Network News

X My Profile
View More Activity

The Money Problem

PH2009082703095.jpgThe loudest problem in health-care reform is the public plan. But the biggest problem is finding the money to fund any plan. The House bills didn't solve the problem, as deficits explode after the first 10 years. The number $700 billion (over 10 years) is being thrown around quite a bit: That's where much of the Gang of Six and where some in the White House are. And it's much too low for a universal system with decent insurance.

There are three primary difficulties in finding the money for health-care reform. The first is that costs inside the system grow more quickly than incomes outside of the system. Imagine if your mortgage grew by 10 percent a year and your income grew by 3 percent a year. You might be able to handle that for a while, but eventually it would overwhelm you. That's the problem for the House bill, too. The surtax on the rich raises enough money to balance out the first 10 years, but after that, health-care spending accelerates beyond it. According to the Joint Committee on Taxation, the cost of the coverage expansion is increasing by 9 percent a year at the end of the first 10 years, while the revenues are only increasing by 5 percent a year. Thus, deficit explodes outside of the first 10 years.

Luckily, there is one thing that grows as fast as health-care spending: health-care spending. If you raise money inside the system, then the revenues keep pace with the costs. Which gets us to the second problem: Liberals (particularly unions) have taken the major pot of money -- the employer tax exclusion -- off of the table. If you can't touch that, then you can't do very much: You don't want to take all that money from Medicare, and you can only get so much from an excise tax.

The third problem is that the health-care reforms being considered simply don't save that much money. Just as the system is unaffordable now, it is unaffordable six years after reform. So the final possible solution would be a more radical transformation of the system that actually saved money. The Wyden-Bennett Healthy Americans Act fits the bill. But few senators (or representatives) support it, as the plan is too ambitious, and entails too much disruption of existing insurance arrangements, for their tastes. Single-payer is rejected for similar reasons.

The problem, in the end, is simple enough: The easy revenue options -- a small tax on the rich, or cuts in waste and abuse -- don't raise enough money. The hard revenue options don't have any support. And the solutions that would save you money are ruled too radical.

That, at least, is how it's been framed to me. But let's remember that this is also a simple question of will, and of priorities. Congress could tie the tax on the rich to the rise in health-care spending, thus creating more political pressure to control costs. It could convert the employer tax exemption to a progressive standard deduction, which would mean a tax cut for the majority of Americans and would easily fund the system. The problem is not insufficient money, or the relative growth in costs, or the savings. The problem is insufficient political will.

Photo credit: AP/Rick Bowmer.

By Ezra Klein  |  September 4, 2009; 11:23 AM ET
Categories:  Health Reform  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Why No One Pulls Triggers
Next: The Broken Brakes of Civil Discourse

Comments

What about linking the inclusion of the public option to an agreement to tax a portion of employer provided health care benefits?

Posted by: newjersey_lawyer | September 4, 2009 11:40 AM | Report abuse

Insufficient will to solve the main, and overwhelming, problem facing the American economy, government finance, and basic standards of individual and social justice . . . What exactly is one to say about our democracy?

Posted by: SqueakyRat | September 4, 2009 11:43 AM | Report abuse

Ezra,

if only you were around when Medicare was being thought up. And watch our you're going to tick off your liberal buddies if you suggest taxing cadillac plans. Its what SHOULD be done but we should also find a way around defensive medicine but that's not happening anytime soon either. Ya i know tort reform studies show that those states with tort reform don't see a decrease in cost, blah, blah blah. Maybe we need to do a combination of tort reform and provider payment reform that actually pays providers a set amount when a patient is treated as opposed to for each treatment he or she does. Capitation sounds good to me. If anyone has better ideas to reduce cost I'd love to hear them and so would Congress.

Posted by: visionbrkr | September 4, 2009 12:23 PM | Report abuse

Tax employer health care and watch the Dems loose the house.

Posted by: obrier2 | September 4, 2009 12:36 PM | Report abuse

"According to the Joint Committee on Taxation, the cost of the coverage expansion is increasing by 9 percent a year at the end of the first 10 years, while the revenues are only increasing by 5 percent a year. Thus, deficit explodes outside of the first 10 years."

