Last year, when he was still the head of the independent Congressional Budget Office, Peter Orszag used to warn bleakly that the rising costs of health care would, if not subjected to radical reform, one day bankrupt the government.
During the past few decades, these costs have risen at a consistent 2.5 percentage points above the growth rate of the economy. Projected out to 2050, he reckoned, Medicare and Medicaid (the government schemes that insure the elderly and the poor) would together consume some 20 percent of America's GDP, almost as much as the entire federal budget of today.
Perhaps Orszag, now the White House budget director, is about to storm out of his grand new office. For the health bill that this week moved a big step closer to President Obama's desk fails -- not completely, but very largely -- to address the government-exploding problem of cost inflation.
Instead, its focus rests squarely on the long-cherished Democratic Party goal of making sure that virtually everyone in America has some form of health coverage; at the moment, more than 46 million people have none. Even on this score, the plan that finally emerged from the Senate Finance Committee last week looks incomplete (by 2019, 25 million people are expected to remain uninsured), is likely to cost much more than has been claimed, and is paid for with hypothetical savings that are sure to be found wanting.
Obama and his team will naturally declare victory if any health bill at all makes it out of Congress, as it now looks rather more likely that one will. They have some grounds for doing so. Anything that mitigates the obscenity of so rich a country leaving so many people without coverage will be a change for the better. But the bill also looks likely to represent a terribly wasted opportunity. Perverse incentives constantly drive up the costs of American health care, and the legislation will do little to remove them.
Obama and his Democratic colleagues on Capitol Hill are in grave danger of throwing away a rare chance. Health care entitlements are by far the biggest chunk of America's out-of-control budget, and it will probably be another decade, perhaps two, before anyone again dares to tackle them. A president with a big personal mandate, solid majorities in both chambers of Congress and a silver tongue ought to have been much braver.
Flaws in the legislation
That braver president could have demanded far more. The worst flaw in the Finance Committee's bill is its failure to address the way that providers of health care are paid. Most payments to doctors and hospitals are made on a "fee-for-service" basis -- which means that, unconstrained either by medical necessity or value for money, the industry's revenues rise with every test it does, procedure it carries out and prescription it writes.
Yes, the bill provides funds for research into electronic record-keeping, comparative effectiveness research and other good things. But it should mandate these practices, not just encourage study of them. None of the five different bills that have been passed by various House and Senate committees and are now on the way to being melded into a single compromise version includes anything like the sort of root-and-branch overhaul that would see health care paid for by results.
Nor do any of the bills do anything much to tackle the other big distortion in how health care is paid for -- the tax exemption for employer-provided private health insurance. By subsidizing the health plans of those lucky enough to have them, this encourages overconsumption and amounts to a distorting taxpayer-funded subsidy for the well-off. The latest bill merely sets a very high cap (of $8,000 per person, or $21,000 for a family) on this exemption, and the House will try to water down even this feeble effort at the behest of the unions whose members enjoy some of the most lavish policies.
What was produced last week was not the final outcome; the legislation will change as the work of reconciling the different versions of the bill continues. There is no shortage of good ideas that might yet find their way into the final one. But time is running out.
