Healthcare Reform: The Bill Pays For Itself And Points the Way to Cost Control

(MoneyWatch)  To no one's surprise, the price tag for President Obama's healthcare reform bill falls between the estimated costs of the Senate and House versions. According to the Congressional Budget Office, the legislation will cost $940 billion over 10 years and will reduce the federal deficit by $138 billion during that period. But the reform bill could save much more in the long run because it will start moving the system down the road toward cost control. The CBO can't score that because it doesn't have enough information to measure the impact of the cost-cutting pilots in the bill.

Before looking at how much effect those initiatives might have, let's consider what the likely financial outcome will be if reform fails. As Consumers Union analysts point out, the annual cost of family coverage doubled from 1999 to 2009, when it reached $13,400 -- more than a minimum wage worker makes before taxes. In another decade, insurance costs are expected to double again, soaring past the reach of the middle class. Premiums will continue rising under reform, it's true, but at least we'll have a chance of limiting them if the legislation passes.

The implications for the federal budget are also immense. The Republicans like to claim that we can't afford reform, but the numbers make it clear that inaction would impose a far greater burden on taxpayers and patients. In 2009, the ratio of our national debt to our gross domestic product was 53 percent -- a manageable percentage if our economy recovers in the next few years. But in 2020, largely because of government healthcare spending, the debt-to-GDP ratio is expected to rise to an unsustainable 90 percent or more. The only ways to escape that trap, without reform legislation, are to print more money and release the demon of inflation, raise taxes to an unacceptable level, or cut government services, including Medicare and Medicaid. Any of these options would lead to a lower standard of living for most people.

So how would reform help our country avoid this dismal fate? First, let's bear in mind that the reform bill would pay for itself -- including the subsidies to help middle-class people buy insurance -- by cutting non-essential Medicare spending and raising certain taxes, primarily on the wealthy. Some reform opponents claim that Congress would never have the nerve to carry out the proposed Medicare cuts, and it's true that Congress' record has been less than stellar in this area. Yet as Paul Krugman points out, Congress has managed to reduce the growth of Medicare spending in the past. One example is the Balanced Budget Act of 1997, which slowed the expansion of provider payments. As for decreasing payments to Medicare HMOs, that shouldn't pose much of a political risk.

On the larger issue of restraining future cost increases, the reform bill would take a giant step forward by expanding coverage to 32 million more people. Assuming that provisions in the legislation are successful in increasing the supply of primary-care physicians, this should result in a great reduction in the number of ER visits and hospitalizations. Other policies adopted by Medicare or included in the reform bill could also cut the number of costly readmissions.

Finally, the legislation includes pilots and provisions that would try out various methods of increasing provider accountability for health costs. One would make a small percentage of Medicare hospital payments -- and potentially, physician payments -- contingent on achieving quality goals. There are also more direct approaches to cost containment, including accountable care organizations, payment bundling, and risk-sharing between providers and payers.

It's impossible to know which of these initiatives will "bend the cost curve," and by how much. But we have to try them, because the status quo is not an option.

Image supplied courtesy of Ibrahim Rustamov, Wikimedia Commons