Duh. You're late to the party, Ezra. This financing problem is reason enough for one to object to the current reform bills. Heck, it's not as if government finances are sound to begin with. These bills would just dig us into a deeper hole.

At the very least the reform plan should, as the president promised it would, reduce the burden of health care costs on the government and society - not add to them.

"Liberals (particularly unions) have taken the major pot of money -- the employer tax exclusion -- off of the table. If you can't touch that, then you can't do very much."

Exactly.

"The third problem is that the health-care reforms being considered simply don't save that much money."

Boy, all of a sudden opposition to the current reform bills seems the hieght of reason. Who'd have thunk it?

"The problem is not insufficient money, or the relative growth in costs, or the savings. The problem is insufficient political will."

I totally agree - it's not a money problem it's a lack of political will. The government already has the money to extend Medicaid or subsidies to the uninsured but pols lack the political will to reprioritize their expenditures. Surely amongst the trillions of dollars in revenue the government takes in every year there are tens or hundreds of billions going to pay for goods or services that Dems deem less vital than extending health care coverage to the uninsured. Why must the cost (largely) be paid for out of new taxes? Approximately 40% of working Americans pay no income taxe. How about shared sacrifice?

Posted by: tbass1 | September 4, 2009 12:47 PM | Report abuse

obrier2,

to who the republicans? People hate them more. For all this talk of "doing the right thing for the country" that would be the right thing to do. People don't have a clue what things cost when they're not involved in the process. A $10 copay breeds over-utilization. We can keep that and go the way of GM sooner or later or we can be accountable for what services we are provided.

Posted by: visionbrkr | September 4, 2009 12:49 PM | Report abuse

"The problem is insufficient political will."

This is a known constant. I've said this a number of times:

"Medicare does already have sufficient purchasing power to push most changes if it desired, and sufficient clout within government to align other smaller agencies that have some role in health care regulation. In assessing the impact of a greater role for government in health care, there needs to be an understanding of the failures of Medicare (just like the private market) so we don't end up just repeating them on a larger scale. My sense, as I've stated previously, is that the lack of political will in making the tough changes is a key issue, one that gives me great caution in any policy solutions that requires government to play a key role in cost control."

Read this original post and my comments back from March 2008. There's a reason I don't believe that government-led health care is an effective cost-control mechanism, and the lack of political will is a big one.

http://www.prospect.org/csnc/blogs/ezraklein_archive?month=03&year=2008&base_name=health_integration_and_cost_co

As an aside, there is another big issue that your "issue framers" have missed. Speech rhetoric matters. Obama speaks about cost control, not coverage. His legislative priorities are really the opposite: coverage now, with some structural changes to allow for cost control later. But he's not willing to risk support for a bill that's heavily about coverage, by including tough measures on cost control. He may not have had a "Money Problem" if he started with an honest argument about the morality of universal coverage in February when his approval rating was in the high 60's, and been more direct about the $1 trillion price tag associated with it. You can call me naive, but the alternative path he's taken ain't lookin' so hot.

Posted by: wisewon | September 4, 2009 12:53 PM | Report abuse

If it is so hard to fund a universal health care system, how do other developed countries or even developing countries do it?

Search "universal health care" on wikipedia and you will see a list of countries from large to small, developed or developing, all have had universal health care system. Germany even started it in 1883.

If Germany, France, Canada or even Taiwan and Singapore can do it, we, the USA with 300 million insured, should be able to enjoy a universal health care system, because the larger the insured pool is, the more sustainable the system gets.

I think we are way over-qualified for a Public Plan. What we don't have is the Congressional political will. Congress reflects more concerns for the insurance-medical complex than the American people. This is a critical failure of democracy. Shame on us to live with it and defend it!

Posted by: dummy4peace | September 4, 2009 1:01 PM | Report abuse

The fact that the left has no idea how to pay for this goes right to the argument that they don't understand the problem.

