President Obama's health care reform turns two this week. It's an imperfect law, but Republican alternatives cut health care spending solely by shifting expenses from government budget to family budgets
For Mitt Romney and Rick Santorum, ObamaCare is the ultimate evil. It reduces freedom and encourages dependency. It violates the Constitution. And it busts the budget by adding a trillion dollars to federal spending over ten years.
Not so fast, Democrats say. The Affordable Care Act, signed by President Obama two years ago this week, was originally projected by the CBO to reduce deficits by $132 billion over the 2012-2019 period. In February 2011, it said that reducing health care would add $210 billion to the deficit. (At the same time, the CBO also estimated, that the ACA would reduce deficits in the following decade by about 0.5 percent of GDP.)* Repeal the ACA, as every Republican candidate has promised to do, and the national debt will only grow.
There is a bit of card-shuffling going on here. The ACA's most important provisions--the ones that get to near-universal coverage by requiring people to have health insurance, expanding Medicaid eligibility, creating exchanges, and providing subsidies to low- and middle-income families--will cost about $1.1 trillion over the next decade. The ACA offset those costs by reducing payment rates for Medicare and Medicare Advantage and by introducing some new taxes and fees.
The basis for the Republican claim that the ACA increases deficits (insofar as there is one) is that, theoretically, you could separate the deficit-reducing provisions from the coverage-increasing provisions and just have the former. But that ignores the fact that this would never happen: you could never pass a bill that only cut Medicare spending and increased taxes--not while Grover Norquist is still drawing breath.
At the end of the day, however, this debate about whether the ACA increases or decreases deficits is a sideshow that obscures the real nature of federal budget debates. Most people think that higher deficits are bad and lower deficits are good. That's true in most circumstances, all other things being equal. But all other things are not equal.
Take the health insurance subsidies in the ACA, for example. What happens if you repeal the individual mandate and the subsidies? Government spending and deficits will go down. But many people who receive subsidies will buy insurance anyway, so their spending will go up. Some other people will elect not to buy insurance. But when they get sick, they will get care from clinics and emergency rooms, which will increase spending by nonprofits and county governments; the need to care for the uninsured will also increase insurance premiums for everyone else.
At the end of the day, eliminating the subsidies will simply shift costs from the federal government to individuals, businesses, and local governments. Total health care consumption may go down, but that's because people will go without health insurance and forgo necessary care.
Or take Medicare. The latest Republican plan (OK, it's technically bipartisan since Democratic Senator Ron Wyden's name is on it) is to convert Medicare into vouchers that you can use to buy a health plan from a private insurer or from the traditional Medicare program. But the key feature is that the value of the voucher will grow at a rate that is lower than actual health care inflation. Yes, that will reduce spending by the federal government. But it it will also increase spending on health care by the elderly (and, most likely, their working children). If people end up consuming less health care, it's because they'll be going without care they are currently entitled to under Medicare. It's hard to see how that's a good thing.
THE REAL ISSUE: CHEAPER CARE
In both cases, the fundamental reality is that people get sick and need health care. Lower government spending means higher individual spending, less health care, or some combination of the two. Actually, it's worse than that because private health insurance tends to be more expensive than government programs. According to the CBO, for example, shifting from Medicare to private insurers would increase the total costs of health care for the elderly by 41 to 67 percent. (Those are the total costs, not the share paid by beneficiaries.)
What really matters is not whether checks are being written by the federal government or by individuals. What matters is reducing the actual cost of delivering health care while maintaining or improving health outcomes. It certainly can be done, as shown by just about every other developed country in the world. (See this earlier post for some comparisons.)
But getting there will be difficult. It will most likely require the development and expansion of new mechanisms for paying health care providers that ensure accountability and eliminate the incentive to maximize revenues by running up procedures of questionable value. That is something that the Affordable Care Act at least tried to do through various new pilot programs and the creation of the Independent Payment Advisory Board.
Short of reducing the cost of health care, all proposals to reduce federal government spending on health care simply amount to shifting costs onto families and reducing access to care. That may make the federal budget look better, but it doesn't make ordinary people any better off. It's a little ironic that it's the anti-government party that is putting the federal government's accounting measures ahead of the real welfare of the American people.
*The latest CBO estimate is just for the insurance coverage provisions, not the entire bill.
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