-sharing for low-income seniors, costing $13.5 billion over a decade. There's also a new program to pay primary care physicians more in Medicaid ($57 billion), increase the Medicaid matching rates in 2011 ($23.5 billion) and much, much more. All totaled, these other spending provisions add well over $200 billion more to the bill's total spending.
The only way House Democrats can claim to stay within the president's stated budget is by ignoring the non-coverage spending in the bill and by netting the cost of the coverage expansion with new taxes collected from those who decline insurance and employers who “pay” rather than “play.” But this kind of accounting makes no sense. If the spending budget set by the president can be met by netting out taxes, it's essentially meaningless, because any level of expenditure could be acceptable if coupled with an offsetting tax increase. That's not what the president meant to convey in his speech. And Democrats have yet to explain what could possibly justify all of the other spending in the bill.
Then there's the issue of physician fees in Medicare. The “sustainable growth rate” formula calls for a 21 percent cut in physician fees in 2010, which no one supports. However, the 10-year cost of full repeal is nearly $250 billion. In July, House Democrats proposed to include a full repeal in their health care plan, along with scores of other Medicare provisions. Now, however, they want the SGR repeal to pass in a standalone bill so they can claim the costs of health care reform are lower. It doesn't matter to taxpayers if Congress passes all of this in one bill or two. The total cost is the same either way.
Overall, then, the House plan, including the SGR fix, is to spend about $1.5 trillion over the period 2010 to 2019 on health care, well in excess of the $900 billion budget the president promised to the American people.
In his September health care address, the president also said that “we've estimated that most of this plan can be paid for by finding savings within the existing health care system.” But the House bill imposes a new income tax surcharge on filers with incomes exceeding $500,000 if they are single or $1 million for couples. This provision would increase taxes by $460 billion over 10 years, according to the Joint Tax Committee, by far the largest “pay-for” in the House bill. So, instead of financing new coverage from efficiency and savings within health care, the House bill would pour hundreds of billions of dollars of new money into the current system. CBO estimates that this additional revenue and other non-health “pay-fors” will push the federal commitment to health care up nearly $600 billion over a decade.
The president spent much of the first half of this year promising that a health care plan would “bend the cost curve.” Last week, White House Budget Director Peter Orszag stated in a blog post on the Office of Management and Budget Web site that the administration is banking on two provisions to bring about this dramatic slowing of the escalation of health care costs. The first is the suggested new tax on high-cost insurance plans. The Senate Finance Committee approved a provision to impose a tax on plans with premiums exceeding $8,000 for single coverage or $21,000 for family coverage. By all accounts, the incidence of this new tax will largely fall on high-cost insurance enrollees, which is why union opposition is intense. The second provision would empower an independent commission to propose and implement payment reforms in Medicare. There are real questions about whether these provisions are the “game changers” claimed by administration officials. Regardless, neither is in the House bill. The House did include an independent review of regional disparities in Medicare payment structure, but the mandate is very limited, and certainly is not aimed at cost control. CBO estimated the provision would have no effect on the federal budget.
So what does the House bill do to cut costs? Orszag touts the inclusion of more bundled payments, incentives for hospitals to cut back on preventable readmissions, and other similar changes. But these are minor adjustments that are doomed to get watered down as time passes. In the main, the House bill would simply reduce payment rates in Medicare and Medicaid to save money, including large cuts in reimbursement levels for hospitals, nursing homes, and home health agencies. These cuts are not calibrated to reward quality or encourage more integrated models of care. They are applied across the board. And they certainly do not constitute delivery-system reform. On paper, they appear to reduce Medicare's per capita cost growth rate. But if payment rates were the answer to the cost problem, it would have been solved long ago.
The president built high expectations at the beginning of this year that health-care reform would finally tackle the difficult entitlement and cost issues necessary to building a sustainable system of insurance coverage. But the House plan has devolved into a large tax increase (about $725 billion over 10 years) and entitlement expansion, with very little by way of “reform.” It's not too late for a serious course correction. But if the president and his aides continue to signal that House bill is acceptable, they will never be able to deliver the real reform the president has promised.
James C. Capretta is a Fellow at the Ethics and Public Policy Center. He served as an associate director at the White House Office of Management and Budget from 2001 to 2004.