I've been hearing how it's evil insurance companies, greedy doctors and wasteful hospitals. The reality-impaired have all kinds of theories about how to redistribute care from the sick and old to the uninsured, but no clue about what really makes actual care expensive.

You're gonna try to outlaw the symptoms without ever understanding the cause.

Posted by: whoisjohngaltcom | September 4, 2009 1:19 PM | Report abuse

Watch out Ezra, you're going to get accused of subscribing to a "Green Lantern" theory of politics. But it's good to see a relatively mainstream blogger finally recognize that the warm & fuzzy parts of the liberal structure -- including Obama but also including unions, and traditional reform activists -- have significant culpability here as well.

As an additional question, is it REALLY too late for either the employer mandate or Wyden-Bennett to re-emerge as a last minute compromise? If we lose this thing, should the left coalesce around something like Wyden-Bennett (or even single payer) and make it a litmus issue along the lines of abortion for the GOP?

I am also waiting for one of the well-read health wonks out there to write something about the contingency plans if real healthcare reform fails (and I'm counting simple consumer protections against insurance co abuses as "failure" here). I am certainly not willing wait another 15-20 years for another bite at the apple -- what comes next to avoid a Clintonesque dead zone?

Posted by: NS12345 | September 4, 2009 1:38 PM | Report abuse

The thing that bugs me endlessly about this debate is the fact that we ALREADY have enough money sloshing around in the health care system to provide care for EVERYONE, even the currently uninsured, based on comparisons with every other industrialized country. Apparently the problem is the the bulk of the polity is made up of hopeless morons, who are easily sold the notion that somehow we have to be the ones to pay big pharma twice as much as other countries or otherwise there will be no drug innovation (critical drugs, like the one being promoted now on TV that will thicken your eyelashes), and that can be whipped up into a frenzy with the words 'government is bad.' I guess they deserve what they get, but the few of us left who can actually think certainly don't.

Posted by: exgovgirl | September 4, 2009 1:46 PM | Report abuse

exgovgirl,

its the same reason we have to pay off (ie defense spending, ie protection money) every industrialized nation that's not developing nuclear weapons. we're stupid. If we keep handing them billions they'll keep taking it. Its like a teenager who's been handed Daddy's credit card. If you give it to them its hard to take it away without them hating you. You have to wean them off it. At some point, the France's, Britian's, Germany's etc will have to fend for themselves and we have to cut the cord. Realistically at some point the cord will snap by itself and then we could all be screwed.

Posted by: visionbrkr | September 4, 2009 1:57 PM | Report abuse

wisewon,

Nice post. I agree with you that the government, through the example and market power of Medicare and Medicaid, already has the means to transform the commercial insurance market and control costs in both the public and private sectors.

I also agree that Obama made a political mistake in putting cost control ahead of expaning coverage and reforming the commercial insurance market. He seems to have belatedly come to the same conclusion. Unfortunately he's also decided, rather cynically, to go to war against private insurers. That takes a lot of gall after he shook them down for concessions and money for ads supporting his reform plan.

Posted by: tbass1 | September 4, 2009 2:12 PM | Report abuse

tbass,

he could care less about private insurers. He showed that by calling the Aetna CEO Ron Wilson (instead of Ron Williams) in his town hall in the white house. he had to have a scapegoat for all that is wrong and what better place to go. Everybody hates insurers who deny their claims. I've never heard anyone say "Thank God for my inusrer that paid my million dollars in cancer treatments". Sorry ain't gonna happen. Its better we come to the realization of that and move on.

Posted by: visionbrkr | September 4, 2009 2:17 PM | Report abuse

obrier2 writes Tax employer health care and watch the Dems loose the house.

Then they should lose the house the country is more important.

Posted by: DougHuffman | September 4, 2009 4:09 PM | Report abuse

Ezra, with all due respect, the problem is that health care is an expensive thing that everyone wants a lot of, but no one wants to pay for. And in particular, no one wants to pay for someone else's care, which is what insurance is all about, whether government- or privately-funded.

