Obama Health Overhaul May Fail to Cut Spending on Medical Care

By Catherine Dodge and Nicole Gaouette

Dec. 4 (Bloomberg) -- White House Budget Director Peter Orszag says the medical-system overhaul now being debated in the Senate puts in place “crucial steps” to help slow the growth of U.S. health-care spending.

As the lawmakers struggle to reach consensus on the nation’s most far-reaching health legislation in four decades, some economists and analysts don’t share that confidence in either the Senate or the House bills.

“None of the bills so far would reduce total health-care costs as a percentage of the economy,” said David Walker, U.S. comptroller general from 1998 to 2008. “If there’s one thing that can bankrupt the country, it’s health-care costs.”

The bills would expand coverage to millions of the uninsured. Yet neither measure definitively moves away from the fee-for-service payment system, which encourages more care, Walker said. While the measures call for a new government entity to compete with insurers and curb costs, the impact is likely to be limited because Democratic leaders scaled back the so-called public option to win over reluctant lawmakers.

And both measures call for hundreds of billions of dollars in savings from Medicare, the federal insurance program for the elderly, an idea some Republicans dismiss.
“We’re going to have to reduce Medicare spending by about $400 billion over a 10-year period to get the math right,” Senator Lindsey Graham, a South Carolina Republican, said on ABC television’s “This Week” on Nov. 29. “We haven’t reduced Medicare spending by 40 cents, so that’s not going to happen.”

18% of GDP

A report last month by the chief actuary at the agency overseeing Medicare found that the $1 trillion bill passed on Nov. 7 by the House would boost spending through 2019 by 0.8 percent more than if no overhaul were carried out.

Unchecked, the money Americans spend on insurance, hospital bills and medicine -- now about 18 percent of the gross domestic product -- will be a third of the economy in 25 years, the Congressional Budget Office says.

Orszag and Nancy-Ann DeParle, the White House health-reform coordinator, last week sought to blunt the criticism, in a conference call with reporters. DeParle said the Senate bill “will have a big impact on the growth of health spending.”

Orszag cited a proposal in the $848 billion Senate bill to tax high-end insurance plans, which may encourage companies to offer less-expensive policies. He singled out studies to determine the most effective drugs, devices and treatments, as well as incentives to promote quality care over more care.

‘Aggressive Pilot Projects’

“What the legislation reflects is an aggressive set of pilot projects to emphasize quality,” he said.

Both bills fulfill Obama’s promise not to raise the federal deficit. The CBO said the House and Senate measures would each reduce the budget gap by more than $100 billion.

A Nov. 27 analysis by economist Jonathan Gruber of the Massachusetts Institute of Technology found that families would save at least $500 a year on insurance premiums in the non-group market under the Senate bill.

Days later, a CBO study concluded that while Americans in the nongroup-insurance market -- the one most affected by the overhaul -- would see premiums rise, those increases would be largely offset by government subsidies.

That bolstered President Barack Obama’s vow in a Sept. 9 address to Congress that his plan “will slow the growth of health-care costs for our families.”

Still, there’s a difference between lowering individual insurance expenses and curbing the growth in health-care spending, said Robert L. Laszewski, an Alexandria, Virginia- based consultant to the insurance industry.

‘Gutless Wonders’

The CBO study doesn’t allay concern over rising medical spending, said Uwe Reinhardt, an economics professor at Princeton University, who backs the legislation. While the Senate bill lays the groundwork to slow spending growth, Congress would need to make many more tough decisions that could take years to have an impact, Reinhardt said.

“They are a bunch of gutless wonders,” he said. “They can’t cut any spending.”
The Senate bill is better at controlling spending, economists say, and that sets up a clash when House and Senate lawmakers meld their legislation.

House Democrats rejected the excise tax on pricey insurance plans, saying consumers would end up paying. They opted for a surtax on millionaires, which is unlikely to curtail health spending.

Cost-Cutting Commission

The Senate version also gives more power to a Medicare commission to limit costs. If Medicare spending exceeds target growth rates, the board would propose ways to scale it down. The health and human services secretary would implement the proposals unless Congress passed legislation reducing growth to the target rate.

Victor Fuchs, a Stanford University economist, said much of the congressional legislation shifts spending from one group to another. Prohibiting insurance companies from excluding those who are already sick increases premiums for healthy people, said Fuchs. Mandating that businesses offer coverage, as the House bill does, will shift costs to workers.

Reinhardt said the battle to contain costs will continue.

To “get that growth curve down in my view is a decade-long fierce campaign that may not be winnable,” he said.

To contact the reporters on this story: Catherine Dodge in Washington at Cdodge1@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net