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A Question of Priorities

As we speak, the Senate is toiling to cut the health care reform bill from $1.6 trillion to $1 trillion over 10 years. Health economist Uwe Reinhardt puts those numbers into context:

A price tag of $1.6 trillion seems immense if one contemplates the figure in the abstract. It is, however, only about 4 percent of the total cumulative health spending of $40 trillion, the amount government actuaries now project for the decade from 2010 to 2020. That is also less than the 6 to 7 percent that total national health spending has increased each year in the past decade.

And $1.6 trillion is only about 1 percent of the amount of G.D.P. that America can reasonably be expected to produce in the next decade (about $150 trillion to $170 trillion).

That 1 percent would not be lost to G.D.P., of course, because health spending is part of G.D.P. Rather, it would be a diversion of G.D.P. — away from other uses, and toward providing the otherwise uninsured with the peace of mind that comes with health insurance and access to timely health care. It would represent merely a change in the composition of G.D.P.

That last is an important point. The president has declared that health reform will be paid-for. The relevant committee chairmen have agreed. This isn't a question between borrowing $1 trillion or $1.6 trillion. It's a question of spending priorities. The president, for instance, has proposed limiting the itemized deduction rate to 28 percent for taxpayers making more than $250,000 (the rate for most of us is between 10 and 15 percent). This would raise more than $300 billion over 10 years.

But the Senate has been unimpressed by the proposal. A world, however, in which we cut coverage to bring costs under $1 trillion but leave the itemized deduction, is a world in which we have explicitly decided that we would prefer to spend that $300 billion helping wealthy Americans lower their tax bills rather than helping low-income Americans afford health insurance.

By Ezra Klein  |  June 26, 2009; 10:31 AM ET
Categories:  Health Economics  
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Sorry. The argument is that the US spends more (nearly 2x of GDP) on health care. We get no better care. Refrom means (to me) spending the same we do now to cover more people. If there is a shift in that spending okay. For example, if my employer provided care costs go down, then I can pay a tax to cover more people - I net out the same. That is okay.

Simply expanding coverage by tax is not okay. Our system is not sustainable now, adding more people is not a solution.

That is why I have the mantra of reform before expansion. Show the savings then use the savings.

Posted by: sailor0245 | June 26, 2009 10:58 AM | Report abuse

I am fully in favor of progressive tax changes to provide meaniningful universal care, but sailor0245 is right in that the idea that MORE net $ are needed for the health care system sticks in the craw, given the disconnect between the % of GDP we now spend vs. other nations. It's unfortunate there is not a way to efficiently capture the exisiting payments and redeploy them into a single system which would be well financed enough to provide full, efficient care for all. My utopian solution: Divide total employer payments by total payroll, and impose that percentage as a new employer payroll tax, and divide total personal payments by total income, and impose that as a new income tax surcharge. Adjust the Earned Income Tax credit to compensate low earners for the additonal tax, and pay for that adjustment with things like repeal of the Bush upper end tax cuts, the charitable deductions limitations, and eliminating outrageous deductions like the interest/tax deductions for second homes and the gambling loss deductions. Give everyone a voucher to use in a health care exchange, with all participating plans required to provide the same basic package of care. (Hey, a girl can dream, no?)

Posted by: exgovgirl | June 26, 2009 11:19 AM | Report abuse

IANAE, but Reinhardt is apparently an optimist on the economy, especially if he expects us to have produced 150-170T over the next ten years. That's averaging ~16T a year, which is 15% higher than it currently is. I think he's playing the "large denominator" game, which is fine, whatever.

Posted by: Klug | June 26, 2009 11:31 AM | Report abuse

the economy is not goign to grow according to predication. We now have a trillion dollar debt, growing daily and no plan to pay it back.
So putting a health care plan together without knowing how to pay for it is crazy. But there they go again.
We don't need INSURANCE. We need CARE.
They aren't interested in expanding CARE, they seem only interested in expanding our dependence on government. And that is sad.
And there is NO REASON to increase ANY taxes.
Get washington to cut spending every where else to pay for this.

Posted by: atlmom1234 | June 26, 2009 11:47 AM | Report abuse

"A world, however, in which we cut coverage to bring costs under $1 trillion but leave the itemized deduction, is a world in which we have explicitly decided that we would prefer to spend that $300 billion helping wealthy Americans lower their tax bills rather than helping low-income Americans afford health insurance."

I'm in favor of the deduction cap, but the statement above isn't fair. There's an argument that the deduction encourages more giving, and therefore capping that deduction would cause people--especially the wealthy who are most affected by it--to cut back on charitable donations. So one could say instead that by refusing to adopt the cap we are "explicitly decided" that we want to continue present incentives for the very wealthy to give to programs that help others.

I think the fears of lowered giving are overblown, and even some marginal drop in donations would be worth trading for real and much needed health care reform. But the concern that changing the deduction could plausibly have an effect on charitable giving should be addressed, not just dismissed as a refusal to lower the tax bills of the wealthy.

Posted by: dasimon | June 26, 2009 11:48 AM | Report abuse

Myth - "It will be very expensive to get good health to everyone."

Fact - Actually there's a way we can have better universal health care at no more than we are now paying (see 5. below). Here are the facts (cf.

1. We waste $100 - $200 Billion a year on the high overhead of insurance companies.
2. We waste $200 - $300 Billion a year on doctors filling out forms for insurance companies.
3. I don't know the compliance cost of patients fighting with insurance companies, but it must also be in the 100's of Billions.
4. We pay the highest drug cost in the world to drug companies that spend twice as much on profit and three times as much on "marketing" as they spend on research. This is about another $100 Billion each year.
5. Because of the above, we could give Super Medicare (few limitations, no co-pays, no deductibles and complete drug, dental & mental coverage) to everyone at no more cost per person than we are now paying.

Other countries with single payer systems get better health care as measured by all the basic public health statistics and they do it at less than half the cost per person. If we build on our rotten system, we will get a health care system with rotten foundations.

Posted by: lensch | June 26, 2009 1:22 PM | Report abuse

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