I agree with the poster who said that $10 co-pays breed over-utilization. Insurance should prevent financial catastrophe caused by medical catastrophe while still demanding a significant price for basic care. I believe that's the only way to keep costs in check.

And as a relatively high-income but also young person who also has tons of debt from having borrowed to invest in my education, I resent the "soak the rich" philosophy that permeates the conversation these days. First off, I may be high-income but it will be a while before I'm rich, if I ever am. I can't even afford a home in the city where I live (Seattle), and the government is talking about reducing mortgages for millions who could not exercise the restraint that I have in not buying a home.

Secondly, other than those who are truly incapable of paying anything, the people who are getting additional services from the government shouldn't get it at 100% expense to "the rich." The only rational behavior in a system which allows that is for the "not rich" to continue forcing higher taxes on "the rich" to pay for things that they want. And in turn, the only rational response from the rich is to eventually tell the non-rich to pay for their own services and either avoid taxes or stop working so damn hard.

And for the record, as the holder of an excellent healthcare insurance plan provided by my employer, I'm fine with paying taxes on it as long as all the unions have to pay taxes on theirs, too.

Posted by: mrowland1 | September 4, 2009 4:26 PM | Report abuse

that's right, mrowland1, I can't think of anything I'd rather do than see the doctor! I swear, if it weren't for high co-pays, I'd be hanging out with my doctor all, day, every day! Please! My goal is not to get *lots* of health care. My goal is to get well.

Overutilization exists because patients are demanding and doctors are prescribing on-patent drugs pushed and pushed by the pharm industry that aren't that much more helpful than generic ones, insurance companies prefer to boost their premiums on their clients rather than negotiating reimbursement downwards, everyone wants an MRI when they get a headache, and we don't have standard, consistent, believable lists of comparative effectiveness research that everyone is willing to accept when it comes to standards of care.

Have a public option that people like and use and has a lot of negotiating leverage, and a lot of these cost problems will resolve themselves.

Posted by: constans | September 4, 2009 5:20 PM | Report abuse

mrowland,

the kicker to all of this. if they were going to tax it they were going to "grandfather" in collective bargaining agreements. How much you wanna bet union contracts that are up in the not too distant future get very LONG to keep their gravy train going?

Copays at low levels are like asking your car insurance to pay for a tune up. The truly needy should be subsidized but they should regionally adjust those figures to make sure all our tax dollars aren't going towards someone that is just shirking their responsibility (again under the assumption that pre-ex is no longer an issue).

Also you want to see the insurance lobby get nasty? take the individual mandate off the table. Then their rhetoric will absolutely bring about 1994 all over again.

Posted by: visionbrkr | September 4, 2009 5:23 PM | Report abuse

Mrowland, basic care is the only thing we have that prevents medical catastrophes. Raising its cost is exactly the wrong way to go.

Posted by: SqueakyRat | September 5, 2009 1:26 AM | Report abuse

"Congress could tie the tax on the rich to the rise in health-care spending, thus creating more political pressure to control costs. It could convert the employer tax exemption to a progressive standard deduction, which would mean a tax cut for the majority of Americans and would easily fund the system. The problem is not insufficient money, or the relative growth in costs, or the savings. The problem is insufficient political will."

On this you and I are in total agreement.

And that doesn't happen very often :-)

Posted by: cautious | September 5, 2009 2:18 AM | Report abuse

""Also you want to see the insurance lobby get nasty? take the individual mandate off the table. Then their rhetoric will absolutely bring about 1994 all over again.""

The individual mandate needs to be the bargaining chip for the public option. No public option, no mandate.

Posted by: tyromania | September 5, 2009 2:42 PM | Report abuse

You said, in an online chat session, that healthcare reform was "deficit neutral." You just boldly asserted it, in answer to a question about how it would be paid for. This was about six weeks ago. So why are you now raising the issue of money? What's the problem? You are bobbing and weaving, constantly following each new administration line, each new tug. Kind of like a child's pull toy.

Posted by: truck1 | September 5, 2009 11:15 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company