The cost equation--especially of doing nothing
DURHAM -- You can expand insurance coverage without controlling costs, but you cannot control costs without expanding insurance coverage.
The bill that passed the House on Nov. 7 is an example of the first possibility; a plan that sets up a reasonable market for individually purchased health insurance for the uninsured and expands Medicaid, resulting in 96 percent of legal residents being covered in 2019. Even though the Congressional Budget Office says the bill would reduce the deficit over the first 10 years, it unfortunately punts on the hardest decisions necessary to fundamentally slow cost inflation over the long term. However, such decisions could be made later because expanding insurance coverage substantially is a precursor to successful cost control.
Delays in the Senate and abortion's muddying the reform debate have increased the probability of doing nothing. One of the hardest things in evaluating public policy is to understand what doing nothing really means. If no reform is passed, it means three fundamental things.
First, uninsured persons will continue to receive some care, albeit late and likely of poorer quality and to the detriment of their health. And the cost of such care will continue to be paid for by everyone. Fundamentally addressing cost control with millions of uninsured who get some care is impossible.
Second, the inability to control costs will mean that private health insurance premiums will rise much faster than inflation. Over the next 10 years, private premiums will double if nothing is done. This should sound familiar, because premiums doubled in the past 10 years while wages rose by only 30 percent. If we do nothing, we will work harder for worse health insurance that eats up most wage growth because you cannot comprehensively address cost control with such large numbers of uninsured persons.
Third, the Medicare program will not be able to pay its bills as the Baby Boomers begin to retire into the program.
There are two intractable problems facing Medicare: The baby boomers had fewer children than their parents, and Medicare covers the oldest, sickest and most expensive members of the population. There is one addressable problem: the rate of cost inflation. While Medicare costs have risen at a slower rate than those for private insurance for the past 30 years, the two are linked. The same system of providers bills private insurance and Medicare. If you don't address cost inflation generally, it will hinder attempts to address it for the Medicare program. And vice versa. And you cannot address cost inflation in the system without expanding insurance coverage.
Doing nothing will be a disaster for our country. The House bill is not good on addressing long-term costs, but it is better than doing nothing because you must expand coverage to address costs. It does that. We could later address the cost issues. Preferably, we would expand coverage and address these long-term cost issues now.
Here are two suggestions that would change the House bill from one that expands coverage but avoids the hard choices to one that is a comprehensive effort to slow rising costs.
First, adopt the tax on high-cost insurance plans that is in the newly released Senate bill instead of the House income tax increase. Paying for reform with an income tax increase adds another source of revenue to a system that is unsustainable due to costs, and it won't address costs.
Second, adopt a serious Medicare advisory commission that has broad powers to address coverage decisions but most importantly to change Medicare payment away from current perverse incentives toward payment that rewards quality. Lessons learned will benefit the private insurance market.
Many criticize such a commission because it will result in reductions in Medicare spending over what they are projected to be with no change. Yes. Spending less than planned, if there is no change in the system, is the only way to slow the rate of cost inflation! If you are opposed to slowing the rate of inflation in Medicare, the only discussion left is how much higher the Medicare payroll tax needs to be.
These are not easy choices. We must act. There is still time to do not only something, but something very good.
Donald H. Taylor Jr. is an assistant professor of public policy. His blog www.donaldhtaylorjr.blogspot.com is available for discussion of this article and health care reform in general. This is part of a series of articles by Donald Taylor exploring aspects of the health care reform issue originally published in the News & Observer.